AKRF Updated “Competitive Effects Analysis” on revised retail proposal for Chappaqua Crossing

October 20, 2014

Editor’s Note:  The AKRF report on the competitive effects on the existing Chappaqua hamlet of retail at Chappaqua Crossing—as proposed most recently, with all 120,000 square feet of retail in new construction— appeared Friday on the town’s website. The report addresses the following topics:

• Likely Retail Composition and Consumer Base of 2014 Revised Retail PDCP
• Potential Competitive Effects Assuming 25 to 50 Percent Reductions in Chappaqua Crossing Retail Space
• 2014 Revised Retail PDCP and the 1989 Town Development Plan
• Property Tax Implications of the Proposed Whole Foods Market and Small Store Format

To view the entire 67-page AKRF report, click HERE.  Below is much of the 12-page “Executive Summary” (minus the figures) with which AKRF begins the report:

LIKELY RETAIL COMPOSITION AND CONSUMER BASE OF 2014 REVISED RETAIL PDCP

The 2014 Revised Retail PDCP submitted by the Applicant and illustrated in Figure 1 is located
substantially within the same southern area of the project site as the 2013 retail Preliminary
Development Concept Plan that was analyzed in the Supplemental Environmental Impact
Statement for Chappaqua Crossing, and that was analyzed by AKRF in 2013 (see Figure 6).
However, unlike the 2013 plan, with the 2014 Revised Retail PDCP a portion of the proposed
retail would not adaptively reuse the existing Reader’s Digest campus buildings for the proposed
Whole Foods grocer as an anchor tenant; instead, the Whole Foods would occupy a newly-
constructed retail building that includes approximately 40,000 square feet for Whole Foods and
10,000 square feet for another yet-to-be-determined retailer. The 2014 Revised Retail PDCP also
introduces several new design elements that, borrowing from the Traditional Neighborhood
Development architectural style, seek to increase the walkability and place-making potential of
the Retail Overlay District. In addition, as part of the 2014 Revised Retail PDCP the Applicant has
requested to remove the limit on the maximum number of retail stores between 1,500 and
5,000 square feet. 

Relative to established industry standards for shopping centers, the 2014 Revised Retail PDCP
falls between two of the ULI’s classifications for shopping center type: Neighborhood Center and
Community Center. A Neighborhood Center typically encompasses 30,000 to 150,000 square
feet of gross leasable area on a three- to five-acre site. Typically anchored by a supermarket
tenant, Neighborhood Centers offer convenience-oriented complementary retail uses, especially
in the personal services and quick-service restaurant categories. According to ULI’s Dollars and
Cents of Shopping Centers, the most common retail tenants in a Neighborhood Center are
medical and dental offices, hair and nail salons, and pizza restaurants. The current amount and
composition of retail in the Chappaqua Hamlet most closely aligns with ULI’s definition of
Neighborhood Center.

Community Centers tend to be larger, with a more diverse array of retail tenants and a wider
trade area; according to ULI, Community Centers offer 150,000-500,000 square feet of gross
leasable area, draw customers from a population of 40,000 to 250,000 people within a 3- to 12-
mile primary trade area, and are often anchored by a full-service supermarket. According to ULI,
many centers are built around a discount department store (rather than a traditional
department store), super drugstore, and/or a family clothing store, as well as a large
supermarket. Although the proposed 120,000 square feet of retail at Chappaqua Crossing would
be less than that offered by a typical Community Center, the development’s site plan most
closely resembles that of a typical Lifestyle sub-type [Footnote 3] of Community Center, with landscaped
open spaces and, at least to some extent, retail offerings fronting a pedestrian thoroughfare.
Further, the selection of Whole Foods as the center’s anchor tenant would expand the center’s
primary trade area beyond that which a typical Neighborhood Center would serve, producing a
larger customer base to support higher-end retail offerings. Whole Foods tends to attract
wealthier shoppers from farther distances than a typical grocery store because of its specialized
product offerings and established brand equity.

[Footnote 3] Lifestyle centers aim to provide leisure and/or other non-shopping amenities in addition to retail offerings. The goal is to create a veritable place where nearby residents may choose to spend time outside of typical shopping trips. Retail tenants at a Lifestyle center, which are typically located in affluent communities, tend to be more upscale.

Given the knowledge of a Whole Foods grocer as an anchor tenant, the analysis includes two
case study retail centers—Kings Crossing in Fairfield, Connecticut and Milford Marketplace in
Milford, Connecticut—both of which are anchored by a Whole Foods. In addition to sharing this
anchor with the 2014 Revised Retail PDCP, the case studies were selected based on their
comparable sizes, demographics (both have trade areas with large numbers of high-income
households), and their location within close proximity to major traffic arteries.

