Ann, Joe, Laurie, Rich, Alyson and myself attended the Philly Dealmaking last month and, as has been the norm for most shows recently, attendance was up 10% to 2100/2200 dealmakers who wined, dined and did deals for two days. Philly is never a great show, it's a workhorse, living in the shadow of DC and NYC but still a relevant event. The "negative" of this show over the 80 or so shows I've been to in the last four years is that this is the first conference where I heard a number of people complain or express concern that either business is not good or is slowing down.
It's been a long time since I've heard these complaints. In fairness, this is happening right after two hurricanes and gas going to $3 per gallon, so of course everyone is depressed. Anyway, all in attendance were happy with business and their income for the last year, with brokers continuing to make a decent buck for another year as their commissions get paid for "commissions earned but not due." It's their future income that people expressed concern over, with the largest group of paranoids being brokers. Over dinner several developers complained that they've been receiving calls from retailers who opened within the last year asking for concessions because their sales volume can't justify the rent. Numerous brokers complained this is the first show in years that they had no new product to promote. Not good signs for the future.
Ann and I also attended the Palm Springs dealmaking and, again, attendance was up about 10% to 4200/4300 dealmakers; this is always an excellent show, with my major complaint being I can't take the heat of Palm Springs after 10 in the morning. It's HOT. How people live there year round I find amazing. My concerns grew again with this show as I again heard discontent about present and future business.
That's two shows in a row with "concerns," and Californians are usually oblivious/optimistic about any part of the world except their own market. (In fairness, California is equivalent to the size of Maine to Virginia; no wonder it's always a great turnout and they look at the world from colored glasses). Anyway, we're on our way to the Atlanta and Chicago shows and if there's anxiety there, we as an industry have problems. The good news is that I'm willing to bet dollars to donuts that Atlanta, Chicago and New York will all have record attendance. Let's hope there's no bad news to report. My personal suggestion is if you're planning on selling a center, SELL NOW, since I believe it's all downhill from here.
The same is true for leasing. Don't fight for the last quarter, close now before the retailer experiences Christmas. Getting back to the show's attendance, the cocktail parties both for Philly and Palm Springs were good with the Palm Spring's event being jammed. No one could complain about attendance or networking opportunities.
What makes California different than any other market (besides great weather and earthquakes) is that the retail real estate industry is controlled almost completely by brokers. In fact, the Palm Springs show has a higher percentage of brokers in attendance compared to retailers than any other show I attend. On the other hand, the Philly show seemed to have a higher percentage of "real" retailers than most shows. Anyway, back to brokers. Over the last decade, brokers have become an important aspect of retail dealmaking nationwide but no other area has embraced brokers as much as Californians do. In most cases that's not a problem, but numerous retailers complained not only about the high rents (blame that on a state that takes forever to approve a site) but that when they are offered a site and presented with a rent and if they make a counter offer, the offering broker contends that they are insulted by such a "low" counteroffer number no matter what it is.
That I don't understand. I may not accept a retailer's counteroffer, but I'm never insulted when someone offers to pay me rent. I have problems with the "guy" who won't make an offer and I deal with lots of them. Another "unusual" aspect of the California show was the number of "newbie" developers I encountered. I must have talked to a dozen "first time" developers who had absolutely no idea what was required to develop a shopping center, but have millions of dollars used to either acquire or tie up property for long periods of time. One group I bumped into is developing 1.2 million sq.ft. of retail and 300,000 sq.ft. of mixed use and they never developed before in their life. I recommended they JV with an established developer and they said they tried; they met with Simon, General Growth, etc. but after they explained the type of JV they were offered, I recommended they keep on trying to find a "better" partner, because the JV proposals they were offered screws them and that's being polite.
I also talked to several brokers who specialize in 1031 exchanges and they "claim" that some of their Walgreen deals are selling at a 4 1/2-4 3/4% CAP; you can say whatever you want about the quality of the tenant or location but that's plain insane. The end is near. To clarify this, I have to say that these CAPS were for property in California, which uses different math than the rest of the country.
Over dinner I had some interesting debates over which retailers were going bankrupt next. The two most popular names were Blockbuster and Levitz. Other names came up but those two were far ahead of the crowd. Two other names came up a lot but in a more favorable light; they were Kimco and Inland, two companies trying their best to buy all the shopping centers in America. At the same dinner, three developers complained about the securitized loans they made. All three claim they'll never do these types of loans again. While they provide a higher "payout" to the borrower, after the loan is made it takes forever to get necessary approvals and no matter what they need from the lender, they have to pay a fee. They all complained they were being nickeled and dimed to death.
An "interesting" story I heard was that Rite-Aid, in order to keep their employees safe and productive during the hurricane in New Orleans set up temporary housing, provided food, services and gas for all their effected employees. Got to give them credit for that.
Also, both in Palm Springs and Philly, I encountered more retailers than usual looking for temporary space for 30 to 120 days. They sell everything from apparel, videos to electronics. I guess it's a trend in retailing that continues to do well even with a softening economy.
