Catharine Burgess hesitates before stepping into the elevator at the high-end Neiman Marcus store in downtown Dallas as memories of her first visit to the sixth floor's Zodiac Room restaurant weigh on her shoulders.
She was there with her daughter for a nostalgia toast to Neiman Marcus' long history at the location with a glass of bubbly: The nine-story flagship at 1618 Main St. closes next month after operating at the site for more than 110 years. But the Zodiac Room is fully booked until Neiman Marcus shuts down March 31, and Burgess couldn't get a table. So, she and her daughter found seats at Neiman Marcus' Espresso Bar on the first floor that serves the Zodiac Room's famous popovers with strawberry butter.
"I usually try to avoid downtown Dallas," said Burgess, who added she typically doesn't like to leave her West Texas ranch but was staying at a nearby hotel for a wedding. "I remember coming here with my Aunt Sue, and models would come right up to your table."
Those special trips in the 1970s were part of a bygone era of shopping where going to a luxury store like Neiman Marcus was an experience in and of itself. Neiman Marcus was founded in Dallas in 1907 by Herbert Marcus and his sister, Carrie Marcus Neiman, and her husband A.L. Neiman, introducing ready-to-wear fashion to bring fine design to many rather than a select few, according to the company's website. The luxury retailer quickly became known for bringing the latest European fashions to Texas and offering personalized service to its customers.
But times have changed, and the retail industry has shifted as consumers prize convenience rather than shopping over hours-long lunches. In the past several decades, there has been an exodus of big department stores out of downtowns. Recently, Bloomingdale's decided to close its flagship store in downtown San Francisco.
The industry has also evolved as the result of the consolidation of luxury retailers. Neiman Marcus was purchased by rival Saks Global in a deal with a total enterprise value of $2.7 billion that was finalized at the end of December. The deal included funds from tech giants Amazon and Salesforce as minority investors, showing the increasing emphasis on tech for the new parent of Neiman Marcus that also operates the Bergdorf Goodman, Saks Fifth Avenue and Saks Off 5th brands.
Saks said last week it was closing the flagship Neiman Marcus, the last original department store in downtown Dallas, because it was unable to reach a renewal on a lease after a decade of negotiations. The move will leave downtown Dallas, part of the country's fourth-largest metropolitan area, without a department store for the first time in at least 118 years.
At the same time, Saks said it planned to invest $100 million into another Neiman Marcus store at NorthPark mall in North Dallas. Neiman Marcus has been an anchor tenant at NorthPark since the enclosed mall opened in 1965.
"The urban feel of Neiman Marcus is part of its legacy and history, but it felt they were softly moving their flagship to NorthPark for a while," Bob Young, an executive managing director at Dallas-based retail brokerage Weitzman, told CoStar News. "The legacy has been growing at NorthPark, and people can't think about NorthPark without Neiman Marcus. They have helped set the tone for one of the top 10 U.S. malls."
Deep history
After a fire in 1913 destroyed the original Neiman Marcus store along Elm Street on the west side of downtown Dallas, the founders rebuilt the luxury store nearby at the corner of Main and Ervay streets. The first expansion of many took place in 1926. The store is listed on the National Register of Historic Places.
Neiman Marcus is considered to be an inventive retailer with many firsts in the industry, including creating its legendary Holiday Book in 1915, introducing the first U.S. baby registry in 1966 and forming the first retail customer-loyalty program in 1984, according to its website. The company also created an in-house innovation lab more than a decade ago to put its store on the cutting edge of technology.
"Many of the retail innovations instituted here have had a dramatic effect on stores and manufacturers throughout the country," a historical marker outside of Neiman Marcus' flagship says.
The building's original four stories were designed by the well-known Dallas architect George Dahl with a Renaissance Revival style. The style of the building begins to change at the fifth floor and becomes less elaborate as it continues to the seventh story. The building's last expansion occurred in the early 1980s, adding two floors to bring the complex to a total of nine stories.
In order to expand over the decades, Neiman Marcus entered into multiple ground leases for the property in downtown Dallas. One of those was signed in 1926 to make way to expand the existing store at Main and Ervay streets to Commerce Street. That 99-year ground lease between Herbert Marcus and C.C. Slaughter and E.L. Slaughter expires this year, said Greg Miller, president and CEO of Dallas-based Henry S. Miller Cos., whose great-grandfather, Henry S. Miller Sr., helped negotiate the lease in 1926.
And Greg Miller's grandfather, Henry S. Miller Jr., would later represent the Marcus family with other real estate deals for Neiman Marcus.
