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Whither retail in Oak Ridge?

This weekend, when it seems that most of America celebrates shopping, seems to inspire discussion of the perennial topic of “Oak Ridge retail”. My recent e-mail has included both (1) cheerleading for the 3/50 Project and (2) questions about the Oak Ridge city center development (why did the mall fail? what is the city going to do to get the site redeveloped? etc.). So, what do I have to say?

Start with the city center (formerly the mall). This is private property over whose use the city government has no actual control. People ask if the city could take it by eminent domain and redevelop it. In principle, the city possibly could acquire it by eminent domain as a blighted property, but use of eminent domain is repugnant to most of the community, a court would set the price (often this is more than the acquiring government thinks the property is worth), and more importantly, the city would have to oversee the redevelopment (retail development is not something that small city governments are known to be good at). Redevelopment of the mall requires the skills of a good private developer — and eminent domain for this property would be a bad idea.

The property owners have a good track record on some other developments, but the lack of progress here in Oak Ridge is frustrating for everyone. Redeveloping a mall site isn’t easy. Not only does it mean demolishing buildings, but the redevelopers have to work around the existing anchor stores and the Tinseltown movie theater, existing utility lines, and numerous other easements. An even bigger challenge is that the current economic climate has been hard on the retail sector nationally — and the developer needs to attract national chains to make the plan work. However, Oak Ridge’s economy remains fairly stable, the developers know many times more about how to do retail development than anyone in city government does, and the DOE funding they are getting for a “geothermal” demonstration project is a big boost for the development — both financially and from a marketing perspective. Everyone is impatient, but as I see it, Oak Ridge’s best  option still is to hope the owners can pull off a successful development. Revitalization of the city center area will address both public and private needs, so city officials can expect the developers to ask us for help with the project — and we’ll need to look carefully at the request to make sure it is “right” for the city.

As for why the mall failed after doing good business for a few years… I blame this on some poor business judgments by the mall developer (Crown American). The company had been a successful developer of shopping centers in other parts of the country, and was rapidly expanding to smaller markets (such as Oak Ridge) during the period when the Oak Ridge mall was built. Many of the retail tenants that it signed were national companies that wanted to lease space in other Crown American malls. Crown American signed them to bundled leasing packages in which leases for the malls they wanted to be in was tied in with leases for space in some new malls that Crown was opening (such as Oak Ridge). Many of these stores did good business in Oak Ridge, but business here wasn’t good enough to justify the high prices that Crown was charging for the space. When the leases came up for renewal (all at essentially the same time), most of the smaller mall tenants decided not to renew. (City officials learned about this only after the tenants started to desert the mall.) The anchors remain because they pay much lower rents (this is apparently a standard practice in retail development — the developer gives the “big fish” a good deal in order to attract the “little fish” that pay much higher rents). Fundamentally, Oak Ridge’s market size isn’t large enough to generate enough business to justify the high heating, cooling, and maintenance expenses of an enclosed mall, so the mall fizzled financially. Apparently this happened to numerous Crown American malls built in expansion markets that were basically too small for the indoor mall model to work (a few years back on a business trip, I ran across another decrepit Crown American mall in a small city in Pennsylvania). Retailers are superstitious, so once a mall is “dead,” new business will not move in. (And Crown American is now defunct as a company.)

Isn’t the current retail situation the fault of Oak Ridge voters who rejected two referendums? I’m tired of sitting quietly while certain other City Council members complain that Oak Ridge would now be a thriving retail center if not for the voters’ rejection of the referendums in 2002 and 2007 that would have authorized general obligation bonds for retail developments (bonds that would not give the public any ownership interest in the resulting developments). The problems with the 2002 proposal were many. Too many projects (mall property redevelopment, new senior center, new preschool, and new school administration building) were bundled together in a single $23.2 million package (who’s to know what any individual voter was opposed to? I recall that some opposed the package because they objected to the proposed location or design of the preschool and senior center), the financial details were obscure  (leading to suspicions about what was really going on), and a few days before the vote it was revealed that Crown American had bankrolled the expensive advertising campaign for the bond issue (leading many to conclude that their suspicions about the finances had been correct).

As for the Crestpointe proposal that voters rejected in a referendum in 2007, Councilman Charlie Hensley has been ranting that if it had been approved, we would now have a big-box development at the Crestpointe site, a thriving retail redevelopment in the city center, dormitories for Roane State Community College, and several other lucrative developments. Those claims are rooted in the same kind of unrealistic thinking that led Crown American to build a mall that was doomed to fail. Mr. Hensley has somehow formed the idea that Oak Ridge could have supported a 450,000 square foot big-box shopping center at Crestpointe plus a similar amount of new retail development on the old mall property plus several smaller new retail developments around town, but no responsible economic analysis indicates that there are enough shoppers (and dollars) around here to support anywhere near that amount of retail activity. Back in 2007 knowledgeable outside observers said  that Crestpointe would kill (for at least a few decades) any prospect of regenerating retail activity at the center city (mall) site, and the mall property owners said that the mere existence of the Crestpointe proposal meant that retailers were reluctant to sign deals with any local retail site. (And all that was before the financial meltdown of 2008.) Given the massive amount of site preparation and infrastructure that the Crestpointe project would have involved (both with long time horizons and large dollar costs), plus all that happened with the economy, no one can be sure what would have happened if Crestpointe had been approved.  I’m sure that it would not have worked out as advertised, and I think it likely that  taxpayers would be stuck paying off a large bill without realizing any value.

In a nutshell, I have my fingers crossed about the city center — I’m hoping that the landowners can finally pull off their plan to redevelop the area around the existing anchor stores, with some of the “town center”-type concepts that Steve Arnsdorff brought to town back in the early years of the decade. Meanwhile, the 3/50 project is a positive development  that deserves its own separate post.

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