The Connecticut-based developer buying Hunt Valley Mall has built a reputation recycling obsolete shopping centers in the Northeast.
Now Starwood Ceruzzi is moving into the mid-Atlantic and says it sees plenty of potential for its brand of "big box" retailing in Maryland.
A year after opening a regional office in Bethesda, the developer has four high-profile Maryland projects in the works.
Starwood Ceruzzi expects to close a deal this week to buy Hunt Valley Mall, which has languished half-empty for years. A week ago, the affiliate of Starwood Capital Group said it wants to build the city's first big box shopping center on a former rail yard in Port Covington, an estimated $50 million project.
The developer also is close to signing retail tenants for former Hechinger stores in Annapolis and Laurel, acquired in the defunct home improvement chain's bankruptcy sale. And company officials say they are working to buy and redevelop additional properties.
Starwood Ceruzzi is known for building "power centers" or large strip shopping centers anchored by retailers such as Home Depot, Target and Costco. Until about a year ago, the company, under President Louis Ceruzzi, had concentrated its business in Connecticut, New Jersey, New York and Pennsylvania.
"In greater New York and Connecticut, he's had a lot of success taking properties and repositioning them, properties that were rundown -- and coming out with extremely successful retail projects," said Hugh Kelly, director of the Northeast region for Staubach Retail Services, which represents retailers.
In that region, the company has become one of the top developers of power centers and is among the top 20 nationally, developing more than 10 million square feet of retail since 1988. Its 29 finished centers range in size from 80,000 square feet to 750,000 square feet and cost from $8 million to more than $100 million.
Starwood Ceruzzi is moving down the East Coast, thanks to an infusion of capital and a history of working with chains that have emerged as dominant retail players during the past decade.
"The retail business is a relationship business," Ceruzzi said in an interview. "The retailers are in business, and they grow by opening new stores. So as a developer, you need to do your best to make sure you promise them time frames and costs that are realistic and deliver on your promises."
The capital infusion came from a 1997 partnership between Starwood Capital Group, a real estate investment company, and Ceruzzi Properties. As an investor, Starwood was attracted by Ceruzzi's portfolio of high-quality, high-credit retail tenants with long-term leases in strong locations as well as by Louis Ceruzzi's successful track record, said Rick Kleeman, senior managing director of Starwood Capital.
"We saw segments of the [retail] business that were very attractive," Kleeman said. Ceruzzi "had a high-quality portfolio at the time, but the real opportunity was the ability to create new properties through development at higher returns than could be achieved by buying those properties in the market."
Starwood Capital, also based in Connecticut, has since formed three more partnerships with companies like Ceruzzi with strong links to retailers and the local real estate market. Starwood Capital and its affiliates are one of the nation's biggest developers of Home Depots and Targets and own more than $6 billion worth of property.
Starwood Ceruzzi opened the Bethesda office to expand in Delaware, Maryland, Virginia and Washington -- where strong demographics attract retailers -- bringing in Kenneth A. Goldberg, with 15 years of local retail development experience, as senior vice president and managing partner.
"It's an area where it's fairly difficult to develop," Ceruzzi said. "It's mostly in-fill locations, and that's something we tend to specialize in. Typically, we look for areas that are heavily developed. We almost never go out and buy a piece of land. There always is something on the land, or was. That's what's attractive to us."
Since moving into the mid-Atlantic, one proposed project fell through. Starwood Ceruzzi withdrew an application to buy 43 undeveloped acres in Williamsburg, Va., for a retail and entertainment center. The project faced opposition from officials and residents who worried it would mar the historic city's character, hurt small businesses and worsen traffic.
"It didn't seem to have the support of the community," Ceruzzi said. "If we're not going to get it approved, it doesn't make sense to spend money we'd have to spend with a project of that magnitude."
Though Ceruzzi Properties is known for retail, it got its start building hotels. Ceruzzi was a real estate tax attorney who switched to development in the mid-1980s. The company built a Marriott Residence Inn, then several more, as well as a large golf resort project with Marriott. Ceruzzi continued building hotels through 1990.
