Since there are indications that the dealmaking is improving as retail sales increase--and experienced professionals in the industry require the best information to benefit from these positive signs, we are making available our blog to a Guest Columnist specializing in essential data.
By Tama Shor, Publisher of the Directory of Major Malls (guest columnist)
The Internet has completely changed the way we communicate, the way people do business, and the way the public is informed, while compelling businesses to listen to the demands of the consumer.
“Survival of the fittest” is a phrase that has far-reaching implications for most industries. Those that adapt and change their business models and marketing practices in line with changing trends and the effects of the Internet are those that by natural selection will survive. Those that don’t will die off.
The Changing Retail Real Estate Landscape
We now live in a consumer-driven business world where instant and easy access to information is not only what consumers want – but what they expect. The increased volume of e-commerce sites is a perfect example of how consumer-driven our society has become. A consumer-driven e-Commerce model poses a potential threat to brick-and-mortar shopping centers, but it is possible to mitigate the potential losses to physical stores by modifying marketing and business models to accommodate the effects of these technological changes.
François Ortalo-Magné, Director of Wisconsin School of Business Global Real Estate, cites an example of a brand that is revising its business policies in light of the increased e-commerce site usage. He says:
'There are those companies like SFR who are radically re-educating their store staff so that they have the same level of product knowledge as the clients who come to the shop having surfed the web to find about products. There are those companies who see their flagship stores as communication tools. And there are those companies who haven’t yet decided what to do,' he added. (http://www.propertyeu.info/index-newsletter/retail-sector-split-on-impact-of-e-commerce/)
In addition to the trends leading to more e-commerce sites, the recession has also caused a shift in the retail real estate landscape.
What Does This Mean For The Retail Real Estate Market?
Because business today is information-driven, it is important to be able to acquire, access, and manage data in order to make timely decisions, take advantage of opportunities and/or avert disasters.
How and Why Vertical Markets Need to Stay Informed
In order for the vertical markets within the retail real estate market to stay in the game, they will need to have as much current and accurate data at their disposal to be able to make the wisest business decisions.
Retail chains and up and coming retailers need data that can help them locate and analyze new locations, review existing markets, and hone in on their competition. Specialty and seasonal retailers will benefit greatly from having the necessary data to help them identify major centers with seasonal and temporary leasing programs.
Owners/developers and management companies who build and manage shopping centers and malls need tools to help them analyze the tenant mix of other centers in their area, other locations of stores, and to track what companies oversee other major retail locations.
Financial institutions and investment companies managing stocks owning shopping centers need to react quickly to changes in the industry such as store chain closings and openings, the sale of portfolios of shopping centers and malls, new developments as well as properties affected by natural disasters and regional economic shifts. These investment portfolios are affected on a daily basis by the afore-mentioned activities making it all the more important for the financial and investment companies to have access to the most current and reliable data.
Some examples are: When a major department store chain files bankruptcy or a retailer decides to close all the locations of one of their chains, which centers are affected? Who owns these properties? How much of their property portfolio is affected by closings? What effect will that have on the overall stock value for both the landlord and the retail chain?
Suppliers and service companies who are involved in businesses like the sale of security uniforms, recycling services, energy management, stroller rentals, and gift card programs need to be able to identify and contact new prospects and sales leads at the individual centers, and evaluate the size of a company-based upon the number of listings they oversee.
Marketing and promotional companies who help businesses through publicity campaigns and advertising need a resource for marketing analysis and marketing contacts.
Architectural and design firms of the malls or stores who want to promote their services need to have information about other properties and retail locations.
Construction companies involved in the building and renovation of shopping centers/malls, stores, and parking lots, need to know about proposed centers and those under development as well as those planning a renovation or expansion.
What happens to those companies that are not paying attention to their industry’s changing trends? They will eventually lose out to their competitors who ARE utilizing marketing tools and current, relevant data to make better informed business decisions.
Staying true to our brand promise of maintaining the most comprehensive reference of major shopping centers and malls available anywhere in order to provide you with the most current details possible, we are pleased to announce the release of the 2011, 32nd edition of the Directory of Major Malls®. With over 7,000 detailed shopping center listings and 295,000 store locations, you will have access to the most accurate shopping center data available in order to find the locations you need and make the contacts you want. Pre-order your 2011 Print and CD versions for January.
Access 2011 data online today! The Directory's on-line access site is located at http://shoppingcenters.com. This interactive web site is efficient, easy-to-use, and updated monthly. A subscription to the site allows you to search and view our data (including live links to web addresses and emails) and view and print our site/leasing plans and metro area maps.
Customized reports, mailing lists and VIP contact files are available for downloading for an additional fee for both subscribers and guest accounts. Log on to http://shoppingcenters.com to create a Guest account and run a FREE query today.
Friday, December 17, 2010
Wednesday, November 24, 2010
Growth In Internet Sales May Impact On Leasing And Development, But Others See It As Another Challenge To Be Overcome
This column, Strolling the Agora, will continue to be written as the mood hits, even though Shopping Center Digest has ceased publication
By Murray Shor
At first glance, the fact that internet sales are booming should have a crushing impact on future dealmaking, already staggered by record-setting vacancies and lackluster leasing and development. This is despite the fact that many soothsayers are seeing signs on the horizon of improvement across-the-board-- and they expect positive holidays sales due in part to the early start of door-busters and deep discounting right after Thanksgiving Day celebrations.
First the hard facts. E-commerce spending is expected to jump 13.7% this quarter up to $51.4 billion. Certainly for many consumers and for many types of merchandise, there are distinct advantages over buying at the store.
The shift from brick-and-mortar to the internet by shoppers, according to some analysts, is to avoid the hassles of crowded malls, long waits, lines at the checkouts, and battling others for very popular “hot items,” the early AM or late-night hours for “special deals,” and the increased stress of limited “deep discount” merchandise in high-demand.
And, they point out, many of these deals are available only on the internet, top retailers are offering free shipping to home or convenient store locations, and free shipping for returned merchandise.
Though many retailers are predicting record sales at the stores beginning late Thanksgiving Day, as many consumers are opting out of battling Black Friday frenzy in favor of hitting their keypads and picking up the deals without stirring out of their homes.
And then, others point to the latest technology being used to drive customers to the stores. “Top retailers like Target, Toys ‘R’ Us, for example, are using new apps on Iphones that enable savvy shoppers to download coupons and sales flyers that are redeemed in the stores,” said one consultant. “It’s all about using every vehicle available to sell merchandise”
To some dealmakers in the industry, the opposing effort to enable customers to shop from home and avoid the stores, could hamper future leasing efforts by reducing the need for brick-and-mortar outlets.
Different Approach
However, one seasoned veteran takes a different approach. “We are so deep into the fecal quagmire which is our current and ongoing economy that it’s impossible to isolate any one factor as an impacting reason for a hit on sales.”
He pointed out that he is currently leasing “a well-located strip center adjoining a new Walmart Supercenter…and a forecast of growing e-commerce will not change my leasing efforts.”
Another leasing executive stressed that “we are constantly improving our language in the lease terms. We had a problem involving overages, for example,” she explained, “where some retailers were deducting from store sales merchandise bought over the internet that were returned to a local store. So we’re defining and refining this area.”
One leading broker in the Mid-Atlantic region said he’s already seen an increase in retail deals over the last month or so. “Granted,” he said, “we’re talking of a small number, but when there had been almost zero deals before, even a little uptick in the last quarter—and compared with last year—is a sign for joy.”
One landlord expanded on the problems of definition in a lease clause when it comes to defining and apportioning online sales. “If we grant any tenant the right to terminate a lease because of tenant’s inability to exceed a particular sales threshold, we require that the definition of ‘sales’ includes online revenue derived from zipcodes.”
Optimistic Future
“Yep, we’ve been going through the toughest period I’ve ever seen in some 40 years,” said one West Coast leasing rep. “But I’ve also been hitting a few dealmaking events around the country and there is a growing optimism for the future of this industry.
“You can’t deny there is an impact from online retailing. But even the strongest proponents of e-commerce admit that there’s no replacement for getting the customer into a store, having the opportunity to take advantage of impulse buying, of the advantages of touching the merchandise, trying it on, instant gratification. You’re never going to get this same impact from a computer and 2-dimensional pictures.”
A New York-based owner with close to 100 neighborhood centers around the country, who has recently acquired several properties, was extremely upbeat on mainstream shopping. “We’re constantly in a state of flux. One period we were all rushing to the suburbs, now there’s a trend to in-fill closer to main population centers, and even into the CBDs of cities. I look at the demographics and the projections showing steep growth, and I can’t see but a strong demand for more stores and centers—once we get out of the economic slump and the high unemployment. Internet sales, just another challenge that we can and will cope with.”
By Murray Shor
At first glance, the fact that internet sales are booming should have a crushing impact on future dealmaking, already staggered by record-setting vacancies and lackluster leasing and development. This is despite the fact that many soothsayers are seeing signs on the horizon of improvement across-the-board-- and they expect positive holidays sales due in part to the early start of door-busters and deep discounting right after Thanksgiving Day celebrations.
First the hard facts. E-commerce spending is expected to jump 13.7% this quarter up to $51.4 billion. Certainly for many consumers and for many types of merchandise, there are distinct advantages over buying at the store.
The shift from brick-and-mortar to the internet by shoppers, according to some analysts, is to avoid the hassles of crowded malls, long waits, lines at the checkouts, and battling others for very popular “hot items,” the early AM or late-night hours for “special deals,” and the increased stress of limited “deep discount” merchandise in high-demand.
And, they point out, many of these deals are available only on the internet, top retailers are offering free shipping to home or convenient store locations, and free shipping for returned merchandise.
Though many retailers are predicting record sales at the stores beginning late Thanksgiving Day, as many consumers are opting out of battling Black Friday frenzy in favor of hitting their keypads and picking up the deals without stirring out of their homes.
And then, others point to the latest technology being used to drive customers to the stores. “Top retailers like Target, Toys ‘R’ Us, for example, are using new apps on Iphones that enable savvy shoppers to download coupons and sales flyers that are redeemed in the stores,” said one consultant. “It’s all about using every vehicle available to sell merchandise”
To some dealmakers in the industry, the opposing effort to enable customers to shop from home and avoid the stores, could hamper future leasing efforts by reducing the need for brick-and-mortar outlets.
Different Approach
However, one seasoned veteran takes a different approach. “We are so deep into the fecal quagmire which is our current and ongoing economy that it’s impossible to isolate any one factor as an impacting reason for a hit on sales.”
He pointed out that he is currently leasing “a well-located strip center adjoining a new Walmart Supercenter…and a forecast of growing e-commerce will not change my leasing efforts.”
Another leasing executive stressed that “we are constantly improving our language in the lease terms. We had a problem involving overages, for example,” she explained, “where some retailers were deducting from store sales merchandise bought over the internet that were returned to a local store. So we’re defining and refining this area.”
One leading broker in the Mid-Atlantic region said he’s already seen an increase in retail deals over the last month or so. “Granted,” he said, “we’re talking of a small number, but when there had been almost zero deals before, even a little uptick in the last quarter—and compared with last year—is a sign for joy.”
One landlord expanded on the problems of definition in a lease clause when it comes to defining and apportioning online sales. “If we grant any tenant the right to terminate a lease because of tenant’s inability to exceed a particular sales threshold, we require that the definition of ‘sales’ includes online revenue derived from zipcodes.”
Optimistic Future
“Yep, we’ve been going through the toughest period I’ve ever seen in some 40 years,” said one West Coast leasing rep. “But I’ve also been hitting a few dealmaking events around the country and there is a growing optimism for the future of this industry.
“You can’t deny there is an impact from online retailing. But even the strongest proponents of e-commerce admit that there’s no replacement for getting the customer into a store, having the opportunity to take advantage of impulse buying, of the advantages of touching the merchandise, trying it on, instant gratification. You’re never going to get this same impact from a computer and 2-dimensional pictures.”
A New York-based owner with close to 100 neighborhood centers around the country, who has recently acquired several properties, was extremely upbeat on mainstream shopping. “We’re constantly in a state of flux. One period we were all rushing to the suburbs, now there’s a trend to in-fill closer to main population centers, and even into the CBDs of cities. I look at the demographics and the projections showing steep growth, and I can’t see but a strong demand for more stores and centers—once we get out of the economic slump and the high unemployment. Internet sales, just another challenge that we can and will cope with.”
Monday, October 25, 2010
To Reach New Customers, Discount, Outlet And Off-Price Retailers May Soon Be Expanding Their Criteria To Make Deals
This column, Strolling the Agora, will continue to be written as the mood hits, even though Shopping Center Digest has ceased publication
By Murray Shor
Just two months ago we highlighted the trend of more luxury retailers seeking cost-conscious shoppers by looking for stores in areas and locations they once avoided, the outlet shopping centers, and secondary and tertiary markets.
And we stressed that this relatively minor niche of less than 220 projects, by some estimates, is dwarfed by the number of over 100,000 mainstream malls and centers that encompass the shopping center/retail chain world of the US and Canada. To make an impact in this market, retailers must deal with the two main landlords responsible for the bulk of these centers: Simon Property Group with its Chelsea division and Tanger Factory Outlets.
Yet a new approach being taken by one of the poshiest of merchandisers, Neiman Marcus, has the potential to bring this type of retailer into almost every local market available. It could expand opportunities even to every deal-hungry broker in the field.
First, what Neiman Marcus is doing. It is starting a new spinoff of outlet stores to be called Last Call Studio with lower-priced merchandise that never was being sold in its Last Call outlet stores. This outlet merchandise may still be too expensive for many customers. So, the Studio stores will carry clearance goods from its mainstream stores, namebrand apparel, and lower-end merchandise ordered from vendors specifically for these units.
The first protoype store—about half the size of a more traditional unit-- opened recently in Dallas, with others in Rockville, MD, and Paramus, NJ.
Possible Locations
Targeted as possible locations for this division will be suburban areas and strip centers, storefronts, possibly even vacant downtown locations that could never attract luxury retailers because the numbers never added up. However, with high-end shoppers heading for the outlets and discounters—which may still carry too high a ticket for many moderate households—and the reduced clearance merchandise and inventory available from many liquidators and vendors who have cut back on manufacturing, there is pressure to find customers willing to spend limited income for quality merchandise with a high-end label.
As one highly-regarded consultant stressed: “From a modest out-of-sight, out-of-mind liquidation tool, it has now really morphed into a strategic and financial necessity for these companies.”
Another maven pointed to the recession and the insistence by shoppers for even more value-oriented merchandise.
Other luxury retailers, such as Nordstrom, Saks 5th Ave, Lord & Taylor, Bloomingdale’s, and the like, have been operating outlet stores for years, or have recently entered this market.
Great Potential
“Looking at the decision by Neiman Marcus to follow the consumer to where she lives—rather than wait for her to drive an hour or so and make a day of outlet shopping,” one leading broker pointed out, “opens up a great potential for dealmaking. Many brokers have specialized in finding tenants for Moms and Pops, for local operators within a limited market to fill vacancies in very local strip centers. They may never have made a call on a luxury retailer.
“Now, suddenly,” he continued, “it’s a whole new ballgame. If other leading retailers decide to give it a try, the potential number of tenants that can be approached increases exponentially.”
No question, the number of vacancies have been increasing across the board due to the closings of many stores by stressed retailers, and the cutback on expansion by many others as a reaction to the high unemployment and pessimism of consumers. Though it may not be a deluge by healthy apparel chains seeking locations, there is the potential.
“And isn’t this,” said one senior real estate officer, “what drives many dealmakers? The potential.”
Other Interesting Activity
Joe’s Jeans, based in Commerce, CA, says it wants to expand its outlets division, now with 14 stores, in addition to its full-price stores. Contact CEO Marc Crossman.
_________________________________
General Growth Properties has appointed hedge fund manager William Ackman to become its chairman when it emerges from bankruptcy next month. It is being split into two units; GGP will retain about 185 malls, the Howard Hughes Corp will consist of the master-planned communities and other non-income-producing properties.
__________________________________
Walmart says it plans to grow its total square footage by between 3 and 4% during the fiscal year, adding up to about 35 million sq. ft. of new stores. It expects its sales growth in 2012 to grow 4-6%.
By Murray Shor
Just two months ago we highlighted the trend of more luxury retailers seeking cost-conscious shoppers by looking for stores in areas and locations they once avoided, the outlet shopping centers, and secondary and tertiary markets.
And we stressed that this relatively minor niche of less than 220 projects, by some estimates, is dwarfed by the number of over 100,000 mainstream malls and centers that encompass the shopping center/retail chain world of the US and Canada. To make an impact in this market, retailers must deal with the two main landlords responsible for the bulk of these centers: Simon Property Group with its Chelsea division and Tanger Factory Outlets.
Yet a new approach being taken by one of the poshiest of merchandisers, Neiman Marcus, has the potential to bring this type of retailer into almost every local market available. It could expand opportunities even to every deal-hungry broker in the field.
First, what Neiman Marcus is doing. It is starting a new spinoff of outlet stores to be called Last Call Studio with lower-priced merchandise that never was being sold in its Last Call outlet stores. This outlet merchandise may still be too expensive for many customers. So, the Studio stores will carry clearance goods from its mainstream stores, namebrand apparel, and lower-end merchandise ordered from vendors specifically for these units.
The first protoype store—about half the size of a more traditional unit-- opened recently in Dallas, with others in Rockville, MD, and Paramus, NJ.
Possible Locations
Targeted as possible locations for this division will be suburban areas and strip centers, storefronts, possibly even vacant downtown locations that could never attract luxury retailers because the numbers never added up. However, with high-end shoppers heading for the outlets and discounters—which may still carry too high a ticket for many moderate households—and the reduced clearance merchandise and inventory available from many liquidators and vendors who have cut back on manufacturing, there is pressure to find customers willing to spend limited income for quality merchandise with a high-end label.
As one highly-regarded consultant stressed: “From a modest out-of-sight, out-of-mind liquidation tool, it has now really morphed into a strategic and financial necessity for these companies.”
Another maven pointed to the recession and the insistence by shoppers for even more value-oriented merchandise.
Other luxury retailers, such as Nordstrom, Saks 5th Ave, Lord & Taylor, Bloomingdale’s, and the like, have been operating outlet stores for years, or have recently entered this market.
Great Potential
“Looking at the decision by Neiman Marcus to follow the consumer to where she lives—rather than wait for her to drive an hour or so and make a day of outlet shopping,” one leading broker pointed out, “opens up a great potential for dealmaking. Many brokers have specialized in finding tenants for Moms and Pops, for local operators within a limited market to fill vacancies in very local strip centers. They may never have made a call on a luxury retailer.
