What’s next for Southern Season space at Libbie Mill?
What happens when an anchor tenant leaves a major development? The result doesn’t have to be gloom and doom, but the departure of a key tenant does raise challenges, say people in the real estate industry.
Last week’s sudden announcement by gourmet grocer Southern Season that it will close its store in the still-developing Libbie Mill mixed-use development in Henrico County has real estate brokers speculating on what tenant might take the 53,000-square-foot space, which also housed the Southerly restaurant.
“They’re still developing the center, so it gives them a lot of flexibility in filling that space, and they could find someone that would bring the same creative energy as Southern Season,” said Susan Jones, a senior vice president and retail team leader for Colliers in Richmond. “The challenge is that they were using the anchor tenant as a draw, and they don’t have that.”
Jones thinks another grocer might come along. “I think it will be a unique grocery concept, not your typical Kroger, Martins or Publix. It would be along the lines of an Earth Fare, a small organic specialty grocery, or a Fresh Market — something with a smaller footprint. “
In commenting on the store’s closing after less than two years at Libbie Mill, Southern Season President Dave Herman said last week that the space was too large and expensive to keep open in the face of lower-than-expected sales. Southern Season already closed its restaurant and will close the store on April 24.
Another grocer would be a convenient amenity for the office and residential going in at Libbie Mill, said Jones. However, she added, there’s growing competition nearby from other grocery chains. “You ‘ve got a Whole Foods going into Scotts Addition and an Aldi going in on the Boulevard.”
A new player, and one that’s expected to shake up Richmond’s grocery market, is coming in May, when Wegmans opens the first of two stores planned for the Richmond area. The Midlothian store opens on May 22, and the second store in Short Pump is scheduled to open on Aug. 7.
With restaurant space in Richmond in high demand, because of the city’s rising national profile as a city for food lovers, Jones doesn’t think the restaurant space at Libbie Mill will be hard to lease. “There’s a high demand for already-in-place restaurant space. If you have that space available, you’re golden right now. It’s a nicely built out restaurant,” she added, referring to Southerly’s space, “with a nice outdoor patio. That would take care of some of the square footage of the 53,000 that they have.”
Real estate analyst Sean Barrie with New York-based Trepp LLC agrees that another grocer is a likely option “or some sort of gourmet market. There are plenty of new food options.” Plus, a new development with good demographics is typically a draw. “As long as it's made known that this is more of a tenant issue than a building issue, I don't think there would be a problem,” in releasing the space, he said.
Developer Gumenick Properties, whose headquarters is based at Libbie Mill, had no comment on future prospects for the Southern Season space. The company said in a statement last week that it was “disappointed” with Southern Season’s decision to close. It reaffirmed its commitment to build out the community, and said it would move to “the resolution of legal issues related to the store.”
The Greater Richmond Association named Libbie Mill the 2015 Project of the Year in 2015 for Commercial Real Estate. Already open on the 80-acre site, just off Staples Mill Road, is a new Henrico County branch library. It overlooks a manmade lake, which has an outdoors space for public gatherings. Rutherfoord, an insurance brokerage firm, plans to open an office at Libbie Mill in mid-May. Also coming soon is a new restaurant by chef Walter Bundy that occupy nearly 6,000 square feet.
Located close in to downtown Richmond, the community is envisioned as a place where people can live, work and play. Gumenick plans 100,000 square feet of retail, 60,000 square feet of office and about 2,000 apartments and homes. It has just begun home sales and reportedly has some contracts in hand. Construction is scheduled to begin soon on a mixed-use building with 327 apartments and 40,000-square feet of retail.
When a tenant breaks a lease, what happens next depends on the terms of the lease. Barrie said some leases cover early termination or include an opt-out clause. “If they’re looking to get out before the lease expires, they have to have some sort of clause, or they will have to keep paying the rent. They may not have to pay the full amount — it depends on how the lease is crafted,” he said.
Even with an early termination clause, Jones said a tenant could still be on the hook for penalties for unamortized tenant improvement allowances or leasing commissions. Without an opt-out clause, typically tenants “are on the hook for rent for however long the lease is. They’re at the mercy of what the landlord or the leasing agents can do to get the space filled quickly.”