With the exception of
the
stylists huddled around the one haircut under way, the Ladies & Gentlemen Aveda Salon and Spa is quiet on a recent Wednesday afternoon.
The manicure/pedicure area is dark. There’s a lone customer perusing the retail shelves.
Business at the Block 37 salon typically picks up later in the day, says store leader Tyler Holland. But as the lone tenant on the mall’s third floor, Holland can’t help but wish he had some more neighbors.
“We’d be filled to capacity at all times,” he said, adding that while he’s pleased with business so far, he’d love to see the opening of a long-promised movie theater or some upscale restaurants.
Enterprising retailers that have staked out spots in Block 37 are hoping that the development’s sale this month to Los Angeles-based real estate investor CIM Group will be a turning point for the beleaguered shopping center, named for the parcel of land on which it sits. Decades in the making, Block 37 was supposed to be the jewel of the Loop’s renaissance.
Instead, the mall is only 30 percent occupied, its latest troubles the result of foreclosure woes and a stumbling economy. Bankers foreclosed on developer Joseph Freed & Associates a month before Block 37 was scheduled to open in 2009. That discouraged many retailers from signing on, observers said.
Today, about two dozen restaurants and retailers, including Anthropologie, Sephora, Eileen Fisher and Disney, call the location home.
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“It’s work in progress and 70 percent an opportunity,” said Ty Tabing, who years ago, as an urban planner at City Hall and now, as the executive director of the Chicago Loop Alliance, has seen the property through its various iterations and owners.
Local retail watchers say new owner CIM Group — the fourth developer to step in — must navigate a challenging but doable road ahead.
“First thing, they’ll have to overcome the negativity. Broaden the appeal to the retailer and the consumer,” added retail and real estate consultant John Melaniphy. “They’ll have to hustle. It’s not a simple task.”
Block 37 is not the first distressed property privately held CIM Group has picked up and attempted to turn around.
The largest commercial property owner in Hollywood, CIM Group has office, retail, residential, hotel and infrastructure investments in nine states, the District of Columbia and Canada.
CIM declined to comment for this story but said in a statement last week that it plans to lease the building to “national and local retailers.”
The firm has contributed to the revitalization of Hollywood, purchasing and renovating properties including the Hollywood & Highland retail and entertainment complex.
When CIM purchased Hollywood & Highland in 2004, reportedly for a fraction of what it was once worth, the complex was sputtering.
Previously owned by Trizec Properties Inc., Hollywood & Highland opened to much fanfare in the months after 9/11 and even served as the home of a Ryan Seacrest news and variety show. But the mixed-use development failed to take off.
Under CIM, the complex has rebounded, housing a mix of entertainment, food and shopping destinations from luxury purveyor Louis Vuitton to teen-driven specialty retailer Hot Topic.
State Street stakeholders are hoping that CIM can apply a similar salve to Block 37. But filling the five-story mall won’t be easy.
Like Hollywood & Highland, Block 37 needs to appeal to a broad swath of consumers, Melaniphy says. “They need stores appealing to the younger types,” he said. “They need the funk.”
Luring retailers to set up shop on a mall’s upper levels is a tough sell because even though the rents go down as the floors go up, only big name retailers have the cachet to draw shoppers up the escalators from the street, added Paul Vogel, senior vice president SiteWorks Retail Real Estate Services.
In addition, Block 37’s layout — like a horizontal diamond — doesn’t encourage movement throughout the entire space, Vogel said. Some of the retail spaces are less visible than others so shoppers won’t pass by them easily, he said.
Despite the challenges, Eric Hsueh, who co-owns trendy apparel retailer Akira, took a chance on the property in 2009.
When Hsueh walked into a roughly 5,000-square-foot space on the first floor, he said he knew it was the perfect location for Akira’s State Street outpost. “People can show you the numbers and demographics,” he said, “but in the end I believe my eyes. You say, ‘This is it.'”
He also knew the risks: With the property in foreclosure, Hsueh had no idea who the landlord would ultimately be and the space could only be entered from inside the mall, not the street.
But if customers didn’t come, Hsueh said it wouldn’t kill his business.”We’re not disappointed,” he
said about the location.
The Loop shop caters to a young professional or student who wants to snag something cute to wear for the weekend on the way home, he said.
Because they live and work in the area, customers know the store is there, making it less reliant on the tourist trade as opposed to, say, shops on Michigan Avenue. “We don’t expect people to randomly pass our door every day,” he said.
Of its 18 Chicago-area Akira stores, the Block 37 outlet ranks roughly in the middle in sales, Hsueh said.
Count Magnolia Bakery as another tenant that’s glad it chose the spot. In October, customers lined up around the block when the Southern-inspired bakery opened. Business has been steady since then, according to manager Alan Corona.
It’s evident on a recent Tuesday afternoon, typically a lull time for many shops whose customers are usually busy at work. But at Magnolia, it’s the afternoon rush. Customers flow in and out of its two entrances, one facing State Street, the other, inside the mall — and are sitting at its vintage-looking tables and chairs nibbling on sweets.
Business has been so good, according to Corona, that the bakery stays open until midnight on Fridays and Saturdays to service late-night sweet-seekers spilling out of restaurants and nearby theaters.
Magnolia Bakery is an example of Block 37 and the Loop’s potential, Tabing said. “It has extended its hours of operation to midnight (on Fridays and Saturdays) — which was unheard of 10 or 15 years ago when people wanted to get out of the Loop when the workday ended,” he said.
Indeed, State Street’s own revival could be a boost for the mall. This year alone, an upscale, sushi-serving Walgreens opened in the former Loehmann’s clothing outlet at Randolph and State streets, and a new urban-focused “CityTarget” is scheduled to open down the street in the old Carson Pirie Scott building in July.
Vacancy rates on State Street have declined in the past year, to 7.7 percent, down from 12.9 percent in 2010, according to CBRE Group Inc., a Los Angeles-based real estate services firm with offices in Chicago. Still somewhat above the 20-year average of 4 to 5 percent, vacancies are expected to continue inching down this year, according to Bruce Kaplan, senior vice president, retail specialty at CBRE.
State Street rents are north of $100 per square foot — and approaching $150-plus per square foot for smaller street-level spaces, the highest they’ve ever been, according to Kaplan. “The biggest problem is the lack of supply; there’s not a lot of space available on State Street,” he said.
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Population, income and housing has risen steadily in the Loop — the population alone tripling in the last decade, according to a 2011 economic study by the Chicago Loop Alliance. The median household income is $87,436, and the neighborhood’s sizable student population of roughly 65,500 spends more than $60 million shopping and eating in the area, the study says.
With the market improving, retailers are looking to expand, which bodes well for Block 37, industry experts say.
“Things are getting better so more (retail) tenants are going to be looking for places,” said real estate consultant Vogel.
It’s a classic case of: If you build it, they will come, added Akira’s Hsueh.
“All they need is some time and capital to … get the momentum going,” he said. “If more retailers come it will be a successful development.”
Tribune Newspapers’ Roger Vincent contributed.
Twitter @corilyns