“Now, suddenly,” he continued, “it’s a whole new ballgame. If other leading retailers decide to give it a try, the potential number of tenants that can be approached increases exponentially.”
No question, the number of vacancies have been increasing across the board due to the closings of many stores by stressed retailers, and the cutback on expansion by many others as a reaction to the high unemployment and pessimism of consumers. Though it may not be a deluge by healthy apparel chains seeking locations, there is the potential.
“And isn’t this,” said one senior real estate officer, “what drives many dealmakers? The potential.”
Other Interesting Activity
Joe’s Jeans, based in Commerce, CA, says it wants to expand its outlets division, now with 14 stores, in addition to its full-price stores. Contact CEO Marc Crossman.
_________________________________
General Growth Properties has appointed hedge fund manager William Ackman to become its chairman when it emerges from bankruptcy next month. It is being split into two units; GGP will retain about 185 malls, the Howard Hughes Corp will consist of the master-planned communities and other non-income-producing properties.
__________________________________
Walmart says it plans to grow its total square footage by between 3 and 4% during the fiscal year, adding up to about 35 million sq. ft. of new stores. It expects its sales growth in 2012 to grow 4-6%.
Thursday, October 14, 2010
Higher Vacancies May Be Hurting The Landlords, But It Is Also A Great Dealmaking Opportunity For Discounters And Off-Pricers
This column, Strolling the Agora, will continue to be written as the mood hits, even though Shopping Center Digest has ceased publication.
By Murray Shor
Considering the stubborn, low level of consumer confidence caused by the continuing high unemployment rate, it is no surprise that vacancies have been increasing all around the country, and that some retailers are focusing on Canada where there is a more positive emergence from the recession.
However, selective dealmaking is picking up here in the US in disparate locations as a result of the depressing numbers. Especially for brokers in prime metro areas, the opportunities are there.
First the bad news: According to the market research company Reis Inc, which tracks these data, the vacancy rate at shopping centers in the last quarter rose to 10.9%, the highest level since ’91, and closing in on the record 11.1% set the year before. The rent asked by landlords dropped almost 20 cents per sq. ft. to $19.07, but the effective rents are even lower, $16.58.
For the larger malls, where average rents are hovering around $38, vacancies rose only .2% to 8.6%, down from 9% the previous quarter.
Now The Good News
O.K., now the good news. With the cutbacks from high-end and full-price retailers—who are the foundation of fashion-oriented malls and the CBDs of major cities—there is an accelerated push from the discounters and off-price retailers: TJMaxx, Target, Nordstrom Rack, Syms and its recently acquired Filene’s Basement (now called fbSY), H&M, Century 21. According to one dealmaker “They consider this a great opportunity for discount deals in prime locations they could never afford before, and to reach affluent consumers who shunned them in the past.”
A prime example, of course, is Wal-Mart Stores, which will be opening dozens of smaller units of 30-60,000 sq. ft. in cities around the country, eventually rolling out the concept of focusing on food and consumer basics to hundreds of these units. And then, who knows?
These promotional tenants have greater access than ever before to luxury- and designer-branded merchandise because vendors have excess inventory and limited outlets for distribution. One estimate is that the number of top designers now selling to TJX Companies has jumped 25%. The off-pricers and discounters, therefore, are buying this top-quality merchandise, and using it to draw in customers in new stores along New York’s Fifth Avenue—and even Harlem—Chicago’s Miracle Mile, Beverly Hills, and maybe even Rodeo Drive. Certainly in the plushier malls in Las Vegas, they’ve been operating for some time now.
Educating The Affluent
These merchandisers are educating their new, fashion- and trend-oriented customers that they can continue to buy quality and at a cheaper price, and strengthen customer loyalty for the future, when the economy—hopefully—returns to what we consider normal. In the meantime, they have locked-in prime real estate at discounted prices—though they may be paying some of the highest rents they have ever paid before--and helped tear down the old barriers blocked them from locating in the A and A+ plus malls, or fashionable locations in some of the most prime urban centers. Though they much prefer long-term deals, in some instances they are willing to settle for six months, with options and some built-in increases.
These stores could be considered “pop ups”, which are becoming a more common trend.
As we’ve pointed out several times in the past, these locations are becoming more common, and the type of deal that appeals to both landlord and tenant. For the landlord, it provides a rent-paying tenant in a vacant store, that can be converted to a long-term tenant, either this retailer or another, perhaps even a competing merchant, at the expiration of the short-term lease. For the tenant, an inexpensive way to test a new concept, polish and refine the presentation, and react to feedback from customers before rolling it out in a mass expansion. Or kill the concept before it does too much damage.
And, of course, they are ideal for retailers that can exploit special events or holidays: Halloween, Back To School, Presidents Day, etc.
Other Interesting Activity
Dollar Tree says it will buy Canadian retailer Dollar Giant for about C$52 million, adding 85 units to its 3,961 stores in 48 states. VP of leasing is Todd B. Littler, (757) 321-5283, tlittler@dollartree.com .
____________________________________________________
GNC Acquisition Holdings is planning an IPO to raise some $350 million to add about 4,800 company-owned and franchised vitamin and herbal supplement shops; future plans are to expand to China. The Pittsburgh-based chain’s website is www.gnc.com , 1-800-766-7099.
_____________________________________________________
Loblaw Companies is launching The Mobile Shop in more than 500 of its supermarkets across Canada in a bid to become a major retailer of mobile phones. Contact Maria Forlini, VP-Telecom, (905) 459-2500, www.loblaw.ca .
_____________________________________________________
Gymboree Corp, which operates some 650 children’s apparel stores, has accepted a bid to be acquired by Bain Capital for $65.40 per share, or about $1.8 billion. Director of real estate is Kathleen Hinkley, (415) 278-7993, Email: Kathy Hinkley@gymboree.com .
______________________________________________________
Investors are being drawn to a number of real estate investment trusts that are outperforming most stock market offerings, especially those involved in shopping malls, office building and apartment buildings. In our industry, the top performer is Taubman Centers Inc, which during the third quarter returned 18.5%.
By Murray Shor
Considering the stubborn, low level of consumer confidence caused by the continuing high unemployment rate, it is no surprise that vacancies have been increasing all around the country, and that some retailers are focusing on Canada where there is a more positive emergence from the recession.
However, selective dealmaking is picking up here in the US in disparate locations as a result of the depressing numbers. Especially for brokers in prime metro areas, the opportunities are there.
First the bad news: According to the market research company Reis Inc, which tracks these data, the vacancy rate at shopping centers in the last quarter rose to 10.9%, the highest level since ’91, and closing in on the record 11.1% set the year before. The rent asked by landlords dropped almost 20 cents per sq. ft. to $19.07, but the effective rents are even lower, $16.58.
For the larger malls, where average rents are hovering around $38, vacancies rose only .2% to 8.6%, down from 9% the previous quarter.
Now The Good News
O.K., now the good news. With the cutbacks from high-end and full-price retailers—who are the foundation of fashion-oriented malls and the CBDs of major cities—there is an accelerated push from the discounters and off-price retailers: TJMaxx, Target, Nordstrom Rack, Syms and its recently acquired Filene’s Basement (now called fbSY), H&M, Century 21. According to one dealmaker “They consider this a great opportunity for discount deals in prime locations they could never afford before, and to reach affluent consumers who shunned them in the past.”
A prime example, of course, is Wal-Mart Stores, which will be opening dozens of smaller units of 30-60,000 sq. ft. in cities around the country, eventually rolling out the concept of focusing on food and consumer basics to hundreds of these units. And then, who knows?
These promotional tenants have greater access than ever before to luxury- and designer-branded merchandise because vendors have excess inventory and limited outlets for distribution. One estimate is that the number of top designers now selling to TJX Companies has jumped 25%. The off-pricers and discounters, therefore, are buying this top-quality merchandise, and using it to draw in customers in new stores along New York’s Fifth Avenue—and even Harlem—Chicago’s Miracle Mile, Beverly Hills, and maybe even Rodeo Drive. Certainly in the plushier malls in Las Vegas, they’ve been operating for some time now.
Educating The Affluent
These merchandisers are educating their new, fashion- and trend-oriented customers that they can continue to buy quality and at a cheaper price, and strengthen customer loyalty for the future, when the economy—hopefully—returns to what we consider normal. In the meantime, they have locked-in prime real estate at discounted prices—though they may be paying some of the highest rents they have ever paid before--and helped tear down the old barriers blocked them from locating in the A and A+ plus malls, or fashionable locations in some of the most prime urban centers. Though they much prefer long-term deals, in some instances they are willing to settle for six months, with options and some built-in increases.
These stores could be considered “pop ups”, which are becoming a more common trend.
As we’ve pointed out several times in the past, these locations are becoming more common, and the type of deal that appeals to both landlord and tenant. For the landlord, it provides a rent-paying tenant in a vacant store, that can be converted to a long-term tenant, either this retailer or another, perhaps even a competing merchant, at the expiration of the short-term lease. For the tenant, an inexpensive way to test a new concept, polish and refine the presentation, and react to feedback from customers before rolling it out in a mass expansion. Or kill the concept before it does too much damage.
And, of course, they are ideal for retailers that can exploit special events or holidays: Halloween, Back To School, Presidents Day, etc.
Other Interesting Activity
Dollar Tree says it will buy Canadian retailer Dollar Giant for about C$52 million, adding 85 units to its 3,961 stores in 48 states. VP of leasing is Todd B. Littler, (757) 321-5283, tlittler@dollartree.com .
____________________________________________________
GNC Acquisition Holdings is planning an IPO to raise some $350 million to add about 4,800 company-owned and franchised vitamin and herbal supplement shops; future plans are to expand to China. The Pittsburgh-based chain’s website is www.gnc.com , 1-800-766-7099.
_____________________________________________________
Loblaw Companies is launching The Mobile Shop in more than 500 of its supermarkets across Canada in a bid to become a major retailer of mobile phones. Contact Maria Forlini, VP-Telecom, (905) 459-2500, www.loblaw.ca .
_____________________________________________________
Gymboree Corp, which operates some 650 children’s apparel stores, has accepted a bid to be acquired by Bain Capital for $65.40 per share, or about $1.8 billion. Director of real estate is Kathleen Hinkley, (415) 278-7993, Email: Kathy Hinkley@gymboree.com .
______________________________________________________
Investors are being drawn to a number of real estate investment trusts that are outperforming most stock market offerings, especially those involved in shopping malls, office building and apartment buildings. In our industry, the top performer is Taubman Centers Inc, which during the third quarter returned 18.5%.
Monday, October 4, 2010
Is There A Trend For Supermarkets To Become Regular Tenants In A Regional Mall? Don't You Believe It
This column, Strolling the Agora, will continue to be written as the mood hits even though Shopping Center Digest has ceased publication
By Murray Shor
Been hearing a little rumble here and there about supermarkets becoming important tenants in regional malls, taking advantage of the large number of big-box vacancies available and seeing that as an opportunity to expand their base. Don’t you believe it.
I don’t doubt that in some isolated instances it could happen, such as discounter Aldi now
taking several locations in the Chicago market. Nor do I dispute that some surveys report those in a trade area may put a supermarket high on their list of tenants they’d like to see in their neighborhood mall.
However, what people say is not what people generally do, especially when answering a survey. But, go on to reality.
First, people shopping for their weekly groceries are not going to push a shopping cart loaded with perishables such as meats, frozen foods, milk and butter through a mall while checking out the latest fashions at Victoria Secrets or Ann Taylor. Nor would any of these stores want a customer browsing through the racks with a cart of melting ice cream.
And maneuvering those carts up an escalator?
Little Cross-Shopping
Result: There would be very little cross-shopping—even if the mindset were there. Supermarket shopping is a chore; mall cruising and browsing, entertainment—except, maybe during the stressful holiday seasons. Just one minor reason mall landlords may not welcome these tenants with open arms.
Now get into the logistics, for a moment—and the high value placed mall management places on parking spaces, especially those nearest to store access and the main entrances to the main mall. Supermarkets require heavy traffic, and their customers require substantially more parking spaces than those normally shopping at a mall; the distance between the car and store has to be substantially shorter. Question: Know anyone willing to push a loaded cart 200 yards to a parked car?
Then comes the large number of 18-wheelers coming in to replenish a supermarket
on a daily basis; this traffic is much heavier than similar vehicles replenishing merchandise for other tenants because some stock turns at foodstores go into double-digits; some departments require daily replenishment. These vehicles have to be kept away from the large numbers of personal SUVs; the result is a completely different and more demanding traffic pattern.
Those adherents saying it’s a good idea for this type of tenant to head for the malls point to some of the big-box discounters, warehouse clubs, and other promotional merchants carrying groceries who are already common in malls—Target, CostCo, Walmart, BJ’s, and the like. Yes, they carry groceries among their merchandise, but not a full-line of products: meats, fresh fish, frozen foods, produce, etc., etc.
It’s true that some of these big-box users are attached to the mall, but many of them do not have direct access, and their parking spaces essentially just serves their stores. In this situation, a supermarket could be a likely candidate to take the space.
We’re talking here, however, of a supermarket being an integral part of the mall, rather than an add-on.
How It Can Work
Supermarket operators are not known for paying high rents. The average mall rent paid across the nation for non-anchor tenants is around $38 per sq. ft. And to this add one-third to cover the CAM charges and other ad-ons—another item supermarketers are not known to contribute to without complaint. If you know a supermarket chain willing to pay those dollars, lemme know and I have a number of great mall locations they should look at.
No way these experienced, tight-fisted operators would agree to these expenses, and whatever else may be included in the Reciprocal Easement Agreements made between the owner-developer and the department store anchors.
Landlords do understand supermarket customers hit their shopping centers on a weekly basis, much more frequently than they would if it were a regional mall. So they’d like to build on this loyalty to place and bring the customer to their properties more frequently. This is why many malls have a separate, service-oriented strip center next to their major malls, and containing a supermarket, maybe a liquor store, barber shop/beauty parlor/nail salon, stationery store, dry cleaner, and the like.
Separate access, but visible, lower rental and operating costs than locating in a mall, less hassle for shopper merchant and landlord, and a win-win for all concerned.
______________________________
Other Interesting Activity
American Theatre Corp and Cinema Grille are looking for big-box vacancies in shopping centers that are suitable for theatre use. Contact David Postle, depostle@msn.com .
_______________________________
Doctors Express, a health-clinic franchise based in Towson, MD, recently made some 74 franchise agreements in 21 states and expects to have 35 operating by year-end. A visit to a hospital’s Emergency Room costs about $575; at DE’s urgent-care centers, the cost is about $125.
Sites are being sought mainly in community and neighborhood centers. Contact Jennifer Watson, Baum Realty Group, Jennifer@baumrealtygroup.com .
_______________________________
JC Penney Co says its new-store expansion over the next five years will be targeting mall and off-mall locations, and expects to boost its sales by $1 billion over the next five years. It had opened about 150 of these units before the recession hit, and has an ongoing program to complete renovations of about 400 units by the year 2014.
___________________________________
General Growth Properties will no longer have a member of the founding family, the Bucksbaums, since brothers Martin and Matthew built their first center in their home town of Cedar Rapids. Those running the bankrupt development company chose not to give Chief Executive John Bucksbaum a seat on either of the two new boards being created; the reason given is that he failed to inform them that the family trust failed to inform them of the $100 million of loans made by the family trust to two GGP executives to cover margin calls on their company stock.
__________________________________
More information on Expanding Retailers, Directory of Major Malls, and products that can improve your dealmaking, marketing, and operations may be obtained from our website, www.shoppingcenters.com .
By Murray Shor
Been hearing a little rumble here and there about supermarkets becoming important tenants in regional malls, taking advantage of the large number of big-box vacancies available and seeing that as an opportunity to expand their base. Don’t you believe it.
I don’t doubt that in some isolated instances it could happen, such as discounter Aldi now
taking several locations in the Chicago market. Nor do I dispute that some surveys report those in a trade area may put a supermarket high on their list of tenants they’d like to see in their neighborhood mall.
However, what people say is not what people generally do, especially when answering a survey. But, go on to reality.
First, people shopping for their weekly groceries are not going to push a shopping cart loaded with perishables such as meats, frozen foods, milk and butter through a mall while checking out the latest fashions at Victoria Secrets or Ann Taylor. Nor would any of these stores want a customer browsing through the racks with a cart of melting ice cream.
And maneuvering those carts up an escalator?
Little Cross-Shopping
Result: There would be very little cross-shopping—even if the mindset were there. Supermarket shopping is a chore; mall cruising and browsing, entertainment—except, maybe during the stressful holiday seasons. Just one minor reason mall landlords may not welcome these tenants with open arms.
Now get into the logistics, for a moment—and the high value placed mall management places on parking spaces, especially those nearest to store access and the main entrances to the main mall. Supermarkets require heavy traffic, and their customers require substantially more parking spaces than those normally shopping at a mall; the distance between the car and store has to be substantially shorter. Question: Know anyone willing to push a loaded cart 200 yards to a parked car?
Then comes the large number of 18-wheelers coming in to replenish a supermarket
on a daily basis; this traffic is much heavier than similar vehicles replenishing merchandise for other tenants because some stock turns at foodstores go into double-digits; some departments require daily replenishment. These vehicles have to be kept away from the large numbers of personal SUVs; the result is a completely different and more demanding traffic pattern.
Those adherents saying it’s a good idea for this type of tenant to head for the malls point to some of the big-box discounters, warehouse clubs, and other promotional merchants carrying groceries who are already common in malls—Target, CostCo, Walmart, BJ’s, and the like. Yes, they carry groceries among their merchandise, but not a full-line of products: meats, fresh fish, frozen foods, produce, etc., etc.
It’s true that some of these big-box users are attached to the mall, but many of them do not have direct access, and their parking spaces essentially just serves their stores. In this situation, a supermarket could be a likely candidate to take the space.
We’re talking here, however, of a supermarket being an integral part of the mall, rather than an add-on.
How It Can Work
Supermarket operators are not known for paying high rents. The average mall rent paid across the nation for non-anchor tenants is around $38 per sq. ft. And to this add one-third to cover the CAM charges and other ad-ons—another item supermarketers are not known to contribute to without complaint. If you know a supermarket chain willing to pay those dollars, lemme know and I have a number of great mall locations they should look at.