As compared to the 2013 Retail PDCP, the 2014 Revised Retail PDCP presents a retail
layout and anchor store (Whole Foods) that would likely introduce a greater number of smaller
stores that are both national chain operators and independent businesses, most of which would
sell goods and services at mid- to high-end price points. In this respect, there would be greater
potential for retail overlap with certain retail categories within the Hamlet as compared to the
2013 Retail PDCP with an A&P anchor, which would be more attractive to larger-format national
chain stores typically found in a “power center” with a lower overall price point.

However, cannibalization of sales would be greater from larger retail centers outside of Town because
those retail centers would have greater product overlap with Chappaqua Crossing. Overall, the capture rates indicate that both the Hamlet’s downtown and Chappaqua Crossing can co-exist as viable retail nodes.

Nevertheless, competitive effects on stores closest to a project site can occur even when there
are substantial unspent dollars within a trade area, and therefore the potential for displacement
of existing retail establishments due to competition cannot be ruled out. However, the
competitive effects of the 2014 Revised Retail PDCP would not have the potential for significant
adverse environmental impacts because the retail program would not affect the overall viability
of the Hamlet’s retail core. While competitive economic impacts are not considered
environmental impacts under SEQRA, such competitive impacts can become an environmental
concern if they result in a community character impact owing to the widespread, long term
vacancy in existing retail concentrations that affect the entire neighborhood. Individual,
isolated, and short-term vacancies would not be considered environmental impacts.

Any potential retail displacement resulting from the 2014 Revised Retail PDCP would not result
in “widespread, long-term vacancy in existing retail concentrations” for the following reasons
(detailed further in the report):

• There is no singular “anchor” retail use within Chappaqua Hamlet for which other
Hamlet retailers depend on for their viability. If one store was responsible for drawing
a substantial share of shopper traffic to the Hamlet, and that store was to be displaced,
then the retail dynamic could change in a way that jeopardizes the viability of all
retailers dependent on that consumer traffic. This is not the case in Chappaqua Hamlet,
which minimizes the threat created from the loss of any particular store. It is important
to note, however, that AKRF does not advocate this condition as a recommended retail
strategy for downtown Chappaqua. While not the subject of this analysis, AKRF
recommends that the Town explores ways to attract greater consumer interest in the
downtown through complimentary retail anchor(s), more destination retail uses, and/or
additional residential/worker populations. The positioning of such in the Hamlet would
improve shopper traffic and retail vitality irrespective of Chappaqua Crossing.

• Chappaqua’s downtown would remain more convenient to many trade area
customers. For Hamlet retail products that may substantially overlap with Chappaqua
Crossing retail, local area residents would continue to make a majority of their shopping
trips to stores closest to their homes. The Town’s existing retail inventory is weighted
toward convenience goods, personal and laundry services, and specialty shopping
goods. With many downtown retail districts in suburban locations, this shift toward a
higher percentage of convenience goods and personal services is partly the result of
such retail districts adapting to the presence of larger-format shopping goods stores
outside of downtown centers, and more recently Internet sales. Town centers have
evolved over time with these new market influences, but continue to serve an
important function of providing ready access to day-to-day needs and in providing
specialized products and services not commonly found in larger-format or
comparatively-sized national chain stores.

• Chappaqua’s downtown possesses many critical elements of an attractive retailing
location for both customers and existing/prospective retail tenants. Chappaqua’s
downtown is located within close proximity to many residents, and is at the intersection
of several key transportation routes (Routes 120, 117 and the Saw Mill Parkway).
downtown area includes the Chappaqua Metro North Railroad Station, Chappaqua
Library, Bell Middle School, Town Hall, the Post office, ball fields and pocket parks.
There are also professional offices within the surrounding downtown.  All of the above-
described uses generate vehicular and pedestrian traffic to and through the downtown
area on a daily basis, throughout the day and into the evening

• There is substantial unmet consumer demand, creating opportunity for new/niche
retail uses. Given the high levels of consumer leakage in most retail categories, a vacant
storefront could more easily be re-tenanted with retail uses that are positioned to
capture that leakage. New stores have the opportunity to identify and capitalize on
unmet demand and niche retailing opportunities.

