Dori Segal knows he is stepping into dangerous territory.
The chief executive officer of First Capital Realty Inc , known for its strip malls of humble dollar stores and supermarkets, is making a bold but risky move into the upscale urban shopping-centre scene. He’s planning to acquire Hazelton Lanes, in Toronto’s posh Yorkville district, despite the mall’s reputation as something of a retail white elephant.
The $110-million purchase of Hazelton, a mix of luxury fashion and the chi-chi Whole Foods grocery emporium, is Mr. Segal’s bid to follow the trends of today’s urbanites. They are moving back to city centres and seeking shopping destinations for their everyday needs – groceries, drug stores, dry cleaners and fitness clubs.
Developers such as RioCan Real Estate Investment Trust are starting to broaden their horizons beyond suburban big-box stores and strip malls, as they chase empty nesters and young professionals with disposable incomes to urban centres. But the companies are hunting among scant opportunities for acquisitions or assembling land in cities across the country. And they are grappling with higher urban costs of everything from the property itself to getting goods to and from congested sites at a time when the economy is tightening.
“People who know me ... know that I don’t shy away from tougher challenges,” Mr. Segal said in an interview. “There is definitely some work to be done. I don’t underestimate it.”
Hazelton Lanes has had its share of challenges over its 36 years, with different owners having tried to breathe new life into its maze-like layout. Its move about a decade ago to launch a Whole Foods has helped: The grocer now generates more than $1,000 of sales per square foot, almost twice what other retailers in the mall ring in on average, estimated Karine MacIndoe, real estate analyst at BMO Nesbitt Burns Inc. Whole Foods recently expanded its space in the mall, an encouraging sign of its financial health.
Mr. Segal said he will reposition Hazelton, eventually introducing new retailer tenants to expand its offerings and services to more practical products for high-income customers. Over time, he will replace some tenants and demand higher rents, predicted Mark Rothschild, real estate analyst at Canaccord Genuity Corp. A powerhouse foreign fashion chain looking for attractive space in Canada is a possibility, Mr. Rothschild said; a larger drug-store, with full cosmetics and fragrance aisles, is another potential tenant.
“There’s no easy fix,” Mr. Segal said, adding it will take time to find the right model.
He said he will borrow a page from the playbook of First Capital’s largest shareholder, Gazit Globe, which has made headway in urban malls in European countries, including Finland and Sweden. They offer high-end fitness and other health services for customers, along with upscale supermarket, beauty and fashion retailers.
Mr. Segal said he welcomes the chance to operate on a retail level in areas where people live, work and find their entertainment. “It is more challenging,” he added. “It takes more time to get things done. It’s very expensive to operate in an urban environment. Everything that you do costs you more. But we have to cater to what consumers want and not what is easy for us to do.”