Casting a Shadow

Casting a Shadow

COMMERCIAL DEVELOPMENT by Mark Gordon | Managing Editor

A Gulf Coast developer is backing up its theory that the future of shopping malls will be outside: It plans to build at least 16 of its outdoor lifestyle centers by 2013.

Followers of Casto Lifestyle Properties, a Sarasota-based commercial development firm that focuses on building lifestyle centers, were somewhat shocked upon hearing this news nugget six months ago: The company had agreed to a $500 million deal with J.P. Morgan Asset Management's strategic property fund to sell half of its interests in five Florida projects; three of the five are in the Sarasota-Manatee market.

Sure, Casto Lifestyle, an affiliate of Columbus, Ohio-based Casto, has done a few deals with J.P. Morgan before. But never on such a large scale, as these projects total 1.4 million square feet in size and are worth $300 million.

In exchange for 50% of the five projects, Casto Lifestyle will have access to millions of J.P. Morgan's money, to finance future projects in Florida and nationwide; it plans on developing 16 of the mix-used projects over the next six years. Casto Lifestyle has also used about $60 million of the funds to pay back debt.

"We've always had an adverse reaction to institutional capital," says Brett Hutchens, Casto Lifestyle's president and CEO, "simply because of the encumbers that come with it."

But this deal, says Hutchens, was different. To start with, the top guys at J.P Morgan share Casto's philosophy of long-term thinking, even if that includes a definite short-term loss. For example, Hutchens says, J.P. Morgan executives didn't flinch recently when Casto decided to jettison a Hallmark store at its Winter Park Village, so it could be replaced by a Coldwater Creek store; the move cost Casto $1 million, but Hutchens says the new store "changes the face of the center."

The deal with J.P. Morgan represents just one part of some recent changes at Casto Lifestyle, as the company adapts to the changing real estate market. For instance, despite the slumping market, Hutchens says Casto Lifestyle is considering getting into residential real estate, as it follows the research that shows the Southeast will continue to be a popular relocation site for northerners for years to come. It plans on hiring people with residential experience to lead that effort.

The company is also redeveloping an outdated Chicago mall, in addition to several ongoing projects in North Carolina.

What's more, the J.P. Morgan deal and its related projects aren't the only ones where Casto has generated newspaper headlines: The company is serving as both the retail developer and as an advisor to Irish developer Paddy Kelly in is his ambitious plans to redevelop 15 acres of downtown Sarasota waterfront property into a $1 billon open-air mix of hotels, condos retail and office space.

Hutchens declined to disclose any details on the company's revenues. Casto Lifestyle's privately held parent company also doesn't disclose annual revenues.

Wal-Marts and movie theaters

Casto's parent company opened an office in the Sunshine State in 1995, but even though it was headquartered in Sarasota, it didn't work on a project in the area until 2002. During that time, it managed and developed more than one million square feet of retail space in the state.

Its first two projects in the Sarasota-Manatee market proved to be big-time successes. The first was the One Hundred Central/Whole Foods Centre in downtown Sarasota, which opened in late 2005. The city-block wide project is a mix of condos and boutique stores, anchored by Whole Foods. Hutchens, though, is most proud of the grocery store's environmentally sound design: It's the first Whole Foods to be designed based on a green-building rating system.

Casto's second area project is Main Street at Lakewood Ranch, a prototypical lifestyle-center development in which the company excels. Main Street is an outdoor mix of boutique and chain stores, condos, offices and restaurants. A six-screen movie theater opened late last year.

Hutchens, 59, started his career as a commercial real estate lawyer in Cincinnati. He soon switched to development, ultimately opening a self-titled company in Aiken, S.C., that developed and managed retail shopping centers. The company, which focused on building centers anchored by Wal-Marts, grew quickly, to 50-plus employees.

But during a location-scouting trip to Winter Park, Hutchens met some representatives for Casto, who were looking for someone to lead the three-generation company's new efforts in Florida. Hutchens sold the properties his company owned so he could work for Casto, which has developed and managed dozens of retail properties in states such as Pennsylvania, Indiana and North Carolina, with the bulk located in Ohio.

'Complex process'

Lifestyle centers are Casto Lifestyle's trump cards. The centers are considered to be the future of the retail cluster shopping industry, taking over for the indoors-based mall, which has lost its luster over the past decade.

Lifestyle centers have several restaurant options, close parking and street-facing stores. They are traditionally located in or near communities with both a high-end and growing population, and are designed to for easy walking around.

For both Casto and Hutchens, the most important, and also most challenging, aspect of building successful lifestyle centers is that they need to be excruciatingly well-planned. Says Hutchens: "The process is so complex."

Take the project in downtown Sarasota, the redevelopment of property once known as the Qauy, for which Casto is running the retail side. First, there's the angle of competition, as another large redevelopment project, Pineapple Square, is a few city blocks away and going after similar tenants and customers.

Both Hutchens and John Simon, the CEO of Pineapple Square Properties, say there is enough room in town for both projects to succeed. "I think the Quay and Pineapple Square will both be great for downtown," Hutchens says, projecting out two or three years when the initial phases of each project could be complete.

But first, there's the task of lining up the stores. For the redevelopment of the Quay, being called Sarasota Bayside, Hutchens says that generically, the final product will include a mix of four or five tablecloth restaurants, as well as several entertainment, fashion, accessory and personal care-based tenants. Possibilities for actual tenants include retailers such as Gucci and Ralph Lauren, although Hutchens wouldn't confirm any stores, as no deals have been signed.

Hutchens says lining up tenants for lifestyle centers is a challenge within a challenge, because some stores have co-tenant requirements, and have to be paired up with other stores. And even before the tenant-recruiting process, there are other hurdles, such as the entitlement process, site planning and getting city or county government approvals.

But it is a process on which Casto, and J.P. Morgan, are betting the future.

REVIEW SUMMARY

Who. Casto Lifestyle Properties, Sarasota

Industry. Commercial real estate development

Key. The firms' plans to build lifestyle centers in several Southeast states over the next six years has been boosted a $500 million deal with J.P. Morgan.

Casto Lifestyle Properties and J.P. Morgan

The joint venture between Sarasota-based Casto Lifestyle Properties and J.P. Morgan Asset Management's strategic property fund gives each entity a 50% stake in five Florida lifestyle center projects. Those projects are:

• Lakeside Village, Lakeland: The project has about 500,000 square feet of retail property. Tenants include Ann Taylor Loft, Bed, Bath & Beyond and Starbucks. A Hampton Inn & Suites is also located on the property;

• Main Street at Lakewood Ranch: The most recent of the five lifestyle center projects to be completed, it has 175,000 square feet of retail and office space. Tenants include several boutique stores and independent restaurants, as well as a Chico's and a six-screen movie theater owned by the Sarasota Film Society;

• St. Armands Circle: Casto has managed a portion of the well-known Sarasota shopping Mecca for several years, including tenants in the 27,000-square-foot property that houses Chico's, Lilly Pulitzer and Brighton Collectibles;

• Whole Foods Market Centre: Anchored by Whole Foods grocery store, the project also includes 95 condos, 450 public parking spaces and 60,000 square feet of retail space;

• Winter Park Village: One of Casto Lifestyle's largest projects, with more than 524,000 square feet of retail and office space spread over 40 acres. Tenants include The Cheesecake Factory, Borders Books and Ann Taylor Loft.