Published on August 18th, 2017 |0
Does Corso Coffee closing signal more Shops Buckhead Atlanta woes?
By Jarred Schenke, Bisnow Atlanta
Edited by John Schaffner
It was a quiet end for Corso Coffee earlier this week. The high-end coffeehouse at The Shops Buckhead Atlanta became the latest tenant to close its doors for good. The big question is whether the shuttering of a 1,600-square-foot coffee shop is an omen of more failures to come at the luxury retail center or just the changing of hands of a coffee shop.
Jarred Schenke reports “Some shopkeepers and local stakeholders are voicing concern that the project’s owner and developer, OliverMcMillan, may have overshot Atlanta consumers’ appetite for very high-end luxury retail.” Here are excerpts From Schenke’s Bisnow report:
Women’s apparel boutique Hottie + Lord owner Tutu Longe said she was surprised by the lack of foot traffic throughout The Shops Buckhead Atlanta since she opened in April. “People don’t come here,” Longe said. “It’s not the store’s fault. It’s not OliverMcMillan’s fault. Atlanta’s a tricky city.”
It could be many Atlanta shoppers may be intimidated by the luxury status of The Shops Buckhead Atlanta, or maybe Atlanta and its younger generations are not ultra-luxury customers. “When I was in high school, I’d wear $150 jeans,” she said. “My kids don’t care what they wear. They just want to wear Under Armour.”
OliverMcMillan has positioned Buckhead Atlanta as the destination in Atlanta for ultra-luxury retail, with such names as Brunello Cucinelli, Cacao, Dior, Etro, Hermès, Jimmy Choo and Robert Talbott. The mixed-use project also made headlines when it lured the headquarters for Spanx to the site. But Buckhead Atlanta’s path to where it is today was not a smooth one.
Originally called Streets of Buckhead, Atlanta developer Ben Carter envisioned a more nuanced mixed-use destination that would transform what was perceived as the nexus of Atlanta’s party scene, where bars and nightclubs once dotted the storefronts. Carter and other local investors bought many of those storefronts, forced tenants to move and began efforts to redevelop. Then the Great Recession hit, and by 2010, Carter parted ways with his partner, left the project, and OliverMcMillan took it over. The San Diego developer pushed the tenant mix toward luxury.
By 2015, the project opened into one of Atlanta’s most affluent submarkets, especially the tight-knit area directly around Buckhead Village, which is home to some of Atlanta’s million-dollar mansions. Still, once open, there was some churn among the original tenant roster. Last year saw a handful of tenants shutter, including American Food & Beverage and Thirteen Pies restaurants, according to a 2016 BuckheadView story.
In 2015, The Atlanta Journal-Constitution reported that some dozen companies filed liens against OliverMcMillan and certain tenants of the property, including LDV Hospitality, which owned Corso Coffee. The paper reported the liens were for unpaid construction work.
Regarding American Food & Beverage and Thirteen Pies, OliverMcMillan Senior Marketing Consultant Stacie Ellis said the owner of those restaurants shuttered both locations as part of a larger decision to retreat back to its home state and halt expansion plans. For Corso Coffee though, its closure was the final act after OliverMcMillan filed a lawsuit against it on Aug. 2 in Fulton County Superior Court, seeking months of unpaid rent and expenses.
All told, New York-based LDV Hospitality owed the developer more than $175K in rent, late fees and interest, according to the lawsuit. Officials with LDV did not return calls seeking comment. LDV Hospitality continues to operate three other restaurants at Buckhead Atlanta: the steakhouse American Cut, Dolce Italian and The Regent Cocktail Club. (BuckheadView earlier reported that LDV Hospitality had 20-year leases on each space at The Shops Buckhead Atlanta.)
OliverMcMillan also sued other former tenants, Urban Wellness Spa and Denim & Soul, over unpaid rents in Fulton Superior Court last year. Both retailers closed those locations in 2016.
Ellis declined to comment on the lawsuit, but she confirmed by email that Corso was being replaced by a venture from Revelator Coffee Co., which has two other locations in Atlanta. “We will share details once they are finalized,” she wrote.
The mixture of a lack of customer traffic and some of Atlanta’s highest retail rents may be causing some tension. There is little documentation that shows what the average tenant at The Shops Buckhead Atlanta pays in rent. But the lawsuits do show that rents among three former tenants ranged from nearly $50/square foot on up to $90/square foot early in the leases. If those tenants had continued to operate by the 10th year, rents may have topped $100/square foot, according to documents.
The average Atlanta retail rent is $12/square foot, according to a recent Colliers International report. That figure reflects a spectrum of Atlanta’s nearly 170 million square feet of retail, from strip centers and neighborhood grocery stores to malls and power centers. Colliers does not break out rents by segment.
That element is certainly a part of Loudermilk Cos.’ strategy for its various mixed-use developments around the (OM) project. “Our strategy was always to circle Buckhead Atlanta … and pick up
tenants that possibly couldn’t afford the rents,” Loudermilk CEO Robin Loudermilk said.
Loudermilk said OliverMcMillan gambled that luxury retailer appetite would be there for benchmark rents in Atlanta. He said his Buckhead retail space rents are grossing up to $50/square foot.
