The Fire Within

Something was missing.
In retrospect, it might be hard for most people to look back on the retail construction scene in the Kansas City region circa 2006 and come to that conclusion. The Legends had just opened that spring, a 100-store lifestyle center in booming western Wyandotte County. The new hadn’t worn off of Zona Rosa in the Northland, which had opened its doors just two years earlier. Independence was seeing a wave of new construction in the Eastland Business Park and Hartman Heritage areas, jam up against a million square feet of retail space in the venerable Independence Center Mall.
And on the horizon: The 2007 opening of the Power & Light District in Downtown Kansas City.

The region was flush with development dollars—well more than a billion of them in development costs, yielding millions of new square feet of entertainment and retail space.

Still, when Fred Merrill Jr. looked at all that back in 2006, he was absolutely convinced that something was missing from this market. And he was going to fill the gap. He had come back to the Kansas City area after more than a quarter-century in development circles, roughly half of it in the Phoenix market and half in the Dallas area. He had seen the best of what those markets had to offer in mixed-use development, supplemented with analyses of top-tier projects in places like San Jose, Raleigh and Washington, D.C.

And everything he knew about development, consumer trends and demographics told Merrill that this region had the potential for a project that would take mixed use to a whole new level in this market.

Nearly 60 acres of prime development potential lay right across the asphalt from the Merrill Companies’ offices on 135th Street in Overland Park. That’s in southern Johnson County, home to ZIP codes with some of highest median household incomes in the metropolitan area.

“I’d known this as a great demographics area, and being a member of the Urban Land Institute for 25 years, I was a big proponent of mixed used,” Merrill recalls. “I’d done some in the Scottsdale market and in Dallas in the ’80s, and I wanted to look at mixed-use because I knew it could work with the demographics and the terrific arterials around here.”

So he started gathering investors to put the property under contract and begin planning for Prairiefire. The vision called for $600 million in next-generation mixed use, on the level of a Santana Row in San Jose, a Kierland Commons in Phoenix, or a Legacy Pointe in Dallas. Something that would make Kansas City—the nation, even—sit up and take notice.

“We were looking for something truly new and different, that looked toward the next 10 to 15 years from a consumer’s point of view,” Merrill says.
The wheels were turning. The Overland Park Planning Commission signed off on Merrill’s rezoning application for 345,000 square feet of luxury retail space, 295,000 square feet of office space, a boutique hotel, and residential units divided between condominiums and townhouse units. It would include four parks, a wetlands area, hiking trails, all seamlessly woven into a vertical mixed-use tapestry—retails shops below, offices above that, topped by residential.

That was in November of 2006—the same month the Commerce Department reported a 28 percent plunge in permits for construction of new homes. As a leading indicator, that figure suggested that new home closings—and by extension, the construction and development sector—would be in a slump for the next nine months, or longer.

Maybe a lot longer.

Something may indeed have been missing in the Kansas City retail market at that point, but something more sinister was coming. It would shake that market to its core and challenge virtually every assumption Fred Merrill could make, even after a career in retail development. It would not shake his vision, or his commitment to it.

In For The Win
What unfolded over the next seven years has been a testament to Merrill’s competitiveness and determination—and the kind of motivation one only finds when nine figures’ worth of investment capital are on the line. Some developers might have looked into the maw of the coming downturn and said “No way.” Not Merrill.

“No, it wouldn’t have been easy to walk away, because we had so much invested in it,” Merrill recalls. “A lot of people told us, ‘Gee, Fred, this was a great project, and it was great that you tried to do it, but the timing was just wrong. But you’ve still got great frontage, why not just pad it out, sell the pads for banks and restaurants and get all your money back from that?’“A number of people were trying to talk to us into doing that.”

But consultations with officials from the city of Overland Park, with financial backers and lenders, with state economic development officials and with prospective retailers produced a sense of support that told Merrill he could buy the time needed to weather that storm.

“After going through two or three cycles of this in my career, I realize that life is never as good as you think it is when times are good, and it’s never as bad as you think it is when times are bad,” Merrill says. “There are cycles in real estate, and I felt confident that if we could just hang in there, we still had a great concept, a good plan, and a great demographic.”

