Retail Stimulus

1. Retail Stimulus Downtown Winnipeg

2. Introducing The Firm Retail planning and real estate consulting firm Market analysis Retail strategy Tenant recruitment Active across all of North America Toronto (Downtown Yonge) Kitchener (Downtown) Saskatoon (�Cultural Crescent�) We�re getting great support for landlords and brokers - go right to the incentivesWe�re getting great support for landlords and brokers - go right to the incentives

3. The Assignment Multi-phase retail revitalization effort in Downtown Winnipeg Market analysis and general positioning strategy (phase one) Effort spearheaded by Downtown stakeholders Funders included: Downtown BIZ City of Winnipeg Centre Venture Forks/North Portage Exchange BIZ Extensive amount of time spent on site Interviews with retail brokers and other stakeholders 111-page final written product completed and delivered in May 2009

4. The Assignment Multi-phase retail revitalization effort Next phase Tenant recruitment campaign Identification and pursuit of tenant prospects Handoff to landlords and their brokers Training of an in-house retail recruiter Phase �2A� Presenting positioning strategy to landlords Making the case for retail Stimulus

5. Policy Context CentrePlan Strategy Downtown FIRST Policy Government recognizes that there cannot be a healthy city without a healthy Downtown Requires the creation and pursuit of a specific strategy

6. The Case For Stimulus H&M chooses to put its first store between Western Ontario and Alberta in�. Polo ParkH&M chooses to put its first store between Western Ontario and Alberta in�. Polo Park

7. The Case For Stimulus Why Not Downtown? Competitive context Suburban alternatives so close A seven-minute drive to Polo Park Trade area that remains = largely low-income Put this after the structural realities�? Polo Park has a Sears and a better Bay St. James Station, Polo Festival and Canad Centre at Polo ParkPut this after the structural realities�? Polo Park has a Sears and a better Bay St. James Station, Polo Festival and Canad Centre at Polo Park

8. The Case For Stimulus Why Not Downtown? Competitive context Inferior co-tenancies Department stores, big boxes, �one-per-market� brands at Polo Park IKEA at Kenaston and Sterling Lyon Put this after the structural realities�? Polo Park has a Sears and a better Bay St. James Station, Polo Festival and Canad Centre at Polo ParkPut this after the structural realities�? Polo Park has a Sears and a better Bay St. James Station, Polo Festival and Canad Centre at Polo Park

9. The Case For Stimulus Why Not Downtown? Competitive context Lower sales levels $550-600/sq.ft. at Polo Park and St. Vital, versus $250/sq.ft. at Portage Place Partly due to Downtown�s social and economic challenges Put this after the structural realities�? Polo Park has a Sears and a better Bay St. James Station, Polo Festival and Canad Centre at Polo ParkPut this after the structural realities�? Polo Park has a Sears and a better Bay St. James Station, Polo Festival and Canad Centre at Polo Park

10. The Case For Stimulus Why Not Downtown? Competitive context Not where the growth is happening To the southeast and southwest Put this after the structural realities�? Polo Park has a Sears and a better Bay St. James Station, Polo Festival and Canad Centre at Polo ParkPut this after the structural realities�? Polo Park has a Sears and a better Bay St. James Station, Polo Festival and Canad Centre at Polo Park

11. The Case For Stimulus Why Not Downtown? Structural realities Larger brands concerned with the following: Foot traffic Synergy Predictability Brand integrity

12. The Case For Stimulus Why Not Downtown? Structural realities The shopping centre model Common ownership/management Controls large amount of retail space Markets and leases centre in accordance with a single, deliberately-designed plan Enforces public realm and aesthetic standards

13. The Case For Stimulus Why Not Downtown? Structural realities In this model, retailers are guaranteed the foot traffic� � by the presence of large �anchor� stores (e.g. department stores) Anchors are enticed by below-market deals, which the developer/owner is able to offer because� � it owns a large amount of retail space; and � it can make the money back on the premium rents that it can charge for the �in-line� space between the anchors; and

14. The Case For Stimulus Why Not Downtown? Structural realities In this model, retailers can also be confident that� � the rest of the centre will be managed in line with a common merchandising direction and operating standard � neighbors will draw a similar sensibility and demographic, thus maximizing cross-traffic and synergy � co-tenancies and the �public� realm will not detract from the brand

15. The Case For Stimulus Why Not Downtown? Structural realities Also, developers/owners of large suburban shopping centres are typically� � well-capitalized; � with good reputations; and � can wield other forms of influence

16. The Case For Stimulus Why Not Downtown? Structural realities Downtown consists of multiple property owners, with divergent interests No one landlord with the incentive to subsidize �loss-leaders� Would not be able to make the money back on other holdings Does not control a large amount of retail space Less likely to have the equity or credit to pay for up-front Stimulus Downtown landlords cannot often compete with suburban ones No profile or leverage with larger brands

17. The Case For Stimulus Why Not Downtown? Structural realities Old and obsolete buildings and spaces that do not match the needs of modern retailers Low rent levels do not justify cost of retrofitting