While Buckhead and Atlanta overall have wealthy families and luminaries, Atlanta’s population is less than gateway cities like New York, which have long-established luxury retail rows. “I think, frankly, the jury is still out whether Atlanta can support the rents that OliverMcMillan is asking for,” Loudermilk said. The project will ultimately be a success, he said.
The question is: at what rents? For OliverMcMillan, customer traffic in the property is not an issue. “The Shops Buckhead Atlanta continues to mature as a vibrant and thriving center. We are experiencing year-over-year increases in both traffic and sales across the property,” Ellis said. She did not provide specific numbers.
While some stores have closed, many others have taken their place. In the past year, OliverMcMillan has added 11 new shops and restaurants to the retail portion of the property, she said. Ellis did not disclose what rents the latest tenants are paying.
Retail landlords in Buckhead, whether the malls Lenox Square and Phipps Plaza — owned by Simon Property Group — or some shopping centers along Peachtree Road, are achieving some of
the highest rents in the metro area, The Shopping Center Group Operating Partner Marc Weinberg said. Lenox Square was generating more than $1000/square foot in sales, according to a 2015 Bloomberg story. Weinberg said a year ago, Lenox Square was quoting rents roughly between $50 and $70/square foot, with $20/square foot extra for expenses.
Weinberg said The Shops Buckhead Atlanta was designed and aimed to compete with Lenox Square on rental rates. But Lenox Square dominates when it comes to customer traffic. “The only retail development that comes close to matching traffic at Lenox is Ponce City Market, and that doesn’t even come close,” Weinberg said.
It is those Lenox Square-like rents that may be a struggle for the boutique retailers when The Shops Buckhead Atlanta is not getting the mall’s foot traffic. And it may make it hard for OliverMcMillan to scale down from luxury in its tenant mix, Ben Carter said. “I think it’s perceived as a place to go for [a] high-end shopping experience. And I think it’s a place that maybe could use some diversity of tenant mix,” he said, adding that those type of rents and those types of sales do not hold up for people who sell more moderately priced products.
OliverMcMillan likely never designed The Shops Buckhead Atlanta to have thousands of shoppers a day like Lenox Square, either. “Luxury retail developments don’t drive traffic because they
don’t appeal to the broad-based customer,” Weinberg said. The kind of stores that Dior or Hermès attract generally are the top earners of a population, “so how could they expect to drive traffic?”
Buckhead Atlanta may have been somewhat different today if it had stayed under the control of its original visionary. “Hindsight’s 20/20, but our vision at the time was to have a more diversified tenant mix,” Carter said.
Carter said the original plan was for a mix of retail throughout the development: more moderately priced boutique retailers along Buckhead Avenue. Along the stores lining Paces Ferry, Carter said he envisioned trendy and bohemian retailers that would attract millennials and younger shoppers, similar to the Meatpacking District or SoHo in Manhattan. There were plans for two hotels where tourists could stay after spending a day shopping. There were also talks with a movie theater that would have in-theater dining and a bowling alley, Carter said. Plus, there were to be restaurants on every corner of the property.
“That to me is the key in a project like this,” he said. “It’s the diversity of food and beverage that draws customers often and has them stay longer. But also a diversity of merchandise so a family can go shopping together.”
Carter was quick to compliment OliverMcMillan on what it accomplished with Buckhead Atlanta, not only with leasing up the project, but also with sticking to his original vision of a low-rise development. “That project could have been three times the density than what it is right now,” he said. “You could have maxed out the development density there and done lots and lots more apartments, or office and hotels and it would be a Colony Square-type project. I didn’t think the [Buckhead] Village was right for that. It’s never been that.”
Carter also agreed that top luxury retailers do not need a ton of traffic through a store. Hermès — a tenant he lured when he had control of the project — “really relies on an amazingly small core of customers,” he said. “That’s what happens in the luxury world. People come in and one person can make a day.”
Flywheel Sports Assistant Manager Olando Narcisse said Buckhead Atlanta does not have a lot of customer traffic, although he added his stationary bike gym — the flagship of three Atlanta
locations — has a strong customer base. “We’re a well-established brand that’s been around for awhile,” Narcisse said. “It’s kind of one of those things that no matter where you are, they’re going to come to us.”
And Longe said OliverMcMillan is responsive to the marketing needs of tenants, often helping her store when she holds customer events. She said her store does best when she holds events in her location, drawing clients in for a specific reason.
Not all shopkeepers are complaining, either. Joie General Manager Anna Jeski said her store is doing well, especially since the women’s apparel retailer is client-driven. “We have a lot of locals and people who come in from work or they’re staying at the St. Regis,” Jeski said.
Veteran Atlanta restaurant broker Harold Shumacher, founder of The Shumacher Group, also said that it is too soon to tell if there is trouble in luxury retail paradise in Buckhead. After all, those same retailers are paying multiples in the rents at Buckhead Atlanta in other cities like New York or Chicago.
“I wouldn’t see a 1,600 SF coffee retailer as an omen to its future health,” Shumacher said. “Now, if one of its flagship retailers closed, that’s another story.”
(To read the full Bisnow article, go here)