Philly-MyWay
Ann, Laurie, Alyson and I attended the ICSC Orlando show and, as has become tradition, it was a homerun, with attendance up 15% (if this trend continues, the New York show will be a zoo, with the possibility that there will be over 7,000 dealmakers in attendance, making it a MUST, MUST event no matter how much you hate crowds or New York City). The night before the actual dealmaking event was "party" night and our industry excelled at eating, drinking and being merry. Tons of dealmakers got back to the hotel between 10 p.m. and 2 a.m. and had a 6 a.m. wake-up call. You know they weren't very productive that morning, but somehow I'm sure most made deals.
I didn't attend, but was told the Women in Real Estate event was extremely well attended and active, as was the Next Generation party. HOWEVER, numerous people complained about the attendance at the actual cocktail party (it was low) and the quality/quantity of food available (don't go to these shows to eat).
The halls of the show were filled with the sound of dealmakers everywhere, laptops open and site plans on display from the exhibit hall to the corridors. Anywhere there was seating available there were deals being done or at least trying to be done. The highlight of the show is always the Retail Networking Session event, which was jammed from the opening bell 'til 5 p.m. I've said it before and I'll say it again, this type of retail event should be held at all the dealmaking shows; it's extremely popular and, in a way, even more needed than the actual dealmaking. It's like going to a bar and having 50 gorgeous women wanting someone to buy 'em a drink.
I heard a number of retailers complain that rents and CAM costs were skyrocketing and that was particularly true for mall-oriented tenants. The "in" thing for mall tenants is fixed price CAM costs, and at least a dozen tenants complained they were being gouged. They also complained that the major mall owners (and there are few of 'em left) are "forcing" them to renew leases in their less desirable centers by refusing to renew in the "good" center. This isn't a "new" tactic, but it appears it's becoming more common. There are only two types of malls in today's world; good ones and the rest, which is why so many mall-oriented tenants are trying lifestyle centers. It's often a similar tenant mix, except there are no traditional anchors, at lower costs and no enclosed mall fees to pay.
I bumped into Jeff Doppelt at the show and IMHO Jeff is the best broker I've ever dealt with. He sold his company to Trammel Crow several years ago and tried retiring, but almost went crazy with all his free time, so he's now semi-retired and his main involvement in retail real estate is the development of 10,000 sq.ft. to 20,000 sq.ft. centers east of Chicago. A nice retirement program, which more and more "retirees" seem to be doing.
I had an interesting discussion with a "retailer," or actually a company that buys retail chains requiring a turnaround. The company buys the chain and then usually closes 25% of its stores in their drive to increase cash flow from under-producing units. His biggest problem at the moment was that he's responsible for sub-leasing over 400 stores, mostly mall-oriented. His other "problem" is that the economy is too good, so they're having trouble acquiring chains at a 12-14% CAP. So like the companies wanting to acquire centers, they're quietly hoping for a recession, thereby bringing "reasonable deals" to the table. Anyway, if you look at the excess properties of many retailers, probably 15%-to-20% of their potential bottom line money is tied up in closed stores. (Wal*Mart probably spends more on paying rent, CAM and taxes on closed stores than most retailers gross). It's a major problem that's getting worse and no one has the real answer.
On a totally different topic, I just read a disturbing article that reports the number of home foreclosures increased 4.7% for July, the most new foreclosures reported in any month, year-to-date. New foreclosures have jumped more than 12% in the last two months, pushing the nation's foreclosure rate to one foreclosure for every 1,465 households. Yes, it's not commercial, which is still relatively low, but it's a bad indication of what's coming. When the consumer hurts, either from high gas costs or foreclosures, we're in trouble and the consumer is hurting.
Oh, I forgot, I also got into a discussion with someone from a hedge fund and another with an insurance company while in Florida. Both are looking for developers with a track record and have numerous projects anticipated for the near term. They want to do JV's where they put up all the money and they split 50-50 after they get 5%-to-6.5 % return on their cash. Not a bad deal for the developer. America is truly a wonderful country. Long live capitalism.
