DATE: Sunday, June 1, 1997                  TAG: 9705310609

SECTION: BUSINESS                PAGE: D1   EDITION: FINAL 

SOURCE: BY STEPHANIE STOUGHTON, STAFF WRITER 

DATELINE: NORFOLK                           LENGTH:  231 lines

A FADING JEWEL ONCE A SHINING SYMBOL OF DOWNTOWN REVITALIZATION, WATERSIDE HAS LOST MUST OFITS LUSTER. AND WITH THE COMING OF MACARTHUR CENTER, THE NORFOLK MALL IS AGAIN TURNING TO THE CITY FOR HELP.

The floors look scuffed and worn. The roof leaks. The glassy mall seems dark, even on a sunny day, and too empty. And a guitarist, the shoppers' entertainment, croons a folksy song off key that echoes eerily throughout the center.

A weekend stroll through Waterside Festival Marketplace, once heralded as the bright jewel of downtown Norfolk, is all it takes to realize that the center has lost its luster.

``This place really doesn't have anything to make you want to stop,'' said Terri White, a Richmond resident who briefly visited the mall on a recent Sunday and left empty-handed.

As it turns 14 today, Waterside says it sorely needs a multimillion dollar makeover to keep up with the times. Its owner, Enterprise Development Co., has asked the city of Norfolk - once again - to help pay.

It's no coincidence the request comes as the city gears up for the March 1999 opening of its newest jewel, MacArthur Center.

The city and Enterprise say Waterside, born as a public-private partnership, deserves taxpayers' dollars based on its roles as a public gathering place and a beacon that has illuminated downtown Norfolk, sparking massive growth in the area.

They say Waterside should be treated more like a public park than a traditional shopping center. That's because the festival marketplace attracts throngs of people who use the center as a pit stop or meeting spot, causing heavy wear-and-tear on the facility.

The center is known to bring in more diners, tourists and people who are just ``walking through'' rather than the serious shoppers who frequent traditional malls.

``You can't compare Waterside to Military Circle or Lynnhaven Mall,'' said Steve Cooper, assistant executive director of the Norfolk Redevelopment and Housing Authority. ``It's not a typical shopping center. It was always recognized that it was more of a public facility.''

It's hard to argue with city officials when they talk about Waterside's benefits.

Norfolk has injected about $16 million, including start-up costs and subsidies, into Waterside since it was built 1983. In return, it has collected $19 million in tax revenue and debt payments from the mall.

More importantly, they say, Waterside helped spur hundreds of millions of dollars in development in downtown Norfolk. Without the mall, they say, the Waterside Marriott Hotel and Convention Center, the World Trade Center, Dominion Tower and more would never have been built.

``We pay back more, even more than it costs,'' said Vann Massey, manager of Waterside and a vice president with Enterprise. ``That's a pretty incredible thing when you're looking at something that's an amenity.''

THE RETAIL BLUES

But it's not as easy to make the retail side of Waterside sound rosy.

Later this month, another tenant plans to walk out, continuing an exodus that has lasted for almost a decade. This time, it's Waldenbooks, one of the few national chains in the mall.

Another major merchant has made it known that it is more than willing to vacate if someone wants its spot.

These trends have tenants and industry observers fearing that the city and Waterside's owner are content to tout Waterside as the catalyst for downtown development, while neglecting to address the center's worsening appearance and slumping performance.

They wonder what will happen to Waterside when neighboring MacArthur Center opens its doors. The three-story mall will feature posh Nordstrom, a massive Dillard's department store and more than 100 specialty shops.

``They should really stand behind (Waterside), do it and do it right,'' said Nancy Hall, manager of clothing outlet Barr-EE Station, a long-time Waterside retailer. ``It has so much potential. It could be a real jewel in the ring of downtown.''

That was the dream in the '60s and '70s, when the waterfront was a string of crumbling bulkheads and decaying buildings. City officials enviously watched crowds flock to a newly opened festival marketplace in downtown Boston and watched another being built in Baltimore. They thought Norfolk could do the same.

On the Fourth of July in 1979, a delegation of city officials and businessmen drove to Sandbridge to meet developer James W. Rouse, who was vacationing at his wife's cottage on the Virginia Beach strip.

Rouse was cleaning a fresh catch of fish.

WATERSIDE IS BORN

Thus began the wooing of Rouse, the late developer who was responsible for building Boston's Faneuil Hall and Baltimore's Harborplace. Rouse, after a long courtship, agreed to help. This was the deal:

Enterprise Development - a separate, nonprofit company created by Rouse - would provide the expertise for Waterside. The city of Norfolk, in turn, would back the construction of Waterside with $13.8 million.

Enterprise would make annual payments of about $1.6 million to repay the city. But it was careful to limit its risks. According to the deal, Enterprise would only make payments if it had enough money after paying all operating costs.

``That way, if it was wildly successful, we certainly wanted to be paid for the money we put into it,'' said Cooper of Norfolk's housing authority. ``But recognizing that it was unique and nontraditional, if it wasn't there, it wasn't there.''

It usually wasn't.

By 1990, hints of the marketplace's downward spiral had begun to appear. Sales had fallen off, and retailers began an exodus from the mall that continues today.

Waterside, which started with a more upscale tenant mix, began to lose national retailers like Haagen-Dazs ice cream, Crabtree & Evelyn and Bass and Company.

But it was too late to stop Waterside's plans to expand the mall. Enterprise had already plunged ahead, borrowing $8 million to help fund an expansion of the mall. The addition opened in September 1990.

The addition, which now houses Legends bar and Q-Master Billiards, should never have been built, most officials acknowledge. On top of that, they say, a design flaw makes it easy for shoppers to miss the entrance to the new section.