18. The Case For Stimulus Why Not Downtown? Structural Realities Downtown cannot provide guarantees about next-door neighbors Less likelihood of synergy and cross-traffic � and possibly, the wrong kind of foot traffic Less control over brand management

19. The Case For Stimulus Why Not Downtown? Structural realities Downtown as the logical location, from a planning perspective, for social services, transit nexus� Generates �street� traffic Creates value for lower-end retailers Downtown�s public realm is truly public More limited in ability to control the street traffic These are the sorts of tenants to whom Downtown would have valueThese are the sorts of tenants to whom Downtown would have value

20. The Case For Stimulus Large-scale projects help to augment demand� MTS Centre Manitoba Hydro Tower Millenium Library Waterfront Drive � but that is simply not enough, public sector must be prepared to do more No one takes DT seriously for retail� No one takes DT seriously for retail�

21. The Case For Stimulus With such structural disadvantages, assistance must also be provided on the supply side Not just fa�ade improvement grants� � but closing the gap between tenants and landlords Picking the right sorts of anchors�

22. Tools Available In Winnipeg Tax Increment Financing (Provincial) Business, Property and/or Sales Tax Abatements (Municipal) Winnipeg Partnership Agreement (Federal, Provincial and Municipal)

23. Different Types of Programs Fa�ade improvement Most common Tenant build-out For permanent, non-removable improvements �White-box� To improve spaces to �lease-able condition� Operating assistance Example: rent subsidies for a set period Tax relief/abatement Technical assistance To increase success rate of recipients Broker Stimulus To erase some of the differential between DT and suburbs

24. Washington, D.C. $30 million program (USD) Approved by D.C. City Council in 2003 Focused on four specific corridors in the Downtown Designed to diversify the retail mix Not just worker-oriented amenities� Bank branches, drug stores � but rather, a citywide shopping destination Apparel, home furnishings, general merchandise No Canadian examples of direct retail incentivesNo Canadian examples of direct retail incentives

25. TIF Washington used �tax increment financing� (TIF) Not the same as tax abatement� Borrowing (bonding) against the increased tax revenue that redevelopment will bring� � in order to fund the efforts to spur such redevelopment Infrastructure projects Brownfield remediation Retail stimulus

26. TIF Tax increment financing (TIF) Ideal tool to use when public monies are unavailable now Used to leverage additional public and private dollars 1 TIF dollar = at least 10 private dollars

27. TIF Tax increment financing (TIF) Typically based on property taxes Projected revenue based on national or provincial comparables Conservative approach, borrowing only against a fraction

28. Washington, D.C. Bonding used to fund tenant build-out Average assistance = $75/sq.ft. USD As much as $150/sq.ft. USD in some cases Bonds repaid through the resulting increase in municipal sales-tax revenue Not possible in Winnipeg Bonds guaranteed by the City� � in case stores closed or failed to reach projected sales levels

29. Washington, D.C. Hennes & Mauritz (H&M) Two-story, 30,000 sq.ft. store � in a high-profile, old department store building (�Woodies Building�) on Downtown�s historic shopping street $2.9 million (USD) award = $97/sq.ft. (USD) Opening in Polo Park� Mention Woodies Mention Woodies

30. Washington, D.C. Zara Spanish �fast-fashion� chain 15 locations across Canada, but none yet in Winnipeg 13,000 sq.ft. store � in a high-profile, old department store building (�Woodies Building�) on Downtown�s historic shopping street

31. Washington, D.C. West Elm Sells moderately-priced contemporary home furnishings Division of Williams-Sonoma Williams-Sonoma, Pottery Barn, West Elm Recently opened first Canadian store, in Toronto�s Liberty Village Two-story, 37.000 sq.ft. store � in a high-profile, old department store building (�Woodies Building�) on Downtown�s historic shopping street $4.9 million (USD) award = $132/sq.ft. USD London - using area, can�t target just one retailer Strategy needed London - using area, can�t target just one retailer Strategy needed

32. Washington, D.C. Gallery Place $275 million (USD) mixed-use project Includes a 250,000 sq.ft. retail/entertainment complex Largest in the District of Columbia Sits to the immediate north of the 20,000-seat Verizon Center Home to the Capitals (NHL) and the Wizards (NBA) Opened in 2004

33. Washington, D.C. Gallery Place Entertainment uses, restaurants and soft goods Intended to draw young professionals as well as families and suburbanites Strategy proposes similar format for Downtown Winnipeg �Urban entertainment centre�, or UEC

34. Washington, D.C. Gallery Place Anchors include: 14-screen Regal Theaters multiplex Lucky Strike Lanes Trendy �retro� bowling alley, with lounge, restaurant and pool tables Opened first Canadian location at Toronto�s Vaughn Mills Bed Bath & Beyond 12 Canadian stores, but none in MB Urban Outfitters �Hipster� fashions, house-wares and gifts 7 Canadian stores, none in MB