No way these experienced, tight-fisted operators would agree to these expenses, and whatever else may be included in the Reciprocal Easement Agreements made between the owner-developer and the department store anchors.
Landlords do understand supermarket customers hit their shopping centers on a weekly basis, much more frequently than they would if it were a regional mall. So they’d like to build on this loyalty to place and bring the customer to their properties more frequently. This is why many malls have a separate, service-oriented strip center next to their major malls, and containing a supermarket, maybe a liquor store, barber shop/beauty parlor/nail salon, stationery store, dry cleaner, and the like.
Separate access, but visible, lower rental and operating costs than locating in a mall, less hassle for shopper merchant and landlord, and a win-win for all concerned.
______________________________
Other Interesting Activity
American Theatre Corp and Cinema Grille are looking for big-box vacancies in shopping centers that are suitable for theatre use. Contact David Postle, depostle@msn.com .
_______________________________
Doctors Express, a health-clinic franchise based in Towson, MD, recently made some 74 franchise agreements in 21 states and expects to have 35 operating by year-end. A visit to a hospital’s Emergency Room costs about $575; at DE’s urgent-care centers, the cost is about $125.
Sites are being sought mainly in community and neighborhood centers. Contact Jennifer Watson, Baum Realty Group, Jennifer@baumrealtygroup.com .
_______________________________
JC Penney Co says its new-store expansion over the next five years will be targeting mall and off-mall locations, and expects to boost its sales by $1 billion over the next five years. It had opened about 150 of these units before the recession hit, and has an ongoing program to complete renovations of about 400 units by the year 2014.
___________________________________
General Growth Properties will no longer have a member of the founding family, the Bucksbaums, since brothers Martin and Matthew built their first center in their home town of Cedar Rapids. Those running the bankrupt development company chose not to give Chief Executive John Bucksbaum a seat on either of the two new boards being created; the reason given is that he failed to inform them that the family trust failed to inform them of the $100 million of loans made by the family trust to two GGP executives to cover margin calls on their company stock.
__________________________________
More information on Expanding Retailers, Directory of Major Malls, and products that can improve your dealmaking, marketing, and operations may be obtained from our website, www.shoppingcenters.com .
Sunday, September 26, 2010
After 37 Years Of Focusing On New Developments And Expansion In The Industry, Shopping Center Digest Suspends Publication
This column of Strolling the Agora appears in the September 27, 2010 issue of SHOPPING CENTER DIGEST.
After a long and successful journey of 37 years, full of great times, personal connections and fascinating memories, we have decided it’s time to flick the switch and say “Good night, Mrs. Calabash, wherever you are.” This will be the last issue of Shopping Center Digest “The Locations Newsletter,” as we decide to go on to other things.
It was our good fortune to enter this industry during its vibrant heyday, when “every cornfield had the potential to become a new mall” and we were lucky enough to experience a part of this exploding growth.
Some comments from our archives: John Z. Stec, VP, Fabric-Centers of America: “When I joined Fabri-Centers of America, Inc. I was a one-man Real Estate Department and I couldn’t have done without the help of SHOPPING CENTER DIGEST. Now that we have grown to over 693 fabric stores and will open 25-30 superstores this year, we depend even more on your newsletter than ever before.”
Or, Charles R. Lebovitz, President & CEO, CBL & Associates Properties, Inc: “You have eliminated the frills and are giving us the nuts and bolts of what is happening in our industry. We make certain that our key personnel see each issue so they can take advantage of the information…If something new breaks, we can find it first in SHOPPING CENTER DIGEST.”
Or, Ronald H. Erickson, VP-Real Estate, Friendly Ice Cream Corp: “I am glad there is somebody in our industry like yourself willing to call it like it is…Keep calling it as you see it—somebody has to speak up!”
Many Deals Offered
However, every trip has a beginning, a middle, and an end. And there is a welcome freedom—after some 40 years of pressure from demanding deadlines, the herding and hassle of business travel, being held captive too often in exhibit booths, that it’s time to listen to another drummer.
So as I review this passage from the late ‘60s, I recall the brainstorm that brought me to Al Sussman—the first head of the International Council of Shopping Centers—and showed him a dummy for a new magazine concentrating on all aspects of our shopping center/retail chain industry, and a proposal to partner in this endeavor. He reached into his desk drawer to bring out a similar dummy for a publication he had envisioned before heading the trade association; he couldn’t act on it then due to the then thought that a not-for-profit trade association shouldn’t publish a profit-making magazine containing advertisements.
However, the concept was quickly picked up then by Joseph Shore (no relation) of Communication Channels, Inc, and we partnered for a couple of years on Shopping Center World, now known as Retail Traffic. Then came the inspiration to go on my own with a newsletter focusing only on development and leasing with a faster, more organized delivery of information; and so was born the twice-monthly Shopping Center Digest. Several years later, attitudes changed and ICSC began publishing Shopping Centers Today.
Not Possible Today
The industry has changed numerous times over the years, and I recall numerous flashbacks and snippets resulting in deals that could not happen today.
I remember a flight sitting between Herb Brown, then head of real estate for Kinney Shoe, and a developer neither of us knew, who was planning a new shopping center. My lap served as the table for his leasing plan. By the time we landed, the “deal was done:” location, rent, fixture allowance, and leaving it up to the home offices to tie down the remaining minor details.
Or the cabanas around the pool at The Fountainbleau in Miami, with landlords and tenants concentrating on site plans and leasing plans, wheeling and dealing in their bathing suits, and then jumping into the water to cool off before heading to their next appointment three cabanas down.
Or when Spring Conventions moved annually in a triangle from North to South To West, and when the number of attendees was small enough that ICSC one year bought out Disneyland for one night of free entertainment as an event for all registrants. Or in Toronto when some of the larger landlords were unhappy with the accommodations and set up their leasing suites out of the city at Inn on the Park and ICSC was forced to run regular buses for registrants. Some later left the organization and it took years before they were all lured back.
Strong-Minded Individuals
And the creative, strong-minded individuals who built the foundation for this industry. Those earlier years were ones of zest with flamboyant, self-motivated, hard-driving individuals who towered over other entrepreneurs.
Len Farber and his “If you have an idea, and I have an idea, we share them and now we both have two ideas.”
After moving to Florida from the North, he headed on his yacht to summer around Martha’s Vineyard and Nantucket, having his captain drop him off at strategic points along the Inland Waterway and picking him up further north at the end of a day’s “wheeling and dealing.” And when he sold his last shopping mall: “Now I can afford to live the way I always have.”
Mel Simon, relocating from New York to Indianapolis to begin brokering deals on strip centers, then sending for brothers Fred and Herb to begin building their empire founded on strong relationships; this later became Simon Property Group. An important thank-you event was their annual, two-day Christmas Party, one day for the company, close friends and locals, and the other for the rest of the industry, including some competitors if they wanted to show up.
And there was Ed DeBartolo Sr. of DeBartolo Properties Management, with his annual weekend golf outing in Tampa for retailers, where business was not discussed—unless the tenant really insisted, and then out came the leasing plans. This was when leasing people for landlords got “a piece of the action”—usually 1%; so when the company sold a mall for $40 million and Ed Sr. dropped $400,000 in cash on Cal Gaeta’s desk, he was very thankful, knew he couldn’t go further up in the organization—and used the money to start his own company.
Or Al Taubman of Taubman Development Co, who other landlords credited with “teaching us how to build two-level malls.” To him, no big deal: “Put a one-level mall over another, cut a few holes in the floor between the levels for visibility, and put in some staircases and escalators for vertical access.”
Or the class act of Bill Cafaro of The Cafaro Company. You went into his hospitality suite at the Spring Convention and it was immaculate with linen napkins, tablecloths, silverware, fine dining and service, “the place experienced dealmakers went for lunch.”
You were a guest in his home.
And the kindness and helping hand of George Zamias, who began his career shining shoes, and when Marc Greenberg hit the age of passage when he “had to start his own thing”—and couldn’t convince him to reconsider, said “OK, I understand. Now, what do you need and how can I help you?”
And Milt Cooper of Kimco, when even though developers were willing to pay 21% interest during the recession of 20 years ago, they still couldn’t get traditional lenders to finance new projects; he went to Wall Street and engineered the re-birth of Real Estate Investment Trusts for shopping centers—which began major mergers and acquisitions leading to the formation of today’s behemoth owner-developers.
The Leasing Women
In the earlier days there were few women involved in dealmaking; this was really an all-male, old boys’ network. But there was Ann Hicks, a tough, direct women with Homart Development Co—shopping center arm of Sears—who turned down the offer to head the division because she didn’t want to relocate to Chicago from Dallas. And “I had to be as tough as you guys or you would’ve cut me off at the knees.”
And Elizabeth “Betty” Jarvis, who credited her years of training under a demanding Al Taubman while heading his leasing department with giving her the experience, and guts and strength to become the industry’s first female mall developer.
The route into the more rewarding responsibilities of dealmaking for women then usually began at the mall level through the marketing departments; today they come into this venue from many different doorways, and there may be as many hard-driving, creative women on both sides of the negotiating table as there are men.
And So Many Others
Irv Wolf at Monumental Properties, who referred to his office area as the Zoo, because the other offices in his area were manned by people named Fox, Katz, and Lyons. He spent his last years as a top expert witness, as he said, “testifying against some of the deals I made.”
He also mentored Rene Daniels, who did such a great job filling vacancies at all their malls that he “leased himself out of a job;” the projects became so valuable to investors that Monumental sold them all and Rene started his own consulting firm representing owner-developers, and gives back to the industry by teaching each year at ICSC’s University of Shopping Centers.
Dick Shur at Spencer Gifts and then Waldenbooks—the very funny, frustrated Borscht Belt comic who never introduced himself when you picked up the telephone, just started on his latest joke. But was also one of the toughest, most knowledgeable dealmakers on the tenant side.
Ken McGuire of Bresler’s 33 Flavors, who insisted he was not in the ice cream business but was a real estate guy working for an ice cream chain. After we started SCD, he told me, “Murray, you should take advertising” and then reserved the front cover for each of our magazine format issues until the company was sold about 15 years later.
Don Fitch of Zale Corp, very laid-back and low-key, who made more deals while on the golf course than any of his competitors who spent 10-12 hours at their desks and telephones.
Bob Congel of The Pyramid Cos, who said lawsuits from citizens fighting his projects were “just a normal part of doing business,” and once started construction on a regional mall before obtaining control of the property, and opened it within 11 months of groundbreaking.
Andy Murphy, Joe Moss, and the others of The Rat Pack who needed only one drink and a cigar to launch into “Danny Boy” and “Irish Eyes Are Smiling”—and were always eager to drop everything to talk the deal.
And on, and on, and on.
Important Events, Changes
The period beginning early in December was a milestone-- as important for dealmakers each year as the Spring Convention; it was another opportunity to build relationships and informal networks. Monday night in New York was scheduled for separate strategy and social dinners for landlords and retailers, then getting together for New England Development’s dessert party. Tuesday was the Kinney Party for “just a few thousand of your closest friends,” followed that evening by The Brown Boys’ reception (Herb and Howard), then the next day by Melville’s Party at Tavern on the Green, with limited seating, a small enough restaurant that there was a legitimate reason to limit the number of invitations.
Whereas a good portion of the industry now closes down that month as far as dealmaking is concerned, and attention focuses on holiday sales to determine expansion plans and how many new stores retailers will open the following year, in the past this period was busy, fertile territory. Leasing and development was an ongoing process; during these weeks was the time to correct lease problems, maybe try a new clause or approach, run it up the flagpole to see if anyone salutes.
And so it went during the ‘60s, ‘70s, ‘80s.
Ancients And Dinosaurs
Today, with decision-making on new locations now being determined by “the head office” and real estate committees, where responsibilities and much of the heavy-lifting have been farmed out to local brokers and numerous real estate networks that don’t know what’s going on outside their immediate trade area, where the location goes to who’s willing to pay the most without regard to its impact on the entire project, and you can’t understand the deal without looking at a computer printout, a transformation has taken place.
However, one cannot ignore what’s taking place in around our industry; there’s the economy, the fact that stubborn, high unemployment has caused consumers to stop spending, retailers to fold and cut back on expansion, that there are so few new markets left that are ripe—at this time—to support new development, and that there are so many other, less risky opportunities in foreign countries. Admittedly, there is a diminished relevancy to focus on new and expanding shopping centers, and expanding retailers.
Dealmaking today has become more business-like, more routine, more dependant on numbers spit out by the software program, more de-personalized. And certainly less creative.
Or, as those few ancients and dinosaurs still active say, “It’s not as much fun anymore.”
(And one final note of clarification. Shopping Center Digest has been closely aligned with the Directory of Major Malls since its inception over 31 editions ago. But it is now—and for many years—a completely independent publication separate from Shopping Center Digest. It is a primary Source to the shopping center/retail chain industry and continues to expand its depth of research and detail on its coverage of the major shopping centers and malls throughout the US and Canada—the ONLY such resource now available. Please visit www.shoppingcenters.com for online access to the almost 7,000 major shopping center listings and the latest product announcements from the Directory of Major Malls.)
To find out more about Expanding Retailers, Directory of Major Malls, or our other products, please go to our website, www.shoppingcenters.com .
After a long and successful journey of 37 years, full of great times, personal connections and fascinating memories, we have decided it’s time to flick the switch and say “Good night, Mrs. Calabash, wherever you are.” This will be the last issue of Shopping Center Digest “The Locations Newsletter,” as we decide to go on to other things.
It was our good fortune to enter this industry during its vibrant heyday, when “every cornfield had the potential to become a new mall” and we were lucky enough to experience a part of this exploding growth.
Some comments from our archives: John Z. Stec, VP, Fabric-Centers of America: “When I joined Fabri-Centers of America, Inc. I was a one-man Real Estate Department and I couldn’t have done without the help of SHOPPING CENTER DIGEST. Now that we have grown to over 693 fabric stores and will open 25-30 superstores this year, we depend even more on your newsletter than ever before.”
Or, Charles R. Lebovitz, President & CEO, CBL & Associates Properties, Inc: “You have eliminated the frills and are giving us the nuts and bolts of what is happening in our industry. We make certain that our key personnel see each issue so they can take advantage of the information…If something new breaks, we can find it first in SHOPPING CENTER DIGEST.”
Or, Ronald H. Erickson, VP-Real Estate, Friendly Ice Cream Corp: “I am glad there is somebody in our industry like yourself willing to call it like it is…Keep calling it as you see it—somebody has to speak up!”
Many Deals Offered
However, every trip has a beginning, a middle, and an end. And there is a welcome freedom—after some 40 years of pressure from demanding deadlines, the herding and hassle of business travel, being held captive too often in exhibit booths, that it’s time to listen to another drummer.
So as I review this passage from the late ‘60s, I recall the brainstorm that brought me to Al Sussman—the first head of the International Council of Shopping Centers—and showed him a dummy for a new magazine concentrating on all aspects of our shopping center/retail chain industry, and a proposal to partner in this endeavor. He reached into his desk drawer to bring out a similar dummy for a publication he had envisioned before heading the trade association; he couldn’t act on it then due to the then thought that a not-for-profit trade association shouldn’t publish a profit-making magazine containing advertisements.
However, the concept was quickly picked up then by Joseph Shore (no relation) of Communication Channels, Inc, and we partnered for a couple of years on Shopping Center World, now known as Retail Traffic. Then came the inspiration to go on my own with a newsletter focusing only on development and leasing with a faster, more organized delivery of information; and so was born the twice-monthly Shopping Center Digest. Several years later, attitudes changed and ICSC began publishing Shopping Centers Today.
Not Possible Today
The industry has changed numerous times over the years, and I recall numerous flashbacks and snippets resulting in deals that could not happen today.
I remember a flight sitting between Herb Brown, then head of real estate for Kinney Shoe, and a developer neither of us knew, who was planning a new shopping center. My lap served as the table for his leasing plan. By the time we landed, the “deal was done:” location, rent, fixture allowance, and leaving it up to the home offices to tie down the remaining minor details.
Or the cabanas around the pool at The Fountainbleau in Miami, with landlords and tenants concentrating on site plans and leasing plans, wheeling and dealing in their bathing suits, and then jumping into the water to cool off before heading to their next appointment three cabanas down.
Or when Spring Conventions moved annually in a triangle from North to South To West, and when the number of attendees was small enough that ICSC one year bought out Disneyland for one night of free entertainment as an event for all registrants. Or in Toronto when some of the larger landlords were unhappy with the accommodations and set up their leasing suites out of the city at Inn on the Park and ICSC was forced to run regular buses for registrants. Some later left the organization and it took years before they were all lured back.
Strong-Minded Individuals
And the creative, strong-minded individuals who built the foundation for this industry. Those earlier years were ones of zest with flamboyant, self-motivated, hard-driving individuals who towered over other entrepreneurs.
Len Farber and his “If you have an idea, and I have an idea, we share them and now we both have two ideas.”
After moving to Florida from the North, he headed on his yacht to summer around Martha’s Vineyard and Nantucket, having his captain drop him off at strategic points along the Inland Waterway and picking him up further north at the end of a day’s “wheeling and dealing.” And when he sold his last shopping mall: “Now I can afford to live the way I always have.”
Mel Simon, relocating from New York to Indianapolis to begin brokering deals on strip centers, then sending for brothers Fred and Herb to begin building their empire founded on strong relationships; this later became Simon Property Group. An important thank-you event was their annual, two-day Christmas Party, one day for the company, close friends and locals, and the other for the rest of the industry, including some competitors if they wanted to show up.
And there was Ed DeBartolo Sr. of DeBartolo Properties Management, with his annual weekend golf outing in Tampa for retailers, where business was not discussed—unless the tenant really insisted, and then out came the leasing plans. This was when leasing people for landlords got “a piece of the action”—usually 1%; so when the company sold a mall for $40 million and Ed Sr. dropped $400,000 in cash on Cal Gaeta’s desk, he was very thankful, knew he couldn’t go further up in the organization—and used the money to start his own company.
Or Al Taubman of Taubman Development Co, who other landlords credited with “teaching us how to build two-level malls.” To him, no big deal: “Put a one-level mall over another, cut a few holes in the floor between the levels for visibility, and put in some staircases and escalators for vertical access.”
Or the class act of Bill Cafaro of The Cafaro Company. You went into his hospitality suite at the Spring Convention and it was immaculate with linen napkins, tablecloths, silverware, fine dining and service, “the place experienced dealmakers went for lunch.”
You were a guest in his home.
