Loss of Arborland's Borders signals major shift for Ann Arbor retail center
When Arborland Center was listed for sale in 2005, I wrote a column that described the property as "a pinnacle of retail redevelopment in southeast Michigan."
That was just a few years after Joseph Freed & Co. and partners demolished the city's first shopping center and built in its place a power center that brought some of the nation's most-sought retailers to Washtenaw County.
Six years later, there's a different situation at the corner of US-23 and Washtenaw Avenue, a circumstance made more obvious by Wednesday's announcement that the Borders store in Arborland will be closing as part of the chain's bankruptcy.
Arborland itself also faces a turning point to hold onto - or even regain - its real estate position in this market.
In some ways, Arborland isn't alone. The world has changed since the economic downturn hit the consumer hard, sending unemployment rising and retirement accounts falling while home values plummeted just as quickly.
Those ripple effects are leaving their marks on our city's real estate. But so are other factors: Industry changes for individual stores. Retail overdevelopment. Smaller trade areas. Commercial property devaluation.
Arborland, at one time 100 percent leased and a homerun investment even at $102 million, now moves toward more of a victim of circumstance than winning real estate play.
It's not a statement that I make lightly: This center anchors my own east-side neighborhood, too.
But as a real estate writer, I also can't ignore that this center will be 15 percent vacant once Borders leaves. And this happens after Arborland's buyers, led by Amcap Inc., paid a price that likely doesn't leave room for profit in a vacancy rate that high.
There's also the duration of the vacancies: The former Circuit City store, also a victim of bankruptcy, still stands vacant. So does the long-closed Bombay store, which lasted a short time near Potbelly.
I'm told that with Big Box retailers now searching the market again, there will be a decent chance of filling those spaces. In 2009, no one was leasing. In 2010, few were. This year, there's a renewed chance.
But so far, the newest tenant at Arborland is Diva Nails, an independent salon just a few doors from Starbucks, which reportedly has paid the highest rental rate in Ann Arbor, close to $50 per square foot.
All of this has an impact on the city: The taxable value of the center, along with many retail sites in the area, fell from 2009 - its first year-over-year drop. Today, its assessed value is $31,859,700, about $1 million lower than the previous year.
That was enough to place Arborland at number three on the list of the city's largest taxpayers in 2010, when mall owner Amcap Inc. paid the city $1.89 million in property taxes.
With commercial values in the city falling 7.7 percent on average in 2011, and the mall vacancy growing, that ranking could fall this year.
It's a scenario that few could envision a decade ago, when Arborland served the region. It opened the door to developers who recognized what a quality retail center - with the right tenant mix - could bring to a community.
But it also spurred competition in a market where the potential to expand seemed endless.
Huron Village became the "shiny new center" a few years later and a few blocks west, with a different mix. Green Oak Village Place was built near Brighton, trying to show Michigan that a lifestyle center could work in a four-season climate. Major retailers like Meijer, Target and Walmart expanded in the region, and smaller centers grew between them.
But now retail chains are downsizing and slowing their expansion. So who's left not just to move in, but to create a unique shopping mix?
Today, Arborland occupies a significant place in the city's development history. But the Borders closing there is forcing it to recognize a painful truth: It needs to fight for its foothold in the retail sector and it needs to fight to stay vital to shoppers.
It was a homerun more than a decade ago. Today, it's just another option in a market with fewer retailers seeking a Big Box location in a center filled with other anchor stores and "junior anchors." Even some stores in that center recognize that they - like Borders - were operating a business model that needs less expensive physical space and have sought to downsize.
Now, just as Ann Arbor hopes that Borders is making hard decisions that help it survive, I'm hoping that Arborland owners and managers can do the same thing with this property.
It's not a losing proposition. Many, in fact, say the Arborland Borders store was profitable, if a little too close to Barnes & Noble.
The property is strong in other ways, too: It's a key shopping destination for not just the east side of Ann Arbor, but much of Ypsilanti, a significant population base. It still has highway access and visibility. Some stores there are unique to the area, like Hiller's Grocery, Toys R Us and Arhaus Furniture.
The challenge of today, enhanced by the departure of Borders, is to identify what Arborland needs to move it into its next phase without losing its value, which in turn keeps it valuable to the community.