Thinking Outside the Box: Outlot development breathes new life into local retail epicenters

For decades, shopping malls, big box stores and retail centers were designed with one especially abundant asset: parking. Due to a mix of zoning requirements and consumer demand, retail developments throughout northern Michigan and beyond were planned and executed with sprawling parking lots stretching as far as the eye could see.

Today, those same parking lots are at the root of the biggest trend in Traverse City retail development: outlots.

In commercial development, an outlot or outparcel is a piece of property carved out from a larger property asset and sold or leased for the purposes of development or redevelopment.

In Traverse City’s case, most of the outlots in the area are new parcels subdividing from existing parking lots and offered as development opportunities for standalone buildings that then go on to house restaurants or retail stores. If you’ve noticed the growing number of businesses building and opening up locations in the parking lots of the Grand Traverse Mall, Cherryland Center, Grand Traverse Crossing, the Tom’s East Bay Plaza, or numerous other spots around town, then you’ve witnessed the effects of the outlot trend.

In the heyday of shopping malls and big box stores, it wasn’t unheard of to see the parking lots of the Grand Traverse Mall or Grand Traverse Crossing packed to the gills – especially during the peak holiday retail season.

Grand Traverse Crossing

But things have changed. Brick-and-mortar retail took a massive hit over the course of the 2010s, as e-commerce retailers like Amazon grew to prominence and the proliferation of smartphones made shopping an easy task. According to data from Coresight Research, retail closures have outnumbered retail openings every year since 2017.

The trend isn’t slowing, either. The pandemic accelerated the death of brick-and-mortar retail, with some experts even dubbing the pandemic “the retail apocalypse.” Coresight even predicts that as many as 25% of the shopping malls in the United States will close within the next three to five years.

The result? Malls, shopping centers and big box stores are looking for ways to attract more shoppers or generate revenue in new ways. And with parking lots nowhere near as full as they once were, one solution is to carve out unneeded parking real estate and sell or lease it for the purposes of outlot development.

According to Jerry Snowden – president of Traverse City’s Snowden Companies and a local expert on commercial real estate development – zoning requirements and township planning guidelines have a history of saddling local retailers with more parking than they need. It’s an issue that local developers faced long before brick-and-mortar retail started losing its luster, but one that’s come to a head in the past few years.

“All that parking is a result of what the township requires,” Snowden said. “It was never about what the stores require, but about what the township believed the malls needed to have. But there was a time when there were a lot more shoppers for these big box and junior box retailers. And it’s different now.”

It was actually a change in local zoning that paved the way for much of the outlot development the Grand Traverse area has seen lately. In July 2018, Garfield Township trustees voted unanimously to rewrite the township’s rules for its C-P district – or the “planned shopping center” segment of the township, which includes Grand Traverse Mall, Grand Travere Crossing, Cherryland Center, Buffalo Ridge Center, and the west side Meijer location. The rewrites lifted a ban on drive-throughs at mall/shopping center properties and cut setback requirements from 100 feet to 10-30 feet, dependent on location.

Those changes, along with several other zoning code rewrites, effectively opened the door for outlot development at most of the area’s biggest shopping centers. Former Garfield Township Planner Rob Larrea said at the time that the changes were important to “give the township’s malls the flexibility that they need to be successful in a changing retail atmosphere,” and suggested that without zoning updates, “those properties will certainly go down.” At the time, Cherryland Center was reeling from losing three of its anchor tenants – Kmart, Sears and Younkers – over the course of the preceding 12 months.

Snowden said outlot development is a smart solution to the brick-and-mortar retail problem because it benefits all involved parties.

“Developers and big box retailers want outlot retailers to locate on site because they bring extra shoppers to the property,” he explained. “That’s really what’s behind (the trend): It’s about bringing more dollars to the malls.”

Snowden says that the increased variety brings increased shoppers, driving retail traffic up as well.

“Historically, the big box retailers were where all of the shoppers went, and the developer sold outlots almost as a second priority,” he said. “But over time, developers have seen that these outlot retailers are really traffic generators in their own right, and they can help the big box retailers improve their bottom line.”

