Shopping Center Digest Blog

Do you know who created the modern shopping mall?

2011-12-13T05:45:00.000-08:00

Well, his name was Victor Gruen and he was a true visionary. Odds are you’ve never heard of him, which is a shame because this architect from Vienna revolutionized the way people shop in America, and around the world, and we all owe him a big thanks! Read on...

Hallandale Beach, FL mall chosen for coveted spot on the 2012 DMM Print directory front cover!

2011-12-01T12:43:00.000-08:00

December 2011

After weeks of deliberation, The Village of Gulf Stream Park in Hallandale Beach, FL has been selected as the featured property on the cover of the upcoming 2012, 33rd edition of the Directory of Major Malls (pre-orders are now being taken, with shipping scheduled by end of January 2012)!

"Every year, we search through the list of properties in our database, looking for just the right one for the cover of our newest book which has metamorphosed, just as the industry has, into providing coverage way beyond the standard enclosed mall retail project. Retail has changed dramatically over the past decade and we now see it tied in with a
variety of other venues and attractions. Therefore, we try to reflect this in
our cover images as well. Historically, our covers have always featured an exciting new retail project or one that has experienced a major renovation very recently," explained Tama J. Shor, Publisher of Directory of Major Malls. "When we saw this recently opened retail destination in Florida with its stunning architecture and vibrant shopper activity, plus its location and tie-in to the race track, we knew we had the right mall to present on the cover on our 2012 directory and that they'd be very excited about it, too," she added.

More about DMM...

For over 30 years, DMM has offered the most comprehensive and accurate information on major open-air shopping centers and malls which are approximately 200k and above in size. Listings cover the spectrum of center types including: enclosed malls, open-air community, power, value-retail centers, as well as lifestyle/specialty/mixed-use projects of any
size. The 2012 directory has over 2,300 pages packed with data on those
properties. You can also subscribe to the powerful yet user-friendly DMM
Online!

Visit http://shoppingcenters.com/topstory12-2b,
for special money-saving offers on the 2012 Print Directory PRE-ORDER, as well as DMM Online for immediate access.

Directory of Major Malls data is available in a suite of formats including Online, Print directory, Custom databases and reports, and Licensed
datasets for GIS integration and analysis.

America's Most Visited Shopping Malls

2011-11-23T08:05:00.000-08:00

By Joe Yogerst
TravelandLeisure.com

For most Americans, it’s just not the holidays without a mall visit. Chicago-area Woodfield prepped weeks before the Black Friday shopping blitz, debuting an Ice Palace with a light show and Santa photo-ops.

After all, its parking lots are crowded whatever the season. Woodfield gets 27 million annual visitors—more than any other Illinois attraction (only 8.69 million make it to Chicago’s Navy Pier). A heady mix of shopping, eating, and entertainment options has turned malls across the U.S. into similar tourism magnets and coined the phrase “destination malls.”

Read complete article

'Tis the Season for Shopping Local: Mom-and-Pop Retailers Hopeful About Holiday Sales

2011-11-03T12:27:00.000-07:00

A positive outlook on the upcoming holiday season...

New Manta Survey Reveals Half of Small Retailers Are More Optimistic About Holiday Sales This Year Compared to Last Year...

'Tis the Season for Shopping Local: Mom-and-Pop Retailers Hopeful About Holiday Sales

Manta Launches SMB Wellness Index, Reveals New Business Activity on the Rise in Q2

COLUMBUS, Ohio--November 1, 2011--As big-box retailers like Wal-Mart reinstate layaway payment plans to combat an expected drop in holidays sales, nearly half of small retailers (49 percent) say they are more optimistic about holiday sales this year versus 2010, according to a new survey from Manta, the largest online SMB community. The survey of nearly 800 small retailers, most with fewer than 10 employees, also revealed that four in 10 are heading into the busiest shopping season of the year with better sales than they had last year. Click to read the entire article ...

DMM helps See's Candies Take a Bigger Bite Out of their Tasty Market!

2011-10-03T06:17:00.000-07:00

DMM and See's Candies - A Sweet Relationship!

See's Candies knows quite a bit about smart expansion. Founded in 1921, and purchased by Warren Buffet's Berkshire Hathaway in 1972, See's Candies operates over 200 stores in Arizona, California, Colorado, Hawaii, Idaho, Illinois, Minnesota, Missouri, New Mexico, Nevada, Oregon, Utah and Washington (with a Wisconsin store set to open in Spring 2011). Seasonally - primarily during the year-end holiday shopping season - See's offers its products in select markets in kiosks and pop up stores at malls and other shopping centers in an even larger geographic range, bringing the number of states covered to almost all 50! There are also shops outside the U.S. in Hong Kong, Japan and Macau.

They've been using Directory of Major Malls data for many years to help make location decisions.

Real Estate Manager, Kathleen Pelzman, explains: "I have been with See's since 1979 and Directory of Major Malls is certainly an excellent tool for our research of Shopping Centers throughout the country. It is a huge resource for me and one I think could benefit those just starting out in retail and shopping center leasing. I have used it for many years - first the printed directory and now online - for our continual expansion throughout the country. DMM is my #1 tool, for the majority of our research. It provides the detail I need and the ease of navigating the website is really appreciated."

Tama J. Shor, Publisher of Directory of Major Malls couldn't be happier.

"Providing the data for great retailers like See's Candies to make the best possible permanent and specialty retail location decisions year-after-year is really gratifying to us," she says.

Visit www.shoppingcenters.com/smar t, for special money-saving offers exclusively for readers of this blog.

For the most delicious chocolates and treats in the world, visit www.sees.com!

More about DMM...
For over 30 years, Directory of Major Malls has provided the most accurate, detailed and timely development and contact information on the major open-air shopping centers and malls that are approximately 200k and above in size. Our listings cover the spectrum of center types including: open-air community, power, value-retail, lifestyle/specialty/mixed-use and enclosed malls.

Directory of Major Malls data is available in a suite of formats including Online access, CD-Rom, Print directory, Custom databases and reports, and Licensed datasets for GIS integration and analysis.

DMM Shopping Center Lists featured in WestFair Business Magazines!

2011-10-03T06:04:00.000-07:00

September 26, 2011 Special Offers - Click Here!

Each year, WestFair's three magazines include DMM's list of major shopping centers in New York's northern suburbs and Fairfield County, CT.
Their readers in commercial real estate, insurance, finance, construction,
maintenance and more use it to market their products and services to centers.
What can DMM data (online, CD & print) do for YOU?

Review the lists published by WestFair:

Westchester page 1

Westchester page 2

Hudson Valley page 1

Hudson Valley page 2

More about DMM...

For over 30 years, Directory of Major
Malls has provided the most accurate, detailed and timely development and
contact information on the major open-air shopping centers and malls that are
approximately 200k and above in size. Our listings cover the spectrum of center
types including: open-air community, power, value-retail,
lifestyle/specialty/mixed-use and enclosed malls.

Directory of Major Malls data is available in a suite of formats including Online access, CD-Rom, Print directory, Custom databases and reports, and Licensed datasets for GIS integration and analysis.

Supermarkets are at home in Canadian malls

2011-09-08T07:32:00.000-07:00

Interesting commentary on Canadian vs. US shopping center development by Jeff Green, CEO of Phoenix-based Jeff Green Partners.

Supermarkets are at home in Canadian malls

Gruskin Group™ Says Retailers Will Leverage the ‘4C’s’ to Keep Customers Engaged and Their Brand Relevant

2011-06-29T14:25:00.000-07:00

Guest Blog post by Gruskin Group a leading retail design firm.

What’s Next for Retail Environments: Social Experience Retailing

Historically, conventional wisdom suggested that retail environments be updated every three to five years to remain “fresh” and plugged into the consumer marketplace. Today, the cycle is more of an ongoing process, say experts at Gruskin Group™, one of the nation’s leading retail design firms, and “social experience retailing” where their virtual and real world strategies converge, is pivotal to how retailers will keep their customers engaged.

“The explosion of technology and the subsequent real-time access to thousands of petabytes of data through smart phones, tablets, and computers, coupled what we refer to as the four ‘C’s’—convergence, convenience, connection, and cost – are having a meaningful and collateral impact on retail. This, in turn, has allowed fickle consumers in our ‘immediate gratification’ environment to flip the personalization promise on retailers from the very nice ‘have it your way’ offer to ‘provide it my way or it’s the highway,” explained Kenneth A. Gruskin, principal and founder of Gruskin Group.

“As a result, retailers are rolling out ‘experience store’ concepts, combining physical and virtual strategies with localization and individualization to keep customers engaged and their brand relevant to their physical and digital lives,” Gruskin noted.

According to Gruskin Group, in order to offer this kind of social experience retailing, retailers will offer their own unique recipe of the 4Cs, which are defined as follows:

Convergence: with the unification of social networking, commerce, and technology, augmented reality (AR) will become a key technology that will help to close the digital divide that separates our physical and virtual domains. Also, retailers will form brand sharing partnerships to provide compelling alignments that will attract customers and get them invited into their lives and communities through the integration of SER (social experience retailing) and CTR (convenience transaction retailing).

Convenience: retail products, services, and virtual goods being provided through multiple physical and virtual channels will become ubiquitous to the end user. Localization will become “neighbor hooding” with virtual, smaller and better trained, localized brick-and-mortar facilities supporting a retailer’s embedded customer base while offering a global reach. The supply chain distribution system will be updated to provide instant gratification by delivering goods and services immediately from anywhere to anywhere. Further, technology and systems will empower customers to learn, explore, and make knowledgeable, informed purchasing decisions wherever they are.

Connection: Successful retail brands must continuously establish deep, personal relationships with their customer and reflect their value and core beliefs with authenticity if the brand is to be seen as an extension of who “they” are. The brand and retail experience must be literally connected and accessible to the individual wherever they are through the web and local brick-and-mortar stores alike (which celebrate the community in which they are located). As a result, the design of all of these retail touch points, both physical and virtual, will be more important than ever to keep a brand positioned to be visible, to maintain/improve its perceived value, and to help individuals identify and stay connected with retailers that align with their core beliefs and lifestyle.

Cost: For the individual customer, cost will be based on their personal view of the perceived value of the product or service being offered. For the retailer, cost will primarily be a function of whether SER or CTR is the priority. If CTR is paramount to the retailer, lowest cost and convenience will be the priority. For those with SER as the end goal, brand equity, alignment, and integration with their personal goals, lifestyle/life stage and community will be crucial. For both SER and CTR, global/local manufacturing approaches and supply chain management will not only continue to have huge cost implications, but as customers demand personalization/ individualization of all of their goods and services, being able to manage the costs of customized, mass produced goods “on-demand” will prove to be the real challenge.