And the kindness and helping hand of George Zamias, who began his career shining shoes, and when Marc Greenberg hit the age of passage when he “had to start his own thing”—and couldn’t convince him to reconsider, said “OK, I understand. Now, what do you need and how can I help you?”
And Milt Cooper of Kimco, when even though developers were willing to pay 21% interest during the recession of 20 years ago, they still couldn’t get traditional lenders to finance new projects; he went to Wall Street and engineered the re-birth of Real Estate Investment Trusts for shopping centers—which began major mergers and acquisitions leading to the formation of today’s behemoth owner-developers.
The Leasing Women
In the earlier days there were few women involved in dealmaking; this was really an all-male, old boys’ network. But there was Ann Hicks, a tough, direct women with Homart Development Co—shopping center arm of Sears—who turned down the offer to head the division because she didn’t want to relocate to Chicago from Dallas. And “I had to be as tough as you guys or you would’ve cut me off at the knees.”
And Elizabeth “Betty” Jarvis, who credited her years of training under a demanding Al Taubman while heading his leasing department with giving her the experience, and guts and strength to become the industry’s first female mall developer.
The route into the more rewarding responsibilities of dealmaking for women then usually began at the mall level through the marketing departments; today they come into this venue from many different doorways, and there may be as many hard-driving, creative women on both sides of the negotiating table as there are men.
And So Many Others
Irv Wolf at Monumental Properties, who referred to his office area as the Zoo, because the other offices in his area were manned by people named Fox, Katz, and Lyons. He spent his last years as a top expert witness, as he said, “testifying against some of the deals I made.”
He also mentored Rene Daniels, who did such a great job filling vacancies at all their malls that he “leased himself out of a job;” the projects became so valuable to investors that Monumental sold them all and Rene started his own consulting firm representing owner-developers, and gives back to the industry by teaching each year at ICSC’s University of Shopping Centers.
Dick Shur at Spencer Gifts and then Waldenbooks—the very funny, frustrated Borscht Belt comic who never introduced himself when you picked up the telephone, just started on his latest joke. But was also one of the toughest, most knowledgeable dealmakers on the tenant side.
Ken McGuire of Bresler’s 33 Flavors, who insisted he was not in the ice cream business but was a real estate guy working for an ice cream chain. After we started SCD, he told me, “Murray, you should take advertising” and then reserved the front cover for each of our magazine format issues until the company was sold about 15 years later.
Don Fitch of Zale Corp, very laid-back and low-key, who made more deals while on the golf course than any of his competitors who spent 10-12 hours at their desks and telephones.
Bob Congel of The Pyramid Cos, who said lawsuits from citizens fighting his projects were “just a normal part of doing business,” and once started construction on a regional mall before obtaining control of the property, and opened it within 11 months of groundbreaking.
Andy Murphy, Joe Moss, and the others of The Rat Pack who needed only one drink and a cigar to launch into “Danny Boy” and “Irish Eyes Are Smiling”—and were always eager to drop everything to talk the deal.
And on, and on, and on.
Important Events, Changes
The period beginning early in December was a milestone-- as important for dealmakers each year as the Spring Convention; it was another opportunity to build relationships and informal networks. Monday night in New York was scheduled for separate strategy and social dinners for landlords and retailers, then getting together for New England Development’s dessert party. Tuesday was the Kinney Party for “just a few thousand of your closest friends,” followed that evening by The Brown Boys’ reception (Herb and Howard), then the next day by Melville’s Party at Tavern on the Green, with limited seating, a small enough restaurant that there was a legitimate reason to limit the number of invitations.
Whereas a good portion of the industry now closes down that month as far as dealmaking is concerned, and attention focuses on holiday sales to determine expansion plans and how many new stores retailers will open the following year, in the past this period was busy, fertile territory. Leasing and development was an ongoing process; during these weeks was the time to correct lease problems, maybe try a new clause or approach, run it up the flagpole to see if anyone salutes.
And so it went during the ‘60s, ‘70s, ‘80s.
Ancients And Dinosaurs
Today, with decision-making on new locations now being determined by “the head office” and real estate committees, where responsibilities and much of the heavy-lifting have been farmed out to local brokers and numerous real estate networks that don’t know what’s going on outside their immediate trade area, where the location goes to who’s willing to pay the most without regard to its impact on the entire project, and you can’t understand the deal without looking at a computer printout, a transformation has taken place.
However, one cannot ignore what’s taking place in around our industry; there’s the economy, the fact that stubborn, high unemployment has caused consumers to stop spending, retailers to fold and cut back on expansion, that there are so few new markets left that are ripe—at this time—to support new development, and that there are so many other, less risky opportunities in foreign countries. Admittedly, there is a diminished relevancy to focus on new and expanding shopping centers, and expanding retailers.
Dealmaking today has become more business-like, more routine, more dependant on numbers spit out by the software program, more de-personalized. And certainly less creative.
Or, as those few ancients and dinosaurs still active say, “It’s not as much fun anymore.”
(And one final note of clarification. Shopping Center Digest has been closely aligned with the Directory of Major Malls since its inception over 31 editions ago. But it is now—and for many years—a completely independent publication separate from Shopping Center Digest. It is a primary Source to the shopping center/retail chain industry and continues to expand its depth of research and detail on its coverage of the major shopping centers and malls throughout the US and Canada—the ONLY such resource now available. Please visit www.shoppingcenters.com for online access to the almost 7,000 major shopping center listings and the latest product announcements from the Directory of Major Malls.)
To find out more about Expanding Retailers, Directory of Major Malls, or our other products, please go to our website, www.shoppingcenters.com .
Saturday, September 4, 2010
"The Deals Keep Coming," And Even More Shopping Centers Will Soon Be Changing Hands--Bringing More Opportunities To Local Brokers
This column of Strolling the Agora appears in the September 6, 2010 issue of SHOPPING CENTER DIGEST
There are numerous reasons for the surge in the number of shopping centers that have been changing ownership recently—and each contributes to the accelerating trend of the marked increase in real estate mergers and acquisitions.
Whether it’s due to cash-strapped landlords forced to sell distressed properties, pent-up capital finally pushing investors to begin financing deals, owners walking away from projects now worth less than their mortgages and adding to the available supply, mortgage-holders foreclosing on delinquent properties, the growing money supply, foreign-capital rushing to invest in real estate, all of the above—and perhaps some reasons not covered—throughout US and Canada, new names are replacing those of the former owners.
Among some of the more active acquirers in numbers of deals are RioCan and Cedar Shopping Centers, Kimco and BIG, Inland Real Estate Group, Edens & Avant, Weingarten. Since they’re mainly targeting grocery-anchored, neighborhood projects, rather than large regional malls, it is understandable why they are in the forefront of done deals.
If the buyers have cash readily available, they don’t have to search for the deals.
The Deals Keep Coming
From Edward Sonshine, CEO of RioCan, which is acquiring projects in the US and Canada and has some $500 million in its pipeline: “If you’re a cash buyer, it’s amazing…it just keeps coming at us.” In the US, “the properties are in great shape but the owners are a bit stressed.” The fact that the Canadian dollar and economy are stronger now than in the US, he added, doesn’t hurt.
The company has acquired centers in PA, NJ, VA, and TX, and now has 15 US projects, with expectations that the number will climb to 25 by the end of 2010.
Weingarten is on target to acquire $75-$125 million in deals this year; executives said they could have acquired more properties this year but were expecting cap rates—which they estimated at 6.25%-7.25% for grocery-anchored centers in major markets—would improve even more in 2011 and 2012 as banks and lenders have to deal with more defaults from financially troubled owners.
Specific regions are being targeted by some landlords: Weingarten in Florida, and other metro areas it considers in its 10 prime target areas; Edens & Avant, the Washington, DC, area, for example.
Back To Lenders
Though many of the former owners may be having substantial money problems—according to one source, distressed commercial properties may reach $200 billion—that is not always the case. Nor are those returning properties to the mortgage holders always without capital; sometimes the landlords have the cash but decide it makes better business sense to give up the project.
For example, Taubman Centers stopping paying on its $135 million mortgage on the Pier Shops at Casesars in Atlantic City, NJ, because it estimated it was worth now—because of vacancies and depressed real estate values—only $52 million.
Similarly, Simon Property Group walked away from Palm Beach Mall in West Palm Beach, FL; Macerich ditto on Valley View Center in Dallas, TX; Vornado on Del Monte Square in San Francisco, CA.
Perhaps the biggest and most flipped project of all is the $2 billion, Xanadu complex in the New Jersey Meadowlands; there the five lenders headed by Colony Capital have taken it over with intentions of finally completing it. The overwhelming cost of the development led to the bankruptcy and demise of The Mills, which first proposed the project; it was approved in 2003 and was to have been completed in 2007.
Sound Business Decision
Some consider the defaults a sound business decision. “In many cases,” said one financial maven, “it’s a strategic move” and hasn’t hurt many of the companies. At this writing, shares of Macerich are up 51%, Simon 42%, Vornado 40% and Taubman 35%.
Several of these REITs are also taking advantage of low interest rates to refinance their debt—Simon, Kimco, Vornado, etc—putting them into a better position to acquire good properties in the near future. Or selling some of their properties at high prices: Kimco sold 33 assets in Florida, Southern California, and the DC area for $370 million; Simon acquired a portion of 2.3 million sq. ft. Galleria Mall in Houston for $260 million. And of ccourse, its recent $2.3 billion acquisition of the 21 outlet centers from Prime Outlets.
And for others, who have acquired some of the foreclosed shopping centers, they have been able to do so at substantially below their replacement cost.
World Properties acquired the 1.4 million sq.ft. Cincinnati Mall for $10.5 million, $7.50 per square foot; Moison Investment Co purchased the 847,000 sq. ft. Charlestown Mall outside of Chicago for $9.5 million, $11 per sq. ft.
Those in the industry eager to buy anticipate that the second half of this year will be even better. National Retail Properties has invested $38.6 million in 10 centers so far this year—less than it anticipated—but expects the second half of the year to be better. CEO Craig Macnab said “…our activity in the second half looks like it may allow us to reach our targeted acquisition goal of $170 million this year.”
Coming To Market
Several consultants closely watching the availability of properties, expect that “in hard-hit markets such as California, Arizona, Las Vegas—there will be more distressed centers coming to market that are priced to sell. “And,” said one, “more class A, B and C assets, which will result in more competition from knowledgeable investors and landlords.”
They see many new opportunities on the near horizon. With most of these shopping centers trading hands having substantial vacancies, experienced dealmakers anticipate an increase in third-party management for established companies with track records in management and leasing, and an opportunity for local brokers with a strong knowledge of the immediate market—and solid relationships in the trade area--to bring new tenants to these centers.
More information on SHOPPING CENTER DIGEST, EXPANDING RETAILERS, the weekly SCD Eflash, the DIRECTORY OF MAJOR MALLS and our products may be obtained from our website, www.shoppingcenters.com .
There are numerous reasons for the surge in the number of shopping centers that have been changing ownership recently—and each contributes to the accelerating trend of the marked increase in real estate mergers and acquisitions.
Whether it’s due to cash-strapped landlords forced to sell distressed properties, pent-up capital finally pushing investors to begin financing deals, owners walking away from projects now worth less than their mortgages and adding to the available supply, mortgage-holders foreclosing on delinquent properties, the growing money supply, foreign-capital rushing to invest in real estate, all of the above—and perhaps some reasons not covered—throughout US and Canada, new names are replacing those of the former owners.
Among some of the more active acquirers in numbers of deals are RioCan and Cedar Shopping Centers, Kimco and BIG, Inland Real Estate Group, Edens & Avant, Weingarten. Since they’re mainly targeting grocery-anchored, neighborhood projects, rather than large regional malls, it is understandable why they are in the forefront of done deals.
If the buyers have cash readily available, they don’t have to search for the deals.
The Deals Keep Coming
From Edward Sonshine, CEO of RioCan, which is acquiring projects in the US and Canada and has some $500 million in its pipeline: “If you’re a cash buyer, it’s amazing…it just keeps coming at us.” In the US, “the properties are in great shape but the owners are a bit stressed.” The fact that the Canadian dollar and economy are stronger now than in the US, he added, doesn’t hurt.
The company has acquired centers in PA, NJ, VA, and TX, and now has 15 US projects, with expectations that the number will climb to 25 by the end of 2010.
Weingarten is on target to acquire $75-$125 million in deals this year; executives said they could have acquired more properties this year but were expecting cap rates—which they estimated at 6.25%-7.25% for grocery-anchored centers in major markets—would improve even more in 2011 and 2012 as banks and lenders have to deal with more defaults from financially troubled owners.
Specific regions are being targeted by some landlords: Weingarten in Florida, and other metro areas it considers in its 10 prime target areas; Edens & Avant, the Washington, DC, area, for example.
Back To Lenders
Though many of the former owners may be having substantial money problems—according to one source, distressed commercial properties may reach $200 billion—that is not always the case. Nor are those returning properties to the mortgage holders always without capital; sometimes the landlords have the cash but decide it makes better business sense to give up the project.
For example, Taubman Centers stopping paying on its $135 million mortgage on the Pier Shops at Casesars in Atlantic City, NJ, because it estimated it was worth now—because of vacancies and depressed real estate values—only $52 million.
Similarly, Simon Property Group walked away from Palm Beach Mall in West Palm Beach, FL; Macerich ditto on Valley View Center in Dallas, TX; Vornado on Del Monte Square in San Francisco, CA.
Perhaps the biggest and most flipped project of all is the $2 billion, Xanadu complex in the New Jersey Meadowlands; there the five lenders headed by Colony Capital have taken it over with intentions of finally completing it. The overwhelming cost of the development led to the bankruptcy and demise of The Mills, which first proposed the project; it was approved in 2003 and was to have been completed in 2007.
Sound Business Decision
Some consider the defaults a sound business decision. “In many cases,” said one financial maven, “it’s a strategic move” and hasn’t hurt many of the companies. At this writing, shares of Macerich are up 51%, Simon 42%, Vornado 40% and Taubman 35%.
Several of these REITs are also taking advantage of low interest rates to refinance their debt—Simon, Kimco, Vornado, etc—putting them into a better position to acquire good properties in the near future. Or selling some of their properties at high prices: Kimco sold 33 assets in Florida, Southern California, and the DC area for $370 million; Simon acquired a portion of 2.3 million sq. ft. Galleria Mall in Houston for $260 million. And of ccourse, its recent $2.3 billion acquisition of the 21 outlet centers from Prime Outlets.
And for others, who have acquired some of the foreclosed shopping centers, they have been able to do so at substantially below their replacement cost.
World Properties acquired the 1.4 million sq.ft. Cincinnati Mall for $10.5 million, $7.50 per square foot; Moison Investment Co purchased the 847,000 sq. ft. Charlestown Mall outside of Chicago for $9.5 million, $11 per sq. ft.
Those in the industry eager to buy anticipate that the second half of this year will be even better. National Retail Properties has invested $38.6 million in 10 centers so far this year—less than it anticipated—but expects the second half of the year to be better. CEO Craig Macnab said “…our activity in the second half looks like it may allow us to reach our targeted acquisition goal of $170 million this year.”
Coming To Market
Several consultants closely watching the availability of properties, expect that “in hard-hit markets such as California, Arizona, Las Vegas—there will be more distressed centers coming to market that are priced to sell. “And,” said one, “more class A, B and C assets, which will result in more competition from knowledgeable investors and landlords.”
They see many new opportunities on the near horizon. With most of these shopping centers trading hands having substantial vacancies, experienced dealmakers anticipate an increase in third-party management for established companies with track records in management and leasing, and an opportunity for local brokers with a strong knowledge of the immediate market—and solid relationships in the trade area--to bring new tenants to these centers.
More information on SHOPPING CENTER DIGEST, EXPANDING RETAILERS, the weekly SCD Eflash, the DIRECTORY OF MAJOR MALLS and our products may be obtained from our website, www.shoppingcenters.com .
Saturday, August 14, 2010
Luxury Retailers Head For Outlets, Simon Cuts Out 3 Centers In Bid For Greater Dominance, And We Take A Close Look At This Important Niche Of Outlet Centers
This column of Strolling the Agora appears in the August 16, 2010 Issue of SHOPPING CENTER DIGEST
It has been some time since we last took a good luck at the outlet market, a small but extremely part of the mainstream shopping center/retail chain industry, especially since some of the leading high-end retailers— Neiman Marcus, Nordstrom, Lord & Taylor— now are moving into this niche which has been an important focus of many of their competitors for years.
And, also, since the mighty Simon Property Group, whose Chelsea Property Group is the largest outlet landlord, has been awaiting approval from the Federal Trade Commission to become even larger with a $700 million acquisition of Prime Outlets from The Lightstone Group. After an antitrust review, SPG recently agreed to cut three projects out of Prime’s portfolio, still leaving it with a total of 63 outlet centers after the acquisition; the next largest landlord, Tanger Factory Outlet Centers, has half the number of outlets.
And then when you get into the next tier of owner-developer, you get one just barely into double-digit projects and then many others in single digits.
At a quick glance, some may see why the FTC was concerned about a possible monopoly or overwhelming dominance in specific markets by a single landlord. With the revision of its pending acquisition, SPG is hoping for a quick conclusion.
Excluded from the deal, now, are Prime Outlets’s Livermore Valley project in Livermore, CA; within about 65 miles of this project, SPG’s Chelsea already has three competing centers in Vacaville and Gilroy. Then cut out of the deal also are Prime’s St. Augustine, FL, property, where Chelsea has one also; and then, in the Dallas-Ft. Worth market, there would be two other competing centers, Prime’s Grand Prairie, TX, and Chelsea’s in Allen, TX. Outlet centers draw from a much wider trade area than the 5-15 miles for a regional mall.
No Great Impact
When we start taking a close look at this segment of our industry—if we’re talking only of an actual number of projects without talking of GLA--it doesn’t make a great impact on the estimated 100,000 shopping centers that make up our industry. According to the International Council of Shopping Centers, as of June 2009, there were 216 outlet centers ranging from a small 16,000 sq. ft. up to 844,000 sq. ft.
According to another source, Outletbound.com, there are 275 outlet centers; it had published a directory but that was discontinued after its 13th edition.
As a side issue, we’re not even getting into any of the value-oriented or hybrid projects such as the Mills centers, many of which were in the range of 1.5 million sq. ft., and acquired by SPG after The Mills’s bankruptcy—we’re just sticking with this niche, the outlet industry.