The retailers or restaurants setting up shop in outlot buildings, meanwhile, get their own benefits out of the deal. One is prime, highly visible real estate, linked to businesses that – even if they’ve been diminished – are still recognizable, high-profile customer draws. Another is the way that outlot businesses can share certain things with larger developments – from driveways, to site lighting, to parking, to services like winter snow clearing.

While there are some drawbacks to outlots, too – engineering for a building site in a finished parking lot can bring unique challenges that an undeveloped parcel wouldn’t necessarily have, and many malls have non-compete clauses that limit the types of businesses that can operate in outlots – the advantages often outweigh the cons.

Sam’s Club outlet listing

And so, outparcel developments have taken off in northern Michigan. The Grand Traverse Mall is now home to an outlot building that boasts Starbucks and T-Mobile as tenants. Last year, a brand-new Wendy’s franchise opened in a newly-constructed outlot building at Cherryland Center. A real estate listing for Buffalo Ridge Center touts a new outlot development opportunity near the AMC Theater, with approval for up to two stories of development and up to a three-lane drive-thru. And there are other proposed outlot listings out there, too, including one in front of the Sam’s Club on US-31 N., two additional outlot parcels at the Cherryland Center, two at Grand Traverse Crossing, and three outlot properties by Blain’s Farm & Fleet in Chum’s Corner.

At this point, outlots are even being considered up front, as part of brand-new development projects – a trend to which Snowden himself can attest. For years, the developer held about 16 acres on US-31 N. across from Great Wolf Lodge. He sold a sizable portion of that land several years ago, which will now be the home to two new hotels – a Tru by Hilton and a Fairfield Inn & Suites by Marriott. Left with excess property in front of both hotels, Snowden opened them up for outlot development. Both outparcels, he said, are now under contract to businesses that will do nicely to complement each other, as well as the nearby hospitality properties.

That development isn’t the only new one in Traverse City that will boast outlot components from the get-go. A long-gestating hotel development on US-31 in East Bay Charter Township, between Four Mile and Holiday roads, has been planned with an outlot restaurant/retail building on the site. That 8,692-square-foot outlot building will include five units, including one with a drive-thru.

Despite these trends, outlots are perhaps just the first step in figuring out more productive uses outdated retail buildings. Nationwide, there is a massive effort underway in real estate development circles to figure out new uses for failed malls, or for sprawling big box retail spaces that are too large for most tenants to lease on their own.

Some of these spaces have been converted into shipping fulfillment centers for Amazon or other e-commerce providers. Others have been identified as potential spots for multi-family house. Self-storage facilities, indoor recreational centers, and schools are just a few of the other alternative uses that have been tried. In Houghton, Michigan, an old J.C. Penney store has even been converted into a medical marijuana grow facility.

But zoning and approvals often pose challenges for these types of alternative uses and local officials in northern Michigan have not always keen to let go of those old rules. Case-in-point are the area’s two vacant Kmart sites – one at Cherryland Center, one in Acme.

In November 2018, Garfield Township trustees rejected a zoning request that would have allowed the Cherryland Kmart to be repurposed into a $10 million U-Haul development. Three years later, the 90,000-square-foot facility still sits vacant.

Meanwhile, Bloomfield Hills-based developer called Lormax Stern has been trying since 2019 to repurpose the Acme Kmart site into a new planned development. As initially proposed, that development would have incorporated retail, restaurant space, self storage, office space, and housing – all within the existing 87,000-square-foot building – as well as several outlot buildings on the same property.

A revised plan, delivered to the township earlier this year, would have devoted the entire Kmart building to indoor storage, with other parts of the parcel earmarked for workforce housing. But the Acme Planning Commission ultimately decided that the project did not meet its zoning ordinance requirements and recommended against moving forward with it. The township subsequently rejected the proposal.

While Snowden is sympathetic to the zoning requirements that townships have in place, he also said that, at some point, local officials will need to recognize that some of these larger retail facilities are unlikely ever to be the retail empires they once were.

“There are hundreds of seminars every year, trying to answer that question, (of) what to do with larger outdated malls,” Snowden said. “There aren’t enough larger retailers to fill those vacancies.

“And because you can’t find the retailers of that size to lease those spaces, the trend is to repurpose them.”