“Total convergence of the virtual and brick-and-mortar retail experience empowered by social networking concepts and technology is inevitable. And the relationship between brand equity and cost will be shaped to a large degree by how consistently retailers deploy their brand image. For retailing, it means the next 10 years, the next 40 years, will be exciting times of experimentation and constant reinvention,” Gruskin added.

About Gruskin Group™

Gruskin Group™ is an integrated design firm that builds unified brand experiences through architecture, brand development, visual communications, web/interactive, industrial design, interior design, strategic consulting, and sustainable design.

Ranked by DDi magazine as one of the top 20 retail design firms in the U.S. for the past three years, Gruskin Group was named to the Inc. 5000 in 2009 and 2010. The firm’s and its professionals’ award-winning work has been recognized by AIA, the Retail Design Institute, New York Ad Club, New Jersey Ad Club, ASID, Graphis, and the Association of Graphic Communications. For additional information, visit www.gruskingroup.com.

A helpful site with many links to "other" retail industry links

2011-06-24T07:55:00.000-07:00

A helpful site with many links to "other" retail industry links.
About.com Help Retail industry links

Find complete and updated retail research about global and U.S. retail industry stores and sales, including history, numbers data, term definitions, and statistics.

Industry professionals, investors, students, retail employees, and analysts can get comprehensive and aggregated research resources about multi-store global and U.S. retail chains here.

More information on Directory of Major Malls, Directory On Computer, and other products related to the shopping center/retail chain industry may be obtained from the website www.shoppingcenters.com .

The KISS of Death (a commentary on chain store sales forecast modeling)

2011-05-18T06:54:00.000-07:00

Guest Blog post by Jim Stone, Chain Store Advisors

Jim Stone is the principal consultant of Chain Store Advisors, a consulting firm in Reading, MA.
Chain Store Advisors works with businesses who operate chain stores including retailers, restaurants, and service businesses.

The KISS of Death

Most chain store modeling experts will tell you that a “good” sales forecasting model will estimate sales +/- 20% in 80-90% of the cases.

Most chain store real estate dealmakers believe that they need a model with no more than +/- 15% error 85% of the time.

Most people don’t agree on how this error is measured or what the role of human judgment should be in determining the “official” sales estimate used in calculating the projected return on investment.

Everyone wants to “Keep It Simple Stupid” because it’s hard to make decisions when you are confused about the facts or their implications. This definitely applies to real estate planning and site selection for chain store operators. However, most sales forecasting models are anything but simple and are often intimidating to those without strong backgrounds in statistics (which includes the CEO, CFO, and VP Real Estate).

There is a huge push these days to use technology and mathematical models to increase the quality of business decisions. From the rigorous discipline of “Six Sigma” in the late 80′s to the recent business analytics wins of companies such as Capital One and Harrah’s, there seems to be an unbridled confidence in the application of computers and statistics to financial analysis.

The problem is that some situations cannot be modeled with enough precision to be useful.

Chain store sales forecasting is one example.

The reason is simple: historical data about the retail marketplace are not static and therefore cannot be used to reliably estimate future sales.

A Framework for Complexity

Let’s consider some different decisions that face chain store operators ranging from simple to complex.

A simple problem is one that can be reduced to an equation and applied repeatedly with very similar results. An example would be the selection of the size of a steel beam to support a roof in a building. The force of gravity is consistent and can be used to compute the load requirements of structural steel. Even if the equation is complicated (to those who are not structural engineers), it is simple, straightforward, and reliable.

A complicated problem is one in which the relationship between cause and effect requires analysis and expertise. Many business problems fall into this category such as staffing for checkout lines to minimize wait times for customers, logistics for deliveries in the supply chain, and inventory management based on seasonality of demand. In these cases, historical data provide a reasonable basis for predictive models and can provide a solid foundation for planning and investment decisions.

A complex problem consists of a situation where the relationship between cause and effect can only be determined in retrospect, not in advance. This is due to large number of variables that influence the outcomes, the changing values of these variables, and the non-linear interactions among the variables.

Chain store sales forecasting is a complex problem.

Although our use of statistical models in sales forecasting has outstripped its usefulness, it would be a mistake to simply revert to “gut feel.” The chain store industry has a great opportunity to build upon the advances in technology, data, and analytical methods and create a new approach that uses the best of “art and science.”

The best tool for integrating art and science in real estate decisions is the oldest tool: analogs.

Analogs allow decision-makers to look at a new opportunity, find similar situations from past experience, and use them as a guide to estimating the future performance of trade areas and sites. Computers and market data can be used to present the “patterns” for comparison and the human brain can be used to assess the similarity of the analogs and adapt them to the new situation.

In chain store sales forecasting, the analog method was first formalized by William Applebaum in the 1930′s. Since then a vast array of methods have been used to create classification schemes for markets, trade areas, stores, competitors, and customers. The frustration of this effort is that no two entities are exactly alike, and any attempt to fit them into a scheme will result in a large number of cases near the boundaries of the categories. For example, let’s say that we define “urban” stores as those with a a population density of 5,000 people per square mile within a 2 mile radius. Does that mean that a store with 4,999 people per square mile is not urban?

The computer can easily compute population density for any location in a second; a human being can’t do this in a year. However, a human can look at a map of an area and instantly classify it based on a variety of attributes: its density, proximity to major highways, the presence of retail activity, traffic congestion, and relationship to surrounding cities and towns; a task that a computer program would find daunting, generating comical results in many cases.

Over the next few months we will further explore some new ways to integrate art and science for better real estate planning and site selection.

See Jim's original post and others at Real Analogies

What You Always Wanted To Know About Restaurant Leasing (but were afraid to ask)!

2011-04-12T12:30:00.000-07:00

By Guest Columnist Paul G. W. Fetscher CCIM, SCLS
President Great American Brokerage, New York, USA

A restaurant is a food warehouse, storage, preparation, cooking, assembly, sales, consumption and disposal facility. Consider the complexity of fitting such a manufacturing plant into structures with another function.

Assume a 300 square meter restaurant as compared to a 300 square meter dress shop. The comparable sized restaurant will require 250% of the air conditioning, 10 times the electrical service 100 time the water consumption, plus gas service and black iron venting and exhaust. It will also require an internal 3-hour rated fire wall and a fire suppression system over any open flames.

These requirements make restaurants the most expensive per square meter investment in any retail or hospitality property. Such capital investment requires a concomitant long term lease to amortize such a large investment. Therefore it is extremely important to assure that the right concept is in the right place.

Some restaurants are destinations; and others are parasites. It’s important to have the right fit!

Drawing Radius

Destination restaurants will draw from the greatest drawing radius; have the highest check averages, but the lowest frequency of customer visit. Examples in Dubai would be the Aquara Restaurant, the Al Mahara Seafood Restaurant at Burj Al Arab or Benihana.

Impulse restaurants are usually found within an arm’s reach of desire. Dunkin’ Donuts, Sbarro’s and Starbucks are good examples. These have a high frequency of customer visit, low prices, and are very convenient to a patron’s existing traffic patterns. That might be a cup of coffee on the way to work, or a noon break not far from work or convenient to a shopping trip.

Casual theme restaurants are somewhere in-between. These are moderate priced restaurants such as TGI Friday’s or Chili’s. This is a convenient place to stop for a hamburger or a salad. Typical visits would be a couple of times a month.

A larger project needs a healthy mixture of these three general categories. In an enclosed regional mall, the destination restaurants would face the exterior and be accessible at later dining hours when the main mall would be slack in activity. The casual theme restaurants can be spread out throughout such a project. Shoppers would have the opportunity to stop during their shopping journey to have a meal and restore their energy.
A World Onto Itself

A Food Court can be a world onto itself. The vast majority of shoppers will visit a food court, and THEN decide which of the vendors will be their selection of the day. This is known as the “Restaurant Row” effect. Restaurant Rows became popular in California in the 1970’s. A large number of popular restaurants were aggregated together. Diners would typically go to the area and subsequently decide where to eat.

Modern Food Courts started in shopping centers such as Sherway Gardens and Bramalea Square around Toronto Canada in the mid 1970’s, then migrated to the United States. A number of successful examples now can be found in the Gulf States.

Food Courts benefit from certain economies of scale. While one unit may have strong breakfast traffic, another sandwich operation may peak at lunch while a third operation may be strongest at dinner. Each of these, with different peak hours of operation, will use the same common dining seats; but just use them at different hours. Such efficiencies accrue to the benefit of all the operators in a food court.

Hotels in the Gulf States have strong foodservice representation. The Las Vegas Hilton was once the largest hotel in the world. It boasted 3,500 rooms. That hotel needed a number of restaurants to serve the needs of the resident population. Those facilities range from a coffee bar to a steakhouse to a diner style operation to a Benihana to two showrooms for a total of 11 foodservice operations. The showrooms would serve from 1,000 - 2,500 patrons for dinner and a Broadway style show.

Cinderella's Slipper

The Dubai Marriott Hotel has but 10% as many rooms, a mere 350 keys. However that hotel also boasts 11 foodservice operations. It’s not Las Vegas, but it is a collection of foodservice operations, appropriate for the market, and serving not only the residents of the hotel, but the influx of patrons form other hotels or from the indigenous population.

Restaurant leasing comes down to finding Cinderella’s slipper. Know your market, and deliver what is appropriate for that customer and that retail or hospitality environment.

(Paul Fetscher, president of Great American Brokerage in New York, was the consultant in the restaurant merchandizing for Dubai Festival City. He has worked on projects from Thailand to Alaska and from London and Paris to Shanghai and Beijing. Needless to say, he has worked on projects throughout the United States.
He will be teaching a course in Restaurant Leasing for the Mid East Council of Shopping Centers on May 3rd in Dubai.)

Well-Designed Shopping Centers and Urban Revitalization

2011-03-21T14:55:00.000-07:00

This post is been written by guest columnist, Michael Prifti who is the Managing Partner of BLT Architects, an integrated architectural and interior design firm with over 50 years of experience designing mixed-use, hospitality, and higher education projects. He also served as the principal-in-charge of DC USA. More information is available at www.BLTa.com or www.aReturnOnDesign.com.

Great urban shopping centers that compete with those in the suburbs in terms of amenities, accessibility, and design can revitalize entire areas. DC USA in Washington, DC's Columbia Heights neighborhood, proved that. In April 2010, Columbia Heights was named as one of the ten outstanding developments in the Americas in the Urban Land Institute's (ULI) 2010 Awards for Excellence, in part because of the shopping complex. It was also called "one of the greenest shopping centers in the country" because it has brought "Big Box," suburban stores normally accessed by car to a dense, urban area well served by mass transit.