But yet, it is growing in importance in today’s environment and continuing, stubborn recession, as many luxury retailers--unable to attract free-spending customers--must find other venues in which to sell their merchandise without diminishing the brand through heavy discounting. To such as Saks Inc, its Off 5th outlet enables it to reach shoppers who may rarely, if ever, venture into one of its pricier mainstream stores.
More On The Way
When Lord & Taylor opened its first outlet store in February in Elizabeth, NJ, sales were so strong that company executives quickly agreed to open two more units by year’s end.
Bloomingdale’s is opening its first outlet store Aug 20 in Woodbridge, VA, and has three more in the pipeline before the end of the year.
Michael Gould, CEO of Macy’s, parent of Bloomingdale’s, said: “The outlet is a different channel and, for the most part, a different customer.”
Lord & Taylor’s CEO Brendan Hoffman was quoted as saying these types of stores are “a way to further expand your relationship with your existing customer…and to reach out to a new customer, who isn’t as affluent and who may be younger.”
So when we’re describing the tenants who are flocking to this niche, the type of retailer we’re speaking of is specializing in apparel, mainly women’s wear, men’s wear, shoes, with a smaller segment going into accessories, housewares and kitchen products, gifts, jewelry.
Lower Prices
Historically—and still—outlet prices are 30%-70% lower than that of merchandise sold at its full-price stores; according to those in the industry, these prices are 30%-50% lower for merchandise made especially for outlet stores that are comparable in quality to that of full-price stores, but not available there.
When outlet centers first grabbed the attention of the industry some 30 years ago [we published an annual directory, Factory Outlet World, and then discontinued it after several editions], most of these stores where operated by the manufacturers at their factories, thereby, factory outlet stores. For many years, the commentary was that the newly built outlet centers had retailers who sold “seconds and irregulars” and “distressed out-of-season” merchandise, and that the stores were the dumping ground for marked-down leftovers that had been rejected by mainstream customers.
That is no longer the case, say many in the industry, especially within the last few years, with Polo, ALDO, Diane von Furstenberg, Perry Ellis, Armani, Yvs St. Laurent, and the like operating profitable multiple stores for many years.
Also, the first centers built were in secondary and tertiary markets, far away from urban centers; this was because tenants did not want to compete with their full-price stores, and the manufacturers were afraid of competing against their main customers, the department stores and mainstream specialty stores. Though this is no longer that important a requirement, new projects usually are still located outside of metro markets and in tourist destination centers.
Many of the most successful of these projects cater to day-shoppers who are bused in for a whirlwind spree at luxury stores, such as Chelsea’s Woodbury Commons in Central Valley, NY, which opened 25 years ago and where annual per sq. ft. sales are in the four digits.
More information on Shopping Center Digest, Expanding Retailers, the weekly SCD Eflash, and Directory of Major Malls may be obtained from our website, www.shoppingcenters.com
.
It has been some time since we last took a good luck at the outlet market, a small but extremely part of the mainstream shopping center/retail chain industry, especially since some of the leading high-end retailers— Neiman Marcus, Nordstrom, Lord & Taylor— now are moving into this niche which has been an important focus of many of their competitors for years.
And, also, since the mighty Simon Property Group, whose Chelsea Property Group is the largest outlet landlord, has been awaiting approval from the Federal Trade Commission to become even larger with a $700 million acquisition of Prime Outlets from The Lightstone Group. After an antitrust review, SPG recently agreed to cut three projects out of Prime’s portfolio, still leaving it with a total of 63 outlet centers after the acquisition; the next largest landlord, Tanger Factory Outlet Centers, has half the number of outlets.
And then when you get into the next tier of owner-developer, you get one just barely into double-digit projects and then many others in single digits.
At a quick glance, some may see why the FTC was concerned about a possible monopoly or overwhelming dominance in specific markets by a single landlord. With the revision of its pending acquisition, SPG is hoping for a quick conclusion.
Excluded from the deal, now, are Prime Outlets’s Livermore Valley project in Livermore, CA; within about 65 miles of this project, SPG’s Chelsea already has three competing centers in Vacaville and Gilroy. Then cut out of the deal also are Prime’s St. Augustine, FL, property, where Chelsea has one also; and then, in the Dallas-Ft. Worth market, there would be two other competing centers, Prime’s Grand Prairie, TX, and Chelsea’s in Allen, TX. Outlet centers draw from a much wider trade area than the 5-15 miles for a regional mall.
No Great Impact
When we start taking a close look at this segment of our industry—if we’re talking only of an actual number of projects without talking of GLA--it doesn’t make a great impact on the estimated 100,000 shopping centers that make up our industry. According to the International Council of Shopping Centers, as of June 2009, there were 216 outlet centers ranging from a small 16,000 sq. ft. up to 844,000 sq. ft.
According to another source, Outletbound.com, there are 275 outlet centers; it had published a directory but that was discontinued after its 13th edition.
As a side issue, we’re not even getting into any of the value-oriented or hybrid projects such as the Mills centers, many of which were in the range of 1.5 million sq. ft., and acquired by SPG after The Mills’s bankruptcy—we’re just sticking with this niche, the outlet industry.
But yet, it is growing in importance in today’s environment and continuing, stubborn recession, as many luxury retailers--unable to attract free-spending customers--must find other venues in which to sell their merchandise without diminishing the brand through heavy discounting. To such as Saks Inc, its Off 5th outlet enables it to reach shoppers who may rarely, if ever, venture into one of its pricier mainstream stores.
More On The Way
When Lord & Taylor opened its first outlet store in February in Elizabeth, NJ, sales were so strong that company executives quickly agreed to open two more units by year’s end.
Bloomingdale’s is opening its first outlet store Aug 20 in Woodbridge, VA, and has three more in the pipeline before the end of the year.
Michael Gould, CEO of Macy’s, parent of Bloomingdale’s, said: “The outlet is a different channel and, for the most part, a different customer.”
Lord & Taylor’s CEO Brendan Hoffman was quoted as saying these types of stores are “a way to further expand your relationship with your existing customer…and to reach out to a new customer, who isn’t as affluent and who may be younger.”
So when we’re describing the tenants who are flocking to this niche, the type of retailer we’re speaking of is specializing in apparel, mainly women’s wear, men’s wear, shoes, with a smaller segment going into accessories, housewares and kitchen products, gifts, jewelry.
Lower Prices
Historically—and still—outlet prices are 30%-70% lower than that of merchandise sold at its full-price stores; according to those in the industry, these prices are 30%-50% lower for merchandise made especially for outlet stores that are comparable in quality to that of full-price stores, but not available there.
When outlet centers first grabbed the attention of the industry some 30 years ago [we published an annual directory, Factory Outlet World, and then discontinued it after several editions], most of these stores where operated by the manufacturers at their factories, thereby, factory outlet stores. For many years, the commentary was that the newly built outlet centers had retailers who sold “seconds and irregulars” and “distressed out-of-season” merchandise, and that the stores were the dumping ground for marked-down leftovers that had been rejected by mainstream customers.
That is no longer the case, say many in the industry, especially within the last few years, with Polo, ALDO, Diane von Furstenberg, Perry Ellis, Armani, Yvs St. Laurent, and the like operating profitable multiple stores for many years.
Also, the first centers built were in secondary and tertiary markets, far away from urban centers; this was because tenants did not want to compete with their full-price stores, and the manufacturers were afraid of competing against their main customers, the department stores and mainstream specialty stores. Though this is no longer that important a requirement, new projects usually are still located outside of metro markets and in tourist destination centers.
Many of the most successful of these projects cater to day-shoppers who are bused in for a whirlwind spree at luxury stores, such as Chelsea’s Woodbury Commons in Central Valley, NY, which opened 25 years ago and where annual per sq. ft. sales are in the four digits.
More information on Shopping Center Digest, Expanding Retailers, the weekly SCD Eflash, and Directory of Major Malls may be obtained from our website, www.shoppingcenters.com
.
Monday, August 2, 2010
Figures Don't Lie, But Liars Figure When They Pick And Choose Figures Describing The Status Of Restaurants--Or Is It Ignorance?
This column of Strolling the Agora is from the August 2, 2010 issue of SHOPPING CENTER DIGEST
It’s an old, tired cliché, and yet true to a great extent--because that is what clichés are. The cliché? That figures don’t lie, but liars figure. Now take some of the latest numbers that have been circulating the last few days regarding the restaurant industry, one of the fastest-growing segments in the shopping center-retail chain industry today, at a time when few will classify this real estate niche as an aggressively expanding market.
So, some point to the number of US restaurants that closed within the past year, mostly independents. The tally of 5,204, according to the NPD Group, signals that “It’s been a difficult time for the restaurant industry, with customer traffic down over the last year” by about 3%.
I won’t dispute the numbers, but I question the analysis and conclusion. As one, no doubt biased and knowledgeable maven (Paul Fetscher of Great American Brokerage Co ) who specializes in this market keeps telling me, business is good because “people always gotta eat.” If you compare the number of closings with the totality—316,641 independents and 267,868 chain units—that’s not horrendous; in fact, it’s a very low percentage.
So compare the negative assessment with another, conflicting survey from People Report which states that employment expectations from restaurant operators are up, nearly at the same level before the economy tanked. It reported that 42% of operators that were surveyed expected to add hourly workers in the third quarter, while only 5% would cut staff, and that nearly half expected to hire more managers. This survey predicts modest growth in the restaurant industry increasing through the rest of the year.
No dispute that it’s easy to gorge on all those numbers and regurgitate only those that grab the most attention. None of us are immune from that disease. A question, however: Do they do it for the attention, or is it through lack of knowledge, ignorance?
I see that some of the largest most successful chains are reporting increases in same store sales, operators like Ruby Tuesday, The Cheesecake Factory, Panera Bread, Cracker Barrel. And that numerous others are taking advantage of the stubborn recession and lower rent demands by landlords to expand aggressively on the homefront, many through franchising. Especially ethnic restaurants focusing on the growing appetite for Mexican, Indian, Chinese, Philippine food, or the old, reliable standbys like Chick-fil-A, Pizza Hut, Domino’s, Papa John’s…hey, are these “Italian” restaurants no longer ethnic???, Subway, Quiznos, Taco Bell, KFC, Popeye’s.
Overseas Expansion
The behemoths, of course, McDonald’s, Burger King, Wendy’s, Starbucks, haven’t been doing so great domestically, and some of them are directing most of their expansion to foreign shores; we’ve discussed a number of these points in earlier columns and why they see greater growth opportunity across borders.
With today’s technology, with billions of bits of conflicting data swirling all around us, anyone can pick and choose which ones to pay attention to, and which ones to ignore. No question, the bigger the number—without clarification or explanation—the more likely it will draw attention.
Another example: Chain Store Guide has identified the 50 fastest-growing restaurant chains with more than 20 locations over the last five years; leading the pack is Which Wich Inc, which has grown 836.4% over the last five years. Impressive, huh? It has a total of 103 locations and total annual corporate revenue of $9 million; I’m not a great mathematician, but that’s only $88,000 that each unit conributess to the corporate coffers.
Some of the better operators in the restaurant industry would probably be closing individual units that did $88,000 in total sales for the year. Ruby Tuesday, for instance, is converting several of its underperforming restaurants to other brands in its family—Jim ‘N Nicks Bar-B-Q, Truffles Café, and Wok Hay—at a cost of $400,000 each. I’m willing to bet that each of the conversions are producing--as underperforming locations--more than $88,000 in annual sales to the corporate accounts.
Hey, it’s still a more impressive figure than that of No. 7 on the list, Froots Fresh Smoothies, whose 54 units produce a total of $1,900,000 in corporate revenue, or just over $35,000 each.
Discounting A Danger
The most common practice by retailers to drive customers into the stores is by deep discounting. Many are betting on increased sales for Back To School because of heavy discounting--which may not always lead to a profitable balance sheet. But it does increase traffic and protect market share, according to experienced retailers.
And then, there’s Cracker Barrel, with its 594 restaurants and its philosophy. It made $14.4 million the last quarter, up 20% from a year earlier. The reason for its success, according to CEO Michael Woodhouse, is because it didn’t slash prices as many of its competitors did.
“Once you devalue something, you’re digging a big hole and it’s (tough) to get out of that,” he said. Instead of getting “caught up in price warfare” the chain focused on providing value and “treating our guests right.”
The chain is ranked at the top of the list of 10 national full-service restaurants in customer satisfaction, according to Technomic Inc, based on its consumer survey of 4,000 respondents.
Understand What You’re Seeing
So now we get back to dealmaking and leasing and developing our shopping centers. All of the above must be taken with shovels full of salt.
I’ve heard some landlords still insist that they wouldn’t drop the rent because they have a great project—and have seen them with vacant stores until “they dropped the rent”—or lost the project.
And I’ve heard some restaurant chains become nervous about making a deal in a center, because the location they’re considering was vacated by another food operator. It may, however, have been a poor operator, or the wrong brand in a good location. The demographics for a corner may look the same for a Pizza Hut, KFC or a Dunkin’ Donuts, but for one it’s a home run and for the another a disaster: Is the heavy traffic in stopping for coffee, or a bucket of chicken for breakfast?
Look at the numbers. But above all, understand what you’re looking at.
More information on SHOPPING CENTER DIGEST, EXPANDING RETAILERS, the weekly SCD Eflash, DIRECTORY OF MAJOR MALLS, and our other products may be obtained from our website, www.shoppingcenters.com .
It’s an old, tired cliché, and yet true to a great extent--because that is what clichés are. The cliché? That figures don’t lie, but liars figure. Now take some of the latest numbers that have been circulating the last few days regarding the restaurant industry, one of the fastest-growing segments in the shopping center-retail chain industry today, at a time when few will classify this real estate niche as an aggressively expanding market.
So, some point to the number of US restaurants that closed within the past year, mostly independents. The tally of 5,204, according to the NPD Group, signals that “It’s been a difficult time for the restaurant industry, with customer traffic down over the last year” by about 3%.
I won’t dispute the numbers, but I question the analysis and conclusion. As one, no doubt biased and knowledgeable maven (Paul Fetscher of Great American Brokerage Co ) who specializes in this market keeps telling me, business is good because “people always gotta eat.” If you compare the number of closings with the totality—316,641 independents and 267,868 chain units—that’s not horrendous; in fact, it’s a very low percentage.
So compare the negative assessment with another, conflicting survey from People Report which states that employment expectations from restaurant operators are up, nearly at the same level before the economy tanked. It reported that 42% of operators that were surveyed expected to add hourly workers in the third quarter, while only 5% would cut staff, and that nearly half expected to hire more managers. This survey predicts modest growth in the restaurant industry increasing through the rest of the year.
No dispute that it’s easy to gorge on all those numbers and regurgitate only those that grab the most attention. None of us are immune from that disease. A question, however: Do they do it for the attention, or is it through lack of knowledge, ignorance?
I see that some of the largest most successful chains are reporting increases in same store sales, operators like Ruby Tuesday, The Cheesecake Factory, Panera Bread, Cracker Barrel. And that numerous others are taking advantage of the stubborn recession and lower rent demands by landlords to expand aggressively on the homefront, many through franchising. Especially ethnic restaurants focusing on the growing appetite for Mexican, Indian, Chinese, Philippine food, or the old, reliable standbys like Chick-fil-A, Pizza Hut, Domino’s, Papa John’s…hey, are these “Italian” restaurants no longer ethnic???, Subway, Quiznos, Taco Bell, KFC, Popeye’s.
Overseas Expansion
The behemoths, of course, McDonald’s, Burger King, Wendy’s, Starbucks, haven’t been doing so great domestically, and some of them are directing most of their expansion to foreign shores; we’ve discussed a number of these points in earlier columns and why they see greater growth opportunity across borders.
With today’s technology, with billions of bits of conflicting data swirling all around us, anyone can pick and choose which ones to pay attention to, and which ones to ignore. No question, the bigger the number—without clarification or explanation—the more likely it will draw attention.
Another example: Chain Store Guide has identified the 50 fastest-growing restaurant chains with more than 20 locations over the last five years; leading the pack is Which Wich Inc, which has grown 836.4% over the last five years. Impressive, huh? It has a total of 103 locations and total annual corporate revenue of $9 million; I’m not a great mathematician, but that’s only $88,000 that each unit conributess to the corporate coffers.
Some of the better operators in the restaurant industry would probably be closing individual units that did $88,000 in total sales for the year. Ruby Tuesday, for instance, is converting several of its underperforming restaurants to other brands in its family—Jim ‘N Nicks Bar-B-Q, Truffles Café, and Wok Hay—at a cost of $400,000 each. I’m willing to bet that each of the conversions are producing--as underperforming locations--more than $88,000 in annual sales to the corporate accounts.
Hey, it’s still a more impressive figure than that of No. 7 on the list, Froots Fresh Smoothies, whose 54 units produce a total of $1,900,000 in corporate revenue, or just over $35,000 each.
Discounting A Danger
The most common practice by retailers to drive customers into the stores is by deep discounting. Many are betting on increased sales for Back To School because of heavy discounting--which may not always lead to a profitable balance sheet. But it does increase traffic and protect market share, according to experienced retailers.
And then, there’s Cracker Barrel, with its 594 restaurants and its philosophy. It made $14.4 million the last quarter, up 20% from a year earlier. The reason for its success, according to CEO Michael Woodhouse, is because it didn’t slash prices as many of its competitors did.
“Once you devalue something, you’re digging a big hole and it’s (tough) to get out of that,” he said. Instead of getting “caught up in price warfare” the chain focused on providing value and “treating our guests right.”
The chain is ranked at the top of the list of 10 national full-service restaurants in customer satisfaction, according to Technomic Inc, based on its consumer survey of 4,000 respondents.
Understand What You’re Seeing
So now we get back to dealmaking and leasing and developing our shopping centers. All of the above must be taken with shovels full of salt.
I’ve heard some landlords still insist that they wouldn’t drop the rent because they have a great project—and have seen them with vacant stores until “they dropped the rent”—or lost the project.
And I’ve heard some restaurant chains become nervous about making a deal in a center, because the location they’re considering was vacated by another food operator. It may, however, have been a poor operator, or the wrong brand in a good location. The demographics for a corner may look the same for a Pizza Hut, KFC or a Dunkin’ Donuts, but for one it’s a home run and for the another a disaster: Is the heavy traffic in stopping for coffee, or a bucket of chicken for breakfast?
Look at the numbers. But above all, understand what you’re looking at.
More information on SHOPPING CENTER DIGEST, EXPANDING RETAILERS, the weekly SCD Eflash, DIRECTORY OF MAJOR MALLS, and our other products may be obtained from our website, www.shoppingcenters.com .