I also read three interesting articles last week; two were in ICSC's Shopping Centers Today and the other was in The Wall Street Journal. One of the ICSC articles was about developers (both mall and strip) doing "everything" in their power to attract "upscale" retailers (Gucci, Gocci, Gicci) so they can differentiate themselves from other centers and produce higher sales per square foot. The Wall Street Journal article was about Sav-A-Lot opening stores in cities and poorer markets, offering prices below Wal*Mart. Two different ends of the spectrum.
There's nothing wrong with trying to attract higher end retailers; they serve a need and a market but higher end to me represents "MAYBE" 15%-to-20% of the population, which means 80% are not going to shop/buy at these retailers. Sav-A-Lot probably caters to the bottom 15%-to-20% of the population and the two shall never meet. BUT (that infamous but) high-end retailers as a rule do not attract the masses, so when a mid-priced tenant goes out and are replaced by a higher end merchant, traffic usually drops. The outlet industry, years ago, in order to have higher sales per square foot, replaced many of their popular priced retailers with high-end retailers. The good news was they accomplished their goal and sales per foot increased. The problem, since foot traffic dropped, is that the other tenants in the center saw a decrease in their walk-in traffic and therefore sales dropped for many of their tenants. And, in case you haven't heard, outlet centers are in trouble. The same will happen in traditional strips or malls if developers "push" too hard for upscale tenants. If less people shop in Gucci than Dollar Tree, then less people will eat in the pizza parlor or shop at Payless Shoes and the "pizza man" can contribute more to the owner's bottom line than Gucci. Sometimes we don't want what we wish for.
The third article was also in ICSC's "Today" and it dealt with Ace Hardware planning to add 180 new stores/franchisees during the next year. That's nearly five million sq.ft. by one retailer that the "media/industry" does not consider sexy. There are hundreds of other retailers similar to Ace who'll "fly" below the radar that are franchised or licensed which add millions of square footage to shopping centers every year that get little publicity or respect, but would be a decent to great tenant in most centers. Few leasing pros follow up with this segment of retail real estate; they wait for the tenant to call them, not the best way to make a quick deal and franchising/licensing is doing better today than ever before. It's a market we're overlooking.
I didn't attend, but was told the Women in Real Estate event was extremely well attended and active, as was the Next Generation party. HOWEVER, numerous people complained about the attendance at the actual cocktail party (it was low) and the quality/quantity of food available (don't go to these shows to eat).
The halls of the show were filled with the sound of dealmakers everywhere, laptops open and site plans on display from the exhibit hall to the corridors. Anywhere there was seating available there were deals being done or at least trying to be done. The highlight of the show is always the Retail Networking Session event, which was jammed from the opening bell 'til 5 p.m. I've said it before and I'll say it again, this type of retail event should be held at all the dealmaking shows; it's extremely popular and, in a way, even more needed than the actual dealmaking. It's like going to a bar and having 50 gorgeous women wanting someone to buy 'em a drink.
I heard a number of retailers complain that rents and CAM costs were skyrocketing and that was particularly true for mall-oriented tenants. The "in" thing for mall tenants is fixed price CAM costs, and at least a dozen tenants complained they were being gouged. They also complained that the major mall owners (and there are few of 'em left) are "forcing" them to renew leases in their less desirable centers by refusing to renew in the "good" center. This isn't a "new" tactic, but it appears it's becoming more common. There are only two types of malls in today's world; good ones and the rest, which is why so many mall-oriented tenants are trying lifestyle centers. It's often a similar tenant mix, except there are no traditional anchors, at lower costs and no enclosed mall fees to pay.
I bumped into Jeff Doppelt at the show and IMHO Jeff is the best broker I've ever dealt with. He sold his company to Trammel Crow several years ago and tried retiring, but almost went crazy with all his free time, so he's now semi-retired and his main involvement in retail real estate is the development of 10,000 sq.ft. to 20,000 sq.ft. centers east of Chicago. A nice retirement program, which more and more "retirees" seem to be doing.