According to Drew Greenwald, President of Grid Properties Inc. and the developer of DC USA and Harlem USA, the population and income densities in under-served urban locations create enormous opportunities if the architectural and urban design solutions can maximize the inherent benefits of urban locations. These include its proximity and accessibility, its setting within an exciting established neighborhood, and the demand for a strong urban pedestrian oriented architectural expression. The results in Washington, DC, have been 700 permanent jobs, which is expected to grow to 1200, and a thriving new center for the Columbia Heights area.

The truth about DC USA is that the experience of a transformative urban shopping complex can be replicated if certain best practices are put in place:

Create Energy

Many underserved urban neighborhoods are that way for a reason. They lack activity and infrastructure and are typically burdened with crime and poverty. A thriving urban shopping facility, therefore, is responsible first and foremost for bringing positive energy to the area. Urban neighborhoods are about pedestrian activity, meaning a project must enhance the pedestrian experience. This can be done with ground level transparency, multiple retail entries, and open display windows instead of the blank walls of suburban big box centers.

Mix It Up

There are two mixes that must be achieved for the shopping center to be successful. First, the retailers, restaurants, and services offered must be a good mix of big-box national chains and local independently owned stores. This provides the local residents the things they need as well as sense of pride in the development. Second, there must be a good mix of things open early and late. Constant activity and energy will help achieve a feeling of safety, as mentioned above.

Embrace Mass Transit

Attracting people to the shopping center is critical to both the retail tenants and the neighborhood. It must be easy for them to walk, drive, or take mass transit there. The closer and friendlier the development is to transit, the more benefits the owner will see. It is important to create obvious and easy walking paths from subway or train stops. Bus stop locations should also be embraced. This will help draw shoppers from other parts of the city as well as from the suburbs. Additionally, public transit means that there need to be fewer parking spaces.

Reach for the Skies

Unlike suburban malls that can be spread over acres of land, urban shopping centers must be built up. They must have critical mass to attract quality retailers on smaller footprints than suburban counterparts. This is done by animating upper levels with exciting uses. At DC USA, a sports club sits on third floor and Target has entrances on both the first and second floors. This creates impactful vertical circulation that avoids the large public areas traditionally found in indoor malls. An additional benefit is that there is often a skyline view to be embraced. Windows serve two purposes here. First, they shed more light out onto the street from the building, increasing the safety factor. Second, people love a great view of the city in which they live. This is especially true when they are drinking, dining, or exercising. This again, gives people a reason to be there late and love the new center of their neighborhood.

Underserved neighborhoods can offer a significant opportunity to developers and retailers who are seeking a large population with needs and means. But not every development will be successful under these conditions. Real revitalization requires a focus on return on design that pairs best practices with the historical, economic, and cultural realities of a specific urban landscape.

Projects such as DC USA can be found on the Directory of Major Malls website at ShoppingCenters.com,listing details on the 7,100+ major shopping centers and malls in the US and Canada. Visitors to the site can create a guest account and can run a query for Lifestyle/Specialty centers and purchase reports on an "as needed basis" or subscribe to see all listings 24/7. For questions, call 800-898-6255 to speak to a sales associate.

How Some Retailers, Landlords, And Brokers Will Be Able To Profit Fom The Closing Of More Than 200 Borders Stores

2011-02-21T05:04:00.000-08:00

This column, Strolling the Agora, will continue to be written as the mood hits, though Shopping Center Digest has ceased publication.

By Murray Shor

The latest shockwave to hit the shopping center/retail chain industry, Borders’s bankruptcy filing, was not a surprise to many experienced dealmakers, especially some of the more astute landlords who have multiple tenant deals with this major book chain. They’ve had the company on its watch list for years.

The retailer stopped paying publishers last December for books shipped for the past holiday season; some estimate that they may receive only 25% of the dollars owed. Dealmakers also pointed out that Borders had begun cutting back and eliminating stores for years, since its high point of 1,329 outlets in 2005.

Some say that the latest plan to vacate roughly 4.9 million sq. ft. of retail space would be an especially cruel blow to those centers anchored by the superstores, and that the vacancy rate for this sector could increase from 4.2% to 9.5%. This, of course, is unrealistic because it assumes that these locations will remain empty; however, expectations are that many would be re-leased, used for other purposes besides retail, and may never become empty space.

Admittedly, though, the filing is damaging to an industry that still has record vacancies and much work ahead to re-tenant shopping centers that have lost so much equity over the last two years.

The larger owner-developers, such as Simon Property Group, General Growth Properties, Westfield, Developers Diversified Realty, Federal Realty, etc., may feel no pain from the bankruptcy since Borders is responsible for less than 1% of the total revenue of these operators.

To Close 30%

In essence, the book retailer listed $1.29 billion in debt, $1.27 billion in assets, and will be closing about 30% of its 642 stores-- ranging from 12,895 sq. ft. up to 42,770 sq. ft.-- in malls, power centers, strips and the like; the largest number, 35, are in California, with another 15 in the Chicago market. In its Chapter 11 filing, it blamed the economy, cost structures, and viability of locations, among other factors.

These factors include, but are not limited to: growth of internet sales by such competitors as Amazon.com and ebay, and not starting its own e-commerce site until 2008, years behind Barnes & Noble’s; the deep discounting and competition from Walmart, Target and other retailers that caused its sales to fall; the introduction of digital books and being late in coming to market with its reader, such as Amazon did with Kindle and Barnes & Noble did with Nook; and that focusing its store expansion overseas had diverted away much its needed financial resources.

There is still a possibility that the initial 200+ underperforming outlets scheduled for closing could be expanded soon to 275.

Some $505 million in debtor-in-possession financing has already been arranged, said Borders. And, the chain stressed that it does not plan to close any of its more than 100 smaller units operating under the Waldenbooks name.

The bankruptcy or reorganization filing is the largest Chapter 11 filing since Circuit City’s in 2008, and though a severe setback to this shopping center/retail chain industry, is not expected to have as much adverse impact since the economy—though shaky—has been improving slightly. In fact, a substantial number of retailers, landlords, brokers and others are already taking action to benefit from Borders’s problems.

First In Line

Heading the list of dealmakers expected to do well from the bankruptcy is DJM Realty, which has been hired to dispose of the unproductive stores. It has already been approached by supermarkets, smaller chains and regional and local merchants, and users who are not retailers.

Depending on the lease terms and specific details for each location, these units could be sold to the landlord, the landlord could be paid a settlement to let Borders out of the lease, or the location could be leased by Borders to another tenant. And the bankruptcy court could also chime in on these issues.

Next to benefit could be the landlords--though some, admittedly, could also be severely damaged by the closings. Those with viable projects may be able to lease the stores to other retailers at a higher rent, break down the larger units into smaller stores rented to other national or local tenants at substantially higher rents per sq. ft., and re-position the shopping center to better reflect the changing demographics within the specific trade area.

With lenders more agreeable now to providing financing, getting rid of a tenant that could be considered a poor anchor may enable strapped landlords to obtain necessary cash to revitalize certain projects. In addition to updating the center for retailing, some projects could be converted to medical facilities, commercial offices, municipal uses as libraries, motor vehicle offices, warehouse space, residential development, etc., many paying a better and more reliable return to landlords.

A Strong Positive

Then, there are competitors such as Barnes & Noble, Books-A-Million, Indigo—and, of course, discounters like Walmart and Target—who could pick up customers from Borders’s list of shoppers, or may be interested in one or more of the locations; retailers from various other categories—supermarkets, drug chains, large restaurants, electronic chains, office supplies, home improvement—are already considering many of these sites as viable for their own expansion plans.

And there are the brokers, eager, aggressive, knowledgeable about their specific markets with a substantial list of local and regional tenants, who have the expertise to put a deal together and earn a substantial commission from it.

A list of the locations targeted for closing has already been released. In addition, a list of 450 Borders and Waldenbooks locations in major shopping centers and malls is available from the Directory of Major Malls; visitors to its website may also download, for free, a partial list or sample of these stores.

So, yes, the first reaction to the announced bankruptcy is horror about the negative impact on the industry overall. However, as in all problems, those with the drive and viable solutions will be able to turn an initial negative into a strong positive.

More information on Directory of Major Malls, Directory On Computer, and other products related to the shopping center/retail chain industry may be obtained from the website www.shoppingcenters.com .

Reporting On Over 7,100 major Shopping Centers and Malls In the US and Canada

2011-01-20T12:57:00.000-08:00

Announcement: Directory of Major Malls has just released its 2011 dataset and products focused on the over 7,100 major shopping centers and malls throughout the US and Canada. DMM products includes shopping center and mall locations, details, physical features, demographics, tenant lists, site/plans with contact details including name, addresses, emails and websites. Available online, in print, on CD and through licensed datasets.

NYACK, New York (January 20, 2011) - The Directory of Major Malls has already started shipping and providing online access to its 2011 data and products. An aggressive research effort taken on by the research team at Directory of Major Malls over the past 12 months propelled the inventory of detailed listings to over 7,100 major shopping center and mall records and 290,000 store locations. The addition of over 1,190 listings is a 20% increase and coverage of 3.3 billion square feet of major shopping center and mall retail space in the US and Canada.

An important point to highlight in the Directory of Major Malls coverage is the effort toward continuous coverage of major future and proposed retail projects. Over 450 planned/future shopping center and mall locations are included in the comprehensive 2011 Directory of Major Malls dataset. Coverage of these proposed centers totals out to over 248 million square feet of future retail space with an emphasis on the retail shopping centers classified as Lifestyle/Specialty/ Mixed-Use.

In addition to efforts to expand the coverage of listings for major shopping centers and mall with approximately 200,000 sqft of gross leasable retail area, the DMM team has further increased the level of inclusion of site/leasing plans as additional insight into the physical configuration of the centers. Currently almost 50% of the listings include a site/leasing plan image of a level of the shopping center.

Additionally the 54 full-color metro area maps, a mainstay of the DMM products, have been further enhanced to show Urbanized Area imaging within the highlighted metro market areas and the locations of over 2,600 of the major centers pinpointed on the maps. The longitude/latitude coordinates used to determine the locations of the centers are manually verified for these locations as well as the complete dataset of all listings in the Directory of Major Malls products. These coordinates are available as an add-on dataset in the Directory of Major Malls semi-annual CD release as well as within custom licensed dataset used for integration in third-party GIS/mapping and analytics applications.

Another supplemental dataset for the Directory of Major Malls products is the Trend Demographic add-on dataset creating in partnership with Scan/US of Santa Monica, CA. This add-on component is available as both searchable and informative data fields portraying the four trend variables for 5, 10 and 20 mile radii around each of the US shopping centers in the DMM database. Access to this valuable component is available within the recently redesigned online subscription site at http://shoppingcenters.com, the Directory on Computer CD releases as well as custom dataset licensing.