Friday, July 16, 2010
"Summer Doldrums," With Expected Slowdown In Dealmaking, Still Raise Many Conflicting And Contradictory Questions
This column of Strolling the Agora appears in the July 19, 2010 issue of SHOPPING CENTER DIGEST
As we get deeper into the “summer doldrums,” when even the most aggressive and optimistic dealmakers find it hard to keep moving forward because of automatic vacation replies to emails and telephone messages, there are still interesting and contradictory highpoints in the industry. I find “interesting” such a great word because it covers a multitude of sins, doesn’t “say” anything, and leaves it open for the reader to interpret it anyway he/she wishes. Mebbe wishy-washy is a good description.
Yes, the vacancy rate rose to 10.9% in our neighborhood and community shopping centers, according to Reis, getting close to the record 11.1% recorded in ’91, with vacancies in large malls in the top 80 markets up now to 9%. Result: rents are continuing to come down across the board.
With June sales up only slightly from last year’s, “lackluster at best,” according to one analyst, because consumers are still showing marked caution to spending, why were department store sales up 5.8%--higher than expected—while discounters said growth was only 2.9%--lower than expected? And how do you equate this with research saying consumers are more frugal, focusing on bargain-shopping, using coupons, searching for “good buys”?
And with the shopping center rents dropping, and vacancies rising, why are so many retailers, including restaurant chains, now heading for urban/metro centers where rents are more expensive, operating costs are higher, and chances for success riskier?
Cross Border Traffic
So, why are so many domestic chains—including Wal-Mart-- heading overseas because they see greater opportunities for growth, and more foreign retailers are coming to the US and Canada for the same reason?
High-end department stores, luxury and fashion retailers have always pushed their exclusivity and traded on their posh surroundings and stressed that certain merchandise could be found only in their establishments-- and by paying top dollar. So, why are so many of them now involved in deep discounting and heading for outlet centers?
The most expensive designers—Marc Jacobs, Jimmy Choo, Hugo Boss, etc., etc--have avoided selling to the masses on the internet in the belief that it will erode their image. So, why are so many now preparing, perish the thought, to offer their product directly to the masses of consumer from their own websites?
Was it so many years ago that a highly regarded developer of quality malls told me that he didn’t want us to list any of his centers in our section, Centers With Lease Space Available, because he felt admitting to vacancies would detract from the prestigious image he wanted to project? Now even the most Triple-A project with a waiting list of eager tenants-to-be is not averse to having us mention the mall and leasing agent to call.
Interesting Contrasts
Hmmmmmmmmm, there’s that “interesting” again, as we look at two major urban cities and contradictory projects there.
In New York, Thor Equities just won the Takashimaya building on Fifth Avenue by bidding $142 million, and is expected to put another $40-$60 million into it to add some space and update the façade. Reportedly, the developer hopes to rent the first eight floors to a single, high-end retail tenant willing to pay up to $2,500 per sq. ft., possibly a European luxury company seeking top exposure, or a domestic merchant with a similar demand.
Then, in downtown Winnipeg, Canada’s top department store, The Bay, is undergoing renovation of its 75,000 sq. ft. building which has been operating there since 1926.
The retailer is moving its discount chain Zeller’s into the basement and looking to rent the upper floors possibly to office tenants. Said a spokesperson: “We are just condensing. Right now, we only occupy about 50 % of the space.” The owner of The Bay is now NRDC, a US-based company.
If you’re looking for a single, concise statement to bring together all these various anomalies so they make sense and are easily understandable, forget it. I can’t do it, unless you accept a token “expediency.”
And what does it all mean for the average dealmaker, just trying to put a living, breathing tenant into a 2,000 sq. ft. vacancy?
Well, one more curiosity: Some top professionals occasionally complain when they’re having large amounts of trouble leasing a center to a retail tenant that they “can’t even give the store away.”
In Cameron Village, the first planned community in Raleigh, NC, the shopping center is doing just that, offering space to nonprofits who are giving back to the community. It’s a chance to do something good for a local charity and it helps avoid one of the biggest eyesores in the shopping center industry: vacant space. “It’s not about always trying to collect the old buck,” said its property manager Lynne Worth.
Is there a message here?
More information on SHOPPING CENTER DIGEST, EXPANDING RETAILERS, the weekly SCD Eflash, DIRECTORY OF MAJOR MALLS, and our other products may be obtained from our website, www.shoppingcenters.com .
As we get deeper into the “summer doldrums,” when even the most aggressive and optimistic dealmakers find it hard to keep moving forward because of automatic vacation replies to emails and telephone messages, there are still interesting and contradictory highpoints in the industry. I find “interesting” such a great word because it covers a multitude of sins, doesn’t “say” anything, and leaves it open for the reader to interpret it anyway he/she wishes. Mebbe wishy-washy is a good description.
Yes, the vacancy rate rose to 10.9% in our neighborhood and community shopping centers, according to Reis, getting close to the record 11.1% recorded in ’91, with vacancies in large malls in the top 80 markets up now to 9%. Result: rents are continuing to come down across the board.
With June sales up only slightly from last year’s, “lackluster at best,” according to one analyst, because consumers are still showing marked caution to spending, why were department store sales up 5.8%--higher than expected—while discounters said growth was only 2.9%--lower than expected? And how do you equate this with research saying consumers are more frugal, focusing on bargain-shopping, using coupons, searching for “good buys”?
And with the shopping center rents dropping, and vacancies rising, why are so many retailers, including restaurant chains, now heading for urban/metro centers where rents are more expensive, operating costs are higher, and chances for success riskier?
Cross Border Traffic
So, why are so many domestic chains—including Wal-Mart-- heading overseas because they see greater opportunities for growth, and more foreign retailers are coming to the US and Canada for the same reason?
High-end department stores, luxury and fashion retailers have always pushed their exclusivity and traded on their posh surroundings and stressed that certain merchandise could be found only in their establishments-- and by paying top dollar. So, why are so many of them now involved in deep discounting and heading for outlet centers?
The most expensive designers—Marc Jacobs, Jimmy Choo, Hugo Boss, etc., etc--have avoided selling to the masses on the internet in the belief that it will erode their image. So, why are so many now preparing, perish the thought, to offer their product directly to the masses of consumer from their own websites?
Was it so many years ago that a highly regarded developer of quality malls told me that he didn’t want us to list any of his centers in our section, Centers With Lease Space Available, because he felt admitting to vacancies would detract from the prestigious image he wanted to project? Now even the most Triple-A project with a waiting list of eager tenants-to-be is not averse to having us mention the mall and leasing agent to call.
Interesting Contrasts
Hmmmmmmmmm, there’s that “interesting” again, as we look at two major urban cities and contradictory projects there.
In New York, Thor Equities just won the Takashimaya building on Fifth Avenue by bidding $142 million, and is expected to put another $40-$60 million into it to add some space and update the façade. Reportedly, the developer hopes to rent the first eight floors to a single, high-end retail tenant willing to pay up to $2,500 per sq. ft., possibly a European luxury company seeking top exposure, or a domestic merchant with a similar demand.
Then, in downtown Winnipeg, Canada’s top department store, The Bay, is undergoing renovation of its 75,000 sq. ft. building which has been operating there since 1926.
The retailer is moving its discount chain Zeller’s into the basement and looking to rent the upper floors possibly to office tenants. Said a spokesperson: “We are just condensing. Right now, we only occupy about 50 % of the space.” The owner of The Bay is now NRDC, a US-based company.
If you’re looking for a single, concise statement to bring together all these various anomalies so they make sense and are easily understandable, forget it. I can’t do it, unless you accept a token “expediency.”
And what does it all mean for the average dealmaker, just trying to put a living, breathing tenant into a 2,000 sq. ft. vacancy?
Well, one more curiosity: Some top professionals occasionally complain when they’re having large amounts of trouble leasing a center to a retail tenant that they “can’t even give the store away.”
In Cameron Village, the first planned community in Raleigh, NC, the shopping center is doing just that, offering space to nonprofits who are giving back to the community. It’s a chance to do something good for a local charity and it helps avoid one of the biggest eyesores in the shopping center industry: vacant space. “It’s not about always trying to collect the old buck,” said its property manager Lynne Worth.
Is there a message here?
More information on SHOPPING CENTER DIGEST, EXPANDING RETAILERS, the weekly SCD Eflash, DIRECTORY OF MAJOR MALLS, and our other products may be obtained from our website, www.shoppingcenters.com .
Monday, July 5, 2010
How--And Why--The "Chicago Deal" By Wal-Mart Will Impact On That City And The Shopping Center/Retail Chain Industry
This column of Strolling the Agora appears in the July 5, 2010 issue of SHOPPING CENTER DIGEST
“Of course it’s going to impact on the shopping center industry,” said a seasoned dealmaker. “Wal-Mart is so big that whatever it does is going to affect those specifically within this small real estate niche, and it will expand out to touch thousands of others not directly related.”
He was referring to the recent decision in Chicago where, after six years, the city council finally approved a zone change to permit the discount operator to build a store in a mixed-use project on the South Side, due to open in 2012. This, the chain said, would grow to dozens of stores within the next five years.
There’s no question that the stimulus behind the approval is the severe recession responsible for high unemployment in this city and across the nation, resulting in severe cutbacks of municipal services caused by reduced tax revenue and high deficits. Wal-Mart’s promise to hire 12,000 workers and to pay above minimum wage has softened the primary objections of the established unions; its estimate of paying some $500 million to the city in sales taxes, the expectation of its making available some space in its stores to small businesses, and to contribute $20 million to city charities also softened local opposition from community groups and independent retailers.
The discounter is talking of constructing units with union labor, stores as small as 8,000 sq. ft. in addition to its superstore concept, formats concentrating on groceries, and online services enabling customers to pick up merchandise at the stores. Also, some Chicago officials pointed out, a lot of local citizens are spending millions of their dollars and paying their sales taxes to benefit communities containing Wal-Marts that circle the city.
The Bentonville, AR, behemoth grew to be such a dominator force on the retail side by concentrating its growth in small towns and suburbs; essentially, it saturated this market.
Industry Reaction
According to Hank Mullany, who heads the Wal-Mart’s stores in the Midwest, Northeast, and mid-Atlantic regions, “We have very small market share in the large cities within the United States, so we see a big opportunity for us to grow in those urban markets.”
The reaction of many in the shopping center/retail chain industry is mostly strongly in favor of this new direction being taken.
Said Peter D. Morris, CEO at Greenstead Group: “Wal-Mart is simply watching the demographic and trend curves which indicate a new ‘urbanism’ as boomers move away from the burbs and back to the amenities of urban life. Smart developers should be watching this as many retailers have successfully clustered around [its] draw. The other side of the impact of urban Wal-Marts will be felt on unorganized business improvement districts and urban area merchants associations because these organizations typically lack [the] resources and management of a shopping center under a unified ownership.”
Brian Spray, owner/sr. project manager at Integrated Engineering, pointed out that large cities have become more accepting of big-box stores. “Most cities face budget short falls as they do not have enough tax revenue. Big boxes generate massive ratables for the city, provide affordable items to the residents, and create jobs for local residents who do have personal transportation.”
The Philadelphia Example
He pointed to an example of strong unions losing their hold on the city politic. “Here in
Philadelphia the Mayor had to beat the union into submission when MTV came to town a few years back to film a season of The Real World. The city needed the revenue generated from juniors who would now want to visit the city, go to school here and possibly work here. The unions drove MTV out of town as they were not the winning bidders on the project. The city had to work very hard to get MTV to come back.”
Relating to this city, Michael Fisher, who is a local developer at RealMarq and a faculty member at University of Phoenix, said Wal-Mart’s entry there had “little impact on the local retailers” and pointed to an opposite example in New York’s borough of The Bronx where strong union opposition helped kill development last May at the Kingsbridge Armory. There demands that tenants in the project pay $2.75 per hour above minimum wage forced developer Related Companies to drop plans for the shopping center.
Fisher pointed to other big box retailers—COSTCO, Home Depot, IKEA, Target, Lowes—who have successfully entered urban areas with the cooperation of local politicians and community groups. “Retailers need to look at these big boxes as a benefit; they bring a lot more people to that corner of the world. What can they do to benefit from those new entries to the market? Change is the only sure thing; Wal-Mart may seen to change the marketplace but in reality it adds to vibrancy of marketplace.”
Not One-Sided
The discounter, agreed Marsha Getto-Aikens, principal of Regoup Consulting, is “very much aware of the changing demographics, our aging population, the declining birth rate. Even more important, the movement of certain age/ethnic groups from suburbs to the cities, and vice versa…Cities have to decide if tghey want to foster and be differentiated by the smaller, uncommon, vibrant, retailer tht crerates a far more interesting shopping environment, combined with better residential, and a resugence of community-centgric components that increase the attractiveness of urban living, or NOT.”
It’s tough for a city to turn their back on the increased tax revenue Wal-Mart would generate, she continued, “however, you have to believe there are other ways to create revenue that does not involve the addition of more hardscape and less individuality.”
Susan Schulte, president of Schulte Real Estate Resources, doubted the Wal-Mart deal in Chicago would have much effect on the larger shopping centers and malls. It could however, “have a negative impact on the smaller, less occupied strip centers that may already be struggling. I think it will have a greater impact on grocery stores and some of the smaller independent businesses. Hopefully our economy will be stronger by the time these stores actually start to open for business. With the additional jobs there should be benefit to most retailers, even at lower wages.”
Some in the industry were uncomfortable about outside pressure being exerted to control wages paid by companies.
“Last time I checked,” said one dealmaker, “we were in a capitalistic free society. A merchant should be allowed to go to the market and hire at a rate a worker is willing to work for. Should no workers be available at those wages, they need to pay higher wages. That’s the nature of capitalism.
“The do-gooders have one fallacy in their reasoning. Paying a ‘living Wage’ doesn’t assure higher productivity. Therefore in order to attain desired ROI, the retailer is forced to raise prices—to the inner city consumer. That’s a lose/lose proposition.”
Another asks about where would be the cutoff point, where do you draw the line?
“A guy with 6 McDonalds? Patio.com? Once you get the biggest over a barrel, then the next smaller, then the next smaller, until everyone had to do it.? It unevens the playing field. I’m not in favor of leveling the field by punishing and penalizing the most efficient player!”
Question Of Dominance
Several also pointed to Wal-Mart’s history as a retail giant who trampled independent operators in small communities. Veteran dealmakers related historical anecdotes where the discounter cut prices below cost to force local merchants to close, and then raised their prices when they became overwhelmingly dominant in a small market.
“These problems experienced in small town USA,” warned one, “when Wal-Mart dominated those areas—will repeat itself in the urban retail landscape.”
The immediate impact of what has taken place—and will take place in Chicago-- said one local real estate maven, “will mean many more deals and commissions going to those able to put together these packages, for individual freestanding Wal-Marts and as anchors in small strip centers. There are a number of these with substantial vacancies caused by the demise of Circuit City, Linens-N-Things, and other well-known retailers.”
Another pointed out that due to these vacancies, rents being sought by cash-strapped landlords are about one-third less than that being asked three years ago.
It is understood by many in the industry, that Wal-Mart is expected to continue this direction in many other urban markets where it had been rejected in the past: Los Angeles, New York, the corridor between Boston and Washington, DC. And the chain’s strategy, said Mullany, “would be to get our stores as close as possible, so in urban markets we’ll be doing that with multiple formats.”
Other real estate veterans pointed out that the impact will have substantially positive effects on many in the workforce, in addition to those stocking the shelves and cash registers at Wal-Mart, or helping to build these stores.
“It will mean income for those involved in leasing, financing, administrating and designing the facilities, those in the service industries involved in the stores. And then look at the real estate values around these Wal-Marts. Don’t tell me,” he continued, “that those residential and commercial properties are not going to appreciate in value and also return substantial ratables to the city and their owners.”
More information on SHOPPING CENTER DIGEST, EXPANDING RETAILERS, the weekly SCD Eflash, the DIRECTORY OF MAJOR MALLS and our other products may be obtained from our website, www.shoppingcenters.com .
“Of course it’s going to impact on the shopping center industry,” said a seasoned dealmaker. “Wal-Mart is so big that whatever it does is going to affect those specifically within this small real estate niche, and it will expand out to touch thousands of others not directly related.”
He was referring to the recent decision in Chicago where, after six years, the city council finally approved a zone change to permit the discount operator to build a store in a mixed-use project on the South Side, due to open in 2012. This, the chain said, would grow to dozens of stores within the next five years.
There’s no question that the stimulus behind the approval is the severe recession responsible for high unemployment in this city and across the nation, resulting in severe cutbacks of municipal services caused by reduced tax revenue and high deficits. Wal-Mart’s promise to hire 12,000 workers and to pay above minimum wage has softened the primary objections of the established unions; its estimate of paying some $500 million to the city in sales taxes, the expectation of its making available some space in its stores to small businesses, and to contribute $20 million to city charities also softened local opposition from community groups and independent retailers.
The discounter is talking of constructing units with union labor, stores as small as 8,000 sq. ft. in addition to its superstore concept, formats concentrating on groceries, and online services enabling customers to pick up merchandise at the stores. Also, some Chicago officials pointed out, a lot of local citizens are spending millions of their dollars and paying their sales taxes to benefit communities containing Wal-Marts that circle the city.
The Bentonville, AR, behemoth grew to be such a dominator force on the retail side by concentrating its growth in small towns and suburbs; essentially, it saturated this market.
Industry Reaction
According to Hank Mullany, who heads the Wal-Mart’s stores in the Midwest, Northeast, and mid-Atlantic regions, “We have very small market share in the large cities within the United States, so we see a big opportunity for us to grow in those urban markets.”
The reaction of many in the shopping center/retail chain industry is mostly strongly in favor of this new direction being taken.
Said Peter D. Morris, CEO at Greenstead Group: “Wal-Mart is simply watching the demographic and trend curves which indicate a new ‘urbanism’ as boomers move away from the burbs and back to the amenities of urban life. Smart developers should be watching this as many retailers have successfully clustered around [its] draw. The other side of the impact of urban Wal-Marts will be felt on unorganized business improvement districts and urban area merchants associations because these organizations typically lack [the] resources and management of a shopping center under a unified ownership.”
Brian Spray, owner/sr. project manager at Integrated Engineering, pointed out that large cities have become more accepting of big-box stores. “Most cities face budget short falls as they do not have enough tax revenue. Big boxes generate massive ratables for the city, provide affordable items to the residents, and create jobs for local residents who do have personal transportation.”
