In stalled economy, Tivoli Village developers try to grow
22 October 2012
- Tivoli Village at Queensridge beats the odds, hopes to fill retail niche in western valley (12-14-2010)
- 5 tenants announced for Tivoli Village at Queensridge (12-6-10)
- Rotten economy hurts Las Vegas’ prospects for 2011 (11-19-10)
- Developers of Tivoli Village acquire 23 neighboring acres (10-8-10)
- Commercial market shows gains after months of free-fall (10-5-10)
- Tivoli Village to open in March 2011, announces tenants (5-24-10)
Beyond the Sun
The developers of Tivoli Village near Summerlin might be some of the most bullish in Las Vegas.
EHB Cos. and its partner, Israeli conglomerate IDB Group, built the high-end retail hub during the depths of the recession. The companies also built in 2007 One Queensridge Place, a complex of two 18-story condominium towers near Tivoli that today are more than 70 percent sold.
Since then, they have unveiled plans for Las Vegas Renaissance, a 700,000-square-foot indoor mall across the street from Tivoli, and for a 200,000-square-foot retail center at the corner of West Sahara Avenue and South Hualapai Way, a few miles south of Tivoli. The Sahara center is expected to open next year and Renaissance in 2015.
People may wonder at the wisdom of building more retail projects in Las Vegas. The valley is saturated with strip malls and shopping hubs, and high vacancies and low rental rates abound. Many landlords have to offer several months of free rent or large pots of money for interior upgrades to sign tenants.
But the valley’s retail vacancy rate is falling — it dropped to 11.6 percent in the second quarter from 12.5 percent a year earlier — and consumer spending is inching up. Spending at Clark County retail stores rose 2 percent in July to $571 million from $560 million in July 2011.
Tivoli’s retail vacancy rate is higher than the valley average, but it’s improving, owners say. The center at the corner of South Rampart Boulevard and Alta Drive last month announced five new tenants, including La Casa Cigars and Lounge, Ethan Allen and Cantina Laredo.
Tivoli was supposed to open in 2009 with 500,000 square feet of retail and 200,000 square feet of office space. Then the recession hit. The developers considered mothballing the $850 million project but chose to build it in phases instead. The first portion opened in April 2011, and the second and final phase is expected to open late next year.
When finished, the nearly 30-acre center will have the same retail and office space as originally planned.
Tivoli Village President Patrick Done was hired in 2007 to manage the project after spending the bulk of his career with the Rouse Co., a former owner of the Summerlin master-planned community. Before Tivoli, he also was president of Olympia Development and director of gaming retail for the real estate brokerage firm now known as the CBRE Group.
The 52-year-old from Portland, Ore., recently sat down with VEGAS INC to discuss Tivoli Village and the valley’s real estate market.
How did Tivoli Village come together?
The project was under construction five years ago. We were working three shifts a day, 24 hours a day. We were building it all at once, but then the world changed with the economic collapse. Many developments in Las Vegas just stopped. We didn’t stop construction, but we slowed down dramatically.
What was completed at that point?
A lot of our work was below-grade, including our parking. We’re built on a natural wash where flood waters would flow. We put a great deal of resources into creating channels to guide the flood waters when it rained. That was part of the work needed before the actual foundation was built. So, the below-grade parking was built, and the foundation was being built from the south side of the project to the north side. We also had steel erected on the south side. Then the economic storm hit, and we had to figure out to do next.
What were your choices?
We considered stopping everything. We also considered building on schedule and finishing as planned. The other option was to build in phases and determine the right amount of retail and office space to put on the market. That’s what we ended up doing.
When you phase a project that’s meant to be completed as one, you almost have to start over. You have to go back and get approvals from the city; it’s a very complicated process. We built the first phase, which is what you see now, and during that time we never stopped work on Phase Two. The foundation and below-grade work is already completed there. We haven’t started vertical construction yet but the steel is being delivered.
The second phase will have about 275,000 square feet of retail and about 100,000 square feet office, and we expect to finish by the end of 2013. We have a great deal of money invested in the project, with the intent to continue and finish. Our whole strategy was, we expected the markets to improve, and as they improve, we’ll have space that can be absorbed.
Where is Phase Two located?
Just to the north of Phase One. Right now, there’s a barricade between the sites. When it’s finished, the two phases will be completely integrated, and we’ll have an oval street in the center of the project that will handle vehicular traffic.
Is it difficult to lure tenants to a high-end project like Tivoli? What kinds of incentives are you offering?
Different centers have different deals. There are a lot of strip centers in Las Vegas with some pretty high vacancy rates. You could get 12 months of free rent on a 5-year lease or enough tenant improvement dollars to build out the entire space.
There is typically higher demand for a lifestyle center like ours than for a strip center, but are we giving more incentives than we were three or four years ago? Yes. Are there free rent components to some of the retail deals we’re doing? Yes. Are there more tenant improvement dollars given today than there were three or four years ago? Without question.
It is clearly a tenant-driven market, no matter what category of retail you’re talking about. We’ve seen the economics start to get marginally better on some of our newer deals, but they’re certainly not back to where we were pre-recession in terms of rents and the incentives we have to give.
You’ll see developers create their own strategies depending on the financing underlying the development. The market is not going to stay where it is forever. We continue to create occupancy and value in our leases, even though you may have to discount it on the front side.
The Shops at Summerlin, the mothballed retail center four miles west of Tivoli, is back on track for construction now with anchor tenant Macy’s. Will it be competition for you?
It’s a different product type. We’re a mixed-use development with office space and a different retail configuration. Also, we’re non-anchored. The Shops at Summerlin is an anchored center. Some retailers are attracted to that type of development — such as clothing chains that cater to younger shoppers — and they’ll do well there. There are other retailers and restaurants that would prefer to be in a project like Tivoli Village.
How does your company finance its projects?
Portions are self-funded, and portions are bank-funded. The majority of Tivoli Village has been self-funded by the company. Broadly speaking, from 2009 to 2011, outside funding was non-existent. The reason a lot of projects just stopped and went under is because there was no financing, there was no ability to get money to develop. We were able to continue because we had the resources.
Is that because you had IDB, a massive company, backing the project?
IDB gave us the leverage to continue our development.
How is EHB structured?
The company was originally a residential developer in Las Vegas, but then it expanded into commercial projects. It’s a partnership between Paul and Vickie DeHart and Yohan Lowie. Yohan formed the relationship with IDB Group, and he’s the visionary who sees these projects. He literally sees how the stone works, how it all lays out, and then he articulates that to the blue-line drawings, and then we build it. He saw that for Tivoli, he saw that for One Queensridge Place, and he sees that today in Renaissance.
What is the occupancy at Tivoli?
We’re at about 75 percent retail occupancy and 68 percent office occupancy. But more tenants are coming. We’re expected to be at least 82 percent filled in the office portion by year’s end, and retail should be at 85 percent.
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