NYC ICSC Dealmaking Show
Ann, Alyson, Laurie, Rich, Joe and myself just returned from the ICSC Dealmaking in NYC and the deadline for this issue going to press is in a few hours, so I'll keep this short. Ann and I went to the Barry Davis Memorial Dinner on Sunday night and it was great. Besides honoring and remembering a good friend, there were 150 of the industry's "Who's Who" in attendance, so we started the show off at an excellent dealmaking/networking event. If you didn't attend this year, I highly suggest you do next.
As far as the actual dealmaking was concerned, it was an overwhelming success with the only real concern being on Monday night when reports of a possible blizzard that could have canceled and delayed flights for many of the attendees, therefore affecting attendance. Fortunately, the brunt of the storm missed New York and 7,000 to 7,100 of our closest friends managed to show up to wheel and deal for two days. Monday wasn't that busy, but all the four-star restaurants in New York were packed with dealmakers, as was the case on Tuesday with parties and cocktails being the norm. The closed bar on Monday at the Hilton (makes no sense why it was closed, there were lots of potential customers wanting a drink) was a great place to meet and deal, as all the tables had open site plans and computers. I'm not sure why and can't think of a logical reason, but starting next year, the ICSC is putting the picture of the attendees on all badges (so smile while they're taking yours). It will take a year or two to be completely implemented. However, for the record, I won't feel any safer by having everyone's picture on their badges. But, then again, I don't feel safer flying now than I did on September 10th. The cocktail party on Monday was jammed with everyone in an upbeat mood, with many attendees claiming that 2005 is the best year ever for 'em. While I've always said that no one comes to an ICSC event because of the food, I was impressed with the selection of appetizers at the cocktail party. Of course, to make up for the abundance of food on Monday night, we got a box lunch on Wednesday, which was "blah." After the cocktail party, most of the attendees fled to make their dinner reservations and do more networking. On Tuesday, the start of the Dealmaking, the large crowds started to appear. Fortunately, even with record attendance, registration went well mostly because the badges were mailed ahead of time (an excellent idea).
Numerous attendees complained about the show being held at the Hilton. The show, especially with 7,000 attendees, is extremely crowded to say the least. However, I disagree, since the only alternative is the Javits Center and we don't want it there; it's out of the way, no hotels nearby and too big of a facility. With "only" 7,000 attendees we'd be lost and it would cost double to exhibit. The advantage of having the show at the Hilton is the "togetherness." There's an excitement generated by having so many people in such close proximity to one another (and I don't mean sexual). The herd of people and the noise they generate, at least in my mind, generates an upbeat excitement. As I said, most were upbeat, and because of the holiday season, even the pessimists were somewhat happy. The acquisition of shopping centers is still intense, and while all complained, CAP rates at 6% to 7.5% seem to be accepted as the norm, at least for now. Several buyers said they were able to find centers at 8% to 10%, but they claim the only way to find these deals is not through brokers or even contacting the sellers direct, but to solicit the owner of older centers before they decide to put the property on the market. Every third visitor to our booth wanted to finance a center for us and rates are still low, which is why Cap rates stink.
While it still represents a small percentage of the developers, I heard more people complain about smaller tenants wanting a rent reduction at this show than the last three combined, so unfortunately it's a growing trend. Leasing still appears to be going strong but more and more tenants are requesting (and getting) higher TI money and kickouts. One developer was bitching that he "had to" give a non-credit, 8,000 sq.ft. retailer a vanilla box and $20 per sq.ft.
The reason he "had to" was the space had been vacant for four years and he was getting desperate. His approach was "if the tenant makes it two years, I break even," the right attitude in my opinion. Yes, parting with money, especially for non-credit tenants, is not "fun" but it's becoming more common than not. Most of the chains I spoke to say that, while they are still expanding, they are not expanding as aggressively as they have in the past.
What's scary is the amount of newbies that are starting to buy retail because the market is so hot. I must have spoken to a dozen owners, who in the last year entered the retail real estate industry with absolutely no experience, and now own between 250,000 and one million square feet. When you attempt to provide 'em with some insight, they basically say "you're stupid." That's the "old way" of thinking and they know better. It reminds me during the dot.com boom when people argued that profits don't matter. Yeah, right. When the next recession comes, they're the first to exit the industry.
Even more frustrating is when I spoke to experienced leasing people who complained that their company was acquiring unleasable centers. They're buying centers at a 9% to12% CAP without bringing leasing in (the reason the CAP rate is so good is the center is so bad). Then, once the project is acquired, they hand it over to leasing and saying get it done NOW. One VP of leasing I spoke to bitched that his company brought him in during the due diligence period; he said NOT to buy but they did anyway and are now on his case because he can't lease the center, which he told them up front. Dumb, de, dumb, dumb, dumb.
The percentage of actual retailers at the show, while higher than most events, was still low but there were tons of exclusive reps everywhere trying to hustle up some deals. There weren't that many new developments being promoted/announced and some of the vacancies being promoted have been around for years. I spoke to several retailers who recently filed for Chapter 11 and they complained about the new bankruptcy law, which requires them to quickly make decisions on which stores to dump and which to keep. The law appears to be accomplishing what its goals were. Of course, the negative for the landlord is that because they have to make quick decisions, they often close stores that they MIGHT have kept in the past. But it's rare you can have it both ways. The landlord now gets a fast answer, but the problem is that it might not be the answer he wanted. All the Chapter 11 retailers said that once they filed petition, the landlords that wouldn't return their calls are now talking to them about new locations.
I can't remember the exact number, but ICSC membership is now something like 54,000. That's the great news. The bad news is that the substantial increase doesn't include new retailers, meaning they still have the same number of companies as they did five years ago. The increase is in support personnel (finance, construction, etc. Oh, Google even exhibited in New York, representing their mapping service) and lots of newbie owners. We (the ICSC) has to figure out a way to get more "girls" (retailers) to our parties. If they do it right, we can all expect to take one home with us. Anyway, have a healthy New Year and a great holiday.