"With over 30 years of active participation in the industry as a dependable source, the Directory of Major Malls products continue as the leading source of this specialized data to the shopping center, retail and financial industries." said Publisher Tama J. Shor. "Our research team has continued to maintain the highest level of accuracy with our existing inventory of listings as well as continually increasing our coverage."

"In these turbulent times for the retail industry," she continues, "it's even more urgent that a source such as DMM is available to provide retail real estate professionals and the financial industry with accurate, current information. With monthly updates to our online subscription site, Directory of Major Malls on the Web and the semi-annual releases of our licensed datasets and CD product, we're doing just that. Our daily mission is to identify and capture the ongoing ownership and personnel changes, store openings and closings, along with any new and redevelopment project activities."

Shor continues, "30+ years ago when the Directory was first developed, it was at a time when major enclosed mall development was in the early stages and the focus of many retail projects. All this time, we've maintained ringside seats and have watched shopping centers grow and transform several times over. The diversity in the types of retail complexes that now comprise this dominant part of the retail community is just amazing."

"Each listing of the 7,100 included in the Directory of Major Malls products is comprised of a variety of details with regard to location, demographics, physical features, a categorized tenants list and contact details in the areas of development, leasing, marketing and management. At this point in time, our brand name is a bit misleading in the sense that well over 50% of our listings are not enclosed malls as our name portrays but in reality the majority of our major shopping center listings are open-air in design and fall into a variety of classifications such as community, power and lifestyle/specialty and value-retail centers," Shor pointed out. "There's also an increasing number of projects that are planned mixed-use communities that have included a relevant amount of retail space mixed in with residential, office, entertainment and hotel space," said Shor.

"We're quite proud of the achievements of our research team and the longevity of Directory of Major Malls as a significant source to the industry for such an extended period of time. Our customer base covers any and all professionals involved in some aspect of the shopping center industry whether it be retail leasing teams, financial investors, development and management sector as well as firms involved in research, design, promotion, marketing and supplier end of the industry. We'll continue to be a dependable resource and look forward to expanding our coverage and expanding our partnerships to increase the exposure of the DMM dataset as an important element for retail analysis." Shor added.

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Directory of Major Malls, Inc. is based in Nyack, NY. It continues to be the leading source of detailed information on the major enclosed malls, open-air shopping centers, and lifestyle/specialty centers for over 30 years. DMM is used by retail real estate professionals, development and management companies, brokers and financial investment firms, service and supply companies, and government and academic research institutes.

The 2011 products include over 7,100 major shopping center and mall listings, 290,000+ tenant location,3,300+ site/leasing plans, 54 full-color metro area maps and the portfolios of the Top 50 Owner/Developer and Management companies which control over 70% of the industry.

The Directory of Major Malls data is available in our suite of standard products including subscription based on-line and "pay per record" access, on a semi-annually released CD, a hard copy 2,300 page print directory and through individual dataset licensing and a network of resellers. Details of Directory of Major Malls may be found at www.shoppingcenters.com.

For further formation, contact : Tama J. Shor, Publisher at P.O. Box 837, Nyack, NY 10960, phone: (845) 348-7000, Ext. 200, or email: publisher@shoppingcenters.com

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Staying Ahead Of The Trends: Survival Of The Fittest

2010-12-17T11:14:00.000-08:00

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.

Growth In Internet Sales May Impact On Leasing And Development, But Others See It As Another Challenge To Be Overcome

2010-11-24T06:48:00.000-08:00

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.”

To Reach New Customers, Discount, Outlet And Off-Price Retailers May Soon Be Expanding Their Criteria To Make Deals

2010-10-25T11:43:00.000-07:00

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.
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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.
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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%.

Higher Vacancies May Be Hurting The Landlords, But It Is Also A Great Dealmaking Opportunity For Discounters And Off-Pricers

2010-10-14T06:48:00.000-07:00

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 .
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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.
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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 .
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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 .
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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%.

Is There A Trend For Supermarkets To Become Regular Tenants In A Regional Mall? Don't You Believe It

2010-10-04T06:48:00.000-07:00

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.
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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 .
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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 .

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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.

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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.

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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 .

After 37 Years Of Focusing On New Developments And Expansion In The Industry, Shopping Center Digest Suspends Publication

2010-09-26T04:19:00.000-07:00

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 .

"The Deals Keep Coming," And Even More Shopping Centers Will Soon Be Changing Hands--Bringing More Opportunities To Local Brokers

2010-09-04T16:11:00.000-07:00

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 .

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

2010-08-14T08:00:00.000-07:00

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
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Figures Don't Lie, But Liars Figure When They Pick And Choose Figures Describing The Status Of Restaurants--Or Is It Ignorance?

2010-08-02T06:53:00.000-07:00

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 .

"Summer Doldrums," With Expected Slowdown In Dealmaking, Still Raise Many Conflicting And Contradictory Questions

2010-07-16T11:04:00.000-07:00

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 .

How--And Why--The "Chicago Deal" By Wal-Mart Will Impact On That City And The Shopping Center/Retail Chain Industry

2010-07-05T06:00:00.000-07:00

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 .

Dealmakers Look At New Ways To Keep The Momentum Going

2010-06-21T07:21:00.000-07:00

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 .

Tenants, Landlords Begin Making Deals Again At ICSC RECON, Which Is “Better Than Expected”

2010-06-07T11:41:00.000-07:00

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 .

FTC's Look At SPG And GGP May Be Moot Now, But Federal Involvement In The Shopping Center Industry Has A Long History

2010-05-17T04:53:00.000-07:00

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 .

Money Is Now Available For Mergers And Acquisitions And In The Forefront Are The Behemoths Simon Property Group And Kimco Realty

2010-05-03T07:09:00.000-07:00

This Strolling the Agora column appears in the May 3, 2010 issue of the twice-monthly newsletter, SHOPPING CENTER DIGEST

While much of the shopping center/retail chain industry has been focusing on opposing forces waving billions of dollars to acquire or joint venture with bankrupt General Growth Properties, the financial markets are also finally opening their purses wide to begin investing once more in retail properties. Traditional life insurance companies such as TIAA-CREF, Prudential Mortgage Capital and Pacific Life Insurance Co have stated their interest in large offerings primarily directed at top regional malls and grocery-anchored neighborhood shopping centers; the requirement for one is malls with annual sales over $400 per sq. ft..

And there are a number of real estate investment trusts that have already announced they would be launching IPOs (Initial Public Offerings) to raise capital to acquire new shopping center properties.

Since March 1, there have been more than 90 filings in the US for companies seeking to raise more than $50 billion, and more offerings are anticipated within the next few months. (Note. These are for REITs of all categories, residential, hospitality, medical, etc., not just retail).

In addition, the US, according to many, is the main locale for foreign interests seeking to invest in commercial real estate; leading the offshore pack are investors from Germany, Mexico and Israel, and, of course, the Far East.

But to personalize the quest for prime retail properties, one cannot discuss acquisitions and mergers of landlord portfolios without concentrating on the two leading behemoths in their respective niches: Simon Property Group, which owns some 387 or so properties totaling 263 million sq. ft., and Kimco Realty Corp, with about 1,478 shopping centers totaling 152 million sq. ft. This includes relatively minor interests each has around the globe, with the two giants focusing on distinctly different types of properties.

FTC Attention?

SPG emphasizes the larger retail centers, and is also, by far, the largest and most powerful landlord in the niche within a niche, outlet centers; in number of projects and total GLA, it easily outranks the number two landlord of regional and super-regional malls, GGP. The number three owner-developer is Westfield USA, which has less than 60 malls.

Because of its already looming presence that over-shadows all other owner-developers in the field, many in the industry have raised the question of whether its acquisition or jv with GGP would create a monopoly because of its control of such a large percentage of projects within this category, and could result in restraint of trade action by the Federal Trade Commission. This issue was raised by Brookfield Asset Management, which is competing with SPG over GGP.

David Simon of SPG said his proposal would limit its board representation to two people who do not work for his company.

Retailers, especially, are nervous about what would happen if SPG is successful in its quest. Their fear is that in key markets, Simon may be the only landlord in the trade area and they either deal with SPG and its rent demands or “multi-center deals” or be “locked out” of that market.

Some years back the FTC took a look at possible restraint of trade issues within the shopping center industry. Some token concessions were made; tradition has it, however, that many private arrangements were never written down, but that personal relationships between department store anchors and owner-developers existed and helped maintain retail orientation and control within malls.

Kimco And CPP

It is unlikely that the federal government would take a close look at any acquisitions made by Kimco, which recently announced a long-term partnership with the Canada Pension Plan to acquire shopping centers in the US (see the item in this issue’s column of didja hear…???); its first deal of $370 million was for five centers. Though it is, by far, the largest owner of neighborhood or strip shopping centers in the industry, it does not control the much-smaller trade areas served by these centers, where there could be four and five retail centers in single market, each owned by a different landlord. Once the supermarket and/or discount anchors are in place, landlords must compete among each other to line up the best merchants and rent-paying tenants, many of them Moms and Pops or small franchisees.

Though Kimco may control nationwide some 1,300-plus properties, that is a small percentage of the total number of neighborhood shopping centers in the US, estimated at close to 70,000. There are numerous other landlords who own a substantial number of grocery-anchored, neighborhood centers: Developers Diversified, Regency, Weingarten, Inland, Edens and Avant, Vornado, Sembler, etc., etc.

Certainly Kimco could package multiple leasing deals with retailers, but it does not have the same type of leverage as SPG would have with a mall-oriented tenant with many less locations meeting its criteria.

Some Could Be Sold Off

If SPG were to acquire GGP, some in the industry believe, some of the malls in the package could be sold off to other owner-developers; the only way this could happen, they believe, is if one property was a bad fit with the rest of the portfolio, for one reason or another, or Simon wanted to reduce its debt obligations. Among those landlords mentioned who might be interested in certain properties are other REITs: Westfield, Macerich, CBL.

Since Kimco would be acquiring much smaller portfolios or individual, it is unlikely that any of these shopping centers would then be put on the block to be sold off.

Of course, anyone can speculate. There are a number of very prominent landlords who might be interested in specific GGP malls, if any of these were to go to market, say a high-end operator such as Taubman, or a major player in secondary markets as Cafaro, or those who are mainly owners of strip and community centers, but who also have projects that range in size up to small malls. All, or any of these landlords, could be interested in acquiring a mall or two if they meet their criteria or make a good fit within their existing portfolios.

