The Art of Development
September 1, 2013
The Art of Development
Shopping Center Business

By Randall Shearin For San Diego-based OliverMcMillan, being a contrarian in bucking market trends is nothing new. The company has been developing mixed-use developments since before the term mixed-use was commonly used. In its 35-year history, the company has developed more than $3 billion in property, comprising more than eight million square feet, and that is just the beginning, says Co-Founder and CEO Dene Oliver. In the last five years, OliverMcMillan has again demonstrated the vision to be ahead of the curve in anticipating market trends. The company managed to remain in a growth mode by putting developments on hold when necessary and picking up high-profile distressed developments, redesigning them and successfully bringing them to market. By 2010, the company had four major developments underway in Honolulu, Atlanta, Houston and Phoenix, and several smaller developments in other markets. Recently, Shopping Center Business spoke with several executives from OliverMcMillan to get an inside look at how the company is handling all of these developments at one time, and its internal growth. Building New Ground Armed with strong investor relationships and equity from operating properties, OliverMcMillan was positioned well going into the recession. Its position as one of the largest and most forward-looking landlords in downtown San Diego, where it developed a number of multifamily developments anchored by strong performing ground floor retail, provided the company cash flow that fueled new development. Following the downturn in 2008, company leadership focused on identifying viable opportunities to pick up stalled developments, analyzing opportunities presented by the depth of contacts that OliverMcMillan�s executive committee had built during 35 years in business. The successful acquisition in 2009 and subsequent completion of a stalled condominium tower in Honolulu led to increased optimism about OliverMcMillan�s potential to fix broken developments. Next, the company had the chance to revive the River Oaks District, a project it had previously acquired in Houston. Third, came Buckhead Atlanta, a massive mixed-use project in the upscale Buckhead area of Atlanta. A second, ground-up luxury condominium tower in Honolulu soon followed on the heels of the success of its first high-rise project, Pacifica Honolulu. The company is also currently developing multifamily with ground-floor retail buildings in Tempe, Ariz., and San Diego. �These opportunities have changed the company dramatically,� says Paul Buss, OliverMcMillan�s president. One way it has changed is at the company�s top levels. OliverMcMillan has hired a number managing directors over the past few years to take charge of developments. Many are former presidents or operating officers of successful major national developers. Rather than have its en-tire company based in San Diego, OliverMcMillan has adopted a hub-and-spoke approach, where its managing directors are based close to their developments. The company now has offices in Atlanta, Houston and Honolulu. It also maintains a leasing office in New York City. �We are not hiring highly capable people and delegating to them,� says Buss. �We are in true collaboration with our managing directors. We are committed to bringing out the best in them and letting them be the key drivers in development decisions.� Expansion came at a good time for hiring in the industry. In recent years, the company has picked up several managing directors that have a combination of strong experience and cultural fit, explains Hillary Crowe, OliverMcMillan�s chief culture officer. �We want experience, but we want people who are going to fit in and integrate well with our team,� says Crowe. �We are all about community and relationships. Our people are the heart of our culture.� For those employees based at headquarters in San Diego, OliverMcMillan provides a full-time chef and a gym staffed with a trainer. On Fridays at headquarters, employees have lunch together to recognize successes and get an update on operations and developments. �We want our employees to be adequately challenged and have them grow. We want to celebrate their successes,� says Crowe. �We wouldn�t be able to reach the milestones that we do without our camaraderie and collaboration as a team.� While it may sound like fun, executives were quick to say that OliverMcMillan is a hard-working atmosphere where decisions are made constantly and no detail is left undiscovered. �We are an intense group that is not for everyone,� says Buss. �We work hard and we are passionate about what we do.� Creating a strong culture that is reflective in its developments is important to firm co-founder Dene Oliver. To him, the company should reflect its developments, and vice-versa. �If we are working to create environments that are going to be captivating for people within these complex developments, we had better be living and acting the same way,� says Oliver. �If we are going to truly make special places happen, we have to live in a special place ourselves.� Project Focused There are plenty of special places for the employees of OliverMcMillan to focus their efforts on these days. The company is at a critical junction on several developments where construction has begun and decisions are needed every day. For the managing directors and their staffs, who are under pressure to deliver a quality project on time, attention is ever in demand. The same goes for the company�s leasing staff members, who are working to fill the developments with luxury retailers and restaurants that are one-of-a-kind. �We aren�t building developments, we are building places,� says Oliver. �Great places, wherever they are, change with time and move forward. The second you hear a term created in the industry, like �lifestyle center� or �entertainment center,� that is the day it is on the downhill slide. Terms try to categorize developments versus making them special places where people want to visit.