Hope to see you soon in Atlanta, Chicago or New York,
P.S. Don't forget to plan on attending the Barry Davis Memorial Next Generation Scholarship Dinner on December 4th, 2005 at the Pershing Square restaurant right before the start of the NY Dealmaking show. You should attend even if you didn't know Barry (which is a great loss) because this is not only an excellent cause to support but a great networking event. For complete details, call the ICSC at 646-728-3800.
It's been a long time since I've heard these complaints. In fairness, this is happening right after two hurricanes and gas going to $3 per gallon, so of course everyone is depressed. Anyway, all in attendance were happy with business and their income for the last year, with brokers continuing to make a decent buck for another year as their commissions get paid for "commissions earned but not due." It's their future income that people expressed concern over, with the largest group of paranoids being brokers. Over dinner several developers complained that they've been receiving calls from retailers who opened within the last year asking for concessions because their sales volume can't justify the rent. Numerous brokers complained this is the first show in years that they had no new product to promote. Not good signs for the future.
Ann and I also attended the Palm Springs dealmaking and, again, attendance was up about 10% to 4200/4300 dealmakers; this is always an excellent show, with my major complaint being I can't take the heat of Palm Springs after 10 in the morning. It's HOT. How people live there year round I find amazing. My concerns grew again with this show as I again heard discontent about present and future business.
That's two shows in a row with "concerns," and Californians are usually oblivious/optimistic about any part of the world except their own market. (In fairness, California is equivalent to the size of Maine to Virginia; no wonder it's always a great turnout and they look at the world from colored glasses). Anyway, we're on our way to the Atlanta and Chicago shows and if there's anxiety there, we as an industry have problems. The good news is that I'm willing to bet dollars to donuts that Atlanta, Chicago and New York will all have record attendance. Let's hope there's no bad news to report. My personal suggestion is if you're planning on selling a center, SELL NOW, since I believe it's all downhill from here.
The same is true for leasing. Don't fight for the last quarter, close now before the retailer experiences Christmas. Getting back to the show's attendance, the cocktail parties both for Philly and Palm Springs were good with the Palm Spring's event being jammed. No one could complain about attendance or networking opportunities.
What makes California different than any other market (besides great weather and earthquakes) is that the retail real estate industry is controlled almost completely by brokers. In fact, the Palm Springs show has a higher percentage of brokers in attendance compared to retailers than any other show I attend. On the other hand, the Philly show seemed to have a higher percentage of "real" retailers than most shows. Anyway, back to brokers. Over the last decade, brokers have become an important aspect of retail dealmaking nationwide but no other area has embraced brokers as much as Californians do. In most cases that's not a problem, but numerous retailers complained not only about the high rents (blame that on a state that takes forever to approve a site) but that when they are offered a site and presented with a rent and if they make a counter offer, the offering broker contends that they are insulted by such a "low" counteroffer number no matter what it is.
That I don't understand. I may not accept a retailer's counteroffer, but I'm never insulted when someone offers to pay me rent. I have problems with the "guy" who won't make an offer and I deal with lots of them. Another "unusual" aspect of the California show was the number of "newbie" developers I encountered. I must have talked to a dozen "first time" developers who had absolutely no idea what was required to develop a shopping center, but have millions of dollars used to either acquire or tie up property for long periods of time. One group I bumped into is developing 1.2 million sq.ft. of retail and 300,000 sq.ft. of mixed use and they never developed before in their life. I recommended they JV with an established developer and they said they tried; they met with Simon, General Growth, etc. but after they explained the type of JV they were offered, I recommended they keep on trying to find a "better" partner, because the JV proposals they were offered screws them and that's being polite.
I also talked to several brokers who specialize in 1031 exchanges and they "claim" that some of their Walgreen deals are selling at a 4 1/2-4 3/4% CAP; you can say whatever you want about the quality of the tenant or location but that's plain insane. The end is near. To clarify this, I have to say that these CAPS were for property in California, which uses different math than the rest of the country.
Over dinner I had some interesting debates over which retailers were going bankrupt next. The two most popular names were Blockbuster and Levitz. Other names came up but those two were far ahead of the crowd. Two other names came up a lot but in a more favorable light; they were Kimco and Inland, two companies trying their best to buy all the shopping centers in America. At the same dinner, three developers complained about the securitized loans they made. All three claim they'll never do these types of loans again. While they provide a higher "payout" to the borrower, after the loan is made it takes forever to get necessary approvals and no matter what they need from the lender, they have to pay a fee. They all complained they were being nickeled and dimed to death.
An "interesting" story I heard was that Rite-Aid, in order to keep their employees safe and productive during the hurricane in New Orleans set up temporary housing, provided food, services and gas for all their effected employees. Got to give them credit for that.
Also, both in Palm Springs and Philly, I encountered more retailers than usual looking for temporary space for 30 to 120 days. They sell everything from apparel, videos to electronics. I guess it's a trend in retailing that continues to do well even with a softening economy.
Hope to see you soon in Atlanta, Chicago or New York,
P.S. Don't forget to plan on attending the Barry Davis Memorial Next Generation Scholarship Dinner on December 4th, 2005 at the Pershing Square restaurant right before the start of the NY Dealmaking show. You should attend even if you didn't know Barry (which is a great loss) because this is not only an excellent cause to support but a great networking event. For complete details, call the ICSC at 646-728-3800.
posted by tedkraus at 10:03 AM
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