Saving the obsolete

Recycler: The buyer of Hunt Valley Mall is known for turning out-of-date shopping centers into successful `big box' retailers.

April 02, 2000|By Lorraine Mirabella | Lorraine Mirabella,SUN STAFF

The Connecticut-based developer buying Hunt Valley Mall has built a reputation recycling obsolete shopping centers in the Northeast.

Now Starwood Ceruzzi is moving into the mid-Atlantic and says it sees plenty of potential for its brand of "big box" retailing in Maryland.

A year after opening a regional office in Bethesda, the developer has four high-profile Maryland projects in the works.

Starwood Ceruzzi expects to close a deal this week to buy Hunt Valley Mall, which has languished half-empty for years. A week ago, the affiliate of Starwood Capital Group said it wants to build the city's first big box shopping center on a former rail yard in Port Covington, an estimated $50 million project.

The developer also is close to signing retail tenants for former Hechinger stores in Annapolis and Laurel, acquired in the defunct home improvement chain's bankruptcy sale. And company officials say they are working to buy and redevelop additional properties.

Starwood Ceruzzi is known for building "power centers" or large strip shopping centers anchored by retailers such as Home Depot, Target and Costco. Until about a year ago, the company, under President Louis Ceruzzi, had concentrated its business in Connecticut, New Jersey, New York and Pennsylvania.

"In greater New York and Connecticut, he's had a lot of success taking properties and repositioning them, properties that were rundown -- and coming out with extremely successful retail projects," said Hugh Kelly, director of the Northeast region for Staubach Retail Services, which represents retailers.

In that region, the company has become one of the top developers of power centers and is among the top 20 nationally, developing more than 10 million square feet of retail since 1988. Its 29 finished centers range in size from 80,000 square feet to 750,000 square feet and cost from $8 million to more than $100 million.

Starwood Ceruzzi is moving down the East Coast, thanks to an infusion of capital and a history of working with chains that have emerged as dominant retail players during the past decade.

"The retail business is a relationship business," Ceruzzi said in an interview. "The retailers are in business, and they grow by opening new stores. So as a developer, you need to do your best to make sure you promise them time frames and costs that are realistic and deliver on your promises."

The capital infusion came from a 1997 partnership between Starwood Capital Group, a real estate investment company, and Ceruzzi Properties. As an investor, Starwood was attracted by Ceruzzi's portfolio of high-quality, high-credit retail tenants with long-term leases in strong locations as well as by Louis Ceruzzi's successful track record, said Rick Kleeman, senior managing director of Starwood Capital.

"We saw segments of the [retail] business that were very attractive," Kleeman said. Ceruzzi "had a high-quality portfolio at the time, but the real opportunity was the ability to create new properties through development at higher returns than could be achieved by buying those properties in the market."

Starwood Capital, also based in Connecticut, has since formed three more partnerships with companies like Ceruzzi with strong links to retailers and the local real estate market. Starwood Capital and its affiliates are one of the nation's biggest developers of Home Depots and Targets and own more than $6 billion worth of property.

Starwood Ceruzzi opened the Bethesda office to expand in Delaware, Maryland, Virginia and Washington -- where strong demographics attract retailers -- bringing in Kenneth A. Goldberg, with 15 years of local retail development experience, as senior vice president and managing partner.

"It's an area where it's fairly difficult to develop," Ceruzzi said. "It's mostly in-fill locations, and that's something we tend to specialize in. Typically, we look for areas that are heavily developed. We almost never go out and buy a piece of land. There always is something on the land, or was. That's what's attractive to us."

Since moving into the mid-Atlantic, one proposed project fell through. Starwood Ceruzzi withdrew an application to buy 43 undeveloped acres in Williamsburg, Va., for a retail and entertainment center. The project faced opposition from officials and residents who worried it would mar the historic city's character, hurt small businesses and worsen traffic.

"It didn't seem to have the support of the community," Ceruzzi said. "If we're not going to get it approved, it doesn't make sense to spend money we'd have to spend with a project of that magnitude."

Though Ceruzzi Properties is known for retail, it got its start building hotels. Ceruzzi was a real estate tax attorney who switched to development in the mid-1980s. The company built a Marriott Residence Inn, then several more, as well as a large golf resort project with Marriott. Ceruzzi continued building hotels through 1990.

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