Thank God the Fire Marshal Doesn't Work Hard
It was a “really big show” to say the least in describing the NYC ICSC dealmaking, with a record of nearly 8,000 in attendance, all of whom were happy with their results for 2006 and looking forward (with some trepidation) to 2007. Upbeat is the most common word used to describe everyone’s outlook for the show and the New Year.
Ann and I got into Midtown on Saturday (Josh is still living at home, he won't be moving into his own home until the end of January) to get some “privacy” and rest up for a hectic three-day deal-a-rama. Saturday saw few
ICSC members checking into the hotel or walking the lobby, but by Sunday they were starting to fill the hotel rooms and Sunday night saw large groups going out for dinner to celebrate the holidays and renew friendships. On Monday, the crowds really started to pour in and the cocktail party was a great success. (Even the food was good, compared to the junk we were served for lunch on Tuesday.) There were mixed feelings on the new format for the Retailer’s Runway but attendance was packed for the event. Anytime this group can see or hear a retailer, they come in large herds hoping to be able
to "reach out" and “touch” ‘em.
The crowd for the three-day show was heavy to say the least and that caused many to complain...Of course, if the show wasn’t jam packed, they would have complained about the lack of attendees. These complaints led some to say the show should be moved and I couldn’t disagree more. Think it through logically. Sunday, Monday and Wednesday, the crowds were always under control. So the only time they were uncontrollable was on Tuesday between 11
a.m. and 3 p.m., for a total of four hours when it was a pain to walk the floor. (This is why we should be grateful the fire marshal doesn't work hard.) We can live with four hours of discontent if it means NOT going to the Javit’s Center. There are few benefits Javit’s can offer except for having more room. There are no hotels nearby and the traffic to get to and come from the convention area would be a nightmare. The ICSC tried having some booths at the Sheraton across the street from the Hilton, but it was a
lonely place for the exhibitors on Tuesday, the only day they could exhibit.
Either the ICSC has to create more of a critical mass of exhibitors for the Sheraton (which they can do over a three- to four- year period of time) OR my suggestion would be to use the banquet hall where we had the cocktail party as exhibit space and hold the cocktail party at the Sheraton. Anyway, the show was not only jammed on Tuesday, but continued strong until closing on Wednesday, something you don’t see often. Short of Vegas, it was the best
show of the year. Let’s hope this trend continues throughout '07.
I read an article in Retail Traffic that said investors' interest in retail was dropping and other forms of commercial real estate were replacing retail as their favorite child, BUT based on the hundreds of people dropping by our booth asking if we had anything for sale, they’re wrong. I think what has occurred is the A, B and C+ properties sold fast at a 6 to 6 ½% CAP and now the owners of C and lower quality properties are trying (but not succeeding)
to sell their projects at that same CAP rate. So, it's true, there is a slowdown in secondary centers at low CAP rates, but that means nothing.
Also, “everyone” wants “value-added” centers to acquire, but when the value-added center sells at a 6 1/4 CAP, even if you can succeed at adding value, you still might not make money. Offer an investor a decent center at 6 ½% CAP and see how quick it sells. Yes, other forms of investment might show better returns at the moment, but the crowd in New York LOVES retail and they prefer to acquire a strip than an apartment building any day. All that said, I still think the current prices of centers are insane. Also, we've all read of mega acquisitions done by the likes of Kimco and DDR etc.,
and there might be a drop in these mega-deal acquisitions this year, but the majority of centers in America are owned by "small" developers (I should be so small) and they're actively buying and selling every day with no slowdown in sight. In the majority of cases, they can do a better job of "adding
value" to a center than any REITs can, and let's be candid: How many of "us" can do a $1 billion to $5 billion deal compared to being able to finance a $1 million to $5 million acquisition. So, the small deals are still the future for the majority of us. Also, a complaint I've heard from numerous retailers is once either a REIT or mega company acquires a center, it's usually downhill for maintenance and TLC. The retailers' complaint is, under
their old ownerships, management was always around and the center was relatively well-maintained. After the large organization takes over, they rarely see "ownership," CAM always increases and the center, to some extent, deteriorates, and that's the good news.
While walking the floor, I noticed there were lots of space for lease being offered but not much in new construction and what was under development was usually either mixed-use (or lifestyle, whichever you prefer) or urban, the two “vanillas” of the day. We’re (TKO) leasing an urban project in Chicago proper and the politics and government approvals required are nuts. Because we have to deal with all sorts of city officials, this will be a three- to
five-year project just to get approved. You need deep pockets and a lot of patience to do urban development, especially when it comes to dealing with local officials and neighborhood organizations. On that same note, I’m trying to do a deal for a retailer in an urban setting and the site is
fantastic (millions of bodies in five miles) but the rent is insane. The center will take nearly five years to get all approvals and built, and the acquisition costs for the land were outrageous. The biggest problem with these properties is there’s a 50/50 chance they will never be built and the cash layout while trying for all approvals is huge. It takes a lot of guts
to do these deals, so the payout has to be big, and it is.