``I think, at the time that the addition was done, there was good reason to do it,'' said Harvey Lindsay, head of Harvey Lindsay Commercial Real Estate in Norfolk. ``We felt we had to have a larger presence on the retail side in order to have more shops and to bring more people downtown.

``In looking back, it was a mistake,'' he said.

A CONSTANT STRUGGLE

By 1992, the center's lackluster performance was attracting some unwanted attention from the New York company that had financed the expansion. The lender announced plans to foreclose.

The city stepped in, co-signing Enterprise Development's $8 million loan and becoming more ensnared in the mall. It also began subsidizing the property's operations.

Since 1992, the city of Norfolk has given Waterside about $2.4 million in subsidies. In the 1997-98 budget, the city plans to give Waterside $1.1 million, which includes $300,000 to help build a Hooters restaurant.

Even with the city's help, Waterside can't seem to get on its feet. At its peak in 1987, the festival marketplace brought in $22.4 million. Last year, the mall brought in $18 million in sales.

Keeping Waterside alive is a constant struggle.

By its very nature, Waterside will never resemble a traditional shopping center. The festival marketplace attracts more diners, tourists and locals who are visiting the city's downtown area - not serious shoppers. These patterns result in fewer sales and more wear-and-tear to the property.

The marketplace's managers have so many mom-and-pop retailers that they have to spend a significant amount of time educating green businesses and scrambling to replace those that fail.

``There's a big hole across from me,'' said Sharon Hogan, owner of Erin's Treasures, one of a handful of retailers who have been with the mall since its opening. ``There was a business in there for six to eight months, and it didn't take off. It's a huge challenge to lease these places.''

A RISKY VENTURE

What happened to Waterside?

It's easy to point fingers. Some of the mall's 80 tenants blame Enterprise and managers for failing to revive the center. Other people blame the city, saying its subsidies leave Enterprise with little incentive to excel.

But much of that criticism may be unfair. The fact is, festival marketplaces in cities like Norfolk have not worked out.

``They're riskier because they require a lot of people and more money upfront,'' said Michael Beyard, senior research director with the Urban Land Institute, a nonprofit organization in Washington. ``There's no formula for success. I think the formula for festival marketplaces was too rigid.''

For example, in Toledo, Ohio, a festival marketplace failed miserably in the early '90s. Others in Flint, Mich., and Richmond have not performed well. Beyard lumps Norfolk into the ``not performing well'' category.

In larger cities like Baltimore, Boston and New York, marketplaces have fared much better, Beyard said. That's because they have more tourists and bigger populations, he said.

Baltimore's Harborplace, for example, boasts retailers like The Cheesecake Factory, the White House clothing store and Coach leather goods. It has boutiques selling everything from fancy sweaters to specialty hammocks.

But even then, Harborplace requires constant attention - and public money. The Rouse Co., owner of Baltimore's busy Harborplace, asked the city and Maryland officials last year for $20 million to help renovate the center. Even though the mall is packed with retailers, shoppers and diners, the developer made this comment: This is a public property, and we can't afford to maintain it.

WATERSIDE'S NEW VISION

Waterside's owner, Enterprise, makes the same claim. The only difference is, Norfolk's mall clearly has more to worry about. It isn't packed. It has never gotten an overhaul. And if it doesn't get a renovation and new ideas, officials fear it may become MacArthur Center's ugly sister in 1999.

Manager Vann Massey wants Waterside fixed - from the floors to the roof. He wants to bring in fresh retailers and restaurants. And he wants to attract more entertaining merchants like The Fudgery, which shows off its fudge-making skills, and Erin's Treasures, a unique Irish shop.

If Massey's plans work, shoppers should see more restaurants, more retailers that cater to ``impulse buying'' and fewer fast-food merchants.

On Tuesday, Hooters, featuring its scantily clad waitresses, will open a restaurant inside the mall. Although the restaurant initially tends to invite controversy, it performs well in festival marketplaces, real-estate and company officials said.

But the festival marketplace will find it difficult to attract restaurants without packages like the one offered to Hooters and an overhaul of the mall's fixtures.

The total cost of a major renovation and incentive packages would likely be between $5 million and $10 million, according to real-estate officials. That's a price Enterprise can't afford, Massey said.

It's still unclear whether the city will foot the entire bill. Enterprise Development and Norfolk housing authority officials said they have discussed the issue, but wouldn't provide details of any proposals.

The question is, what will happen to Waterside if it doesn't get a face lift?

With several tenants considering leaving, the marketplace's owner is wondering how to retain them. With no money to renovate and provide incentives, Waterside might as well open the door and say goodbye.

Replacing them won't be easy, either. The specter of MacArthur Center still hangs over Waterside, even though some people think the two can benefit each other.

``Merchants are reluctant to commit to Waterside until they know what the situation will be with MacArthur Center,'' said Harvey Lindsay, whose company helps lease the mall. ``I don't think it will hurt. I think MacArthur Center will bring more people into the downtown.''

On the retail side, Lindsay also hopes some of merchants' interest in MacArthur Center rubs off on Waterside.

Hunter Hogan, one of Lindsay's colleagues, isn't as optimistic. He thinks Waterside could benefit, but only if the city and the mall's owner step up their efforts.

``This concept from Rouse has not been successful,'' he said. ``But the city is stuck with it, and they can't let it become a junk pile. They just have to spend money on it.'' ILLUSTRATION: Color photo

IAN MARTIN/The Virginian-Pilot

Graphics

EXPENSES

REVENUE

MALL SALES

SOURCE: Enterprise Development Co.

[For complete graphic, please see microfilm]

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