Changing Course

June 10, 1991|By Edward Gunts

The forecasts for commercial real estate haven't been so gloomy in years:

Analysts say most markets are so overbuilt and the recession has taken such a toll that for the next few years, at least, there will be no strong demand for speculative office space. Or shopping centers. Or hotels.

So what does a developer do when there's nothing to develop?

It may not be business as usual, but developers can still make a profit in the '90s by filling market niches where their services are in demand.

Some developers have moved ahead with demand-driven, build-to-suit structures with a high percentage of the space pre-leased. Others are working with banks and other institutional lenders, which need people to manage properties taken over through foreclosures. And some are upgrading older office buildings so they don't lose their tenants to newer structures with more amenities.

Still other developers are seeking to create new types of buildings that will address the needs of the '90s market, which is likely to be dominated by aging baby boomers and affluent senior citizens, two groups with plenty of time for leisure and recreational pursuits.

Others, meanwhile, are scaling down their activities or leaving the real estate business altogether -- at least until the economy regains its strength.

David Cordish is one developer who hasn't given up the search for a new building for the 1990s -- the kind of complex that will attract people and help rejuvenate cities the way the festival marketplace did in the 1980s.

He thinks he may have hit upon the right formula in Houston, where his firm recently was selected by Mayor Kathryn J. Whitmire to convert the former Albert E. Thomas Convention Center to a $30 million entertainment center, tentatively called "Downtown Houston!"

Mr. Cordish, an attorney and former federal housing official during the Carter administration, heads the Cordish Co. of Baltimore. His past projects include Trolley Square in Salt Lake City; Trappers' Alley in Detroit; Rainbow Centre in Niagara Falls, N.Y.; and Charleston Place in South Carolina.

For Houston, Mr. Cordish's goal was to build a complex that will lure people downtown after work and on weekends. He says it will be a step beyond the festival marketplace, with a mixture of shops, restaurants, nightclubs and other forms of live entertainment.

What Houston officials wanted is "a people generator," he said. "They have millions of square feet of office space. But . . . the place just clears out at 6 p.m. There's no place for the conventioneers to go downtown. There's no real reason to come downtown on weekends or at night."

Downtown Houston! will contain many of the same attractions one might find along a suburban strip -- restaurants, bars, entertainment, movies -- except that they will all be under one roof. A scale model of the project makes it look like an elaborate Tinkertoy, with colorful signs and banners signaling the different elements of the project.

As designed by Columbia Design Collective, the two-level complex will be created inside the shell of the 12-year-old convention center, with a pedestrian walkway slicing diagonally through the block-long building.

Plans call for seven restaurants, 11 nightclubs, six shops, a food court, a large performance hall for traveling Broadway shows and a section for high-tech companies to show off their latest products. In addition, there will be a number of interactive, participatory exhibits, including a theater that can simulate the experience of being in an earthquake or riding a roller coaster.

Mr. Cordish describes the complex as something of a cross between Trolley Square, Trapper's Alley, Church Street Station in Orlando, Dallas Alley in Dallas, Pleasure Island in Disney World and the new Two Rodeo Drive shopping center in Beverly Hills -- only larger than any of them.

"It's going to be interactive. It's going to be theater. It's going to be restaurants. It's going to be nightclubs," Mr. Cordish said. "What's mandatory is that people are going to be entertained."

Entertainment is one area where there are still plenty of opportunities for developers in the 1990s, analysts say, because aging baby boomers who will control the market will want more places to go in their spare time.

Second homes, restaurants and specialty retail centers are some of the developments likely to be in demand, according to Robert Frank, managing director of the Real Estate Securities Research Group of Alex. Brown & Sons.

John Hawks, director of strategic research for the DRC Group in Milford, Pa., believes there will be more demand for second homes, resorts, golf course communities and other recreational real estate.

"Baby boomers have been the primary force behind virtually every real estate boom," he said in a recent speech. "Today the leading baby boomer is 45. We must recognize what the real estate needs of a 45- to 54-year-old are. The research is quite clear it is leisure and recreational real estate."

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