Snow, Heat and Great Weather Couldn't Stop the ICSC From Having Terrific Shows

I was at the Puerto Rico ICSC show, and while it's the smallest event we
attend every year, the show, with only 259 in attendance, was upbeat and
productive for this extremely cliquish group of dealmakers. As is the case
at most shows, for two days most of the attendees wined and dined at various
parties (I have to thank Thor Equities and Larry Campbell for invites to two
great dinners) and all did a great job of networking, which in reality is
the ICSC's major strength. What I found interesting is that retail sales are
down in PR between 3% and 5% (depending on who you're listening to since
they added a sales tax on the island) but rental rates are up. An
interesting combo. Anyway, for the three days I was there, the low in
temperature was 72 and the high, 86 degrees.

On the day we left PR, I complained to Ann about it being too hot and after
we landed back in Jersey, I started complaining about the cold. I guess Ann'
s right about me being a compulsive complainer. Oh, I've been coming to this
show for about five years and every year, three to six NEW retailers from
the states come to the event who hear how great the PR market is and hope to
open the island for their companies. After doing some primary investigation,
discovering how high the rents are and seeing the scarcity of space, 60% to
70% drop the idea of opening in Puerto Rico. I can vouch for these facts:
Rents are high and vacancy is low, worse than California. But what makes it
all worthwhile is high, high sales.

Going from the beauty and great climate of PR, I went to the Chicago ICSC
show. (The small one, not the biggie that occurs in Chicago every October.)
While attendance was respectable at 1,183, the weather sucked. It started
snowing when I arrived and the wind chill factor was -15 degrees at its
worst. Driving conditions, because of the horrific snow, were dangerous at
best and the starting day for the show was a mini blizzard. But dealmakers
are dealmakers and there was an excellent turnout for the cocktail party.
(But the food was blah, since it was a "non-sponsored" event.) But in spite
of the poor food and bad weather, the ballroom filled up with happy
dealmakers. For most in attendance, 2007 is stacking up to be a good year.

The next morning, the round table discussions and seminars were jammed. This
is a group that really wants to learn PLUS do deals and this was shown when
later that afternoon the Dealmaking area was jammed for three hours with
retailers, brokers and developers saying, "Do I have a deal for you."
Overall, anyone who attended couldn't complain.

I didn't attend the L.A. show in California, but Alyson did, and she said
the show with 801 dealmakers present was "OK," but not great. The cocktail
format for this show, since it was a one-day event, was different than other
shows in that the "cocktail" party was mixed with the actual dealmaking. So
you visit a booth and then eat, drink and try to be merry. (Puerto Rico has
a cocktail party the night before the show AND then has food as part of the
dealmaking. I guess they love to eat.) Everyone appeared upbeat, and there
were about 100 exhibitors with most in attendance staying past the closing
bell of 4 p.m., so chalk up another successful dealmaking

I don't understand the economy, since some days the economic reports are
great and the next day dreadful, but I have not been to an ICSC show in
years that hasn't been good. It's almost scary, and I don't expect that to
change in the near future. But now that I'm not being a contrarian, I guess
a recession will start.

On a different note, we (TKO) specialize in leasing and selling "problemed"
properties. (Or "value-added," as they are called today. But if you have a
great center for lease or sale, feel free to call. We'll be glad to work on
it.) Two of the properties we've been working on that are for sale are real
"challenges," and both now appear to be going under contract, BUT the
reasons being are 1) the centers are being sold cheap ($12 psf to $16 psf
and, more importantly, 2) in both cases the buyers had a retailer in place
to lease the vacant big box before entering into a contract. Doesn't take
Einstein to understand if you can buy a center for $13 psf, put another $25
into TI and then have a mini-anchor or anchor of 50,000 sq.ft. to 75,000
sq.ft. willing to pay $6 rent, net, not only are you improving the CAP rate
immediately, but you just started on the turnaround for the rest of the
center. I've noticed this as a trend over the last year or so and it seems
it's becoming more common. You have a second generation anchor, then go buy
a center. Used to be first you buy the center, then you find the anchor. All
these "pocket" tenants are either discount (usually low-end) or
entertainment-oriented and have difficulty finding locations at rental
numbers they can afford. By having a "preferred" developer (If CVS can do
it, why not mini-anchors?), they can control their growth better than just
making calls looking to lease space. I think it's great. I'd love to have
this type of relationship with some tenant. I could make a good buck.

Oh, I had an "interesting" phone call the other day. I get a call from
another broker wanting to know if I can help his client sell a 16-acre
parcel that he recently got rezoned for retail. I was told it was an "A"
location and leasing would be easy. My first question was, "Why are you
calling me?" I've learned over the years if it's easy and profitable, they
don't call me. I'm then told that they tried to sell the property to a major
developer I'm friendly with and were "insulted" by their offer. I replied
with, "Why not try and sell it to someone else if it's that good?" and was
told they "like" this particular developer. Since it was an outright sale,
that didn't make sense. The color green is the only thing anyone should care
about and they wanted my help to sell to that developer and that developer
only. I was confused.

Long story short, it costs the owner about $25,000 a month to carry the
property and the developer offered $5,000 a month for a year for an option.
I said that makes sense to me. What's the problem? In "the good old days"
when I worked for Arlen Shopping Centers in the '70s, we'd go out and get
some farmer to give a one- or two-year option for $200 a month on 20 to 100
acres. Build in inflation and it seems things haven't changed much in 30 or
40 years. The only problem I see is feeling insulted. (It's the sellers'
problem, not the potential buyers'.) You don't have to accept an offer, but
at least appreciate that they made one. Think about it: We must offer a
location to 60 to 100 retailers before any express real interest and make an
offer. At least with an offer we have a starting point and this buyer did
make an offer. Don't be insulted, be glad. The whole discussion didn't make
sense to me, so I turned down the assignment. Josh was in my office while
this conversation was being held and afterwards couldn't understand why I
didn't take the assignment. "We could make a commission," he said. (He's
greedy, which is good for a broker, but he's young and doesn't understand.)
I tried to explain we're a small company and it just doesn't pay to work on
projects that probably never will be made. Pick your assignments and then
make 'em happen. It probably took me 10 years in brokerage before I
understood this simple rule. Hopefully, I can teach it to him quicker.

Oh, another trend I've noticed is SOME, not all, CAP rates are moving
upward. It appears some sellers are now realizing that not all property is
created equal, and while prime locations can still command 6 1/4% CAPs
(California is at 5 to 5 ?%.), secondary or locations with short-term leases
and non-credit tenants are now going for 7% to 8 ?%. Maybe this is a trend
that will continue. (Who knows? It's a pure guess.) Some of the "younger"
generation people contend I don't understand the "new" economics. I contend
I do and they make no sense, especially if and when a recession hits.

Changing the subject. Besides taking forever and a day for a deal to close,
I think the boom of our industry for the last eight years has gotten a lot
of people to become either inconsiderate or unprofessional. Besides the
rudeness of NOT returning phone calls, I've noticed that a number of
companies are either sending or signing an LOI (which is never binding on
anyone) and then when the other party follows up, they don't respond.
Typical of that is we recently received an LOI from a tenant on a property
we're leasing. We, within hours, sent back a counteroffer. We then waited a
day and phoned their real estate rep. Didn't receive a return call, so we
e-mailed the next day. Still no response. We then e-mailed and called again
and again, no response. We called the VP of the company, got voice mail and
explained our problem. Still no response. Over an eight-day period, we
called and e-mailed at least seven times. Yes, I realize that the deal is
probably dead, but why not have the consideration to either return the call
or reply with an e-mail telling us to get lost. Purely unprofessional.












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