About a year ago, the Hill Country Galleria, 12700 Hill Country Blvd., Bee Cave, changed hands, sold for an undisclosed amount from the partnership group that brought the retail center out of bankruptcy to a California teachers retirement system.
With an infusion of $16 million in renovations and the addition of Swedish-based apparel company H&M, investment management firm INVESCO—representing owner California State Teachers Retirement System—is banking on further success for the local outdoor shopping mall.
“This opportunity, when it came up last year, we all saw as an opportunity that doesn’t come along too often,” INVESCO Real Estate Director David Bass said. “[It is the opportunity] to take a property in the heart of one of the strongest demographics in the country that had many, many things going right for it [and] kick it up to another level.”
Mall history
The Hill Country Galleria was originally developed by Opus West Corp. in 2008.
Sonesta Bee Cave owner Adrian Overstreet was the managing partner of the Galleria’s former ownership group that bought the center for $75 million out of bankruptcy in 2010.
INVESCO manages the assets of CALSTRS, the pension fund that purchased the shopping center Sept. 12, 2014, from Hill Country Galleria LLC. At the time of the sale, CALSTRS, with a real estate portfolio valued at $22 billion and a net worth of $188 billion in total investments, was the second-largest pension group in the U.S., CALSTRS Media Relations Manager Mike Sicilia said.
INVESCO developed a strategy to make the center more profitable and then approached its client, CALSTRS, which approved investing $16 million into the Bee Cave mall, Bass said.
Challenges
Bass said INVESCO’s research consultant found that area residents have a surprising lack of knowledge about which stores are in the mall.
“Interestingly, we asked for the top 10 retailers that people would like to see at Hill Country Galleria, and three of them are already here,” Bass said.[polldaddy poll=9174934]
The design of the mall—an inward-looking design in which the bulk of the center faces inward—was popular at the time, he said. However, the design is a challenge for his team, Bass said. Unless a shopper deliberately drives into the mall, he or she may not realize some of the retailers are in the mall, he said.
Bass said the earnings of center tenants are below what they should be.
“The average sales per square foot is the benchmark for retailers,” he said. “A good average is $400 per [square] foot. Our average here is slightly below $200 with the tenants that report sales.”
Shopping local
Bass said the interests of his client—CALSTRS, the owner of the Galleria—and the interests of Bee Cave residents are aligned. He said there is room for more consumer dollars to be spent in the city and retained as sales tax to be used for civic improvements.
Last year, residents in the primary trade area—within a 15-minute drive of the mall—spent $160 million on food and beverages but only $100 million of that was spent in the trade area, Bass said.
He said consumers within a 30-minute drive of Bee Cave spent $222 million on food and beverage outside the area in 2014, resulting in a revenue loss of more than $3 million to the city.
“They’re spending the money—they’re just not spending it here,” Bass said. “If we benefit by increasing sales, the whole community benefits by doing that.”
Only $200,000 out of the city’s $10 million annual budget comes from property taxes, said City Council Member Kara King of the impact the city’s sales tax has on its administration.
“The [added sales tax revenue] means we can continue running our budget without raising [property] taxes,” she said. “You have to shop local.”
The city of Bee Cave adopted a property tax rate of $0.02 per $100 valuation for the 2015-16 fiscal year.
Change is coming
Bass said he is working with Bee Cave staff to achieve aesthetic changes to the mall, including increasing shade areas with more awnings, adding benches and revamping the town square.
“Synergy is what I focus on,” he said. “It’s the magic in retail where you have complementary retailers together and hope that someone who comes in will go into the store of their target and say, ‘I see something in the window I want to go see.’ Suddenly one visit to one store becomes one visit to three stores. That benefits everyone, and that’s why merchandising mix is so important.”
Bass said he is relocating a store and two restaurants—Backwoods, Cafe Blue and Chisos Grill—to new sites within the Galleria to achieve specific areas of focus, including an apparel and fashion area near Dillard’s, an entertainment and fast-casual dining area with food carts by the Cinemark theater, and nontraditional retail uses such as medical offices by Whole Foods Market. The town square area will house more food choices and outdoor dining intended to make the area more inviting.
“[INVESCO] has the bigger picture in mind—drawing more traffic to the mall,” said Chisos Grill owner Chad Jones, who is relocating his restaurant to a space across from Whole Foods in early 2016. “When you go to Domain I, pretty much all of the restaurants are centered in common areas, and traffic flows in that area. By bringing the restaurants to a more centralized area of the Galleria and retail [in one area], folks will know where they want to go rather than [having stores and restaurants] scattered through the mall.”
H&M
“H&M is coming to the Hill Country Galleria,” Bass said at the Oct. 14 Bee Cave Chamber of Commerce meeting. “The survey we conducted shows that the No. 1 retailer that residents in Bee Cave want is H&M.”
The retailer already has a store in The Domain, and the Bee Cave location set for 2016 will be the Austin area’s only other H&M location, he said.
The one-story store will be 21,000 square feet and the store is estimated to pull in about $600 per square foot in sales, he said.
Bass said construction on the renovations is projected to begin in early 2016 and will be complete by fall 2016. The city has not received the full set of plans yet, he said.