On a different topic, we recently did a survey to the members of the commercial real estate email forums we manage. (There are over 29,000 members and it’s totally free to join.) Great way to make deals in sales,acquisitions or leasing. To join, go to
http://www.dealmakers.net/sub_unsub.asp. Anyway, among the questions asked was: "Have you done a deal because of the forums?" It appears about 18% have finalized a deal on-line because of our forums. The next question was: "Do you post (That means, do you list property for sale or lease or list your acquisition needs) at least once a month to our email forums?" Over 70% of the people who had done a deal on the forums also “posted” at least once a
month. So, 70% of the people doing deals are also aggressively posting to the “world” what they have or need. The “doers” do and the rest watch. That, I believe, is similar to the readers of the Dealmakers. Most read, but a smaller percentage that are more aggressive, send in their press releases, available space, property for sale, etc. and I’m willing to bet dollars to donuts, they do more deals than the passive subscribers. The harder you
work, the luckier you get. Sending in your press releases, needs or
availability is easy and free. (Just email it to Ann@dealmakers.net or fax it to 609-587-3511. Just send it in, we’ll rewrite it to fit.) You should also do that to all the trade publications. (And send press releases to your
local newspaper.) If you follow my New Year’s advice, I guarantee you’ll do more deals in 2007.
Oh, before I forget, RETAILER ONE ON ONE is having their 2007 dealmaking conference on April 11-12th in Orlando. (This is NOT an ICSC event but I highly recommend it if you do work in Florida.) They have a great turnout of "real" retailers. For details go to
http://www.retaileroneonone.com/event.htm. I've gone for four years now and have never been disappointed.
Parting thoughts: Well, the results of Christmas are in, and while it wasn't the holiday most retailers wanted, it was "OK," meaning there will be less bankruptcies and expansions will continue, but I think the majority of retailers will be more selective on where they locate and what they'll pay, and will be asking for more TI money. Also, while there will be less Chapter "11's," there will be more retailers closing LOTS of unprofitable stores in 2007. The two big winners for Christmas '06 were electronics and "high-end
retailers," so look for these categories to expand big in 2007.
Ann and I got into Midtown on Saturday (Josh is still living at home, he won't be moving into his own home until the end of January) to get some “privacy” and rest up for a hectic three-day deal-a-rama. Saturday saw few
ICSC members checking into the hotel or walking the lobby, but by Sunday they were starting to fill the hotel rooms and Sunday night saw large groups going out for dinner to celebrate the holidays and renew friendships. On Monday, the crowds really started to pour in and the cocktail party was a great success. (Even the food was good, compared to the junk we were served for lunch on Tuesday.) There were mixed feelings on the new format for the Retailer’s Runway but attendance was packed for the event. Anytime this group can see or hear a retailer, they come in large herds hoping to be able
to "reach out" and “touch” ‘em.
The crowd for the three-day show was heavy to say the least and that caused many to complain...Of course, if the show wasn’t jam packed, they would have complained about the lack of attendees. These complaints led some to say the show should be moved and I couldn’t disagree more. Think it through logically. Sunday, Monday and Wednesday, the crowds were always under control. So the only time they were uncontrollable was on Tuesday between 11
a.m. and 3 p.m., for a total of four hours when it was a pain to walk the floor. (This is why we should be grateful the fire marshal doesn't work hard.) We can live with four hours of discontent if it means NOT going to the Javit’s Center. There are few benefits Javit’s can offer except for having more room. There are no hotels nearby and the traffic to get to and come from the convention area would be a nightmare. The ICSC tried having some booths at the Sheraton across the street from the Hilton, but it was a
lonely place for the exhibitors on Tuesday, the only day they could exhibit.
Either the ICSC has to create more of a critical mass of exhibitors for the Sheraton (which they can do over a three- to four- year period of time) OR my suggestion would be to use the banquet hall where we had the cocktail party as exhibit space and hold the cocktail party at the Sheraton. Anyway, the show was not only jammed on Tuesday, but continued strong until closing on Wednesday, something you don’t see often. Short of Vegas, it was the best
show of the year. Let’s hope this trend continues throughout '07.