Southern Johnson County wasn’t going away, he says; it was only going to get better and improve. “So the challenge was, how do you find ways to just hang on by your fingernails and pay the debt service? It helps if you have great partners who feel the same way.

If you can do that, you can come out on the other side.” But even with such backing, he says, it was nonetheless … “frightening.”

“There were a lot of sleepless nights, and it was very, very difficult,” Merrill says. “But the ownership group and I were committed and convinced that it would be a great investment.”

Ripples of Success
Successful developments like Prairiefire don’t exist in silos; they are often the wellspring of other successes, and one of the beneficiaries of Merrill’s vision was McCownGordon Construction, which landed contracts for a number of key projects at the Prairiefire site.

“It was a great boost in the arm coming out of the recession,” said Brett Gordon, the contractor’s co-founder. “It not only raised the spirits of all the folks involved in it for us, but even for the subs that bid on it. For someone to go out there and take on that kind of capital investment, for Fred to step out there and push that across the finish line, that was impressive.”

Gordon said the company is using momentum from the project to make an additional 12–15 hires, on top of the 35 brought on board last year to meet some trying construction deadlines.

“There were commitments that Fred had made with both the city and state of Kansas for STAR bonds,” he said. “They were really hard end dates we had to hit to have them open by. The project got delayed some and came out of the ground a couple of months late, but the end dates did not change. We were working in a compressed schedule that really got compressed.”

But Prairiefire made its commitment to opening its eastern phase last fall, and the western end is filling up now, as are the residential components. Metrowide, Gordon said, several major projects are in the pipeline, including a mixed-use facility at U.S. 69 and I-435 in Johnson County, the Metcalf South mall site redevelopment, and the Metro North Mall redevelopment. But nothing is likely to approach the scale of Prairiefire and its impact on area builders.

The development is also unlike just about any other retail setting in the region, with the closest demographic contender being the Country Club Plaza. Merrill believes there is ample room for both sites to thrive, given the 25-mile distance between them. Other retail developers say some cannibalization of the consumer base is inevitable, but Merrill believes that  Prairiefire and the Plaza will complement each other, strengthening the overall market.
 
Shifting Gears
The Prairiefire that continues to blaze with new retailers coming on line this month is considerably different than the original vision. For one, it’s been scaled back, from nearly $600 million to about $427 mil. For another, it’s not the denser mixed use Merrill originally hoped for.

“When the world changed”—that’s Merrill’s formulation for describing the events of 2007–2010—“vertical mixed-use was a four-letter word,” he says. “So how do you maintain that mixed-used environment? We still wanted  to do vertical mixed use, but thought we’d have to delay that and come out with more of a lateral approach until the lenders and equity people regained confidence and began to understand that the market really liked vertical. It caused us to redesign our site plan to make it more attractive to them.”

One thing that hasn’t changed, though, was Merrill’s original goal of bringing first-to-market retail establishments to the project. That strategy had been a key to making Village West a success in western Wyandotte County, with names like Nebraska Furniture Mart and Cabela’s leading that charge.
Merrill’s approach would incorporate a higher-end appeal.

“You’ve got to make the development fit the demographics of the area,” he says. “You have to consider so many factors of who those users are, who their customer base is, and marry them up in an economic model and a location that fits that user base. In development, that’s one of the tricks.”

Those who can do that, he says, will be successful. But often, you can do all the market research in the world, only to find out that the world itself has changed around you.

“If you’re committed in one direction too far, then it really becomes difficult to shift gears,” Merrill says. “You have to ask yourself, how is retail going to change?

What does the market need? We saw a number of people and uses that were not here.”

He was looking for tenants who were, essentially, just like him and his backers.

“They had to be quality people, entrepreneurial, and we knew that if we could get some, other retailers would follow along,” he said. “It’s the herd mentality: If you get those three or four bell cows leading the group, you’re going to get other people who say, ‘Wow, that makes sense.’ So being the first to market was very important, not only for us with the new center, but with STAR bonds, and the concept of bringing new people to bring new sales tax from outside the state.”