� Because of the reputation the company has, it is under a watchful eye of the development community to create developments that are above par for the markets. �We don�t feel exterior pressure to create great developments,� says Buss. �But we do feel a ton of internal commitment and pressure to make a project the absolute best we can make it. It is just who we are and who we want to be.� Houston Like Never Before OliverMcMillan purchased the site for River Oaks along Westheimer Road in Houston at the end of 2006 and planned a mixed-use development with luxury retail, hotels and upscale condominiums. As the economy turned, OliverMcMillan decided to put the project on hold. Because the site was still occupied by operating apartments, it continued to generate revenue for the company, allowing OliverMcMillan to weather the market. �Luckily, in Houston, the recovery came a lot quicker than the rest of the country,� says Greg Wattson, managing director, who joined OliverMcMillan after heading retail development for Opus West. In early 2011, Oliver McMillan revisited the business plan for the development, examining the size and the scale of the project, really taking it back to the drawing board. The development team decided to build a less dense project, adding midrise residential and removing hotel space to focus on luxury retail. The multi-use development, which is set on 14 acres, will encompass 650,000 square feet and is designed to complement the surrounding neighborhood and the greater Houston area with walkable, tree-lined streets; a town-center gathering spot with a magnificent canopy of mature Oak Trees. The River Oaks District will include 250,000 square feet of retail and restaurant space on the ground level. On top of the west side of the retail there will be 279 luxury apartments with a secure parking deck. On the Westheimer frontage, the company is building 92,000 square feet of boutique, high end office space on top of the retail space. At the northeast end of the River Oaks District, the company has signed iPic to open a 40,000-squarefoot upscale theater that sits on top of the retail space there. There will also be a six-level parking garage that will hold 1,200 vehicles. �We are going to be delivering to Houston one of the most unique and desirable developments that the market has ever seen,� says Wattson. �The quality of construction, the placemaking that we are bringing, the types of materials that we are using are not found in this market.� OliverMcMillan is using limestone quarried in Texas for the retail buildings� fascia. It is installing mature oak trees so a natural canopy is created from the project and shapes the pedestrian walkways. �From the day we open, the project will look like it has been there for 20 or 25 years, from a landscaping perspective,� says Wattson. �We are giving our luxury retailers the opportunity to brand their stores in an environment like Rodeo Drive or Fifth Avenue in a cosmopolitan city like Houston.� Construction at the River Oaks District started on July 1. OliverMcMillan is planning to open the project in one phase in the spring of 2015. The company is building the River Oaks District in a public-private partnership with the city of Houston. Restoring Buckhead�s Historic Core OliverMcMillan�s ambitious Buckhead Atlanta project is bringing luxury mixed-use to the area�s upscale neighborhood while redefining the streetscape of the original Buckhead Village. The completed project, which sits on eight acres encompassing six city blocks, will include 300,000 square feet of upscale retail stores, restaurants and cafes, nearly 800,000 square feet of custom office space and 370 luxury high-rise residences. Because Buckhead Atlanta is located in one of the highest income ZIP codes in the Southeast, OliverMcMillan is targeting high-end retailers that are not already in the market to tenant the project�s 300,000 square feet of retail space. Originally envisioned by Atlanta-based Ben Carter & Associates, the land assemblage took several years, followed by entitlements. OliverMcMillan took the project over in 2011 after a complex financing negotiation. Today, residents of Atlanta are excitedly anticipating Buckhead Atlanta�s grand opening. The project began vertical construction in early August, and the two multifamily towers are currently rising at the pace of about a floor per week. Portions of the retail will open in spring 2014 including Herm�s, the French highfashion design house, which will be among the first of many upscale retailers to open at Buckhead Atlanta. The two residential towers will open in the fourth quarter of 2014. A future phase along Peachtree Street will start construction next year, opening mid-2015. �The development�s proximity to Phipps Plaza and Lenox Square is going to expand the overall retail market for Atlanta, as opposed to being competition,� says Hunter Richardson, managing director of the Buckhead Atlanta project. �In other cities around the country, when you add a new dimension to the shopping experiences, it expands the market for both the new and existing retail centers.� As well, the development is expanding on Buckhead�s early history of being an original suburb, to its more recent history of being the entertainment hub of Atlanta. �We are bringing to Atlanta a truly pedestrian-friendly, walkable, urban village environment,� says Richardson. �It is in keeping with the village concept that Buckhead has always had, but taking that to the next generation.