I had an interesting discussion with a "retailer," or actually a company that buys retail chains requiring a turnaround. The company buys the chain and then usually closes 25% of its stores in their drive to increase cash flow from under-producing units. His biggest problem at the moment was that he's responsible for sub-leasing over 400 stores, mostly mall-oriented. His other "problem" is that the economy is too good, so they're having trouble acquiring chains at a 12-14% CAP. So like the companies wanting to acquire centers, they're quietly hoping for a recession, thereby bringing "reasonable deals" to the table. Anyway, if you look at the excess properties of many retailers, probably 15%-to-20% of their potential bottom line money is tied up in closed stores. (Wal*Mart probably spends more on paying rent, CAM and taxes on closed stores than most retailers gross). It's a major problem that's getting worse and no one has the real answer.
On a totally different topic, I just read a disturbing article that reports the number of home foreclosures increased 4.7% for July, the most new foreclosures reported in any month, year-to-date. New foreclosures have jumped more than 12% in the last two months, pushing the nation's foreclosure rate to one foreclosure for every 1,465 households. Yes, it's not commercial, which is still relatively low, but it's a bad indication of what's coming. When the consumer hurts, either from high gas costs or foreclosures, we're in trouble and the consumer is hurting.
Oh, I forgot, I also got into a discussion with someone from a hedge fund and another with an insurance company while in Florida. Both are looking for developers with a track record and have numerous projects anticipated for the near term. They want to do JV's where they put up all the money and they split 50-50 after they get 5%-to-6.5 % return on their cash. Not a bad deal for the developer. America is truly a wonderful country. Long live capitalism.
I also read three interesting articles last week; two were in ICSC's Shopping Centers Today and the other was in The Wall Street Journal. One of the ICSC articles was about developers (both mall and strip) doing "everything" in their power to attract "upscale" retailers (Gucci, Gocci, Gicci) so they can differentiate themselves from other centers and produce higher sales per square foot. The Wall Street Journal article was about Sav-A-Lot opening stores in cities and poorer markets, offering prices below Wal*Mart. Two different ends of the spectrum.
There's nothing wrong with trying to attract higher end retailers; they serve a need and a market but higher end to me represents "MAYBE" 15%-to-20% of the population, which means 80% are not going to shop/buy at these retailers. Sav-A-Lot probably caters to the bottom 15%-to-20% of the population and the two shall never meet. BUT (that infamous but) high-end retailers as a rule do not attract the masses, so when a mid-priced tenant goes out and are replaced by a higher end merchant, traffic usually drops. The outlet industry, years ago, in order to have higher sales per square foot, replaced many of their popular priced retailers with high-end retailers. The good news was they accomplished their goal and sales per foot increased. The problem, since foot traffic dropped, is that the other tenants in the center saw a decrease in their walk-in traffic and therefore sales dropped for many of their tenants. And, in case you haven't heard, outlet centers are in trouble. The same will happen in traditional strips or malls if developers "push" too hard for upscale tenants. If less people shop in Gucci than Dollar Tree, then less people will eat in the pizza parlor or shop at Payless Shoes and the "pizza man" can contribute more to the owner's bottom line than Gucci. Sometimes we don't want what we wish for.
The third article was also in ICSC's "Today" and it dealt with Ace Hardware planning to add 180 new stores/franchisees during the next year. That's nearly five million sq.ft. by one retailer that the "media/industry" does not consider sexy. There are hundreds of other retailers similar to Ace who'll "fly" below the radar that are franchised or licensed which add millions of square footage to shopping centers every year that get little publicity or respect, but would be a decent to great tenant in most centers. Few leasing pros follow up with this segment of retail real estate; they wait for the tenant to call them, not the best way to make a quick deal and franchising/licensing is doing better today than ever before. It's a market we're overlooking.
posted by tedkraus at 10:07 AM
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