The Mall That Ate Katy

Big money, big lobbyists, big tax breaks. The Mills Corporation is bringing one of its "megamalls" to Katy, and it's hardly business as usual in the little town on the prairie.

"This isn't exactly business as usual around here," she said.

How could it be? How can a town like Katy, which only recently landed its first McDonald's, hope to withstand the Mills Corporation and its super-regional, value- and entertainment-oriented megamalls?

Katy is a town of just over 8,000 people, including a few who still get around town on a horse. A few residents still tend livestock in their yards. They pay their utility bills in person and catch up on gossip while waiting in line at the post office. Each October, the town celebrates its heritage with one of the nicest rice harvest festivals around.

Katy Mills wouldn't necessarily destroy every vestige of local character, but what remains of small-town Katy would exist alongside one of the largest shopping centers in the country.

But why choose Katy, Texas, for the site of a megamall?
The main reason, of course, is Katy's proximity to Houston. Mills typically builds its malls 20 to 25 miles from a major city, because the markets for such cities can extend as far as ten times that distance from them. The Mills megamall in Gurnee, Illinois, is visited daily by nine or ten tour buses from Chicago and Milwaukee. At Sawgrass Mills near Fort Lauderdale, plane loads of bargain-seeking Latin Americans fly into the nearby airport every week.

The Mills Corporation started shopping the Houston market well over a year ago and was considering at least three potential sites near Katy. One was two miles east on land owned by the Interfin Corporation at I-10 and the Grand Parkway, where a "regional" mall called Williamsburg was proposed but never built. Mills was negotiating a purchase of the Interfin property when it abruptly signed a contract to buy the 542-acre site south of I-10, between KatyFort Bend County and Pin Oak roads.

A Mills spokesman says the switch in locations was made because the developer felt access from the freeway would be more difficult at the Grand Parkway interchange. But Giorgio Berlenghi, president of Houston-based Interfin, says Mills never gave him a reason for dropping the Grand Parkway site.

"Of course, we don't believe there is a problem whatsoever with our location," Berlenghi said. "That site was always going to be a mall."

A more likely explanation for abandoning the Interfin land was the need to move the project into Fort Bend County. That apparently became necessary when Harris County passed up the chance to pay for the needed road and utility improvements at the location.

"I basically told them we'd love to have the mall," recalls Steve Radack, commissioner of Harris County Precinct Three, "but that this precinct, at least, would not agree to build their roads."

Mills's property-tax package for the Katy project will have to be approved by the city of Katy, Fort Bend County and the Katy Independent School District -- a process the company is hoping to complete in time to break ground by the end of this year.

Meanwhile, a competing team of developers has announced plans for an 850,000-square-foot discount center two miles away at the old Williamsburg Mall site. That project, called Houston Premium Outlets, is a partnership between Simon DeBartalo Group, the nation's largest publicly traded real estate company, and New Jerseybased Chelsea GCA Realty Inc.

The Chelsea-DeBartalo partnership plans to begin the first phase of its trademark "village-style" discount center by the end of the month, posing the prospect that, by the new millennium, two huge new shopping centers will be open within two miles of each other.

At the moment, neither developer professes to be too concerned with the other's progress. Mills has engaged in similar standoffs, most recently in Arizona, where it eventually formed a joint venture with the competition. That's unlikely to be the case here: Houston Premium Outlets is by far the most ambitious project ever taken on by Chelsea, whose concept has been every bit as successful as the Mills megamall.

But can they both survive? Perhaps, says Mark Kissel, a retail analyst from Washington, D.C. Right now, Kissel says, Mills and Chelsea are competing for a core group of discount outlet tenants, such as the Off 5thSaks Fifth Avenue and the Donna Karan Company Store. The project that breaks ground first would most likely attract those tenants, putting the competitor at a distinct disadvantage.

"It strikes me as a lot of retail space to be dumped into that market," says Kissel, who briefly worked as a consultant to Mills on the Katy project. "It's sparsely populated out there. Sure, there will be great growth, but you're talking about almost three million feet of space."

As one might expect, the competition is being followed closely by the people of Katy. The battle line over the Katy Mills mall has been drawn along I-10, which separates the town of Katy on the north from the mostly vacant prairie land to the south. The site of the proposed megamall is a large, diamond-shaped tract dotted by wetlands and framed by I-10 to the north, Pin Oak Road to the west and KatyFort Bend County Road to the east.

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