So, few expect any action regarding GGP to be completed any sooner than by late summer. With Kimco and the amount of funds waiting to be placed into solid US real estate, another announcement could be only weeks away.

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 .

Strolling the Agora

Are Overages From The Past A Way To Stimulate Dealmaking Now In The Shopping Center/Retail Chain Industry?

2010-04-19T06:38:00.000-07:00

Tenants and landlords speak out in Strolling the Agora on the advantages and disadvantages of this leasing concept in the April 19, 2010 issue of the twice-monthly newsletter, SHOPPING CENTER DIGEST.

While discussing overages with a developer of a new regional mall in the New York Metro area some years ago, I remember clearly his attitude and comment: “If a tenant goes into overages,” he said, “it means the rent was too low.”

That company has been out of business for two decades, and the dealmaker quoted has also become only a memory in the shopping center/retail chain industry.

And in today’s market, that “take it or leave it” attitude has also disappeared from this industry.

To many, overages—where a lease is based on a low minimum rent tied to a retail sales figure, and the landlord shares in the upside of sales over that figure—had been a mainstay of this industry, primarily in malls; tenant and landlord, in essence, became “partners” and participated in the risk of opening stores in new and unproved shopping centers, or was used as an inducement to attract retailers to lagging projects.

Peter Morris, CEO of Greenstead Group, noted that this was a form of percentage rent which is “actually the cheapest form of rent.”…“Over the years, however, both sides of the table changed the concept to eliminate sales rent and build it into the base rent. That was great for the tenant in an expanding market as it fixed their costs. However, as sales have decreased tenants are seeking concessions in order to bring down their cost of occupancy.”

There are two main areas for sales rent to return on a wider basis, he continued. These are “tied to rent relief to accelerate the recapture of the deferred rent” and “as part of a creative rent structure to spur on leasing. Think of it as deferred rent at the onset of the lease.”

Good Source Of Profit

“Overage,” said Karen Scott, president at Centerworks Retail, “can be a good source of additional profit but the Landlord has to be very good at assisting tenants in making the break even points through effective marketing programs. Also, when marketing, don’t spend time on the underperformers which is what people tend to do; instead concentrate on the ones who look like they can make the break even and help push them over. So if you are going to do this (and basically partner with your tenants) hire an experienced marketing person….and require a minimum amount of participation in marketing programs-yes, for those of you [who] have been around awhile, this is beginning to sound familiar, right?”

Gail Nichols, vice chair and co-founder of The Now Mall, took off on the subject of marketing and pointed to national averages for mall sales tied to consumer purchases, and said that the impact of full multi-channel marketing using Rapid Online Order Fulfillment (ROOF) could “bring back lost sales and generate new traffic into the mall…not to mention happier customers.” She said the internet is “stealing away mall sales at the rate of 12% now, but growing rapidly to 35%-53% in 2014…”

A national retailer stressed that “just because sales have jumped in a specific store, does not mean that profits have matched that rise. More sales does not necessarily mean more profit. In the current economy, retailers have drastically discounted their merchandise to boost sales and move inventory. Though a reduced rent can be an inducement to make a deal, providing the landlord with a piece of this upside of store sales can eliminate much of the profit.”

Forensic Accountant

One leading consultant was not a strong advocate of this form of leasing. “A major concern for an owner-developer is to audit their tenant’s books to determine a true ‘overage.’ Most landlords would rather give away more concessions than play a forensic accountant.”

The whole issue, according to Jeff Davenport, principal of Davenport Consulting, gets into base points. “It depends on the level of overage rent a tenant will be paying. Are they paying 8% or 18% over a breakpoint? What is the breakpoint and how was it derived?…Yes, the low base rent/overage rent concept should help attract new tenants
because it shifts risk from the tenant to the landlord. Of course, this assumes reasonable overage rent and breakpoint terms are offered by the landlord.”

Another landlord stressed the importance of negotiating fair and reasonable terms.
Rohit Bakshi, CEO of CCPL Developers Pvt Ltd, “As a center head, in order to fill vacant space at non prime areas, even taking up brands on franchise mode is also lucrative. I strongly feel that any investor should look into the possibility of fixing a minimum guarantee amount and percentage share, this way the risk is being shared between the retailer and the investor.”

Spectacular Results

Chuck Devers, owner, SOM, LLC, said overage contracts “can be very useful tools in helping a prospective future tenant, or even an existing tenant to take responsible business risks to either up-grade, enlarge or otherwise improve the selling environment…”

He cited an example of one tenant who was at the crossroads, continue doing what he had been successful at, or “implement a new marketing concept that would require a total re-build [and] introduce a new product line in an enlarged store…We joined together as landlord and tenant and negotiated a new lease that controlled rent increase to a very modest level while increasing their selling space by 50%.”

The results, said Devers, were “spectacular for both of us…” Sales increased more than 50%, lease income increased over 50%, and the store’s profitability increased greatly in excess of 50%. “The concept worked so well, in fact, that the company determined to replicate the model on close to 800 of their existing retail clothing stores.”

Caution should be taken in the use of overage deals, cautioned Morris. The landlord’s come-on rent structure needs to be short term and carefully planned. The landlord “may get some more deals done… [but] as my father used to tell me it is false economy to make each sale at a loss but expect to make it up in volume.”

More information on SHOPPING CENTER DIGEST, Expanding Retailers, the weekly tipsheet, SCD Eflash, the Directory of Major Malls, and our other products may be obtained from our website, www.shoppingcenters.com .

What Are Some Suggestions Proposed To Stimulate Dealmaking?

2010-04-04T16:16:00.000-07:00

This the subject of the Strolling the Agora column in the April 5, 2010 issue of Shopping Center Digest.

Though leasing and development is far from “frozen while landlords await a spring thaw,” it definitely has slowed over the last few years, with the more aggressive and hungry operators working overtime to find new ways to stimulate dealmaking in this very deep recession. Thus far, most landlords and tenants are using old and reliable techniques that have done well for them in the past; as we discussed in the last issue, retailers are taking advantage of conditions within the shopping center industry to negotiate short-term leases at agreeable rental rates for pop-up stores, and are using the latest technology to measure data testing numerous new concepts and demographics.

Going forward, the main obstacle to complete that deal today—after preliminary negotiations have been undertaken—is still the rent required by the owner-developer. After talk of short-term leases, numerous concessions on such standard “perks and allowances” covering CAM, fees, fixturing, and clauses related to kickouts, co-tenancies and the like, some landlords finally admit that “free” does not cause nausea or an allergic reaction.

One Florida-based strip operator conceded a while back—not for publication then-- that he was offering free rent in extreme instances, depending on the center and the Mom and Pop operator. Another Midwest landlord admitted that free rents are being offered now for “several months” just to get a tenant into a troubled property to avoid an even steeper slide in property values.

One Mom and Pop in San Diego noted he was not considering opening a second store because of the cost and risk. Then Westfield offered him “a deal he couldn’t refuse” and he took units in three local shopping malls in the area.

At times, a major source of leads could be existing tenants. “They have close relationships with other retailers and their recommendation can be a foot in the door to start negotiations,” said one broker.

Referral Program

As an example, Janine Landolina, a leasing agent at Treasure Coast Commercial Real Estate, said “I’ve recommended Landlords create a Tenant Referral Program for their existing tenants, giving them something (month free rent) for any referral tenant that signs a lease. This is something new we are about to implement with several different Landlords of different property types. By the end of August 2010, we will [be] able to determine if this program is generating results.”

Philip Stewart of Stewart Realty has placed a sign at one of his centers offering three months free rent to entice retailers and/or office tenants on the top floor of his project; he added that some are downsizing from 10,000 sq. ft. to 5-6,000 sq. ft. to cut operating costs and get rid of excess space, or re-locating from A space to B space and take advantage of lower occupancy costs.

Then there are the possibilities of introducing innovations in agreements, such as suggested by Deepak Vora of DVR Design. “How about exploring a lease with terms similar to a variable rate or a hybrid mortgage? The initial rent could be low and then adjusted upwards as the economy improves; it could be tied toGDP or some reliable sales data benchmarks. To keep investment manageable a master plan for tenant improvements can be prepared and the improvement done on an on-going basis as economy improves.”

And there’s Leighton Hunziker, president-asset & property management at Savills: “We’re doing deals here that effectively put the tenant on % of sales in the first year, and in the second year locks in a portion (85%) of that as the base rent with a Natural Break Point applied to the rent. Not ideal from a purely investment perspective but it’s a tenant with the lights on paying rent! It stimulates the Landlord to target marketing to grow sales, and the tenant is incentivised to work hard to generate sales.”

Peter D. Morris, CEO at Greenstead Group, noted that “tenants will continue to ‘trade up’. As the evolution continues those at the bottom will die out. To stimulate leasing, each property owner needs to refine [his] message…be a conduit for reaching a desirable market [and] a defined market. Therefore, it is important that each shopping center completely knows its market niche and builds a brand around that.

“Geography alone and filling a center with any warm body won’t cut it as we move well into a mature phase in the industry,” he said.

Understand What Retailers Need

“Retailers are looking for the best markets for their buck,” Morris pointed out. “Individual landlords can stimulate their leasing by understanding what each retailer really needs in a market and matching their efforts to the highest prospects.” He touched on multi-channel merchandising and “how the unique E-commerce landscape is going through the most radical shakeup of any retail strategy of all times…Government statistics are trending to 35% of all core retail sales to be online in 10 years.”

Gail Nichols of The Now Mall Corp said she’s negotiating with “several of the Top 100shopping center developers to implement our Rapid Online Order Fulfillment (ROOF) program to redirect lost online sales back to the stores and improve customer loyalty. In turn, this will retain and attract tenants, improve profits and market cap.”

Many retailers are closing lower-producing stores when leases expire, she continued, while they focus on growing online sales. Among these: “William-Sonoma@36.5%; Urban Outfitters@35.9%; Staples@31.7% ($7.7 billion)…As online sales continue to rise at the expense of in-store sales, their 20% to 30% return is also growing because consumers are not happy with the current 3 to 10 day shipping and the high shipping costs. And ship-to-store for pickup is no faster or less hassle.

“When shopping centers implement [ROOF with in-store shopping and delivery],” said Nichols, “these lost sales will return quickly. And they also gain new customers they never really had before…seniors; people with disabilities; busy families & offices.”

Then there are the possibilities of introducing innovations in agreements, such as suggested by Deepak Vora of DVR Design. “How about exploring a lease with terms similar to a variable rate or a hybrid mortgage? The initial rent could be low and then adjusted upwards as the economy imporives; it could be tied toGDP or some reliable sales data benchmarks. To keep investment manageable a master plan for tenant improvements can be repared and the improvement done on an on-going basis as economy improves.”

