A Place in the Sun

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A Place in the Sun

By Claire Pamplin - 05/05/2003
Real estate is easily the most valuable asset many companies hold. Stiff competition from other convenience store retailers, not to mention other channels of trade such as chain drugstores means that real estate is often scarce and getting scarcer, particularly in fast-growing markets such as the Las Vegas and Phoenix areas.

Las Vegas is touted as the fastest-growing city in the United States. The Phoenix area holds a different number-one position: Maricopa County grew, between 1990 and 2000, by more in absolute numbers than any other county, according to the U.S. Census Bureau. It is the fourth-largest county in the country.

Katherine Hutton Raby, economic development manager for the City of Scottsdale, in Maricopa Co., adjacent to Phoenix, explained that everything from the size and color of the building, the signage, the landscaping and even marketing materials on gasoline dispensers is controlled by Scottsdale law.

The guidelines are very specific and strict, and have given more than one c-store operator a good headache. For example, Scottsdale operators are told "buildings that derive their image solely from applied treatments that express corporate identity are discouraged." Other details in Scottsdale's guidelines that without doubt make the city beautiful but raise construction costs for c-store operators: "Building accents should be expressed through differing materials and/or architectural detailing and not through applied finishes such as paint."

Never a Discouraging Word?

Enterprising businesspeople can't be blamed for imagining that land is limitless in places like Arizona and Nevada. Well, there's land, lots of land, and sunny skies above, but it's fenced in — sort of. Much of the open land around Las Vegas belongs to good old Uncle Sam, and is "fenced in" by national forest and Bureau of Land Management boundary lines — strictly off limits to development.

"Las Vegas is rapidly running out of developable land," said Rick Crawford, CEO of Midjit Market Inc. operator of 24 Green Valley Grocery c-stores. "We have seen the advent of master plan communities, which is both good and bad news for everyone. Also there are limits on other commercial opportunities. Pretty much the whole county has been under a master plan."

Crawford has resided in Las Vegas since 1971, and he founded his c-store chain in 1978, and therefore has had the opportunity to witness the mind-boggling growth of the region. Like almost anywhere, though, there is "great competition for quality corners," he said. But Sin City is still restrictive compared to Texas, he said, where the wide-open spaces are still wide open to commercial development.

In Vegas, Crawford said, land is being gobbled up by developers such as Del Webb and Howard Hughes Corp., and the City of North Las Vegas has a 7,500-acre development in progress now.

Las Vegas touts itself as the most business-friendly place in the country: no state income, inheritance, gift, or estate, franchise, inventory or corporate taxes are levied. But for c-store operators, challenges common elsewhere also hold true there. Crawford said, "Over the last three or four years, drugstore chains have invested in prime corners. CVS and Walgreen's, Longs, Sav-on — they have driven up price of land. They are essentially large convenience stores, 10,000 to15,000 square feet. They pay top dollar, $30 to $35 per square foot of land. This is a big retirement area, with lots of elderly people, so drugstores are numerous."

While Las Vegas, with its huge casinos and their dazzingly brilliant signs, not to mention their scantily-clad dancers, might seem to be a place where anything goes, Crawford said, "Surprisingly enough Las Vegas and the surrounding cities located here in southern Nevada are very big into zoning requirements, and the requirements and zoning laws become tougher each year as we run low on land."

Operators would be wise to remember the state is Nevada, not Nirvana. Stores close there for the same reasons they do elsewhere. Crawford observed that recent closures included "most of the Turtle Stops and a bunch of one- and two-store operators. Those stores that have closed, or are having difficulty, seem to have the same problems that people have in other areas — paying too much for land and development, being the second or third store on a corner, poor location, excessive competition and just good old-fashioned bad management. So Nevada is no different then any other area of the country. You need location, location, location and also must be able to execute a sound business plan."

In Charge

As complex as managing real estate can be, at many companies there is no one whose sole duty is to search for, buy and protect it. Often that job falls onto the already full plate of the CEO or other senior person.

However, c-store veteran Ed Davidson of E.R. Davidson and Associates, Gainesville, Va., observed that "independents like Sheetz and Wawa who are still very much in growth mode keep a full staff of field real-estate managers. Certain other independents like EnMark in Georgia have someone at the helm in real estate but not a big staff. Jobbers and smaller independents seem to be without formal real-estate managers or departments, and in many cases the CEO is the real-estate manager since it's a task they feel important for them to handle."

Real-estate managers have to keep track of plans for road and highway changes at each site owned by their company — or any they are considering purchasing — as well as a host of other factors, including adhering to very strict local ordinances if the c-stores are to operate in cities such as Phoenix, Scottsdale or Las Vegas.

"All the cities in the Phoenix area are getting very difficult," said Judi Butterworth, first vice president, CB Richard Ellis, the largest commercial real-estate company in the world. "In fact, the city of Chandler, Ariz., in most instances won't even allow you to put a gas station on the corner anymore. They want a minimum of 10,000 square feet on a corner. That's more likely to be a drugstore than a convenience store."

Butterworth emphasized the importance of c-store companies having a dedicated real estate manager. "I think it's supremely important for a couple of reasons: Because of the competitiveness of the market in buying corners, you have to have someone who can react quickly, someone who can say, 'Yes, we want to be there, let's make an offer.' That person absolutely has to have in-depth knowledge of the market, which you can get only get by driving around a lot and studying the area.

"It's not just a matter of picking a site where you can make money; the first thing you have to do is be able to acquire it," she said. "You can't sit on your hands. Several banks here are expanding again, plus some fast-food outlets. And for all of them, it's all competition for corners."