I read an article in Retail Traffic that said investors' interest in retail was dropping and other forms of commercial real estate were replacing retail as their favorite child, BUT based on the hundreds of people dropping by our booth asking if we had anything for sale, they’re wrong. I think what has occurred is the A, B and C+ properties sold fast at a 6 to 6 ½% CAP and now the owners of C and lower quality properties are trying (but not succeeding)
to sell their projects at that same CAP rate. So, it's true, there is a slowdown in secondary centers at low CAP rates, but that means nothing.
Also, “everyone” wants “value-added” centers to acquire, but when the value-added center sells at a 6 1/4 CAP, even if you can succeed at adding value, you still might not make money. Offer an investor a decent center at 6 ½% CAP and see how quick it sells. Yes, other forms of investment might show better returns at the moment, but the crowd in New York LOVES retail and they prefer to acquire a strip than an apartment building any day. All that said, I still think the current prices of centers are insane. Also, we've all read of mega acquisitions done by the likes of Kimco and DDR etc.,
and there might be a drop in these mega-deal acquisitions this year, but the majority of centers in America are owned by "small" developers (I should be so small) and they're actively buying and selling every day with no slowdown in sight. In the majority of cases, they can do a better job of "adding
value" to a center than any REITs can, and let's be candid: How many of "us" can do a $1 billion to $5 billion deal compared to being able to finance a $1 million to $5 million acquisition. So, the small deals are still the future for the majority of us. Also, a complaint I've heard from numerous retailers is once either a REIT or mega company acquires a center, it's usually downhill for maintenance and TLC. The retailers' complaint is, under
their old ownerships, management was always around and the center was relatively well-maintained. After the large organization takes over, they rarely see "ownership," CAM always increases and the center, to some extent, deteriorates, and that's the good news.
While walking the floor, I noticed there were lots of space for lease being offered but not much in new construction and what was under development was usually either mixed-use (or lifestyle, whichever you prefer) or urban, the two “vanillas” of the day. We’re (TKO) leasing an urban project in Chicago proper and the politics and government approvals required are nuts. Because we have to deal with all sorts of city officials, this will be a three- to
five-year project just to get approved. You need deep pockets and a lot of patience to do urban development, especially when it comes to dealing with local officials and neighborhood organizations. On that same note, I’m trying to do a deal for a retailer in an urban setting and the site is
fantastic (millions of bodies in five miles) but the rent is insane. The center will take nearly five years to get all approvals and built, and the acquisition costs for the land were outrageous. The biggest problem with these properties is there’s a 50/50 chance they will never be built and the cash layout while trying for all approvals is huge. It takes a lot of guts
to do these deals, so the payout has to be big, and it is.
On a different topic, we recently did a survey to the members of the commercial real estate email forums we manage. (There are over 29,000 members and it’s totally free to join.) Great way to make deals in sales,acquisitions or leasing. To join, go to
http://www.dealmakers.net/sub_unsub.asp. Anyway, among the questions asked was: "Have you done a deal because of the forums?" It appears about 18% have finalized a deal on-line because of our forums. The next question was: "Do you post (That means, do you list property for sale or lease or list your acquisition needs) at least once a month to our email forums?" Over 70% of the people who had done a deal on the forums also “posted” at least once a
month. So, 70% of the people doing deals are also aggressively posting to the “world” what they have or need. The “doers” do and the rest watch. That, I believe, is similar to the readers of the Dealmakers. Most read, but a smaller percentage that are more aggressive, send in their press releases, available space, property for sale, etc. and I’m willing to bet dollars to donuts, they do more deals than the passive subscribers. The harder you
work, the luckier you get. Sending in your press releases, needs or
availability is easy and free. (Just email it to Ann@dealmakers.net or fax it to 609-587-3511. Just send it in, we’ll rewrite it to fit.) You should also do that to all the trade publications. (And send press releases to your
local newspaper.) If you follow my New Year’s advice, I guarantee you’ll do more deals in 2007.
Oh, before I forget, RETAILER ONE ON ONE is having their 2007 dealmaking conference on April 11-12th in Orlando. (This is NOT an ICSC event but I highly recommend it if you do work in Florida.) They have a great turnout of "real" retailers. For details go to
http://www.retaileroneonone.com/event.htm. I've gone for four years now and have never been disappointed.
Parting thoughts: Well, the results of Christmas are in, and while it wasn't the holiday most retailers wanted, it was "OK," meaning there will be less bankruptcies and expansions will continue, but I think the majority of retailers will be more selective on where they locate and what they'll pay, and will be asking for more TI money. Also, while there will be less Chapter "11's," there will be more retailers closing LOTS of unprofitable stores in 2007. The two big winners for Christmas '06 were electronics and "high-end
retailers," so look for these categories to expand big in 2007.
posted by tedkraus at 2:06 PM
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