� OliverMcMillan has partnered with Doug Hoerr, a partner of the nationally acclaimed Hoerr Schaudt Landscape Architects, to create a vibrant streetscape experience at Buckhead Atlanta. Some of Hoerr�s significant projects include the Michigan Avenue streetscape along Chicago�s Magnificent Mile, The Tiffany Celebration Garden adjacent to Chicago�s Buckingham Fountain, Millennium Park in Chicago, and other award-winning public and private transformations throughout the country. Buckhead Atlanta�s beautification will extend beyond the development�s front door, with a combination of abundant, mature native and seasonal landscaping to create the feeling that this is an extremely well maintained neighborhood that has existed for decades and has grown up with Atlanta. In doing so, Buckhead Atlanta will provide a foundation and catalyst that encourages the natural evolution of the surrounding community. �Some of that architecture is historic, while some is modern, so the project as a whole feels that it was evolved over time,� says Jeff Zeigler, senior managing director and director of retail services for OliverMcMillan. The project recently scored headlines when it was revealed that Spanx would anchor the project�s office space, as well as locate a flagship retail location at Buckhead Atlanta. Spanx will initially take 86,000 square feet of office space in the fall of 2014, with options to grow to 112,000 square feet. �To have an Atlanta-based corporate headquarters fashion tenant that also has a retail store just adds to the mixed-use atmosphere and the overall vibe of what we are executing in Buckhead,� says Zeigler. Identifying Opportunity in Hawaii When a business relationship called OliverMcMillan to Hawaii in 2009, OliverMcMillan saw an opportunity that was right up its alley. Situated along Kapiolani Boulevard in downtown Honolulu was a condominium project that had stalled mid-construction. OliverMcMillan looked at the project and realized it could be re-envisioned with high-quality design, excellent residential amenities and ground-floor restaurants, creating a market for more highly valued Honolulu condominiums. It reinvented the project mid-construction, securing new entitlements as well as rebranding the development. The 46-story project, known as Pacifica Honolulu, was designed by Architects Hawaii. At 400 feet tall, it holds 489 units. After OliverMcMillan acquired the project, it hired Gensler to apply the company�s vision and redesign the commercial space for the building, adding retail on the ground floor. The spaces were sold to top restaurateurs Kevin Aoki, who opened his fourth Doraku Sushi location in the building, and Thomas Ky who opened Chai�s Island Bistro. �Part of the success of Pacifica was the lure of these two great restaurants that we were able to open in the base of our building,� says Dan Nishikawa, president of OliverMcMillan�s Pacific Rim region and senior managing director of the company. OliverMcMillan was able to realize residential prices in the building of about $600 per square foot. Resales today are going in the high $700s per square foot. In 2011, OliverMcMillan reached a deal with a local family to acquire a site just down the street from Pacifica Honolulu, at Kapiolani Boulevard and Ward Avenue, directly across from Hawaii�s top entertainment venue, the Neal Blaisdell Center. In November 2013, OliverMcMillan will begin construction on a new multifamily tower on the site, named Symphony Honolulu. Located on the first three levels, JN Automotive Group will feature international brands such as Ferrari, Maserati, Bentley, Lamborghini, Audi and Lotus as well as restaurants and exhibits. The residential component of the development will have 388 units in a 400-foot tall tower. Completion of the tower is set for the end of 2015. Large Deals As any developer knows, projects take money. In addition to having two of the largest scale mixed-use developments in the country underway, Oliver McMillan has also closed two of the largest construction loans for mixed-use development this year. The loans for Buckhead Atlanta and River Oaks total about $350 million. �No project is financed the same; they all have their twists and turns,� says Bill Persky, the company�s chief financial officer. �We pride ourselves on being able to work through those twists and turns. OliverMcMillan has other developments planned nationally and is continuing to seek out and develop the smaller mixed-use developments that the company made its name with. In San Diego, OliverMcMillan is developing a new, urban 208-unit multifamily project at 688 Thirteenth Street that will take OliverMcMillan�s signature common areas to a new level, expanding the sidewalks adjacent to the property to add a double row of trees that will create ambiance and accommodate outdoor seating for ground floor cafes, as well as planning for an amenity deck with extensive offerings. OliverMcMillan has been known as a major landholder and one of the most active developers in its hometown for many years, having participated as a leader in the highly successful revitalization of the Historic Gaslamp District. OliverMcMillan is also developing The Lofts @ Hayden Ferry, a four-story, 264-unit, Class A apartment building in Tempe, Ariz. Located on the south side of Tempe Town Lake, the development is near Arizona State University and the Mill Avenue Entertainment District. �We do not have a mandate as to how many developments we will have at one time,� says Managing Director Eric Buchanan, who, in addition to being charged with the Tempe project, is one of the executives in the company who seeks out new developments for OliverMcMillan. �We find deals through relationships. We have a lot of cities who call us and want us to do a project based on a site they have. We are also selective and pick the best developments that we think we can have the most success with.