35. Washington, D.C. Gallery Place Project received $90 million (USD) in financial assistance from the District of Columbia (City) $75 million (USD) in TIF dollars� Part of $300 million (USD) TIF program (1998 to 2002) to encourage retail and residential development in Downtown $9 million (USD) in tax abatements and street improvements $6 million (USD) discount on City-owned property City controls 10% stake in the project

36. Washington, D.C. Not an appropriate comparable� DT employment base 379,000 daytime workers Affluent DT residents Major tourist destination New convention centre Larger profile within the industry Big pot of money available�

37. Washington, D.C. Gallery Place Would not have happened without TIF funding Considered a �marginal project� by the developers Struggled to line up equity and debt financing, attract tenants

38. Downtown Houston (TX) A little closer� 140,000 office workers Convention centre 1.5 million visitors per year Toyota Center Home to the Houston Rockets (NBA) Minute Maid Park Home to the Houston Astros (MLB) Modest but growing residential population Freestanding Macy�s department store

39. Downtown Houston (TX) Retail Incentive Grant Program $1 million approved for 2005, another $500K later allocated for 2006-2010 Designed to diversify the retail mix Apparel, home furnishings, general merchandise Restaurants, bars and personal services ineligible Priority given to spaces on corridors designated by the Downtown Development Framework Later - BID in Houston used money from assessment, administered the program, City did not have a sayLater - BID in Houston used money from assessment, administered the program, City did not have a say

40. Downtown Houston (TX) Houston Pavilions $170 million (USD) mixed-use project Includes a 360,000 sq.ft. UEC Sits on Main Street Downtown Houston�s main corridor and historic shopping street Anchors include: House of Blues Live-music venue/restaurant chain Lucky Strike Lanes XXI Forever Books-A-Million Opened in 2008

41. Downtown Houston (TX) $600,000 (USD) used to lure two medium-box retail anchors to Houston Pavilions XXI Forever Two-level, 25,000 sq.ft. �urban flagship� store Books-A-Million Third-largest bookstore chain in the U.S. 200+ stores, concentrated in the South and Midwest Two-level, 23,000 sq.ft. superstore Comparison - houston has bigger convention center, sports facilities, more office workers Houston Pavilions article - other assistance to project besides BIA�s program (from developer, City) Comparison - houston has bigger convention center, sports facilities, more office workers Houston Pavilions article - other assistance to project besides BIA�s program (from developer, City)

42. Downtown St. Louis Still closer� 88,000 daytime workers 9,610 residents across 2.91 square miles As of 2003, when Stimulus were first introduced In-migration of affluence had only just started� Convention centre 3x larger than Winnipeg�s Freestanding Macy�s department store Was once part of failed Downtown mall (St. Louis Centre) Downtown largely considered dormant

43. Downtown St. Louis $250,000 program (USD) An additional $150,000 (USD) allocated later� Approved by the City of St. Louis in 2003 Used funds from its �Community Development Block Grant� (CDBG) A program of the Federal Department of Housing and Urban Development (HUD) CDBD funds allocated at the discretion of the City of St. Louis

44. Downtown St. Louis Provided small forgivable loans ($5-50K, USD) 20% of loan forgiven each year 100% if tenant stayed for five years Tenant required to repay amount remaining on the loan if business closes or moves before the five-year mark Required 2:1 private-sector leverage Could be used for build-out, equipment, inventory or working capital

45. Downtown St. Louis Designed to implement completed retail strategy Loans limited to recommended categories and corridors Only available to ground-floor tenants with a street presence Downtown BIA undertook prospecting efforts to identify targets

46. Downtown St. Louis Considered wildly successful Distributed $427,500 (USD) to 17 businesses Average award = roughly $25K (USD) Resulted in net increase of 110 businesses since �03 130 opened, 20 closed Retail mix has evolved Began with restaurants� � now includes a bevy of upscale apparel and home boutiques � starting to draw interest from more mature operators Downtown BIA currently considering a new forgivable-loan program 2/09: no impact from bad economy2/09: no impact from bad economy

47. Downtown St. Louis Why so successful? Explosion in loft living during the 2000�s Focus on retailers that were most realistic (i.e. boutiques, versus chains) Smaller grants to a larger number of recipients More appropriate strategy for attracting boutiques Provided benefit to and spread risk across more retailers Did less to protect uncompetitive ones

48. The Case For Stimulus Always succeed in: � drawing attention where there was little to none before � mitigating perception of risk among prospective tenants

49. The Case For Stimulus True success depends on: Strategy Assisting only the types of businesses (and only in the areas of Downtown) that were indicated in the report Inclusiveness Not just for retailers, new retailers, or for landlords with tenants in hand Transparency Program widely marketed Specific criteria established and justified Expectations management There will be failures Not always Downtown�s fault

50. Contact Info With ANY comments or questions� Michael J. Berne President, MJB Consulting 216 W 99th Street, Suite #19 New York, New York 10025 Office | 212 794 0148 E-Mail | mikeberne@consultmjb.com Web | www.consultmjb.com