The South Not Only Rise Again, It Won, Oh and More About Josh..Almost

Ann and I attended the Texas Dealmaking show and over 3,000 “Tall hats”
showed up to wheel and deal, nearly a 20% increase compared with last year’s
show. You can't ask for more than that, especially considering it was only
five or six years ago that the show attracted only 750 or so dealmakers.
High energy is the only way to describe this event. Texans love dealmaking
and socializing, and they do it well. Here's another market in which small
developers excel. The South seems to be an area that smaller developers
love; they’ve found a niche that the REITs can't touch. They may never be
Kimco or DDR, but they live the good life and have fun -- a great way to
make a living. The only real complaint we heard at the show was the lack of
“real” retailers, and that seems to be the rule at most events, so get over
it. The broker has become the mainstay of dealmaking for many, if not most,
retailers and you're going to pay that commission, like it or not.

Another change I noticed at this and most shows is that the actual
dealmaking is lasting longer. In the “old days,” if the dealmaking started
at 8 a.m., for all practical purposes, it was over by 1 p.m., even if the
official closing time was 3 p.m. or 4 p.m. Now, the activity goes on ‘til 2
p.m. or 3 p.m. So, people are staying longer and hopefully making more
deals. I had one interesting conversation with a developer who had just
finished building a Starbucks. He wanted to know what I thought the CAP rate
could be. I responded with a 6.2% to 6.5% rate. He said that's what his
friends are telling him, he just didn't think anyone was that dumb. I agreed
with his outlook but said there's a lot of dumb buyers out there. Anyway,
moving on, Josh and I went to the Atlanta show, which was larger than Texas
with about 4,000 dealmakers compared to last year’s count of 3,500. (It’s
almost getting boring to announce all these increases in attendance. I'm
warning you in advance: The New York show in December will be a nightmare;
there will be way too many people.)

The energy level of the Texas show was higher than Atlanta's, but the
attendees still did their share of "dealmaking." Like Texas, Atlanta has a
lot of smaller developers and, like Texas, their biggest complaint was the
lack of real retailers. Atlanta has their “Retailers” show the day before
the actual dealmaking and I’d guess they had 40 to 50 retailers exhibiting
at this busy event. But, my gut tells me that the amount of retailers
exhibiting was less this year than last. BUT, that didn't stop the wave of
developers/brokers stopping by each booth hoping to do a deal. The cocktail
party in Atlanta was jammed and most people in attendance had dinner
invitations for various gatherings right after the show. So, there were a
lot of tired people the next day, which explains why the show got off to a
slow start on Wednesday. BUT, by 10:30 that morning, the trade floor was
hopping and stayed that way until 30 minutes before closing.

I did hear one interesting tidbit: It seems that the government of Puerto
Rico has sent letters to the major retailer developers on the island saying
they are about to start an investigation into the possibility that these
landlords are gouging the tenants on CAM and electrical charges. Talk about
a disaster looking for a place to happen. Now, I'm totally opposed to owners
making more than nominal amounts of money on CAM, taxes, etc.; their profit
center should be the rents. BUT, I'm also a great believer in, “The
government that governs least, governs best.” Let’s hope the developers do
something before the government does. Otherwise, it might give some ideas to
states in the U.S., and then we all lose.

Changing subjects, as you are aware, I've been chronicling the “Adventures
of Josh” since he joined the company going on 5 months ago, and I have to
admit, it’s becoming LESS frustrating (but still frustrating) while trying
to teach him the business. Well, I guess my remarks struck home to a lot of
people, since we received LOTS of e-mail on those MyWay's. Here's two, which
are typical of the rest:

Ted,
I just started in the real estate business a few months ago and enjoy
reading your articles. I am in the same boat as Josh and can understand what
he is going through. (Cold calling, asking what seem to be logical questions
to a higher authority.) I, however, disagree with the statement that we have
to be taught EVERYTHING. It’s not that we don't know how to fax or pick up
business cards, it’s that we understand that our superiors are succeeding at
what they do and we want to learn their style to emulate them. I think it’s
a good thing that you have new workers craving to learn more and more each
and every day. You should see that and be excited to teach them. This is
your passion, isn't it? As for me, I guess I am getting the best of both
worlds. I am starting out like everyone else does, however, I think my
bosses have a different view, one tailored more to getting me to their level
and watching me succeed. I think their reply to your friend would be, “Do
it, and find new possibilities.” We are not embarrassed. If we were, we
would sit at our desk waiting for you to come to us. We are seekers, ready
and willing to combat new things each day. I for sure know that if I don't
ask questions, I won't succeed. For you it's “Location, Location, Location.”
For me, it’s “Questions, Questions, Questions.” Shouldn't you always ask
questions before you worry about a location? In closing, I think we are an
asset and need to be accepted. All those VPs who are training should
understand and be willing to teach because I am sure, back in the day, those
were the guys bugging their bosses up the wall.
Tom DiCicco
Database Manager