"The building would continue to grow over the years and became its flagship store and headquarters," Greg Miller told CoStar News. "My grandfather and Stanley Marcus were close, and they worked together on opening a Neiman Marcus store in Bal Harbour, Florida, in the 1960s."
Miller believes the ground lease signed in 1926 is what Saks is referring to when it said it is closing the downtown store after being unable to reach new terms with an undisclosed landlord. Saks did not return multiple requests from CoStar News seeking comment on the landlord arrangement.
The two entities tied to the ground lease for 2,500 square feet of land, Slaughter Partners LP and CCS Commerce B LLC, each have a 50% ownership in the land and are both based in Texas, according to state and county records. Slaughter Partners has a Dallas mailing address. CCS Commerce has a mailing address in The Woodlands, Texas. CoStar News emailed and called individuals tied to the entities through county records for comment but they did not respond.
Locking up land
It's hard to believe 2,500 square feet of land could be the reason behind the closing of Neiman Marcus' flagship store in downtown Dallas, said Mike Geisler, founding partner of Dallas-based real estate services firm Venture Commercial. Any landlord balking at a renewal deal risks being stuck with an empty building they still have to pay property taxes for, Geisler said.
"No one is going to want to hold out on a building that could be mothballed for 10 years," said Geisler, who is not directly involved with Neiman Marcus' operations but is familiar with the property's ground leases.
For retailers, such as 7-Eleven and CVS, that rely on a property's location to help contribute to the bottom line — with preferred corners and neighborhoods — a land lease makes a lot of sense, Geisler said. Land leases play an important role to help tie up irreplaceable real estate, Geisler said, but they can also make projects more difficult to finance and properties harder to refinance because there's more inherent uncertainty.
Jack Gosnell, a senior vice president at CBRE, said land leases gave people a way to invest in the city more than a century ago during downtown Dallas' early days of commercial development without having to cough up the funds for new development.
"People who owned land in downtown Dallas thought it was a fabulous investment," Gosnell said, adding that the land leases were often inherited and offered financial help to future generations.
Losing a linchpin
Neiman Marcus was a "linchpin" for downtown Dallas retail and brought glitz and glamour to the fashion scene, said decades-long broker Gosnell. He would often start at Neiman Marcus while touring potential retailers and doing business over the past few decades in the city's central business district. But downtown Dallas can be a hard sell when retailers often follow rooftops and only about 15,000 residents live in the city's inner core.
Neiman Marcus' closing next month will leave downtown Dallas without a department store. The first department store opened in Dallas' central business district in 1872 when Sanger Brothers opened its doors, according to city of Dallas preservation records. Having a downtown department store is a retail indicator of a big city offering with the likes of New York City, Chicago and Los Angeles all touting large department stores within their central business districts.
The downtown Neiman Marcus has been a cornerstone to the city's vibrant retail landscape for more than 100 years, said Jennifer Scripps, CEO of Downtown Dallas Inc., an advocacy group for the central business district, in an emailed statement to CoStar News.
Scripps said her organization was "deeply saddened" by the "surprise announcement that out-of-state executives," referring to New York-based Saks, "decided to close the iconic downtown Dallas Neiman Marcus flagship in favor of investing $100 million into the North Dallas location."
Downtown Dallas Inc. and city officials held a press conference Tuesday in front of the Neiman Marcus flagship store to publicly ask Saks Global for a meeting to discuss finding a solution to keep the store open. A spokesperson for Downtown Dallas Inc. told CoStar News on Tuesday afternoon the organization has yet to have a discussion with Saks Global.
Like other large U.S. cities, downtown Dallas has changed dramatically in the past century, with the central business district facing challenges such as a growing homeless population and a rise in violent crime that can keep visitors at bay, the Dallas Morning News reported. Geisler, who keeps tabs on retail move-outs, said he believes those are some of the reasons why Bloomingdale's is exiting downtown San Francisco.
The same issues are hitting downtown Dallas, with Geisler saying he even feels uneasy walking around alone downtown and that doesn't bode well in creating a sought-after destination that allows for shoppers to linger. Gosnell echoed Geisler's comments, saying safety has been an ongoing concern in recruiting retail tenants to the central business district.
Both Gosnell and Geisler said retailers need neighborhood vibrancy for a store to succeed and that all begins with safety, which can be difficult to create in an urban setting with big city issues. Several developers are investing millions of dollars to rejuvenate Dallas' central business district. For some of those projects, the exit of a key stakeholder like Neiman Marcus is a big blow, Geisler said.
"If we aren't careful, we could destroy the delicate momentum we have had in downtown Dallas," Geisler said.