In the Houston market, the luxury-oriented Highland Village took excess space and used it to improve the overall shopping experience. It created a Farmers Market for local farmers and producers to market fresh fruits and vegetables, and also an Adoption Center for a non-profit organization to operate a weekend aimal adoption center which has placed over 1,650 dogs and cats in private homes over the last three years.

The center also runs complimentary valet service, 24-hour security, live holiday music and a trolley transportation service that takes shoppers around to the stores and to their homes in neary neighborhoods.

Generating New Life

And there’s also the push by leading retailers to go offshore. Some point to Canada as a primary target: “It’s in a nearby market,” said one consultant, “that is not as foreign as Europe or Asia or the Mid-East, with the potential much greater.” He pointed to 14 sq. ft. of shopping center space per capita there, as compared with about 23 in the US, and consumers in Canada are already aware of US brands; “some are producing 2.5 times the sales per sq. ft. as their US stores.”

This is where J. Crew is scouting its first non-US locations, and the focus directed there by others as Gap, Limited, and its various divisions: Bath & Body Works, Victoria’s Secret, and its acquisition in 2007 of lingerie retailer La Senza...”giving it something to build on.”

Established names still have great marketability, even for a failed enterprise. Recent examples, of course are such once-proud operators as CompuUSA and Circuit City.

These brands were acquired last year by Systemax Inc, parent company of TigerDirect.com, and re-born as online retailers. Traditional brick and mortar stores were first tested cautiously in the US and Canada, and now there are plans to increase this presence—there are now 34 CompuUSA units; among markets being considered for new and expanding units are Houston, Chicago and Florida, and Canada.

“Recession hurts, but it also creates opportunities that would not have existed otherwise,” said CEO Richard Leeds.

As above, some of the suggestions as ways to stimulate more dealmaking may tie-in directly to the focus of those servicing specific areas of the shopping center/retail chain industry. For example, Michael Morelli of Tampa Bay Signs: “This is where I think by establishing a relationship to be able to offer the potential tenant their exterior signage at a discounted rate by working with one company can benefit the agent, leasee, and sign company.”

Dealmakers have always prided themselves on finding ways to get the lease signed. “That’s the art of negotiating,” said one seasoned veteran. “If both parties come to the table and sincerely want to make it happen, it will. All that’s required is giving a little here, getting a little there; both may not be completely happy with the final agreement, but that’s one way to gauge that it’s fair in the current market.”

More information on Shopping Center Digest, Expanding Retailers, the weekly SCD Eflash, and the Directory of Major Malls may be obtained from our website at www.shoppingcenters.com .

The Time Is Ripe For Many Retailers To Test New Concepts. What Impact Do These New Approaches Have For Leasing, Development And Expansion?

2010-03-23T10:31:00.000-07:00

This Strolling the Agora column is from the March 22, 2010 Issue of Shopping Center Digest

Those retailers who have weathered the economic recession and are now “flush with bucks” are looking at ways to take advantage of changing demographics and conditions within the industry to find new ways to grow. And one pathway could be to spin off or creation of new concepts that exploit what they see as an under-served niche.

It has worked extremely well for some operators in the past; a prime example, of course, is Target, which was originally a spinoff by a leading mainstream department store, Dayton-Hudson.

Conditions now are ripe for testing. Due to high vacancy rates in shopping centers of all sizes and focus, landlords are more amenable to granting inexpensive, short-term leases to test these concepts--- and the ease of data capture and analyzingf results can be relatively inexpensive; result, many more “pop up” stores becoming a common fixture in these projects, and even in CBDs of major metropolitan markets, especially those involving home repair and furnishings. And you have established operations widening their focus, perhaps a pizza chain acquiring restaurants specializing in Mexican or Indian foods.

Whether there are a record number of new concepts being tested is hard to measure; I don’t know if this type of information was ever gathered before. However, anecdotal evidence shows that it is a more visible and common trend today than previously reported. The greater number of these concepts being developed are in associated areas related to the main focus of the parent company; you’re unlikely, for example, find a shoe chain “popping up” with a store selling hardware, for example.

Selecting Niches

So you have chains specializing in women’s wear trying on units to cater to men; you have teen-oriented retailers establishing brands focusing on pre-teens or—since they have an aging, loyal customer—testing completely separate concepts to serve the needs of those in their 20s and 30s. We are not speaking of a discount operator, for example, opening an in-store department providing optical service, or a grocery chain inserting a coffee shop within its supermarket, or wines and liquors.

This shopping center-retail chain industry has always been innovative—as we’ve cited numerous times in the past, some successful new directions, and some not-so-successful directions. Would you believe, at one time, anchors, such as a department store, thought it would better merchandising to not have another department store in the same center because “Who needed the extra competition in your own backyard?”

The boom in information and technology has made it a relatively simple matter to gather data of all sorts, massage these numbers, and pinpoint areas that are just waiting for someone to exploit. “Whereas,” said one senior dealmaker, “we’ve had the surge to big-box stores and category-killers, now we’re getting into a more refined area where we can zero-in on specific segments: seniors, hikers and campers and sportsmen, those who want to build their own one-of-a-kind toys. You can call this trend one of segmenting; select this niche and then direct it at a market where there are an overbundance of these people.”

The Impact On Dealmaking

So, what does this increasing number of specialized brands mean for the leasing, expansion and development of shopping centers? What, overall, will be the impact from these new concepts.

There is a wide range of opinion from seasoned dealmakers. They go from those who are far from excited:

“My opinion [is that the] net effect will be zero. I wonder if it isn’t being driven as much by three things: Landlords will to do ‘any’ retail chain deal in their shopping centers; rock bottom pricing in some ‘A’ location and whether or not retailers are simply carving out ‘high profit margin items’ for a quick hit to their bottom line/quarterly earning announcements?”

On the other hand, there are those who look at it as the best thing since sliced bread.

“It gives me as a landlord another tenant to add to my merchandise mix, one that a competing mall may not have, and, if successful can be quickly added to almost every center in my portfolio. If it really takes off, it gives me a strong selling point to attract other retailers, such as when Victoria’s Secret became a magnet, or Nordstrom, for other retailers.”

Another owner-developer said he would be less likely to test a concept in a top mall at favorable terms if it were being proposed by a ‘Mom and Pop.’ “If it’s a great idea and extremely successful, they wouldn’t have the required investment capital to do much with it, except open another store or two.”

To the retailer, a new concept can ride on the coattails or loyalty of established customers and transfer this loyalty to another brand, providing another income stream to the parent.

To the landlord, in an industry that has been contracting due to closings and bankruptcies, a new concept may mean another tenant available to fill continuing vacancies.

More information on Shopping Center Digest and our other products, such as Expanding Retailers, the weekly Eflash, the Directory of Major Malls, etc., may be obtained from our website, www.shoppingcenters.com .

We Focus On Battling Behemoths, But Greater Impact Could Come From The Trends To Smaller Stores, Expansion Of Food, Blurring Of Retail Categories

2010-03-08T07:40:00.000-08:00

This is the topic of the Strolling the Agora column in the March 8, 2010 issue of SHOPPING CENTER DIGEST

It is no big secret that a good portion of the shopping center/retail industry has been focusing on the Battle of Behemoths, the almost daily updates, twists and turns involving efforts by Simon Property Group to acquire General Growth Properties—and the new players taking or rumored to be taking a role in the process.

And this is so for many—retailers, landlords, brokers, and numerous others--who may never had made a deal, or may never make one, with any of the principal parties.

But an interesting point is that there isn’t more “buzz” going on concerning other subjects that may have much more long-term impact on “our thing” than whether a single landlord will dominate in one segment or market. These are the growing trends by many retailers to reduce the size of their individual stores, and others to trade on convenience and access by offering more food to consumers, and the blurring of lines separating specific retail categories or brands.

Let’s touch on the more prominent. Wal-Mart will be opening this year 35-40 supercentres across Canada, and each will be about 10% smaller than its normal footprint, roughly down to 175,000 sq. ft. It is also experimenting with smaller Marketside units in the Phoenix area stressing fresh produce and other foods.

Perhaps the most important retail category in every segment is the supermarket, since “we all have to eat.” Trader Joe’s has built its impressive reputation and profits on branded, high-profit groceries and merchandise in units of only about 10,000 sq. ft. Tesco is refining its similar “smaller is better” approach in the West with Fresh & Easy, more variety in a similar-sized footprint. And giant Safeway is now testing this concept in California. This experiment is not always successful, as Super Valu discontinued its Chicago test.

Others like 7-11 and Walgreen’s are also adding more fresh foods and ready-to-eat meals in their stores. Family Dollar, one of the leading discounters, is adjusting its merchandise mix, adding about 200 food items and reducing the amount of space for appliances and home categories. Big Lots, another leading discounter, has recently opened a handful of smaller-sized units.

Non-Foods Creeping In

And non-foods is creeping into established supermarkets: RE/MAX opening small real estate offices in Stop & Shop supermarkets in New England; AAA opening AAA Express stores in Lucky supermarkets in California selling car insurance, road-trip planning, passport photos, with others due in Nevada and Utah.

Apple and its 500 store-within-stores deal with Best Buy; Best Buy and its Mobile stand-alone units or as a section within a larger store; Adidas and the National Basketball Association opening 69 shops within Champion Sports; the co-branding of many fast-food operators: Taco Bell and Pizza Hut, Cinnabon and Popeye’s Chicken, Dunkin’ Donuts and Baskin-Robbins, Church’s Chicken in Atlanta teaming up with gas stations, and on and on.

The concept of stores-within-stores and/or leased departments are not at all new. It has been a standby at many top department stores which have been offering designer-label shops across the country for years, whether Liz Claiborne or Prada and other luxury labels. In these anchors, there is no clause in a lease or reciprocal easement agreement (REA) that precludes the retailer from doing this. With numerous other merchants, some in a specific retail category—shoes, women’s or men’s apparel—it is traditional and they have also been doing this for years.

Where the use clause in a lease becomes questionable is the amount of space in a store set aside for another type of merchandise—and whether the landlord decides it’s important enough to try to enforce these guidelines. With high vacancies in many shopping centers, even if another tenant were to complain, it is unlikely that action would be taken; another example of looking the other way is enforcement of radius restrictions.

Some years back, many chains decided if they increased the size of their outlets they could become a destination store and provide one-stop shopping for the consumer, or in one type of merchandise a big box or a category killer. For a while, this was the way to go.

Why Small Is Better

Now, with the recession still casting a depressing pall over much of the industry, smaller stores are cheaper to operate—less rent, less staff, require less power, less CAM charges—and produce higher sales per sq. ft. If the retailer has more space than he really needs, he can turn it into a profit center by subdividing it or renting it out to another operator.