The Philadelphia Example
He pointed to an example of strong unions losing their hold on the city politic. “Here in
Philadelphia the Mayor had to beat the union into submission when MTV came to town a few years back to film a season of The Real World. The city needed the revenue generated from juniors who would now want to visit the city, go to school here and possibly work here. The unions drove MTV out of town as they were not the winning bidders on the project. The city had to work very hard to get MTV to come back.”
Relating to this city, Michael Fisher, who is a local developer at RealMarq and a faculty member at University of Phoenix, said Wal-Mart’s entry there had “little impact on the local retailers” and pointed to an opposite example in New York’s borough of The Bronx where strong union opposition helped kill development last May at the Kingsbridge Armory. There demands that tenants in the project pay $2.75 per hour above minimum wage forced developer Related Companies to drop plans for the shopping center.
Fisher pointed to other big box retailers—COSTCO, Home Depot, IKEA, Target, Lowes—who have successfully entered urban areas with the cooperation of local politicians and community groups. “Retailers need to look at these big boxes as a benefit; they bring a lot more people to that corner of the world. What can they do to benefit from those new entries to the market? Change is the only sure thing; Wal-Mart may seen to change the marketplace but in reality it adds to vibrancy of marketplace.”
Not One-Sided
The discounter, agreed Marsha Getto-Aikens, principal of Regoup Consulting, is “very much aware of the changing demographics, our aging population, the declining birth rate. Even more important, the movement of certain age/ethnic groups from suburbs to the cities, and vice versa…Cities have to decide if tghey want to foster and be differentiated by the smaller, uncommon, vibrant, retailer tht crerates a far more interesting shopping environment, combined with better residential, and a resugence of community-centgric components that increase the attractiveness of urban living, or NOT.”
It’s tough for a city to turn their back on the increased tax revenue Wal-Mart would generate, she continued, “however, you have to believe there are other ways to create revenue that does not involve the addition of more hardscape and less individuality.”
Susan Schulte, president of Schulte Real Estate Resources, doubted the Wal-Mart deal in Chicago would have much effect on the larger shopping centers and malls. It could however, “have a negative impact on the smaller, less occupied strip centers that may already be struggling. I think it will have a greater impact on grocery stores and some of the smaller independent businesses. Hopefully our economy will be stronger by the time these stores actually start to open for business. With the additional jobs there should be benefit to most retailers, even at lower wages.”
Some in the industry were uncomfortable about outside pressure being exerted to control wages paid by companies.
“Last time I checked,” said one dealmaker, “we were in a capitalistic free society. A merchant should be allowed to go to the market and hire at a rate a worker is willing to work for. Should no workers be available at those wages, they need to pay higher wages. That’s the nature of capitalism.
“The do-gooders have one fallacy in their reasoning. Paying a ‘living Wage’ doesn’t assure higher productivity. Therefore in order to attain desired ROI, the retailer is forced to raise prices—to the inner city consumer. That’s a lose/lose proposition.”
Another asks about where would be the cutoff point, where do you draw the line?
“A guy with 6 McDonalds? Patio.com? Once you get the biggest over a barrel, then the next smaller, then the next smaller, until everyone had to do it.? It unevens the playing field. I’m not in favor of leveling the field by punishing and penalizing the most efficient player!”
Question Of Dominance
Several also pointed to Wal-Mart’s history as a retail giant who trampled independent operators in small communities. Veteran dealmakers related historical anecdotes where the discounter cut prices below cost to force local merchants to close, and then raised their prices when they became overwhelmingly dominant in a small market.
“These problems experienced in small town USA,” warned one, “when Wal-Mart dominated those areas—will repeat itself in the urban retail landscape.”
The immediate impact of what has taken place—and will take place in Chicago-- said one local real estate maven, “will mean many more deals and commissions going to those able to put together these packages, for individual freestanding Wal-Marts and as anchors in small strip centers. There are a number of these with substantial vacancies caused by the demise of Circuit City, Linens-N-Things, and other well-known retailers.”
Another pointed out that due to these vacancies, rents being sought by cash-strapped landlords are about one-third less than that being asked three years ago.
It is understood by many in the industry, that Wal-Mart is expected to continue this direction in many other urban markets where it had been rejected in the past: Los Angeles, New York, the corridor between Boston and Washington, DC. And the chain’s strategy, said Mullany, “would be to get our stores as close as possible, so in urban markets we’ll be doing that with multiple formats.”
Other real estate veterans pointed out that the impact will have substantially positive effects on many in the workforce, in addition to those stocking the shelves and cash registers at Wal-Mart, or helping to build these stores.
“It will mean income for those involved in leasing, financing, administrating and designing the facilities, those in the service industries involved in the stores. And then look at the real estate values around these Wal-Marts. Don’t tell me,” he continued, “that those residential and commercial properties are not going to appreciate in value and also return substantial ratables to the city and their owners.”
More information on SHOPPING CENTER DIGEST, EXPANDING RETAILERS, the weekly SCD Eflash, the DIRECTORY OF MAJOR MALLS and our other products may be obtained from our website, www.shoppingcenters.com .
Monday, June 21, 2010
Dealmakers Look At New Ways To Keep The Momentum Going
This column of Strolling the Agora appears in the June 21, 2010 issue of SHOPPING CENTER DIGEST, the twice-monthly newsletter that focuses on leasing/development in the shopping center/retail chain industry.
Whether due to improved consumer attitudes, a desire to break a logjam impeding forward movement, the positive sales results from many tenants, increased financing available, or a multitude of other reasons, there has been a recent increase in dealmaking activity, at and following the ICSC RECON in Las Vegas.
But it is still far from a rush to make a deal. And there is no clear pattern, and in numerous cases, we see examples going against recent trends.
Overall, the conventional wisdom points to discount and value-oriented retailers looking at the latest numbers, and then announcing they’re back looking for deals.
If that’s the case across-the-board, how do you explain Target? This No. 2 discount retailer boosted its quarterly dividend 47% from last year, saying its cash generation is far more than required “for optimal reinvestment in our core business.” After its retail sales surge resulted in a 29% increase in its quarterly profit, it cut back on new-store expansion to less than 10 this year, compared with 60 in 2009 and its more basic annual average of close to 100 new stores.
The retail toy business for years has been dragging, with the leaders in this category trailing behind the strong competition from Walmart and other mass merchandisers. So, how to explain the move by Kohlberg Kravis Roberts and Bain Capital to seek public funding by preparing to raise $800 million from an Initial Public Offering for Toys R Us?
Or that retail operations directed at the teen and pre-teen market were among those at the forefront of a growth market, but recent sales results conclude that some of these operators may be heading for further problems?
Eye On The Deal
“I don’t try to explain these anomalies,” said one veteran dealmaker, “since I have no control over what top management at a company may decide, whether it be a tenant or a landlord. I focus on my immediate projects and do what I have to do to get that lease signed.”
When looking at a specific project, and trying to be creative, many senior negotiators go back to the tried and true methods that have worked in the past. They look at the basic rent—and whether an owner-developer or a retail chain—the rate will go up or down based on the square footage of the store, or the immediate occupancy costs: taking a smaller unit so overhead including tenant improvements such as HVAC, fixturing, housekeeping and maintenance, personnel, operations and the like can also be reduced.
Or they may concentrate on the length of the lease, shorter or longer term, maybe throwing a few dollars in at the back end to make the front end a little more acceptable. Or adding or deleting or revising a clause dealing with co-tenancies, or kickouts, or exclusive, and on and on.
Nothing new here.
Emphasis On Franchising
With the high unemployment rate coupled with the increasing length of time experienced professionals are on the street, many of these workers are channeling their efforts into starting their own businesses; the category of retailing is attracting more than its share, and most of it is directed at established successful franchises.
To many operators, this is a great opportunity and they are being very aggressive in attracting businessmen with a good track record and substantial financial packages from their former employers. So the franchiser, in many instances, is providing some of the dollars through an in-house financing program to make the deal, cutting its fees, fine-tuning leasing and royalty costs, guaranteeing bank loans, and putting its greater financial standing behind the deal.
They are advising their prospects to work with their local banks where they have a relationship, use relatives and friends as investors, community development groups, consider used equipment from auctions and Craigslist to reduce immediate costs, work with landlords to pay a higher rent upfront to obtain a larger tenant improvements payment from the landlord, etc.
One experienced dealmaking went into the distant past. “I remember when we owner-developers helped put several retailers into business because we could get better financing from the banks and lending institutions than they could. We used our stature to make it happen, financing them and helping them fixture their stores. In a sense it could have been a reaction against one or two extremely important retailers who essentially controlled a vital part of the women’s apparel industry. I can see the connection between then and now with what’s going on in franchising, especially with the restaurant and fast-food industry.”
Sooooooooo not much new here either.
Get Someone’s Attention
To get some movement started, another stated, “you have to get someone on the other end to pick up the phone or answer an email—you have to grab their attention.
“It’s almost like wooing a new lover. You can send the candy, the flowers, the theater tickets—that’s become almost common, now. With one real estate VP, we found out she was very involved and committed to a charitable organization, so we made a substantial contribution in her name to that fund. We finally got a callback and made the deal.
“There’s no way,” he conceded, “we would have been successful if the location did not fit very well into their criteria. But you have to do something to make them acknowledge that this a good location that they may not be aware of—I won’t say overlooked.”
The possible hazard that many involved in leasing and development on both sides of the negotiating table recognize is if the little momentum that is now underway were to stall. There are signs that the normal slowdown that comes with the summer may also impact on dealmaking. Some retail sales results from May show declines from those anticipated; in other instances, sales may be up, but profits may not, because deep discounting was necessary to drive customers into the stores; and in some instances total sales may be up for the retailer, but an increasing proportion of those dollars may be coming from the internet, and not from brick and mortar.
To some retailers, this could be to raise the emphasis on internet sales and to direct their focus internationally where the market may be less competitive and ROI could be much faster. A number of larger landlords are turning their attention for new development offshore, to Asia, especially China and India, South America such as Brazil, Colombia, Mexico, under-served European countries such as Russia, Slovakia, Spain, Portugal.
So the challenge for the dealmaker domestically? Wave, make some noise, get someone out there to recognize that here is an opportunity that is new or deserves a second look.
More information on SHOPPING CENTER DIGEST, the weekly SCD Eflash, EXPANDING RETAILERS, DIRECTORY OF MAJOR MALLS, and our other products may be obtained from our website, www.shoppingcenters.com .
Whether due to improved consumer attitudes, a desire to break a logjam impeding forward movement, the positive sales results from many tenants, increased financing available, or a multitude of other reasons, there has been a recent increase in dealmaking activity, at and following the ICSC RECON in Las Vegas.
But it is still far from a rush to make a deal. And there is no clear pattern, and in numerous cases, we see examples going against recent trends.
Overall, the conventional wisdom points to discount and value-oriented retailers looking at the latest numbers, and then announcing they’re back looking for deals.
If that’s the case across-the-board, how do you explain Target? This No. 2 discount retailer boosted its quarterly dividend 47% from last year, saying its cash generation is far more than required “for optimal reinvestment in our core business.” After its retail sales surge resulted in a 29% increase in its quarterly profit, it cut back on new-store expansion to less than 10 this year, compared with 60 in 2009 and its more basic annual average of close to 100 new stores.
The retail toy business for years has been dragging, with the leaders in this category trailing behind the strong competition from Walmart and other mass merchandisers. So, how to explain the move by Kohlberg Kravis Roberts and Bain Capital to seek public funding by preparing to raise $800 million from an Initial Public Offering for Toys R Us?
Or that retail operations directed at the teen and pre-teen market were among those at the forefront of a growth market, but recent sales results conclude that some of these operators may be heading for further problems?
Eye On The Deal
“I don’t try to explain these anomalies,” said one veteran dealmaker, “since I have no control over what top management at a company may decide, whether it be a tenant or a landlord. I focus on my immediate projects and do what I have to do to get that lease signed.”
When looking at a specific project, and trying to be creative, many senior negotiators go back to the tried and true methods that have worked in the past. They look at the basic rent—and whether an owner-developer or a retail chain—the rate will go up or down based on the square footage of the store, or the immediate occupancy costs: taking a smaller unit so overhead including tenant improvements such as HVAC, fixturing, housekeeping and maintenance, personnel, operations and the like can also be reduced.
Or they may concentrate on the length of the lease, shorter or longer term, maybe throwing a few dollars in at the back end to make the front end a little more acceptable. Or adding or deleting or revising a clause dealing with co-tenancies, or kickouts, or exclusive, and on and on.
Nothing new here.
Emphasis On Franchising
With the high unemployment rate coupled with the increasing length of time experienced professionals are on the street, many of these workers are channeling their efforts into starting their own businesses; the category of retailing is attracting more than its share, and most of it is directed at established successful franchises.
To many operators, this is a great opportunity and they are being very aggressive in attracting businessmen with a good track record and substantial financial packages from their former employers. So the franchiser, in many instances, is providing some of the dollars through an in-house financing program to make the deal, cutting its fees, fine-tuning leasing and royalty costs, guaranteeing bank loans, and putting its greater financial standing behind the deal.
They are advising their prospects to work with their local banks where they have a relationship, use relatives and friends as investors, community development groups, consider used equipment from auctions and Craigslist to reduce immediate costs, work with landlords to pay a higher rent upfront to obtain a larger tenant improvements payment from the landlord, etc.
One experienced dealmaking went into the distant past. “I remember when we owner-developers helped put several retailers into business because we could get better financing from the banks and lending institutions than they could. We used our stature to make it happen, financing them and helping them fixture their stores. In a sense it could have been a reaction against one or two extremely important retailers who essentially controlled a vital part of the women’s apparel industry. I can see the connection between then and now with what’s going on in franchising, especially with the restaurant and fast-food industry.”
Sooooooooo not much new here either.
Get Someone’s Attention
To get some movement started, another stated, “you have to get someone on the other end to pick up the phone or answer an email—you have to grab their attention.
“It’s almost like wooing a new lover. You can send the candy, the flowers, the theater tickets—that’s become almost common, now. With one real estate VP, we found out she was very involved and committed to a charitable organization, so we made a substantial contribution in her name to that fund. We finally got a callback and made the deal.
“There’s no way,” he conceded, “we would have been successful if the location did not fit very well into their criteria. But you have to do something to make them acknowledge that this a good location that they may not be aware of—I won’t say overlooked.”
The possible hazard that many involved in leasing and development on both sides of the negotiating table recognize is if the little momentum that is now underway were to stall. There are signs that the normal slowdown that comes with the summer may also impact on dealmaking. Some retail sales results from May show declines from those anticipated; in other instances, sales may be up, but profits may not, because deep discounting was necessary to drive customers into the stores; and in some instances total sales may be up for the retailer, but an increasing proportion of those dollars may be coming from the internet, and not from brick and mortar.
To some retailers, this could be to raise the emphasis on internet sales and to direct their focus internationally where the market may be less competitive and ROI could be much faster. A number of larger landlords are turning their attention for new development offshore, to Asia, especially China and India, South America such as Brazil, Colombia, Mexico, under-served European countries such as Russia, Slovakia, Spain, Portugal.
So the challenge for the dealmaker domestically? Wave, make some noise, get someone out there to recognize that here is an opportunity that is new or deserves a second look.
More information on SHOPPING CENTER DIGEST, the weekly SCD Eflash, EXPANDING RETAILERS, DIRECTORY OF MAJOR MALLS, and our other products may be obtained from our website, www.shoppingcenters.com .
Monday, June 7, 2010
Tenants, Landlords Begin Making Deals Again At ICSC RECON, Which Is “Better Than Expected”
This latest column of Strolling the Agora is from the June 7, 2010 issue of SHOPPING CENTER DIGEST
“It wasn’t great, but we’re all in agreement then,” said Cuthbert, “that improved retail sales and consumer confidence are behind the increased number of deals started and completed at the ICSC RECON, and that the convention was lot better than most of us expected.” He was chairing the Dinosaur Chowder and Marching Society’s wrapup following the Las Vegas convention.
“The attendance was down considerably from two years ago,” said Tom Baker of Property Resources Group, “but those attending were looking at opportunities for expansion and growth…one of the better shows for actual deals and prospects.”
Mike Mallon of Mallon and Associates agreed. “I felt the activity was encouraging and that a number of retailers especially the discounters were making deals. [They] are tough but at least there is activity vs. a year ago.”
Randee Stratton said “…[it] was uplifting and positive with more developers looking for deals and tenants interest in using the opportunity for expanding into markets that were previously unattainable for them with higher rents and low vacancies.”
Chris Marabella of Marabella Commercial Finance, said he “discussed construction and permanent financing with many developer/landlords who indicated they planed to develop several Walgreen and CVS stores in the next 12 months. I found the atmosphere to be positive and I definitely see an up tick in development if we can finance their projects.”
“Many [were] working harder for fewer deals,” said Dave Osterhus, “but most agreed that we need to all focus and work on what we can control and not be dragged down by what we can’t. Let’s all remember our friends who are out of work and looking to get back into our industry. Buy them a cup of coffee next week and encourage them!”
“Cautious optimism is a good description,” said Darlene Murray of RCC Associates. “We are a G.C. and the meetings with our clients were positive. Projects are being planned and built. So much better than last year.”
Karen Pollard of the City of Rochester pointed to “The interest in getting new projects into the pipeline was great. A definite improvement over last year, the energy was very good. From a public sector perspective we definitely achieved our goals for the show.”
Integration Good And Bad
There was also quite a bit of discussion regarding mingling exhibitors from companies serving the industry with the landlords and tenants from the Leasing Mall, with most of it being positive.
Lesley Woodring of Synergos Technologies: “I thought the integration of the exhibitors, leasing folks, and restaurant/retailers was great for everyone. There was a lot of energy and a lot less dead zones throughout the halls.”
“I was a little worried about the integration of the exhibitors,” admitted Thomas Erb of Electric Time Co, “but it worked well. The dead space last year was depressing.”
But then, there were others, like, Pablo Torres of Triangulo las Animas: “Great activity but I didn’t like the mix at the expo. It’s better to have zones in order to see what you want instead of missing some spots.”
Golden Rule
There was still some resentment from tenants that many of them were required to leave the Leasing Mall to visit the dealmaking suites of Simon Property Group and Westfield at Caesars Palace. “But,” said Reasonable Ralph, “it saved them substantial money not having to pay for exhibit space, and they’re big enough not to need the presence in the convention center. It’s the Golden Rule: Them what has the gold makes the rules.”