"When the economy slowed down, there wasn't much to do in hotel development," Ceruzzi said. "But there were a number of the so-called big box retail tenants that were moving to our part of the world -- New England and the New York metro area. We started developing for several of those companies."
The recession that all but killed hotel development offered a boost to the new retail format that was giving tired malls a run for their money. Big box retailers that sprouted up in the late 1970s to mid-1980s offered value, large quantities and a wide array of products within a category.
"That played particularly well with consumers during the period when the entire country was in recession," Ceruzzi said. "Value became very important. They provided customers what they wanted."
From a developer's standpoint, teaming with such retailers was ideal. It cost less to build a row of large stores with exterior entrances than an enclosed mall with glitzy public areas. Tenants tended to follow Ceruzzi from project to project, among them Home Depot, Target, Stop 'N Shop, Barnes & Noble, Borders Books and the Gap/Old Navy.
The company is redeveloping four older malls in Long Island and Saratoga in New York, Waterbury, Conn., and Pittsburgh. Built in the late 1950s or 1960s, the malls had become obsolete, unable to compete for tenants with newer malls with more anchor stores and entertainment components. The developer is bringing Target, Home Depot, Barnes & Noble, Staples, Old Navy, Circuit City, Linens & Things, Kohl's, grocery stores and smaller local tenants to the redeveloped malls.
"The locations of the old malls is fantastic," Ceruzzi said. "We've tried to take the mall down, or leave whatever still works and build around the balance of it and bring it into the 21st century in terms of the types of tenants and accessibility and traffic."
Hunt Valley Mall, off Interstate 83 near a cluster of corporate offices, has had a troubled history, starting with opposition from neighbors when it opened in 1981. In 1992, R. H. Macy & Co. Inc. closed its department store, one of two anchors with Sears. Then it faced overwhelming competition from newer, expanding regional malls, such as Towson Town Center and Owings Mills Mall.
In 1996, owner Equitable Life Assurance Society began remaking Hunt Valley as a value-oriented center, hiring developer and manager Faison Group of Charlotte, N.C., to carry out the plan. Trammell Crow Co. replaced Faison after acquiring the company in 1998. The redevelopment has added a Wal-Mart, Burlington Coat Factory, a movie megaplex and freestanding restaurants. But a second phase of renovations, which was to have included a department store, other anchors and interior remodeling, never happened.
Starwood Ceruzzi said last week that it would unveil plans for the redevelopment soon after closing on the property. Mall merchants have said they feel disillusioned about the former owner's broken promises to breathe new life into the mall interior. Still, many say they want to stay and hope plans include areas for small tenants as well as big retailers. Retail sources expect potential tenants to include Old Navy, Limited Express, Hardware Restoration, Ann Taylor Loft and J. Crew.
At Port Covington in Baltimore, Starwood Ceruzzi hopes to build a 400,000-square-foot waterfront center with a home improvement warehouse, a wholesale club, high-volume "category-killer" retailers and food and service shops, pending zoning changes and purchase of the land from CSX Corp.
City officials, who have been trying to attract such retailers downtown but face a shortage of land, are reviewing the proposal.
"You've seen gentrification in the city, particularly along the harbor, and we think that the tenants will complement a lot of retailers already existing," Kleeman said. "This is an attractive market."
Both proposals represent some of the bigger trends in retail development today, said Michael D. Beyard, vice president of strategic development for the Urban Land Institute in Washington.
"The construction of stand- alone, big box power centers in suburban locations is dramatically lower than five years ago," he said. "It has peaked as a land-use form, and most markets are saturated."
Instead, builders are redeveloping obsolete regional centers, not necessarily as pure power centers but as hybrids that mix full-price and off-price retailers, lifestyle stores and entertainment outlets. Developers are bringing big box retail to older industrial and urban retail corridors, he said.
"We're beginning to see the introduction of the newer retail into those areas -- big box or grocery and drug stores," he said. "There's a big push to repopulate the inner cities with retail because they are so underserved. Developers are starting to see it as an opportunity."