Ted,
I read your articles in every issue of Dealmakers and, typically, they're
perfectly written and have humor to them. This is something I appreciate and
like, since sometimes I feel this industry lacks some comic relief and tends
to be too serious too often. Having said all that, your article about Josh,
while well taken and a point probably shared by many seasoned
brokers/retailers, has some “holes” to it. I started in this business just
over six years ago, when I was 22. Now, my story is somewhat different in
that my father has been in this industry since 1981. Because of that, I had
a very small and limited knowledge of this business when I started. I, too,
however, needed that training to get the necessary knowledge to be
successful. Here was the key that helped me become successful:

Our company is a very small company in terms of number of employees.
However, we compete on a larger scale with the likes of the Mid America's
and CB Richard Ellis’s of the world. Our inventory is massive compared to
the amount of people we have that work the brokerage end of this business.
Currently, we only have three brokers here, including myself. When I started
here, there were only four: The three principals of the company and one
other broker. Since my father is the President and principal of this
company, he certainly had no time to train me each and every day. His
partner was and still is equally as busy as my father. The third principal,
too, was busy doing her own thing.

My job was simple. I began as Database Manager here. I took an “old school”
3-ring binder crammed full of years and years of contacts (both locally and
nationally) and computerized them. Now I didn't just type them in a
computer, I called each and every one of them. Some were long gone and no
longer in business, but most were still active. Throughout my life, my
father has always preached to me about work ethic and striving to be “more
successful than he is.” Obviously, that is a typical statement and wish from
a father to his child. So, for as busy as my father was, he always took the
time to tutor me because, not only was I an investment to him personally as
his child, I was and still am an investment to his company. Additionally,
this was his way of training me. He put me on the phones making calls,
getting to know who people were, learning terms of the business and getting
my own name out there.

See, that is what the “elders” of this industry need to realize: Young
newcomers in this business are not a pain in the neck. We're an investment
to the companies we work for. We're not just around to bug busy brokers to
ask questions. We're here to soak in the knowledge from them. The one thing
I will always do is, when someone young enters into this business, whether
it be a friend or just someone coming to work at our company, I will always
take the time to talk to them and give them as much help and information as
they need. I needed it when I started, so will they.

Remember this, at some point or another, we (meaning all of us in the real
estate business) were all in the same boat. I'm sure you were when you
started in real estate, and I'm sure there was someone there to tutor and
mentor you along the road. That's why CB Richard Ellis is as successful as
it is today. It seems as though the majority of seasoned brokers from the
Baby Boomer era all started at CB (formerly, just Coldwell Banker). They had
it down perfectly. Each new entrant into the business “ran” for someone who
was seasoned. My father happened to get his first real estate job with CB,
and the man he “ran” for taught him some valuable lessons, which were passed
down to me.

All in all, let's take it easy on the young newcomers because one day, we
will be the generation that is the majority within this industry. And again,
I know for sure that when the next wave of young sales people come through
when I am old and have many years under my belt, I’ll be sure to fill them
up with as much knowledge as I can!
Jason R. Lenhoff
Horizon Realty Services, Inc.






Nick D'Amore

2006, Not As Great As 2005 But Still Great

Alyson just got back from the Palm Springs show (next year it will be in San Diego, one of my favorite areas in the country. Actually it's La Jolla that I love, the town north. But either way it's a great place to bum. The reason for the change is the hotel in Palm Springs can't handle the increasing size of the ICSC show, a problem we might have in New York). She said that the show was active, with a possibility of nearly 6,000 attending this year compared to last year's 5,240, so California dealmakers are a happy lot. The cocktail party was active, with everyone upbeat, and meetings were being held at every available table. Lee Cherney, a friend and VP of Kin Properties, was there trying to find property for sale. He contends that acquisitions have gotten so tough that one broker didn't want to deal with him because his company knows what they're doing and therefore makes the deal more difficult (a dumb buyer is the best kind of buyer). Another developer told Lee he's currently building shopping centers and then immediately flipping 'em at a 5.25% CAP in California. I'm getting 5% on my CDs. Something is wrong here.

Ann and I are going next week to the Texas dealmaking, and the following week Josh and I are attending the Atlanta show. And in two months, the "mother-in-law of all mothers-in-law," the New York show will be here (God, the year is going fast). Every indication is that the next three shows will also be good, and in all probability New York will set another record, so 2006 appears to be ending with another banner year for the retail real estate industry; maybe not as good as 2005, but what's the difference between an "A" and "A-minus"?