That’s where Merrill’s background came into play. “Having fought competitive markets and seen some very unique projects was
really helpful—a real advantage,” he says. “It gave us a real breadth of experience, and that’s something that you can’t take for granted.”
Too many developers, he says, had become transfixed by the ease of success in the run-up to 2006.

“From a retail standpoint, if you have success in life, in a project or a business plan, the tendency is to try to duplicate that,” Merrill says. “We got into problems in 2006 and 2007 from saying, ‘Let’s keep doing the same thing.’ At some point in time, the music stops, so you have to think about the next big thing. That’s hard to do when people will become tired of retailers and look for new experiences.”

Market Differentiators
In trying to set Prairiefire apart from other developments, Merrill leaned heavily on the idea that it’s not just about shopping, it’s not just about a 40-minute dining experience. He wanted to create a destination site that could engage people for an entire day.

That’s what lead to first-in-market presences of REI, the outdoor sporting goods retailer based in the Pacific Northwest; Cinetopia, another Northwestern concept that blends the culinary with the cinematic; and The Fresh Market, a specialty grocer.

But the crown jewel is Prairiefire Museum, a collaboration with the American Museum of Natural History—the first venture that institution has made from its base in NY.

“That goes back to trying to anticipate where mixed use and retail is going over the next 10 to 15 years,” Merrill says. “I’m a big Urban Land Institute believer. J.C. Nichols was one of the starters of it; mixed use was something he pioneered many years ago, and there have been many different renditions of it since then. But we knew we wanted to take mixed use to a different level: What can you do when retail comes out of the recession, how can you layer in attractions that will bring people into the store?”

With the advent of Internet purchasing, he said, people have grown weary of traditional retail settings. One way to get them back is with a civic component—a library, perhaps, or a museum. One of the Prairiefire designers had a contact with the New York museum, and that opened the door for discussions about creating a presence in KC.

“I think we hit them at the right time,” Merrill says. “The museum has really developed a very strong, progressive business strategy. They were looking for ways to export their brand outside of New York City, and they felt like they were not reaching people in the continental U.S. as strongly as they should.”
After early discussions that focused on licensing and traveling exhibitions, Merrill says, “We had this idea, ‘Geez, is there a way we can bring some of your content here?’ We didn’t know how we were going to do it, but there was a meeting of the minds that we both wanted the same thing and could benefit from that plan.”

The meeting was so productive, it turns out that his contact at the museum, Uli Sailer Das, has taken a new role—as executive director of Prairiefire Museum.

Examples, Experiences
Uncharacteristically for a guy so tightly focused on the future, Merrill points to the past when you ask what drives him.

Running track at Kansas State and playing receiver on the football team there for a couple of seasons—he even has a touchdown in the record books—instilled some of the desire to overcome long odds.

“There were some tough years there,” in football, Merrill chuckles. “Fortunately on the track side, we had some success. Athletics teach you a lot of that. I was always into competitive athletics through college. When you’re trying to achieve, to excel, to win, you learn what that takes.”
The biggest lessons came at home.

“My dad was an entrepreneur” as founder of Cereal Food Processors, at one time the largest independent flour-milling company in the nation. “He started his own company and became a leader in his industry over his 40-year career. I grew up watching that, looking at the characteristics that made him successful—the work ethic, the dedication to his concept. All those things you learn, and hopefully I learned a few from him: Always treat people fairly and be honest. He drilled that into me. Go beyond what their expectation is. Maybe you won’t be rewarded today or tomorrow, but in a year, maybe more, if you’re dedicated to those principals, you will be rewarded.”

Merrill’s convictions, said Gordon, are the flint and steel that ignited Prairiefire.

“I’ve been involved with this since 2007, and with Fred since 2005,” Gordon said. “Fred just had an incredible determination to make this thing happen. I’m not sure he ever got to the point where he thought it wasn’t going to happen. The start date moved a couple of times, but he was very tenacious and diligent in making the deal happen.

“He eats, sleeps and breathes this 24/7/365,” Gordon said. “I’ve run into him every weekend on the project. I can state for a fact that this would not have gotten done without his drive and determination.”