To the landlord, though it’s an advantage on one hand to lease 25% or 30% of available space to a single user; if it were 20%, he could add another small tenant or two, maybe a Mom and Pop, have less risk of substantial vacancies if the anchor goes dark, and get higher rents. To the broker, he may have to work harder to lease all the space to more users, but his commissions will also be greater. To other tenants in the project, greater variety may help the center fend off competition and avoid becoming obsolete.

It’s a win, win all around.

This industry has always prided itself on its flexibility, on its ability to react to changing conditions in the marketplace, to constantly adapt. It’s attitude when faced with a challenge: “Oh yeah, I can do that.”

Though I’m not discounting the impact of one landlord being so much larger than its competitors, or being able to export malls around the globe, these trends may resonate greater across the industry domestically.

More information on Shopping Center Digest, Expanding Retailers, the weekly Eflash, Directory of Major Malls and our other products may be obtained from our website, www.shoppingcenters.com .

"What Impact Will Expected Acquisitions By Large Landlords Have On Leasing?"

2010-02-22T09:11:00.000-08:00

This is the topic for the Strolling the Agora column in the February 22, 2010 issue of SHOPPING CENTER DIGEST

Sooooooooooo, when’s it gonna happen? I and another coupla hundred others in this shopping center/retail chain industry have been holding our breath for so long that our faces are turning blue.

Does the following item, from these pages in the last August 17th issue, sound at all familiar? “We’ve been writing for months now about the larger landlords reducing their debt and positioning themselves to acquire new properties and mortgages from strapped owners forced to sell or liquidate their holdings. So far, few ‘large’ acquisitions have been made.”

Today, six months later, the situation hasn’t changed. Numerous companies and partnerships have been formed since then to acquire distressed properties; some have even made buys, but nothing that will awe or grab major interest.

Except, of course, for the Feb 16 offer by Simon Property Group to acquire financially troubled General Growth Properties for $10 billion.

Rather than foreclose on A properties or even large portfolios, numerous lenders have granted loan extensions. Just this past week, for example, mortgage holders did this for the $550 million debt on Pyramid Co’s very successful Palisades Center, just a few minutes from us in West Nyack, NY; this was its fourth extension.

“Observers And Mavens”

I’m not even going to touch on the numerous “observers and mavens” who state foreign investors still consider US properties provide the best opportunities for capital appreciation—especially strong interest from Canadian operators, not least of which is RioCan. Or that the REITs are flush with cash and have few opportunities to spend, or desire at current prices: Kimco, DDR, Regency, for instance, though many
REITSs did have a rocky road in the last quarter.

Let’s look at this a lot closer to our main concern: If this logjam ever breaks and the large landlords in this business get even larger, what impact will it have for future leasing and dealmaking? To the more nervous and paranoid tenants, “It’ll keep rents up and make it more difficult to close a deal, especially if these behemoths are dominant in key markets,” said one national apparel chain.

To another leading specialty tenant, “Not a hell of a lot. I will always have alternative options and we will not return to some of our past errors where we overpaid on rents in the mistaken belief we were protecting our market share.”

In considering grocery-anchored strip and community centers—which many landlords and tenants still consider the most reliable and recession-proof part of our universe—strong regional chains such as discount-oriented dollar and grocery stores, pet foods and supplies, fast-food restaurants, and the like, hobbies, arts and crafts, drugs, here is where they are focusing most of their attention for growth.

Competing Landlords

Perhaps the main concerns expressed about further acquisitions from giant owner-developers are from competing landlords. One felt that larger owner-developers have deeper pockets, are able to spend more on marketing and advertising their shopping centers, and can also bundle deals to prospective tenants, negotiating five, six, or even more leases at one time. “In a specific market, or even a large region, they can
offer special deals to retailers so rents, distribution, advertising and the like would reduce these overall costs proportionally. This would force us to reduce rents to below the market rate.”

“There’s no question, also,” said another dealmaker, “a national retailer can visit the home office of a top developer and through scheduled video conferences talk to its leasing representatives around the country to do a lease or iron out details. In cases like this, size does make for more efficient use of time and can reduce
overall costs for both tenant and landlord.”

But yet, contended a local shopping center developer, “We know the specific market better, and can react much more quickly because we don’t have as many levels and approvals. This is true at any of the regional ICSC dealmaking events, for example; you rarely find the top leasing people from the giant landlords even attending for that personal contact.”

Whether it’s the 800-lb gorilla or the nimble sportscar—hey, sometimes you have to stretch for the appropriate analogy—there’s much to be said for both extremes.

What’s certain, however, as we and others have said, in the current economy, no one is forced to make a deal. Landlords are more agreeable to make concessions—reduce rents and terms of leases, for example—and retailers are considering new locations and opportunities that were not available just a year or two ago.

More information on SHOPPING CENTER DIGEST, EXPANDING RETAILERS, our weekly EFLASH, DIRECTORY OF MAJOR MALLS, and our other products may be obtained from our website, www.shoppingcenters.com .

Will The Focus By Luxury Retailers On Outlets Have An Impact On Mainstream Shopping Centers?

2010-02-08T07:27:00.000-08:00

This Strolling the Agora column appears in the February 8, 2010 issue of SHOPPING CENTER DIGEST

Outlets have always been a niche within a niche. Despite our admittedly biased personal perspective, shopping centers and retailing are actually only a small part of the entire real estate industry. And even in its heyday of some 25 years ago--when every failed shopping center was going to be re-vitalized as an outlet center, and every tourist destination was going to support beaucoup outlets, and optimistically only 1 in 10 of these projects were ever built—outlets captured a significant part of our consciousness.

The largest estimate of existing projects today is from ICSC, 401—and that’s globally. In the US and Canada, experienced dealmakers put it at less than 300, and that’s only by expanding the definition of “outlet centers” to include numerous hybrids combining traditional retailers, discounters, with those who avoid mainstream brick and mortar, and even some “lifestyle” centers. To Credit Suisse, there are about 150 upscale outlet centers. And to one veteran dealmaker who’s been specializing in the outlet industry for some 22 years or so, “after eliminating some junk, there are only about 97 centers that can be called premium outlets.”

So, with no one acceptable definition, under this overall umbrella we include out-of-the-way complexes with 10-12 tired stores, those of over 1 million sq. ft. like the granddaddy Potomac Mills in Woodbridge, VA--and all the other “Mills”--to those like Woodbury Commons in Central Valley, NY, where sales volumes per sq. ft. rival that of the top selling machines in the entire industry. The better ones have become tourist destinations attracting busloads of bargain-hungry shoppers and tourists in a splurge of black-belt buying.

So, why this rambling discourse now?

High-End Focus

Simple, the recent announcements that high-end retailers like Bloomingdale’s, Lord & Taylor, and New York & Co are entering this market, joining such familiar name brands that are also veteran outlet merchandisers, like Nieman-Marcus, Nordstrom, Ralph Lauren, Liz Claiborne, Oscar De La Renta. Armani, Prada, etc., etc. And, on the landlord end, that the mighty Simon Property Group, whose Chelsea division is already one of the three main owners in this niche, is getting even more dominant with its purchase of Prime Outlets for $2.24 billion; the other top owner-developer is Tanger Factory Outlet Centers.

The origin of the concept was to provide another channel for retailers/manufacturers to dispose of excess inventory, last-season’s goods, irregulars, and the like. Now, with so much consumer emphasis on quality, branded merchandise, deep discounts, and value shopping, even mainstream retailers are looking at the lower rents and reduced operating costs of outlet centers.

A number of branded retailers, who early came to this niche, still manufacture a lower-quality, substantial portion of their stock specifically for their “outlet stores.” And some discounters and off-pricers are getting better-quality merchandise from vendors unable to sell all their product to their traditional, high-end retailers.

“Any US expansion by retailers...should be viewed as a positive trend,” according to
John Cirillo, market planner at KeyBank. “Many of these concepts have reached the saturation point with respect to full price outlets…but we should keep in mind there is a limited universe of these projects, particularly strong ones that would attract the likes of NYCO, Bloomies, etc.”

Said Kevin So, director at MD Property and Investment Consultants Ltd, who is familiar
with the market in Asia: “Outlet seems to be on a better spot for the retail side, where everything else seems to be in some sort of trouble…It is no longer a new concept in the US…[in Asia] outlets is picking up heat and will be a big thing in the coming years. It is interesting that no major player has committed to this area.”

To Charles Devine of Devine Realty, “There has been a lot of these projects built that should never have been built, and we’ve shaken out most of the junk. For the ultra, high-end outlet retailers, except for a few extreme cases, they want to be at least three hours away from their main markets. Some projects being talked about in upstate New York, near the Canadian border, or even in the middle of the state, may be questionable.”

Strong Dominance

One national retailer with various brands, who has been involved in the outlet niche for many years, is troubled that one landlord is now so dominant. It controls 77 centers totaling 26.6 million sq. ft. “Of course I’m concerned that 80% of the top 50 outlet centers are owned by one landlord,” he said…“it gives us very little leverage in lease negotiations.”

Another agreed, pointing out that this is especially true in Florida, the highest producing market, “where just about every important outlet center is controlled by SPG.”

The niche, like the rest of the shopping center/retail industry has high points and low points, aside from that involving the heavy-hitters. Example: Craig Realty Group, which considers its Citadel Outlets the only outlet shopping center in Los Angeles, is expanding from 276,210 sq. ft. and will add 157,000 sq. ft. Or, Sembler Co, now planning a $400 million, upscale “luxury manufacturers” project in Hardeeville, SC.

On the other hand, in Gainesville, TX, a group of 11 lenders just bought the foreclosed 319,653 sq. ft. Gainesville Factory Shops and are considering converting it to a medical center and/or residential, mixed-use.

And always the question of a blurred terminology. Burlington Coat Factory, definitely an outlet retailer, opening a store of 64,428 sq. ft. in 454,000 sq. ft. Marshfield Plaza in South Chicago. Is that an outlet center now?

“Labels are just that,” said one cynical dealmaker. “If it makes it easier for me to lease a center, I’ll call it anything necessary to gain attention.” He pointed to the most recent example, ‘lifestyle centers,’ which was tacked on to numerous projects that were not enclosed, were not large malls, and could not attract an important anchor. “And many of these that opened are in serious trouble now.”

But as an important niche, outlets can be extremely profitable for both tenants and landlords.

Further information on SHOPPING CENTER DIGEST, EXPANDING RETAILERS, the weekly EFLASH , the DIRECTORY OF MAJOR MALLS and our other publications and products may be obtained from our website. www.shoppingcenters.com .

