Commercial Developers Searching for Tenants

By Beacon Staff

As consumers nationally, worried about their jobs and the market turbulence, have cut back sharply on spending, the fight to bring new retail businesses to empty lots in Kalispell becomes increasingly difficult.

“If retailers are thinking about coming here, unless they’re way, way down the line and that money is allocated already, I think they’re simply going to delay because economic conditions don’t allow them to make those expenses today,” developer Phil Harris said.

A hotelier who bought land a few years ago in Harris’ Hutton Ranch Plaza, a 46-acre commercial project on U.S. 93, has postponed building in the wake of the volatile marketplace, Harris said. “They’re set – they have their plans and are looking to get started as soon as they can,” he said. “But the reality is that this market affects anybody who needs financing to get things done.”

Last week, the U.S. Commerce Department reported consumers cut back sharply on their spending in October, pushing retail sales down by 2.8 percent – the biggest drop on record and the fourth straight monthly decrease. A survey of the nation’s big chain retail stores found it was their weakest October in at least 39 years.

Now, retailers are bracing for what economists say could be the worst holiday shopping season in decades.

With the slowdown in consumer spending, along with the housing meltdown and credit crunch, developers are postponing, scaling back and even canceling retail projects throughout the country. And those with new sites nationally are finding it tougher to sign tenants that have enough capital to finance the interior construction and pay the rent.

For those developing commercial projects on the north end of Kalispell, the national landscape creates an inauspicious environment for courting retailers.

Hutton Ranch Plaza largely beat out the current market troubles: Harris started construction on the development, which is anchored by Signature Stadium 14 and Sportsman and Ski Haus, in 2006. Harris has four lots left to sell, including one very large lot that city officials and other developers say is going to be Wal-Mart – one of the only major chains seeing retail spending increase, albeit modestly.

Harris declined to comment on any future tenants until negotiations were complete, hopefully sometime in the next month.

Across the highway, phases one and two of the Spring Prairie Center are mostly built out, including Costco, Lowe’s, Famous Dave’s, McDonald’s and Starbucks. The development’s third phase, located on the southwest corner of Highway 93 and Reserve Drive, has yet to begin, though.

Grant Nelson, vice president of Goldberg Properties, Inc. said his business was working with Kohl’s and PetSmart to fill two of the 10 spots there and will hopefully beginning building sometime in the next year.

To the north, there’s the site of the future Glacier Town Center, which will more than double north Kalispell’s commercial district with 1.8 million square feet of retail and commercial space, and a 577,000-square-foot shopping complex anchored by three stores of about 100,000 square feet each.

“This is all economically based – if the economics don’t work out the retailers will not be there,” Chad Wolford, co-developer of the Glacier Town Center, said. “Retailers have to be in major markets; they don’t necessarily have to be in Kalispell.”

“If a retailer is only doing 15 to 20 stores a year, and that’s even been cut dramatically in this environment, you can imagine there’s a lot of opportunity out there and a lot of markets the size of Kalispell,” he added.

There are some bright spots for commercial developers here, however, despite the economic turmoil.

Contractors will be looking for work and bidding tighter, Paul Wachholz, a commercial banker and owner of Coldwell Banker Wacholz & Co., said. For those who are credit worthy, interest rates are down from about 7 to 8 percent at this time last year to about 5 percent now. And costs for construction materials have also fallen.

“I think people are generally nervous to move forward in this market,” Wacholz said. “But the smart people, I think, are the contrarians – the ones who make their move when the market is off pace.”

While Kalispell is a small market, Nelson said it benefits from its distance from a major metropolitan district by drawing from all the towns within the valley and shoppers as far away from Canada. The large population growth in recent years is impressive. And Goldberg Properties monitors its existing tenants, Nelson added, who have continued to do very well here.

“That’s a positive sign for the valley,” he said. “Sales are down everywhere right now, but if your area is maintaining better than others you’ll still be seen as viable.”

For retailers, small or immense, viable means one thing: an ability to make a profit.

“They don’t care if it’s pretty here,” commercial broker Turner Askew said. “They’re looking at rooftops or potential rooftops, income and what share of the market they can count on.”

That means it’s especially important, developers say, for Kalispell to create a “business-friendly atmosphere,” namely by making the building process clear and reasonably affordable. They pointed to the city’s proposed transportation impact fees as needing more work in order to be fair and understandable, and Harris noted that the property tax reassessment in the coming Legislature could also have a large statewide impact.

“It’s the same for retailers, big and small, as it is for any other business,” he said. “If we want them to come here, and bring jobs and economic growth, we need to make it possible for them to make a profit – especially, now.”