As the economy slowly inches toward a recovery, the $270 million Scottsdale Quarter shopping center still is luring upscale retail and office tenants to a particularly struggling area in the Valley.
However, Ohio-based developer Glimcher Realty Trust continues facing construction and leasing delays, financial restraints and now legal disputes between a handful of current and potential tenants at its most prized mixed-use project in the Scottsdale Airpark.
Since opening its second phase last fall - following construction of the first phase at the height of the recession - Glimcher has brought in several high-end boutiques, restaurants and entertainment, such as Apple Inc., H&M, and most recently Pottery Barn, Gap and Nike.
A handful of additional retail stores, which fell subject to construction delays, are scheduled to fill ground-level spaces this month, increasing occupancy to about 70 percent.
The 1.2-million-square-foot project is Glimcher's first in Arizona, and the second- and third-level Class A office space above the retail is a unique feature compared with its other 26 developments around the country.
By year's end, office space should be 90 percent occupied by companies such as Starwood Hotels & Resorts Worldwide, which is moving its Arizona headquarters from Phoenix to the Quarter later this year.
"We're really proud of the foundation we've been able to build in these economic times," said Richard Hunt, the Quarter's general manager. "Would we have liked that we would be full and occupied a year ago? Absolutely."
Officials at Glimcher, a real-estate investment trust publically traded on the New York Stock Exchange, say the Quarter offset first-quarter losses in total revenue, which dropped to $66 million from last year's $75.8 million during that period.
But the 28-acre property, on the southeastern corner of Scottsdale Road and Greenway-Hayden Loop across from Kierland Commons, still has vacancies on the eastern and northern ends. Hunt said they focused first on spaces surrounding "The Quad" area in the middle and South Street that runs parallel to Butherus Road, which is where hairstyling salon DryBar, a California franchise, opened last month.
"It's the closest thing to more of an urban community versus just going into your same ol' same ol' mall," said Amy Ross, operating partner of Dry Bar. "There are a lot of unique things to the Quarter and I think that's what's drawing people to it."
The emptiness is most noticeable along North Street, which parallels Greenway-Hayden. Avalon Nails & Spa is the only open tenant and there are almost no advertisements for incoming stores - excluding "coming soon" signs for apparel retailer Express at the western end of the street, where the highest concentration of stores has opened.
Jennifer Nguyen, Avalon manager, said the shop opened in January knowing it would be alone until things picked up next year. But it hasn't negatively impacted sales, she said.
"In this economy, to be in a center that is continuously being built is amazing," she said, "because they're losing tenants everywhere else."
Legal tussles
Although the Quarter is bustling compared with when it opened in March 2009, Glimcher has lost - and evicted - tenants in the process for reasons it mostly attributes to the recession.
"Tenants do come and go," Hunt said. "It's part of our business, and our leasing team works diligently to bring tenants that are the perfect blend for the customers we serve."
Glimcher has filed lawsuits to evict at least four tenants for unpaid rent and unresolved construction liens placed by contractors on the property. Hunt said he was unable to comment on matters related to pending litigation.
According to records obtained by The Arizona Republic, Glimcher repossessed the space that Primebar now occupies after former tenant Martini Park of Phoenix LLC fell behind in starting construction.
In mid-January, it evicted one of the Quarter's first tenants, Scottsdale OG Inc., doing business as Oakville Grocery of Napa Valley, after a year in business for not paying rent and allowing liens of more than $500,000 on the property for unpaid construction work on the store, records show.
Glimcher filed a second lawsuit against the California grocer in February seeking damages and debt of more than $8.78 million. Oakville, which is opening at CityScape in downtown Phoenix this month, declined to comment because of the lawsuits still pending.
As of last month, Glimcher was trying to evict Narcisse Champagne & Tea Lounge, which opened in December, and clothing retailer Compartment: A, which was still under construction.
After Narcisse's general contractor, A.R. Mays Construction Inc., recently filed a lawsuit to recover back payments and interest of at least $547,000 for construction work, Glimcher followed with an eviction lawsuit last month.
According to the complaint, Narcisse has failed to pay rent and gave A.R. Mays only $77,400 of more than $554,000 in tenant-improvement incentives, given by Glimcher for construction work only, and "pocketed the remainder for itself."
Similar claims against the company were made in a third lawsuit recently filed against the company by an investor, who seeks to recover about $116,600 he allegedly invested because of misrepresentations of company finances made by owners and managing members Todd Rosenbaum and Tom Zummo.
The pair said the Glimcher lawsuit was only in response to the lien A.R. Mays placed on the property. Both lawsuits with the landlord and contractor will be resolved by the end of this week, they said.
"The landlord has been behind us, regardless of what public records say," Rosenbaum said.
He said the dispute started with disagreements of some charges on A.R. Mays' bills. He did not give further details on other claims of unpaid rent and misappropriated incentives.
To the lawsuit with their investor, Rosenbaum said: "It's bogus."
Other disputes
Glimcher's eviction suit against Compartment: A, which was supposed to open next to Eddie V's on South Street in March, made similar claims against its owner, Omni Q LLC. Kurt Blaydorn, Omni Q president, said he since has decided to focus solely on the company's new CityScape store, called Designer District.
"Based on Glimcher violating the terms of our lease, I no longer found it suitable to continue the project with Glimcher," said Blaydorn, who declined to comment further because of the pending lawsuits.
Controversy with Scottsdale Jean Company, however, had a different tune.
According to public records, the clothing store, at Northsight Boulevard and Raintree Drive, filed a lawsuit against Glimcher in November after the developer allegedly stalled to sign the final lease agreement before informing the business its space at Scottsdale Quarter would instead be leased to its "competitor."
Steven Koeppel, owner of Scottsdale Jean, said the signage and advertisements Glimcher drew up in prior months led him to believe it was a done deal. The lawsuit was settled last month because he ended up not wanting the space anyway, mainly because of complaints about the Quarter's parking and accessibility.
"Reaction from our customers has been overwhelmingly positive that we're not going in there," Koeppel said. "We haven't had a single customer regret we're not going in there. They all say we're much better off."
Happy merchants
Despite complaints by some existing and would-be tenants, other tenants said they were excited to be a part of the burgeoning retail center.
When Eddie V's seafood restaurant relocated in February from DC Ranch in north Scottsdale, management keyed into the center's younger, more nightlife-oriented vibe by adding a new menu and a fresher look.
"We have new menu items, new design elements and we're able to really showcase a whole new look," said Jim VanDercook, president and CEO of Eddie V's Restaurant Group. "It has a fresh new feel, and we've introduced a raw bar with sushi and sashimi, and a wine room that you walk through to get to the dining room."
PrimeBar, an "urban lodge"-style restaurant, appears to be thriving on weekends, filling three bars and a cavernous dance floor when it books bands and DJs.
Scottsdale resident Adanna Esmonu, 21, enjoyed a martini at a packed PrimeBar on a recent Saturday night.
"I come here about two times a week for happy hour or to shop at Armani Exchange," Esmonu said. "I only live 10 minutes from here, and there's a lot of options. It's like the new Old Town here."
Scottsdale Quarter general manager Hunt acknowledged that a small fraction of his tenants have failed to develop a sufficiently large clientele.
"You'll find in any center, you'll always have fallout," Hunt said. "We just look at it as the next opportunity that's out there."
by Kristena Hansen The Arizona Republic May. 12, 2011 05:27 PM
Scottsdale Quarter continues filling spaces at a steady pace
