"Strolling the Agora..." the blog posts of Murray Shor, Shopping Center Digest

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 .

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 .