It’s All Over With, But the Shouting -- and There’s a Lot of That to Come

The second largest gathering of retail real estate professionals of the year is coming together in New York and there’s a lot to celebrate. With 2006 ending up as being a great year (We can debate which was better, 2005 or 2006, but what difference does it make?), the big question is, “What will 2007 be like?“ and that’s a question that no one really knows the answer to. If they claim they do, they’re either lying or insane, but that won’t stop “the experts” from making predictions anyway. My answer? I have no clue. Right now, my money is on 2007 being decent but not as good as 2006. But, there are too many outside factors that can make 2007 a disaster (more can go wrong than right), so all we can do at the show is meet and greet old and new friends, go out and party in one of the greatest cities in the world and do a lot of dealmaking and praying. (Oh, before I forget, Alyson went to the ICSC show in Sacramento. It was a small show, with 350 in attendance (last year was 295), but she said the size made it "intimate" and very entrepreneurial. Right now, the show is marginal, but give it three or four years and it could be another winner.)

For good or bad, the change in Congress after the last election will have an impact on our industry and my “gut” says the Fed will raise interest rates in January or February. (Hopefully, I’m wrong) So, be prepared to live in “interesting times” for the next year.

There’s no doubt in my mind -- short of a blizzard (God forbid) hitting the show the day before or the day it starts -- New York will set another attendance record and, candidly, the Hilton can’t handle the crowd, but somehow we’ll all make it through the event and be better off because of it. What makes me feel old and sometimes not as successful as I thought I might be is when I speak to some friends of 20 or 30 years and I ask where they’re staying in New York. Many of ‘em reply, “I’m not going, I’m getting too old and tired for it; I’m sending 'my people' instead.” I guess I’m not important, because I still have to attend, along with “my people.” But then, I'll be in good company.

Talking about ICSC shows, several of the dealmaking conferences in other towns are being relocated because “we’ve” outgrown the old facilities. Unfortunately, the Hilton (short of the Javits Center) is the largest conference facility in the city and I personally don’t want to go to the Javits Center or move outside of New York, so we’re stuck with the problem, a great problem, but a problem.

Changing subjects, we’re an industry where you don’t have to be a rocket scientist to succeed and make a good buck, BUT I sometimes wonder if some (not all) of those in the business have any idea what they’re doing. I got a call last week on a building we’re leasing from another broker who inquired about the lease rates. I told ‘em we had a lease out on the property, but leave me your number and if the deal dies, I’ll call. He then asked what it would take to get his client the deal over the current prospective tenant and I said $13.50 psf, net. He then explained I was nuts, the market rent is only $10 to $11 psf and I agreed and said that’s what the current tenant is willing to pay BUT if the owner is going to be a whore, they want to be a well-paid one. We got into a major debate and I ended the conversation saying, “Why don’t I call you if this one doesn’t work out. I’d be a lot more cooperative.” He then called me a thief and hung up. Now don’t get me wrong, I have no pride. If my current deals dies, I’ll call him BUT I would have been less offended with being called a whore than a thief. I tried explaining that with a tenant “in-hand,” why would I even try to be “fair?” (Oh, both tenants have similar financial statements.) He wanted to me to do a deal with him for 25 cents-per-foot more; fortunately my client works 5th Avenue, not 42nd Street.

Anyway, changing topics again, retail seems to be dividing our industry like politics, but instead of blue and red states, we have high and low end retailers with the ones in the middle struggling. The Nordstroms of the world are doing great (department stores are "back in" with the consumer) but it seems that even the almighty Wal*Mart is having some problems. The middle class in America finds their purchasing power diminishing and they’re having difficulty surviving and when they hurt, so will our industry.

I’ve heard a dozen reports on what type of Christmas we’ll have this year, anything from setting records to down 3%. So, it’s a wait-and-see to find out how 2007 will start off. But what really confuses me is Wall Street. I’m the first to admit that finance is not my strong point but as I write this, the Dow is climbing because the Fed has indicated they won't be raising rates in December. That in itself I understand but the other news that Wall Street seems to be ignoring is that sales and, for many companies, profits, are dropping. To my way of thinking, I rather have higher interest rates along with good profits than lower rates and lower profits. I think there’s trouble brewing in Dodge.

When it comes to stupidity, right now, I feel like the king. A couple of months ago, we got a shopping center to sell and through a MAJOR miscommunication on my behalf, we underestimated the income by $150,000. During this period we received several offers for about $1 million less than the owner wanted and I, by pure luck, convinced the seller to lower his price substantially. Long story short, we finally got an interested party that, before going into a LOI, wanted more information than what we had. So, I requested it from the seller and after reviewing the numbers, realized my screw-up and before sending the info out to the potential buyer, I called the owner and confessed to my stupidity. He asked how long it would take to “repackage” and get new offers and I said 60 to 90 days, whereby he responded, "No, close faster at the lower price." (Thank you, thank you, thank you.)

I then sent the info to the buyer and told him of my screw-up. To say the least, he was a happy camper but wanted to know if he was competing with anyone else. I said, “Yes and no.” No one else had received the updated information BUT I will be resending the new numbers to companies that made unacceptable offers in the past, explaining my screw-up and seeing if there was new interest. It was then that the conversation got nasty; he contended I was being unfair (at least he wasn’t calling me a thief) and should not provide the income statement to anyone else.

I asked if he was prepared to go into contract and he replied, “Not for another week.” I said that I therefore HAD TO keep marketing the property. We’re still talking and I do believe he’ll make an offer, but we’re not as friendly as we were in the past. No deal ever seems to go smoothly.

Speaking of whores, I was talking to the VP of acquisitions for a decent-sized company and he was explaining how he “beats” the competition out on deals. Say the seller wants $12 million and they only want to pay $11.2 million. They enter into a contract for $12 million, do their due diligence and then, about 10 days before closing, call the seller and say they can’t close at $12 million but can at $11. Take it or leave it. Ninety percent of the time, the seller gets upset and calls off the deal but calls back in a day or two and after much negotiation, agrees to $11.2 or $11.3 million. There was nothing found in the due diligence period that could justify the lower price, the buyer just plays the game.

In a conversation with another director of acquisitions, we were talking about their latest purchase and I asked how they could justify a 6.5% CAP on a 360,000 sq.ft. center and he said part of it is that they jack up CAM and make it into a profit center, which makes the numbers work -- what a business. Overall, we're a great industry, but we do have our share of a-holes.

Anyway, here's wishing you a great show and holiday.