The great unknown is Christmas 2006 and how good or bad it will be. If it's good, we're in for a great start in 2007. If not, lots of retailers will be re-evaluating their expansion plans and a couple of the weaker chains will go bankrupt. Standard operating procedure for a weak Christmas. So far, indications are that while some of the economy is slowing, retail is holding its own; don't understand how or why, but it is. Of course, the ongoing wars, who wins the elections in November, which way interest rates go and the price of oil will all have an impact on us, but right now we appear to be in decent shape. But the smart money, I don't believe, is betting either way. They're as confused as I am. Oh, and the Federal Reserve is saying there will be more defaults on commercial real estate loans. We live in confusing times.

On a different note, I read that Kimco bought 19 centers from GE, which in itself is not significant (they're buying all the time), but the article goes on to say they're in the process of flipping these centers to an investment group, which is now part of their operating philosophy. Buy, Sell, Flip. If anyone did an analysis of Kimco's sales, I'd be willing to bet that from a sales aspect, they are among the largest brokers of retail real estate in the country. I have to give Milton Cooper credit, he's probably the smartest man in our industry. He JVs, manages, buys, sells, loans and anything else that can make a buck. He not only sells the pig, but also the oink. No one does it better. The only thing that scares me is that one company controls nearly 5% of all the centers in the country. Big always bothers me; That's why I hate the government.

Oh well, ranting on. A trend I've noticed since Josh joined the company (he has several freestanding buildings for lease and has gotten involved in leasing smaller space than I'm usually involved in). Because of his canvassing, he's dealing with the smaller chains (under 20 stores) many who want to buy their real estate instead of leasing, wanting the benefit of appreciation or to take advantage of the full value they bring to a location when they open and bring additional traffic to a center. Besides his properties, I'm leasing/selling some vacant big box stores and I must get five to 10 calls a month from brokers representing "big box" retailers (over 50,000 sq.ft., but small chains) wanting to buy distressed centers with large vacancies that their client can open and operate in. (Oh, I also noticed in the last few months an interest from some entrepreneurs to open flea markets in closed big boxes. I haven't gotten these types of calls in years). Half of the tenants Josh is canvassing for on his freestanding buildings expressed interest, but only want to buy and won't lease.

On the same note, we're marketing a 200,000 sq.ft. center with a vacant 100,000 sq.ft. store and I've been approached by several retailers wanting to buy (which the owner is willing to do and the asking price is low at $15 psf, but the buyers want it even lower). One retailer offered our asking price, but wanted "us" to take back paper for the entire amount, pay interest of 6% and provide no real guarantee. They couldn't understand why their offer was rejected. I also noticed that there's lots of bottom fishers in the smaller chain market (the big boys aren't the only ones), offering to move fast if we did a deal 20% to 30% below market. I guess they're all hoping to find a desperate owner. Now, I understand lowballing if you're buying and intend to be the landlord, BUT if you're going to operate a store in the center, it should be location, location, location and demographics being the most important part of the deal, not the cheapest deal that determines if they proceed. Their main business should be retailing, not real estate (on the same philosophy, I think it's crazy when a developer buys a retailer). If, and when, the recession hits, we could be in deep trouble. Few buyers or retailers seem to be concerned about the fundamentals of retailing or real estate anymore.

On a similar note, while we're encountering tough negotiations with the smaller chains, I noticed some of the larger developers, brokers and retailers are taking a totally different approach. I know I spoke about this before, but we're an industry of horse traders (and I'm proud of that fact) and I don't understand this change, the reluctance NOT to horse trade (there's nothing wrong with tough negotiations, but being a tough negotiator and NOT making the deal is NOT an attribute. Being a tough negotiator AND making the deal is a mark of success). I gave a proposal on an outparcel to a developer of "dollar stores," and they came back saying it's too high and then I practically have to beg to get 'em to make a counter proposal. When I asked why they can't come back with a counter proposal, they claimed that the difference is too big. He contended that a million was too much. It took me a month to get him to counter offer at $500,000 and we finally agreed, but why was it so difficult?

Speaking of Josh (remember he's my only begotten child; that I know of). He's proving what I've always knew, but have to be reminded of, canvassing pays, and pays big. Thanks to several friends who gave him centers to work on, he's been doing a decent job of canvassing and in the last three weeks brought in seven or eight proposals. Only one was acceptable but seven or eight proposals ain't bad. The ma&pas are still expanding, but they need someone to call on 'em to get their interest going.

Talking about deals, I also noticed most of the big box users are beginning to become easier (not easy, just easier) to deal with than in the past. I have to assume the reason for this change is not that I've become a better negotiator, but it's getting harder for them to find sites and the amount of vacant big boxes in decent locations is minuscule. However, Real Estate Research Corp. just came out with a report saying that because of the low CAP rates, retail has the lowest interest of buyers of commercial real estate. In addition, second quarter vacancies rose from 7.6% to 8.5%. Maybe too much of a good thing is bad.