• Chappaqua Crossing would create a new consumer base for downtown retail.
Chappaqua Crossing contains a substantial amount of commercial office space, and
would include 111 new residential units. Both of these uses would present new local
consumers, who would shop at Chappaqua Crossing and who would be potential
customers for existing Hamlet stores. In addition, the Whole Foods and other retail uses
at Chappaqua Crossing would draw customers from a broad area, some of whom would
not otherwise frequent Chappaqua, and could cross-shop within the downtown area.
This cross-shopping activity could be facilitated through requirements to include signage
or other means of way-finding (e.g., information kiosk) that promotes the Town’s retail
offerings as a whole—including but not exclusive to those uses at Chappaqua Crossing.

•  The Town is committed to investing in the downtown area in ways that will improve
retail conditions and solidify prospective retailers’ outlook on the location’s long-term
viability. The Town has set aside $6.5 million in its capital budget for making
improvements to the downtown’s water and sewer lines, and streetscape
improvements (including sidewalks, crosswalks and landscaping). The Town also will be
updating its Master Plan, which will explore opportunities through rezoning and
potentially transit-oriented development to better capitalize on market opportunities.
For example, potential transit-oriented-development surrounding the Chappaqua Metro
North station would likely strengthen the retail market in downtown Chappaqua. Such a
development, if properly planned and calibrated, would draw additional consumers to
the area. In addition, new housing units would increase the number of people in close
proximity (walking distance) to the downtown area, which would likely strengthen retail
sales at existing stores.

 

POTENTIAL COMPETITIVE EFFECTS ASSUMING 25 TO 50 PERCENT REDUCTIONS IN CHAPPAQUA
CROSSING RETAIL SPACE

If the gross leasable area devoted to retail uses at the Chappaqua Crossing site were reduced by
25 or 50 percent (resulting 90,000 square feet and 60,000 square feet of retail, respectively), the
development would be more appropriately classified as a Neighborhood Center. Neighborhood
Centers are often anchored by a supermarket, but complementary retail uses generally tend
toward smaller-floorplate, convenience-oriented retailers. Because of the smaller format of the
retail center, the primary trade area also tends to be smaller. As a result, the complementary
services generally consist of businesses with limited regional appeal, like quick-service
restaurants, medical and dental offices, and beauty salons.


Although the Whole Foods would likely draw customers from a wider trade area regardless of its
complementary retail uses, the smaller format shopping center would likely be less successful in
creating the critical mass of retail offerings that would make the location desirable to consumers
and prospective retail tenants. Instead of offering higher-end destination retail uses, Chappaqua
Crossing would likely be tenanted with the exact types of convenience-oriented stores that
predominate in Chappaqua. In that way, the proposed reduction in retail floorspace at the
proposed center could exacerbate Chappaqua Crossing’s competitive effects on Hamlet
retailers.

 

2014 REVISED RETAIL PDCP AND THE 1989 TOWN DEVELOPMENT PLAN

The Town’s Planning Board requested that AKRF consider whether the 2014 Revised Retail
PDCP, with new free-standing retail and virtually no re-use of existing buildings, along with the
occupancies now proposed by the Applicant with the revised plan, creates a third hamlet, which
would be inconsistent with the 1989 New Castle Town Development Plan (the 1989 TDP).

AKRF does not view the Applicant’s proposal to forgo adaptive reuse as directly material to the
question of whether the 2014 Revised Retail PDCP would constitute a “third hamlet.” The action
would not increase the amount of residential use or square footage proposed as retail use; it
remains at the approved amount of residential and consumer traffic and overall activity would not
materially change as a result of the proposal to build more of the retail within new, free-
standing space.  The 2013 Retail PDCP already advanced a site plan that included substantial new
retail development such that the newly proposed space for the anchor tenant would not
fundamentally alter the nature and character of the activities that would occur at the site.

The activity and place-making generated by the proposed mix of uses does not, in itself,
constitute a “town center” or “hamlet.” Chappaqua Crossing is not designed around, or built
upon, the density of civic and residential uses that typify a hamlet center. When viewing a town
center from this functional perspective, its primary objective is to provide a concentration of
neighborhood goods and services while allowing other locations to receive shopping goods trips,
which by their nature are more auto-dependent.  There are greater numbers of residents living
within reasonable walking distances of downtown Chappaqua as compared to Chappaqua
Crossing, even when accounting for Chappaqua Crossing’s future residential population. In
addition, given the potential for linked trips between downtown retail and the Metro North
station, Town offices, Chappaqua Public Library and the Bell School, the downtown area—by
virtue of its location, residential density, and physical constraints There are greater numbers of residents living
within reasonable walking distances of downtown Chappaqua as compared to Chappaqua
Crossing, even when accounting for Chappaqua Crossing’s future residential population. In
addition, given the potential for linked trips between downtown retail and the Metro North
station, Town offices, Chappaqua Public Library and the Bell School, the downtown area—by
virtue of its location, residential density, and physical constraints.