As far as the actual dealmaking was concerned, it was an overwhelming success with the only real concern being on Monday night when reports of a possible blizzard that could have canceled and delayed flights for many of the attendees, therefore affecting attendance. Fortunately, the brunt of the storm missed New York and 7,000 to 7,100 of our closest friends managed to show up to wheel and deal for two days. Monday wasn't that busy, but all the four-star restaurants in New York were packed with dealmakers, as was the case on Tuesday with parties and cocktails being the norm. The closed bar on Monday at the Hilton (makes no sense why it was closed, there were lots of potential customers wanting a drink) was a great place to meet and deal, as all the tables had open site plans and computers. I'm not sure why and can't think of a logical reason, but starting next year, the ICSC is putting the picture of the attendees on all badges (so smile while they're taking yours). It will take a year or two to be completely implemented. However, for the record, I won't feel any safer by having everyone's picture on their badges. But, then again, I don't feel safer flying now than I did on September 10th. The cocktail party on Monday was jammed with everyone in an upbeat mood, with many attendees claiming that 2005 is the best year ever for 'em. While I've always said that no one comes to an ICSC event because of the food, I was impressed with the selection of appetizers at the cocktail party. Of course, to make up for the abundance of food on Monday night, we got a box lunch on Wednesday, which was "blah." After the cocktail party, most of the attendees fled to make their dinner reservations and do more networking. On Tuesday, the start of the Dealmaking, the large crowds started to appear. Fortunately, even with record attendance, registration went well mostly because the badges were mailed ahead of time (an excellent idea).
Numerous attendees complained about the show being held at the Hilton. The show, especially with 7,000 attendees, is extremely crowded to say the least. However, I disagree, since the only alternative is the Javits Center and we don't want it there; it's out of the way, no hotels nearby and too big of a facility. With "only" 7,000 attendees we'd be lost and it would cost double to exhibit. The advantage of having the show at the Hilton is the "togetherness." There's an excitement generated by having so many people in such close proximity to one another (and I don't mean sexual). The herd of people and the noise they generate, at least in my mind, generates an upbeat excitement. As I said, most were upbeat, and because of the holiday season, even the pessimists were somewhat happy. The acquisition of shopping centers is still intense, and while all complained, CAP rates at 6% to 7.5% seem to be accepted as the norm, at least for now. Several buyers said they were able to find centers at 8% to 10%, but they claim the only way to find these deals is not through brokers or even contacting the sellers direct, but to solicit the owner of older centers before they decide to put the property on the market. Every third visitor to our booth wanted to finance a center for us and rates are still low, which is why Cap rates stink.
While it still represents a small percentage of the developers, I heard more people complain about smaller tenants wanting a rent reduction at this show than the last three combined, so unfortunately it's a growing trend. Leasing still appears to be going strong but more and more tenants are requesting (and getting) higher TI money and kickouts. One developer was bitching that he "had to" give a non-credit, 8,000 sq.ft. retailer a vanilla box and $20 per sq.ft.
The reason he "had to" was the space had been vacant for four years and he was getting desperate. His approach was "if the tenant makes it two years, I break even," the right attitude in my opinion. Yes, parting with money, especially for non-credit tenants, is not "fun" but it's becoming more common than not. Most of the chains I spoke to say that, while they are still expanding, they are not expanding as aggressively as they have in the past.
What's scary is the amount of newbies that are starting to buy retail because the market is so hot. I must have spoken to a dozen owners, who in the last year entered the retail real estate industry with absolutely no experience, and now own between 250,000 and one million square feet. When you attempt to provide 'em with some insight, they basically say "you're stupid." That's the "old way" of thinking and they know better. It reminds me during the dot.com boom when people argued that profits don't matter. Yeah, right. When the next recession comes, they're the first to exit the industry.
Even more frustrating is when I spoke to experienced leasing people who complained that their company was acquiring unleasable centers. They're buying centers at a 9% to12% CAP without bringing leasing in (the reason the CAP rate is so good is the center is so bad). Then, once the project is acquired, they hand it over to leasing and saying get it done NOW. One VP of leasing I spoke to bitched that his company brought him in during the due diligence period; he said NOT to buy but they did anyway and are now on his case because he can't lease the center, which he told them up front. Dumb, de, dumb, dumb, dumb.
The percentage of actual retailers at the show, while higher than most events, was still low but there were tons of exclusive reps everywhere trying to hustle up some deals. There weren't that many new developments being promoted/announced and some of the vacancies being promoted have been around for years. I spoke to several retailers who recently filed for Chapter 11 and they complained about the new bankruptcy law, which requires them to quickly make decisions on which stores to dump and which to keep. The law appears to be accomplishing what its goals were. Of course, the negative for the landlord is that because they have to make quick decisions, they often close stores that they MIGHT have kept in the past. But it's rare you can have it both ways. The landlord now gets a fast answer, but the problem is that it might not be the answer he wanted. All the Chapter 11 retailers said that once they filed petition, the landlords that wouldn't return their calls are now talking to them about new locations.
I can't remember the exact number, but ICSC membership is now something like 54,000. That's the great news. The bad news is that the substantial increase doesn't include new retailers, meaning they still have the same number of companies as they did five years ago. The increase is in support personnel (finance, construction, etc. Oh, Google even exhibited in New York, representing their mapping service) and lots of newbie owners. We (the ICSC) has to figure out a way to get more "girls" (retailers) to our parties. If they do it right, we can all expect to take one home with us. Anyway, have a healthy New Year and a great holiday.
posted by tedkraus at 1:23 PM
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