Anyone familiar with commercial real estate developer Combined Properties knows the District-based firm has an affinity for strip malls in the Washington area. It has 23 of them scattered from Lanham to Chantilly.
But on the other side of the country, the firm is making a name for itself developing retail projects that are paired with residential units, such as Kings Road in West Hollywood, Calif. Combined is now testing its mettle in mixed-use locally with the redevelopment of two of its shopping centers: Penn Daw Plaza in Alexandria and Fairfax Circle Plaza in Fairfax.
Integrating a housing component into existing retail poses all sorts of challenges. Obtaining zoning needed for development is a lengthy process. And even once the residential units are built, there is no guarantee consumers will snap them up. Developers, enticed by low vacancy rates and steady job growth in the Washington area, are flooding the market with rentals, heightening competition.
Combined Properties President Katherine D. Roberson contends that even if all the rentals in the pipeline are built, there will still not be enough supply to meet local population growth. Timing development to avoid coming out of the ground with everyone else is key. Besides, she said, there is a significant enough shift in consumer trends to make a compelling case for mixed-use properties.
“Apartment rentals are a lifestyle choice for the Gen. Y population, whereas Boomers rented until they could buy,” she said, during an interview at the International Council of Shopping Centers’ retail convention in Las Vegas. “Gen. Y is very tech savvy and their online shopping patterns are impacting retail.”
Roberson said Combined Properties has contemplated mixed-use redevelopment for the better part of a decade, engineering leases to roll over around the same time for flexibility. However, the thought of shuttering an income-producing property for construction gave the company pause.
Plans to remake Penn Daw Plaza have been in the works since 2010, when officials in Fairfax County convened a task force to study the best way to redevelop the site. At the time, the plaza had lost anchor tenant Shoppers Food Warehouse following the arrival of Wal-Mart at JBG Rosenfeld’s Kings Crossing project across the street. The county, for its part, was looking for ways to create a more dynamic commercial corridor along Route 1.
After much debate and deliberation, the board of supervisors adopted a plan in April that allows for the development of up to 735 residential units and a minimum of 40,000 square feet.
Combined Properties plans to build 475 apartments and town homes above 30,000 square feet of retail at a cost of $120 million. Roberson said the company is working its way through the zoning process and anticipates another 18 to 24 months before breaking ground. Leases for the 12 tenants at the existing 131,000-square-foot center are set to expire before or concurrent with the redevelopment.
At Fairfax Circle, Combined Properties is in the early stages of the zoning process, but Roberson anticipates breaking ground within 12 to 18 months depending on market demand. Plans call for 400 residential units, a grocery store and up to 30,000 square feet of additional retail. The redevelopment would cost about $130 million. Similar to Penn Daw, the 18 tenants at the existing 105,000 square foot mall will likely have to vacate in time for renovations.
Combined Properties plans to outsource the management of the residential components, but will develop in-house on its own or in a joint venture partnership. Two weeks ago, the company hired Randy Kenna as senior director of development and acquisition to make the process more seamless.
“We see so many multifamily developers screw up retail in a mixed-use project because they don’t understand retail,” Roberson said. “It’s a difficult asset class do well — the tenants are very sophisticated, the leases are complicated. We know retail cold, so we can provide a better product.”