The October 2014 acquisition of Hershey Square Shopping Center by Heidenberg Properties Group in Hummelstown, PA was a marked departure from the full-service real estate company’s typical approach. Historically, Heidenberg Properties and its principals have acquired “value-added” centers whereby the group can leverage its leasing, property management, and development acumen to drive equity appreciation. Notable successes include the 2005 de-malling of the Lebanon Mall (Lebanon, PA) into an open-air center anchored by Kohl’s, TJX, PetSmart, and Michaels; re-tenanting a former 33,000 s/f Sears Hardware for Michaels and Modell’s (Shirley, NY) in 2014; and currently, the March 2016 opening of a 55,000 s/f Kohl’s outlot as the initial phase of a re-positioning of the Berlin Mall (Berlin, VT).
When evaluating the purchase of Hershey Square, however, Heidenberg Properties and its joint venture partners Norse Realty Group and Strategic Real Estate Partners took a different approach. The center had several compelling attributes including well-performing anchors with below-market rents and lengthy terms, as well as high-grossing restaurants such as Panera Bread and Applebee’s. In addition, the market presented desirable demographics in regard to income and population density, while the presence of nearby Hersheypark and other recreation attractions made the site appealing for both the existing community and tourists. Moreover, the center had been originally developed and managed by the Hershey Trust Company. Consequently, there were no deferred maintenance or physical issues. Hershey Square was a “Class A” shopping center by all measures. Heidenberg Properties and its partners were confident that they were acquiring a fully-stabilized center with predictable cash flows for years to come. Although the “value-added” characteristics were not apparent, the combination of strong tenants and long-term leases resulted in a desirable asset to add to the portfolio. It wasn’t long after acquiring the property that Heidenberg Properties’ “DNA” emerged. With the knowledge that several retailers wanted to tap into the Hershey market, the group reevaluated the shopping center’s leasing and expansion opportunities. Heidenberg Properties realized that an inherited approval for a since-terminated restaurant deal could be extended and potentially expanded upon. The developer ultimately obtained an approval for the demolition and subsequent expansion of a pad building from 2,025 to 6,750 s/f and quickly concluded lease negotiations. As of early May, the new pad had been delivered to tenants Visionworks, Five Guys Burgers & Fries, and a medical testing lab. All retailers plan to open this summer.
In addition, Heidenberg Properties realized that existing merchant PA Wine & Spirits, occupying 13,373 s/f, was using inline space as a storage area. Heidenberg Properties concluded that if the storage space could be constructed at the rear of the existing store, the inline space could be put to its “highest and best use” and leased to other traditional retailers. By constructing the new stockroom in the rear of the building, the Wine & Spirits store was able to install its latest “Premium Collection” prototype and commit to a new ten-year lease. Additionally, the 6,800 s/f of inline retail will be occupied by a 3,800 s/f Sleepy’s and a 3,000 s/f Pet Valu. These new tenants expect to be open for business by Labor Day.
Only eighteen months from acquiring the property, this “fully-stabilized” shopping center will increase by 9,151 to 227,441 s/f and boast five new tenants. Once all tenants have opened, the pro forma NOI is projected to increase by over 18%.The new tenants will join an outstanding mix of national and regional retailers including anchors Kmart and Weis Markets, as well as Panera Bread, Applebee’s, GNC, and Verizon. The center is currently 99% occupied.The successful expansion at Hershey Square was a direct result of Heidenberg Properties’ and its partners’ response to the robust retail demand. “Because of its strong residential base and the many visitors to the entertainment, business and recreational attractions, retailers have been clamoring for space in the Hershey area, but there is little available,” said Ken Simon, vice president of real estate for Heidenberg Properties. “Fortunately, we were able to maximize the construction on our existing property, allowing us to create new spaces in one of the best locations in the market.”Located in the heart of Hershey’s entertainment, medical and educational campuses, Hershey Square Shopping Center is situated 14 miles east of Harrisburg at the convergence of Routes 422, 322, and 39. Penn State Hershey Medical Center, home to the Penn State Cancer Institute, College of Medicine and Children’s Hospital, as well as the University Physician Center is located directly across Routes 422 and 322. Hersheypark, which draws more than 2 million visitors annually, is less than three miles from the center as are an abundance of hotels and resorts including Holiday Inn Express, Hershey Lodge, the Hotel Hershey, Hilton Garden, and Hershey Country Club.