� �We are going to continue to look for unique opportunities,� adds Oliver. �We are able to go from New York to Honolulu, from Seattle to Miami. There are probably 12 major markets in the U.S. that we could be interested in, but we always let opportunity be our guide.� New Luxury Leasing At both River Oaks District and Buckhead Atlanta, OliverMcMillan is building into a trend of retailers locating in places that help consumers identify with their brands. Whereas on the high streets of the world, retailers are left to their own devices to create an identity, they have not been allowed that freedom in malls. In cities where there are no high streets � like Houston and Atlanta � retailers are seeking that experience to create their identities with shoppers. �Luxury retailers are not content with having a shop-in-shop in the department store anymore,� says Buss. �They want to sell their products directly with their image as part of the buying experience. The store helps create the image, and the center is a medium that helps them create that image and that brand identity.� As well, there is not full representation of luxury retail and dining options in both Houston and Atlanta. There are many European brands that have not yet made the leap to these cities. Zeigler says that this is not because of the consumer; luxury brands are the best at knowing the profile of their customer and where they live, but more because of the appropriate available locations and developments that exist in the markets. �Having a storefront on a street is something that is new to both Atlanta and Houston,� says Zeigler. �It is an attractive component for our tenant base, who are used to locating on the great retail and mix-use streets of the world. In both River Oaks and Buckhead, we are directly adjacent to the wealthiest ZIP codes. Those residents will view this as their pedestrianfriendly downtown.� Focusing on luxury tenants does mean the developments will be built for a segment of the population. Unlike malls, OliverMcMillan�s properties are generally built to satisfy a focused need in the market versus a scattered regional demand. �In Atlanta and Houston, the emphasis is on high-end luxury tenants and unique food and beverage,� says Zeigler. �That said, these developments will cover the gamut of the family, from zero to 80 years old, but always best in class. We are not trying to be all things to all people, but we do want people to have a great experience and have a well-rounded visit when they spend time with us.� In its leasing efforts, Zeigler says OliverMcMillan looks for maximum sales in a given market. We always try to find restaurant tenants that will complement the strong retail offerings in its developments, while offering the market something unique. That could mean a new concept from an established local operator or a first-in or only-in-market location for a national retailer or restaurant. �We look for new offerings to the market that differentiate what we are going to execute in our developments versus what already exists in the market,� says Zeigler. Next Gen Development OliverMcMillan�s leasing strategy is just part of its overall vision for development. The company goes into a development with no preconceived notions of what it should be. Instead, the company studies the market and finds the need that the development should fill. �We never went to a market and said, �here is what we are building,�� adds Persky. �We go in and find out the sense of community that exists. We talk to the community and find out what they are seeking and what they don�t want. We go for the most vocal objector and try to find out their issues especially. Once we get to the leasing stage, we go to the tenants and try to create a vision together. Development, to us, is a collaborative effort among many parties.� Dene Oliver believes that retail has evolved, and the Internet has played a huge role in how consumers shop and spend their leisure time. Today, he says, shopping centers are competing against computer screens and mobile devices for �social networking.� The experience created at a destination center makes the difference, as it draws all ages out to socialize, shop, and enjoy restaurants and entertainment venues. �In order to drive shopping, we have to offer an experience that gives shoppers an opportunity to be social � enjoy friends, great times, excellent food, entertainment and connecting face to face with people � an experience that they are not going to get electronically,� says Oliver. �That means not only creating a place that he or she wants to spend time, but a place that is convenient and a pleasure to visit. From the minute the shopper enters the property it affects their experience.� For that reason, OliverMcMillan pays a lot of attention to detail on what a consumer�s experience will be entering a development from the street, from parking to walking to every store. This attention to detail is reflected not only in the experience that the consumer has at the center, but the experience that the retailer has, as well as overall sales performance. �There�s no formula for any development,� says Oliver. �While there�s science, there is plenty of art in development as well. Everything we do is different than the next thing we do. We will continue to push the boundaries in creating luxury, best-in-class destination communities that evolve and mature with the communities that they are located within. The magic of development is in the details, and you have to be willing to drill deep and engage all the details.� OliverMcMillan has a pipeline of development, including some developments of its own that have been on hold. As it seeks out new opportunities, it is considering some previously developed properties that it visions as adaptive re-use developments.

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