Like the 2013 Retail PDCP, the 2014 Revised Retail PDCP would introduce a new retail
concentration outside of the existing hamlet centers, and in this respect is inconsistent with the
position advanced in the 1968 Town Plan of Development, and reaffirmed in the 1989 PDP.
However, in both its 2011 and 2013 Findings Statements related to Chappaqua Crossing and as
part of ongoing efforts to amend the 1989 PDP, the Town correctly recognizes that the
underlying assumptions and projections that formed the basis of the 1989 TDP’s position on this
issue have not been realized. For example, when the 1989 TDP was adopted it foresaw the IBM
Hudson Hills facility as a potential commercial center, but it was never constructed. The only
remaining campus-type office setting was the Reader’s Digest site, and the 1989 TDP did not
foresee Reader’s Digest downsizing and ultimate departure. As discussed in the 1989 TDP,
property tax revenue is an important source of revenue to the Town, and the majority of the
property tax revenue has been generated from residential properties. In 1987 approximately
70.2 percent of the tax roll in the Town was from residential properties; only 7.5 percent of the
tax roll was generated from commercial and industrial properties, which included the Reader’s
Digest development. According to Town Assessor Phillip Platz, currently approximately 91
percent of the tax roll in the Town is from residential properties.

AKRF believes that in order to maintain its position as a “model corporate campus,” Chappaqua
Crossing should advance a mix of uses on the project site that goes beyond commercial office
space. Mixed-use projects bring vibrancy and a sense of place to the suburban landscape, and
provide a competitive edge within a suburban office market, as office and residential tenants
benefit from the close proximity of retail uses. In addition, the Applicant’s request to eliminate
restrictions related to store sizes likely reflects a desire to attract national chain stores that are
trending toward a smaller brick-and-mortar presence—retailers are seeking smaller footprints
as merchandise categories move to online channels.

 

PROPERTY TAX IMPLICATIONS OF THE PROPOSED WHOLE FOODS MARKET AND SMALL STORE
FORMAT

There are several commonly-used methods for determining the fair market value for parcels
that are subject to property tax. According to the Town Assessor, Philip Platz, the Town of New
Castle uses an income-based approach to assessing commercial properties. As a result of this
approach, the magnitude of revenue for the Town resulting from new ratables at the
Chappaqua Crossing site depends on the rent levels for its retail floorspace—in other words, the
higher the rents, the greater the tax revenue. It would therefore be in the Town’s best interest,
from a tax revenue perspective, for the developer to lease-up the project with tenants that can
support the highest possible rent levels.

The rents that can be achieved by a retail development are influenced by a variety of factors,
including its anchor tenants and store sizes. The rents, in turn, affect the value of the retail
center and the associated property taxes generated by the property. The selection of Whole
Foods as the project’s anchor tenant, as well as the potential shift to smaller stores described in
the 2014 revised PDCP, would result in higher rent levels not only for the supermarket space,
but also for the shopping center as a whole. Retail tenants typically aim to spend a fixed
proportion (generally 10 percent or less) of their revenue on rent expenses; therefore, a store
generating higher sales per square foot could afford to spend more on rent. According to ULI’s
Dollars and Cents of Shopping Centers, a local supermarket chain like A&P would generate
$554.924 per square foot in sales. According to Whole Foods’ financial statements, the chain’s
average sales-per-square-foot nationwide in 2013 was $937.405. As a result, it can reasonably
expected that the property owner would command higher rent levels from Whole Foods than it
would have from A&P—and therefore, that it would assume a larger property tax burden as a
result of its selection.

A higher concentration of smaller stores would also have positive property tax implications for
the Town. In general, rent levels are inversely correlated with store size because of economies
of scale; generally as a store gets larger, its rent decreases on a per-square-foot-basis. Smaller
stores tend to sell higher-value, higher-margin goods than do larger retailers, which results in
higher sales per square foot figures. This phenomenon would be reinforced by the selection of
the Whole Foods, which is likely to attract wealthier shoppers than would an A&P. The customer
base could a support a higher-end tenanting strategy—an assumption that is supported by the
Applicant’s Proposed Merchandising Mix, as well as the case studies included in this report.

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