The types of deals being made were not equal in all categories. “Leading the charge,” said Cuthbert, “were restaurants, discounters, value-oriented merchants, with strong indications that though consumers were opening their purses, they were price-conscious and insisting on getting good value.”
“This is not to say,” Fashion Fay pointed out, “that some of the higher-end tenants were not making deals. They were, especially in their concepts that showed flexibility and were catering to this yearning by shoppers for quality and good bang for the buck.”
She noted that some of the luxury retailers in the industry were closing stores because they were unable to satisfy this need for even their most loyal customers.
Flexibility By Landlords
The landlords, also were showing flexibility, said Designing Dan, in their leases. “But also,” he stressed, “in willingness to be innovative, splitting big boxes into multiple tenancies, changing basic requirements to accommodate specific needs of smaller operators, willing to talk to retailers for A malls they would not have considered before.”
“Yeah, but if it’s for a top project with high occupancy,” said Hard-boiled Harry, “there’s no way I’m gonna drop the rent, even for a short-term lease. I’m willing to negotiate, and I am making deals for less rent than two years I would have said was ridiculous. But there’s a limit. Unless there’s some quid pro quo for another project or two that could use a little help, no way am I going to give away space just to get a lease signed.”
A number of experienced dealmakers cited numerous examples of money beginning to flow into the industry to finance projects that had been put on back burners and now may be gearing up for openings in 2011 and 2012. “Especially,” said Financing Fred, “in the areas of acquisitions and mergers—a lot of foreign money is coming into the US, with joint ventures from Canada, Latin America, the Far East, Europe. We may think we’ve been hardhit in our recession, but others still say we’re among the safest ports to park some substantial cash, especially for long-term investments.
“A good portion of these investments are being aimed at depressed portfolios, where cash-strapped owners are being pressured to paydown some of their mortgages that are coming to term, and for shopping centers that can be quickly renovated and expanded.”
Still Stressing Caution
This is all true to some extent, conceded Careful Carl. “However, though we may have numerous chains looking to expand into new markets, trying out new concepts, seeking to tap into a different demographic, we must still maintain a certain amount of caution. We’re not out of the woods yet; there’s still high unemployment, increasing national debt and a public that’s increasingly more pessimistic about the future. Yeah, here in our industry there’s a growing optimism, but it can turn around almost overnight.”
Part of the success of this convention, Cuthbert said, can also be attributed to a pentup demand to make deals, and a lack of new development. “Don’t forget, for almost two years, there were very few new projects being built—even though some now estimate we have over 100,000 shopping centers in the country.
“Much of what we’ve been chewing about for the last couple of hours,” he continued, “are points that have been made time and time again over the last couple of months. Tenants want to expand and grow, and landlords want to provide them with the space they need to accomplish these goals, and it can only come about if the economy continues to improve.
“And all the parties involved are willing to compromise in some ways. It’s no longer, here’s the deal, take it or leave it. Though I know some landlords who think we may return to that in another year or two.”
Further information on SHOPPING CENTER DIGEST, EXPANDING RETAILERS, the weekly SCD Eflash, DIRECTORY OF MAJOR MALLS, and our other products may be obtained from our websites, www.shoppingcenters.com .
“It wasn’t great, but we’re all in agreement then,” said Cuthbert, “that improved retail sales and consumer confidence are behind the increased number of deals started and completed at the ICSC RECON, and that the convention was lot better than most of us expected.” He was chairing the Dinosaur Chowder and Marching Society’s wrapup following the Las Vegas convention.
“The attendance was down considerably from two years ago,” said Tom Baker of Property Resources Group, “but those attending were looking at opportunities for expansion and growth…one of the better shows for actual deals and prospects.”
Mike Mallon of Mallon and Associates agreed. “I felt the activity was encouraging and that a number of retailers especially the discounters were making deals. [They] are tough but at least there is activity vs. a year ago.”
Randee Stratton said “…[it] was uplifting and positive with more developers looking for deals and tenants interest in using the opportunity for expanding into markets that were previously unattainable for them with higher rents and low vacancies.”
Chris Marabella of Marabella Commercial Finance, said he “discussed construction and permanent financing with many developer/landlords who indicated they planed to develop several Walgreen and CVS stores in the next 12 months. I found the atmosphere to be positive and I definitely see an up tick in development if we can finance their projects.”
“Many [were] working harder for fewer deals,” said Dave Osterhus, “but most agreed that we need to all focus and work on what we can control and not be dragged down by what we can’t. Let’s all remember our friends who are out of work and looking to get back into our industry. Buy them a cup of coffee next week and encourage them!”
“Cautious optimism is a good description,” said Darlene Murray of RCC Associates. “We are a G.C. and the meetings with our clients were positive. Projects are being planned and built. So much better than last year.”
Karen Pollard of the City of Rochester pointed to “The interest in getting new projects into the pipeline was great. A definite improvement over last year, the energy was very good. From a public sector perspective we definitely achieved our goals for the show.”
Integration Good And Bad
There was also quite a bit of discussion regarding mingling exhibitors from companies serving the industry with the landlords and tenants from the Leasing Mall, with most of it being positive.
Lesley Woodring of Synergos Technologies: “I thought the integration of the exhibitors, leasing folks, and restaurant/retailers was great for everyone. There was a lot of energy and a lot less dead zones throughout the halls.”
“I was a little worried about the integration of the exhibitors,” admitted Thomas Erb of Electric Time Co, “but it worked well. The dead space last year was depressing.”
But then, there were others, like, Pablo Torres of Triangulo las Animas: “Great activity but I didn’t like the mix at the expo. It’s better to have zones in order to see what you want instead of missing some spots.”
Golden Rule
There was still some resentment from tenants that many of them were required to leave the Leasing Mall to visit the dealmaking suites of Simon Property Group and Westfield at Caesars Palace. “But,” said Reasonable Ralph, “it saved them substantial money not having to pay for exhibit space, and they’re big enough not to need the presence in the convention center. It’s the Golden Rule: Them what has the gold makes the rules.”
The types of deals being made were not equal in all categories. “Leading the charge,” said Cuthbert, “were restaurants, discounters, value-oriented merchants, with strong indications that though consumers were opening their purses, they were price-conscious and insisting on getting good value.”
“This is not to say,” Fashion Fay pointed out, “that some of the higher-end tenants were not making deals. They were, especially in their concepts that showed flexibility and were catering to this yearning by shoppers for quality and good bang for the buck.”
She noted that some of the luxury retailers in the industry were closing stores because they were unable to satisfy this need for even their most loyal customers.
Flexibility By Landlords
The landlords, also were showing flexibility, said Designing Dan, in their leases. “But also,” he stressed, “in willingness to be innovative, splitting big boxes into multiple tenancies, changing basic requirements to accommodate specific needs of smaller operators, willing to talk to retailers for A malls they would not have considered before.”
“Yeah, but if it’s for a top project with high occupancy,” said Hard-boiled Harry, “there’s no way I’m gonna drop the rent, even for a short-term lease. I’m willing to negotiate, and I am making deals for less rent than two years I would have said was ridiculous. But there’s a limit. Unless there’s some quid pro quo for another project or two that could use a little help, no way am I going to give away space just to get a lease signed.”
A number of experienced dealmakers cited numerous examples of money beginning to flow into the industry to finance projects that had been put on back burners and now may be gearing up for openings in 2011 and 2012. “Especially,” said Financing Fred, “in the areas of acquisitions and mergers—a lot of foreign money is coming into the US, with joint ventures from Canada, Latin America, the Far East, Europe. We may think we’ve been hardhit in our recession, but others still say we’re among the safest ports to park some substantial cash, especially for long-term investments.
“A good portion of these investments are being aimed at depressed portfolios, where cash-strapped owners are being pressured to paydown some of their mortgages that are coming to term, and for shopping centers that can be quickly renovated and expanded.”
Still Stressing Caution
This is all true to some extent, conceded Careful Carl. “However, though we may have numerous chains looking to expand into new markets, trying out new concepts, seeking to tap into a different demographic, we must still maintain a certain amount of caution. We’re not out of the woods yet; there’s still high unemployment, increasing national debt and a public that’s increasingly more pessimistic about the future. Yeah, here in our industry there’s a growing optimism, but it can turn around almost overnight.”
Part of the success of this convention, Cuthbert said, can also be attributed to a pentup demand to make deals, and a lack of new development. “Don’t forget, for almost two years, there were very few new projects being built—even though some now estimate we have over 100,000 shopping centers in the country.
“Much of what we’ve been chewing about for the last couple of hours,” he continued, “are points that have been made time and time again over the last couple of months. Tenants want to expand and grow, and landlords want to provide them with the space they need to accomplish these goals, and it can only come about if the economy continues to improve.
“And all the parties involved are willing to compromise in some ways. It’s no longer, here’s the deal, take it or leave it. Though I know some landlords who think we may return to that in another year or two.”
Further information on SHOPPING CENTER DIGEST, EXPANDING RETAILERS, the weekly SCD Eflash, DIRECTORY OF MAJOR MALLS, and our other products may be obtained from our websites, www.shoppingcenters.com .
Monday, May 17, 2010
FTC's Look At SPG And GGP May Be Moot Now, But Federal Involvement In The Shopping Center Industry Has A Long History
This column of Strolling the Agora is from the May 17, 2010 issue of the twice-monthly SHOPPING CENTER DIGEST
There has been a substantial buzz in the industry about the possibilities of the Federal Trade Commission looking into Simon Property Group and its efforts to acquire General Growth Properties, the number two owner-developer in the industry regarding the size of its portfolio in malls. This issue, of course, is moot, since the bankruptcy court last week approved GGP’s choice of an $8.5 billion reorganization plan offered by Brookfield Asset Management.
Here is not the forum to analyze which of the two proposals would be better for the bankrupt owner-developer and its shareholders; David Simon has said his company is bowing out, ending the acquisition/merger effort and will not continue the fight.
Regarding the FTC, he discounted that as an issue, stating SPG owns only 3.5% of the 7 billion square feet of shopping center space in the US and “anti-trust authorities have consistently recognized the retail real estate industry is highly competitive and fragmented and is one of the only industries exempted from Hart-Scott-Rodino filing requirements [which require companies to submit merger plans before announcing the deal]. Tenants, whether they are discount retailers, manufacturers or otherwise, can and do lease retail space in a variety of locations.”
Wellllllllllllllllllll, yes and no, if you want to discuss some of the “fragments” of that 7 billion sq. ft. of space. If you eliminate the overwhelming bulk of shopping centers, the neighborhood strips and concentrate on the number of remaining projects, SPG owns or has an interest in 387 properties totaling some 263 million sq. ft. of retail space; GGP has over 200 malls totaling some 200 million sq. ft.
Back To The ‘70s
The FTC has examined our industry and the possibilities of restraint of trade dating back to the early ‘70s, mainly focusing on the dealmaking leverage and conflicts that could involve special agreements between landlords and key tenants. These early examinations centered on Tysons Corner and its anchors, against Gimbel Brothers, the industry’s leasing practices-- including the suit filed by the operator of a gift shop franchise against some leading owner-developers-- and the like. And in 1978, a small Pennsylvania supermarket chain brought an antitrust suit against a larger food operator that operated in PA,WV, and OH for trying to keep it out of a specific strip shopping center; in 1956 the lease had been amended to add a clause prohibiting the leasing of any part of Bon Aire Shopping Center to a chain supermarket that would compete with Thorofare.
And then, in 1989, Sears, Roebuck & Co filed a request to modify a ’77 consent order prohibiting it from using radius clauses, use clauses and easement agreements, especially those involving Homart Development Co—which was the shopping center development arm of the retail giant.
All of the cases involve what could be considered—by today’s operation—outmoded or obsolete. Though in the past, some high-end malls would try to prevent discounters or big-box users from becoming a tenant, because they “conflicted” with the main concept or retail direction of the project, today that point is almost meaningless. There are numerous high-end and fashion-oriented malls that include these types of tenants, and even value-oriented retailers.
And the use of radius clauses, so a tenant would not compete or siphon off sales from one store to another two miles down the road, may be considered quaint; even if the clause is included in a lease, it is not vigorously enforced by landlord or tenant. I remember speaking to one sports retailer who ignored this restriction to open in a nearby, new project, now the top mall in the market: “I’d much rather take that new location and, perhaps impact my sales at the older center, than let the new store go to a competitor who would hurt me more.”
Developers, Anchors And 3.5%
It’s interesting, also, that the major restraint of trade investigation into this shopping center industry began when a retailer was turned down from becoming a tenant in a high-end fashion mall. His consultant, shortly after, was appointed to the FTC; and soon after that was when the federal authorities began a major investigation into arrangements between mall landlords and the relationships they had with their anchors, mostly department stores.
Now, getting back to SPG and its 3.5%, across the board, concentrating only on that ratio without any quantification, it appears almost laughable that one landlord could have such influence that its decisions could constitute a restraint of trade.
However, if there’s a trade area with three or four malls, and two or three are owned by one company, there’s a different perspective regarding negotiating a lease between equals.
If you have a niche within the industry, say off-price and factory outlets or value-oriented centers--which may total some 300 projects--and one landlord has an extremely high percentage of these projects, it may become another issue.
SPG is the largest landlord in this “fragment” with some 45 Chelsea Premium Outlets; it expects to close soon on its planned acquisition of Prime Retail, which will add 22 or so more centers totaling some 8.2 million sq. ft. to its portfolio. The next largest landlord is Tanger Outlet Centers with 33 centers in 22 states.
According to some in the industry, SPG would control 80% of the top 50 of these projects.
The pending acquisition, it concedes, is now being reviewed by the FTC.
Whatever decision is reached, I'm certain it will result in much introspection and discussion in this shopping center/retail chain industry.
Further information on SHOPPING CENTER DIGEST, EXPANDING RETAILERS, the weekly SCD Eflash, DIRECTORY OF MAJOR MALLS, and our other products may be obtained from our website, www.shoppingcenters.com .
There has been a substantial buzz in the industry about the possibilities of the Federal Trade Commission looking into Simon Property Group and its efforts to acquire General Growth Properties, the number two owner-developer in the industry regarding the size of its portfolio in malls. This issue, of course, is moot, since the bankruptcy court last week approved GGP’s choice of an $8.5 billion reorganization plan offered by Brookfield Asset Management.
Here is not the forum to analyze which of the two proposals would be better for the bankrupt owner-developer and its shareholders; David Simon has said his company is bowing out, ending the acquisition/merger effort and will not continue the fight.
Regarding the FTC, he discounted that as an issue, stating SPG owns only 3.5% of the 7 billion square feet of shopping center space in the US and “anti-trust authorities have consistently recognized the retail real estate industry is highly competitive and fragmented and is one of the only industries exempted from Hart-Scott-Rodino filing requirements [which require companies to submit merger plans before announcing the deal]. Tenants, whether they are discount retailers, manufacturers or otherwise, can and do lease retail space in a variety of locations.”
Wellllllllllllllllllll, yes and no, if you want to discuss some of the “fragments” of that 7 billion sq. ft. of space. If you eliminate the overwhelming bulk of shopping centers, the neighborhood strips and concentrate on the number of remaining projects, SPG owns or has an interest in 387 properties totaling some 263 million sq. ft. of retail space; GGP has over 200 malls totaling some 200 million sq. ft.
Back To The ‘70s
The FTC has examined our industry and the possibilities of restraint of trade dating back to the early ‘70s, mainly focusing on the dealmaking leverage and conflicts that could involve special agreements between landlords and key tenants. These early examinations centered on Tysons Corner and its anchors, against Gimbel Brothers, the industry’s leasing practices-- including the suit filed by the operator of a gift shop franchise against some leading owner-developers-- and the like. And in 1978, a small Pennsylvania supermarket chain brought an antitrust suit against a larger food operator that operated in PA,WV, and OH for trying to keep it out of a specific strip shopping center; in 1956 the lease had been amended to add a clause prohibiting the leasing of any part of Bon Aire Shopping Center to a chain supermarket that would compete with Thorofare.
And then, in 1989, Sears, Roebuck & Co filed a request to modify a ’77 consent order prohibiting it from using radius clauses, use clauses and easement agreements, especially those involving Homart Development Co—which was the shopping center development arm of the retail giant.
All of the cases involve what could be considered—by today’s operation—outmoded or obsolete. Though in the past, some high-end malls would try to prevent discounters or big-box users from becoming a tenant, because they “conflicted” with the main concept or retail direction of the project, today that point is almost meaningless. There are numerous high-end and fashion-oriented malls that include these types of tenants, and even value-oriented retailers.
And the use of radius clauses, so a tenant would not compete or siphon off sales from one store to another two miles down the road, may be considered quaint; even if the clause is included in a lease, it is not vigorously enforced by landlord or tenant. I remember speaking to one sports retailer who ignored this restriction to open in a nearby, new project, now the top mall in the market: “I’d much rather take that new location and, perhaps impact my sales at the older center, than let the new store go to a competitor who would hurt me more.”
Developers, Anchors And 3.5%
It’s interesting, also, that the major restraint of trade investigation into this shopping center industry began when a retailer was turned down from becoming a tenant in a high-end fashion mall. His consultant, shortly after, was appointed to the FTC; and soon after that was when the federal authorities began a major investigation into arrangements between mall landlords and the relationships they had with their anchors, mostly department stores.
Now, getting back to SPG and its 3.5%, across the board, concentrating only on that ratio without any quantification, it appears almost laughable that one landlord could have such influence that its decisions could constitute a restraint of trade.
However, if there’s a trade area with three or four malls, and two or three are owned by one company, there’s a different perspective regarding negotiating a lease between equals.
If you have a niche within the industry, say off-price and factory outlets or value-oriented centers--which may total some 300 projects--and one landlord has an extremely high percentage of these projects, it may become another issue.
SPG is the largest landlord in this “fragment” with some 45 Chelsea Premium Outlets; it expects to close soon on its planned acquisition of Prime Retail, which will add 22 or so more centers totaling some 8.2 million sq. ft. to its portfolio. The next largest landlord is Tanger Outlet Centers with 33 centers in 22 states.
According to some in the industry, SPG would control 80% of the top 50 of these projects.
The pending acquisition, it concedes, is now being reviewed by the FTC.
Whatever decision is reached, I'm certain it will result in much introspection and discussion in this shopping center/retail chain industry.
Further information on SHOPPING CENTER DIGEST, EXPANDING RETAILERS, the weekly SCD Eflash, DIRECTORY OF MAJOR MALLS, and our other products may be obtained from our website, www.shoppingcenters.com .
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