Get Used to Your 'Crummy' Shopping Center

If there's a crummy shopping center in your neighborhood, it will probably only get crummier.

That's Don Wood's take, anyway. He is the chief executive officer of Federal Realty Investment Trust (NYSE:FRT), a 50-year-old REIT with nearly 20 million square feet of un-crummy retail space in affluent cities on both coasts and some hoity-toity places in between.

"How many times have you passed something in your own neighborhood and asked "why don't they do something about that eyesore?'" Mr. Wood said at the National Association of Real Estate Editors' conference in Denver on Wednesday. "Why do things stay crummy year in and year out, and why will they stay crummy year in and year out?"

The nation is increasingly dotted with unsightly boxes that used to be Circuit City, Borders and BestBuy stores. Nobody has written a book called "101 Uses For A Used Blockbuster." And there are only so many churches, tanning salons and "We Buy Gold" stores to fill these deteriorating spaces.

"I'm 51 years old," said Mr. Wood. "I have never seen a period of time where the split between the haves and the have-nots is as wide as it is today."

How this gap plays out in retail real estate should be obvious: It hardly makes economic sense to pour millions of dollars into a mall for the have-nots.

"Redevelopment is more likely to happen in places that don't really need it," said Mr. Wood. "In places that are great already."

Nevertheless, almost every city official in the nation wants to turn their local retail blights into lovely mixed-use monoliths with fancy stores and restaurants on ground floors and pricey lofts and condos upstairs. This simply isn't going to work without a high density of upper-income households, Mr. Wood said, and in places where it will work, the development process takes years.

Redeveloping old shopping centers is complicated enough already. Sometimes a shopping center owner leases the land beneath the buildings and would have to give up a big chunk of the revenues any redevelopment would bring. And sometimes local governing authorities are too difficult to work with. But the biggest hurdle is often just dealing with tenants.

Tenants call the shots at almost any struggling retail center. A developer has to appease them or risk losing what little revenue is left. And tenants are often more concerned about rising rents than any benefits improvements might bring.

So what we see in retail development is just another chapter in the tale of two economies. Those living in places such as Boston, New York, Washington and Silicon Valley don't really see the decay that most other American shoppers will have to live with for decades to come.

"You talk to people like that," said Mr. Wood, "and those people are saying 'what recession?'...There is a giant chasm."

The nation's most successful retailers are scrambling to open stores in the areas that are doing well, and running away from places that are not. This is another trend Mr. Wood said he has not seen in his long career, and it will add to the downward spiral of any struggling city. Meantime, his company, staying focused on the high end, has delivered 44 years of consecutive dividend increases for its shareholders.

I often wonder why we don't see more headlines about a retail real estate crisis after four years of stubbornly high unemployment and a foreclosure crisis that shows few signs of abating.

"It should have been worse," Mr. Wood told me after his presentation. "The reality is that much of the economy in this country is very concentrated in a few places. The power and the resiliency of those economies buffers us."

Meantime, investment dollars keep flooding into the U.S., seeking safety as every place else in the world gets worse, Mr. Wood said. The affluent U.S. cities that have access to this capital will keep seeing ever-grander shopping paradises. The rest should just get comfortable with their local eyesore.

"It's more likely that it will just stay there," said Mr. Wood, "and get worse and worse and worse over the next 20 years."

(Al's Emporium, written by Dow Jones Newswires columnist Al Lewis, offers commentary and analysis on a wide range of business subjects through an unconventional perspective. Contact Al at or