Will Higher Holiday Sales Result In An Increase To Retail Expansion? According To Some, It May Not Happen In 2010

2010-01-25T09:43:00.000-08:00

This Strolling the Agora column is from the January 25, 2010 Issue of Shopping Center Digest

Lemme me know if this scenario sounds at all familiar. A retailer announces it will open, say, 50 stores the following year. Then its sales over the holiday season jump 20% over the previous year’s results and its same store sales are up 6%. Immediately after the numbers are in, said chain takes another look at its expansion plans and now says it will increase the number of new stores opening the following year to 75.

The other side of the coin, of course, is if the financials are not positive, the tenant is just as likely to cut back on its first projections on plans for new outlets for the next year.

So, based on historic precedent, how we’ve operated most of the time I’ve been a part of “our thing,” one would expect that 2010 would be a decent year for many dealmakers in the shopping center/retail industry, both landlords and tenants. Though by no means an across-the-board record breaker, this past holiday season was substantially better than expected for those looking at total sales and comparing same store sales.

However, concerning the second part of the scenario—increased expansion--it’s not gonna happen, unless there is a strong uptick within the next couple of months.

For one, same store sales for many retailers may be up over last year’s, but we’re comparing these numbers with those of a very down period. Then, in order to drive shoppers into the stores, retailers resorted to deep discounts, which for many did not translate into big profits. Many were content to increase their market share, with hopes that this will carry over to improved sales for the coming year.

And even if the top merchandisers were underwhelmed, it’s gonna have some impact.
C’mon, when even Wal Mart says it is closing Sam’s Club stores, it does attract attention and cause a slight clouding of many crystal balls-- and dilute the rosy glow in the eyeglasses of experienced forecasters.

Perhaps the most telling, after analyzing some of the sales results, is that consumers are nervous because of the depressing job market and still rising unemployment numbers. They identify with those checking the want ads and wondering if they may be next. They may bend a little here and there, but essentially they are opening purses and wallets for basics, value-oriented merchandise, and definitely not for luxury items—check out the numbers for high-end jewelry, Neiman Marcus, Saks 5th, Bergdorf, which either show a decline or a rise only when compared with the severe drop in 2008.

Of course if you’re one of those Wall Street bankers with the million-plus bonuses, forget everything above and below these comments.

If shoppers don’t buy, registers don’t ring, retailers don’t expand, landlords don’t build—or raise rent rates. Result, it won’t be a great year for dealmaking and leasing.

Which is not to say there won’t be some activity taking place, and I’m not referring only to renewals, re-negotiating leases, or replacing the many vacant stores with other tenants who are paying a lower rent than their predecessor.

The categories that are planning to open the largest number of new units are the dollar stores, discounters, fast-food and low-end restaurants, supermarkets, drug stores and other chains that benefit immediately from a rising population; consumers must still eat, must still go out, must replace worn out apparel, must still be entertained—only more carefully.

Though most of this growth is directed toward the low-end of shopping centers, with some discounters raising the quality of their merchandise because vendors to better stores are also selling to them, a small portion of their new stores will be in malls they normally would avoid. The rents are low, the demographics are good, and savvy shoppers can buy private label merchandise at discounted prices.

And to many who focus on predicting attitudes, the disparity between reality and illusion, and what is and will take place in the marketplace—the agora if you will—it could be a long haul before shoppers return to instant gratification over a more conservative use of their disposable income. They are still nervous about jobs.

New stores and new shopping centers are not likely to feed a renewed appetite for mass consumption, at least not in 2010. So it will be much like last year for most dealmakers: working a lot harder, a lot smarter, and getting a lot less.

In the long run, however, with all projections showing a future rise in population, and a need for food, apparel, and the like, the industry will continue to expand.

Further information regarding the twice-monthly Shopping Center Digest, the weekly Eflash, our associate publications as Expanding Retailers, Directory of Major Malls, and our other products may be obtained from our website, www.shoppingcenters.com .

With Landlords Strapped For Cash, "When," Many Ask, "Will The Dam Break And Result In A Flood Of Large Acquisitions Of Shopping Centers"

2010-01-11T06:53:00.000-08:00

This Strolling the Agora column is from the January 11, 2010 Issue of SHOPPING CENTER DIGEST

For a year now, as vacancy rates have climbed to record levels and the true value of shopping centers has plummeted, several prominent landlords and numerous investors have been preparing to grab properties at bargain prices from financially-strapped owners. A number of projects, mostly strips and distressed, have changed hands due to foreclosures, and a number of others where both parties were not pressured and walked away satisfied with the deal.

But there have been, as yet, few large acquisitions, aside from Simon Property Group’s recent $2.2 billion buy of The Lighthouse Group’s Prime Outlets. The controlling word here is large.

Though lenders have given breathing room to such debt-heavy operators as General Growth and Centro Properties, many in the industry anticipate these landlords soon will be selling quality and trophy assets to retire billions of dollars in debt to stave off liquidation.

The big question is when will the dam break and start a flood of mergers and acquisitions of large and prime properties.

Substantial, But Minor, Movement

There already has been substantial movement as minor investors and medium-sized landlords have announced additions to their portfolios: RioCan and Cedar Properties partnering to acquire two Pennsylvania strip centers; Equity Investment picking up two strips in the Cleveland, OH, market; Pacific Retail Capital beating off other buyers to re-acquire for $15 million the West Oaks Mall in Houston it sold four years ago for $102 million; Dizengoff buying its second Florida center; Colonial selling off Winter Haven in Florida; Inland picking up Grafton Commons in Wisconsin; Equity One acquiring Westbury Plaza on Long Island and then an adjoining site for expansion; minor centers and single-tenant properties in 1031 exchanges in California. And the list goes on.

Also, there is no end yet to established companies establishing divisions, or forming REITs to acquire properties; the latest is Excel Trust which just filed an IPO and hopes to raise $300 million to acquire retail properties.

And here we get to the controlling word large, near the top of this column. It’s an interesting commentary on today’s attitudes that $25 or $30 million is no longer considered a large acquisition.

Part of this is due to the massive amount of money raised in 2009 by publicly traded REITs. They raised nearly $35 billion--$28.3 billion by another estimate--by selling unsecured debt and common equity and used most of it to pay off older debt that was to mature in 2009; according to one observer, that debt was reduced to about $2 billion in September [not counting GGP, whose $10.3 billion debt was extended].

He continued: “This puts several heavy-hitters in a great position to acquire,” and pointed to Simon “who has raised about $7 billion which could be used to opportunistically acquire properties domestically and globally.”

In Canada, some analysts say over $1 billion has been raised by REITs in the last year to improve their balance sheets and prepare for future acquisitions. Said Kim Reddington of AMP Capital Brookfield: “We think the next 18 months will be a very fruitful time…They [REITs] are one of the few investors in the world that have capital.”

Foreign Investors

According to Hessam Nadji of Marcus & Millichap Real Estate Investment Services, foreign investors are expected to buy some $2.5 billion of US real estate this year.

To Dan Fasulo of Real Capital Analytics, offshore buyers have never acquired more than 10% of annual real estate sales. “There’s no foreign invasion. There’s just enough capital to touch off a meaningful recovery.”

Ed Sonshine of Canada’s RioCan is enthusiastic, and especially positive about future expansion through more aggressive acquisitions. However, he sees most of the “steals” are in the US, so his company will be focusing much of its efforts south and is “feeling its way” through its partnership with Cedar Properties (See Above).

So, back to the question as to when the dam will break and major sales take place?

According to one VP of acquisitions, “The dam will not break until there is more pressure for sellers…or until they are in a position where they ‘have to’ sell. With ability to often extend/re-work debt terms, sellers are ‘hoping’ to ride out this storm; but last time I checked, ‘hope’ isn’t a strategy.”

Says Peter D. Morris of Greenstead Group, “The dam will not break but there will be cracks…more stringent underwriting wukk result in a cautious flow of money back into shopping centers as early as 2011 (not 2010). There are still too many ‘bad locations’ [which] will need to be repositioned or abandoned. Top flight properties may become available and that is where we will see strong action, but I think B and C property will be hard to move for years.”

Leo McKittrick of Drake Barber Realty ties sales to the unemployment rate and when it changes direction. “The big unknown is how much of a change in direction? My opinion is a .25 to .50 reduction in the unemployment will trigger the buying. Why will this trigger a buying spree? All companies will know that the worst has passed.”

An Abundance Of Capital

Another echoed a common refrain over the last few months regarding some sellers waiting for cap rates to drop and those with the cash waiting for sellers to get real regarding their perceived value of property. These are usually the smaller operators.

“Institutional owners have raised such an abundance of capital…[they’re not an active seller] unless they want to leave a market in its entirety. However, we have seen a large number of assets for sale from Centro, DDR, Inland, etc., but unfortunately, they have not actually executed sales due to property values being far below their basis.”

A number of those experienced in acquisitions and mergers note that there are many “lookers” examining large portfolios. “If they see signs that larger retailers are returning to an expansion mode, there is an incentive to make the deal before occupancy rates begin to rise across the board. This is an indication that values will go up and buyers may want to move before that begins.”

Another echoed that assessment. “Look for it to begin in early or late spring, with the first major sales triggering a rush of buyers to put their money where their mouth is.”

More information on SHOPPING CENTER DIGEST and its associate publications, the weekly Eflash, the annual EXPANDING RETAILERS, and the annual DIRECTORY OF MAJOR MALLS, may be obtained from our website, www.shoppingcenters.com .

Constantly Updating Its Format And Approach To Better Serve Dealmakers, Twice Monthly Newsletter Now Stresses Subscribers Can Make Contact In Seconds

2009-12-18T09:34:00.000-08:00

This “Strolling the Agora” is from the December 21, 2009 issue of Shopping Center Digest, the last issue being printed in “hard copy” as it goes completely Online

We’ve been stressing the importance of timely, detailed, accurate information since before we first started publishing Shopping Center Digest. And the need for an organized, simple format so you can react immediately to start that deal..

So, before any other publication in the shopping center/retail industry, in 1973 we began providing contact names, mail addresses and telephone and fax numbers for each item where available; the twice-monthly newsletter format compressed production and shortened delivery time to days compared with the weeks then required by magazines.

The whole concept, design and presentation came from experienced landlords, retailers, consultants, brokers—friends and acquaintances we deal with on a daily basis. Get rid of unnecessary verbiage; present the bare facts in a simple order and abbreviated form; size of project, alphabetized by state and town; retailers by category; existing centers with space available.

An example of early input: At first, we were not considering accepting advertising. Shortly after the first twice-monthly issues, while at the then 2-day Christmas Party run annually by Melvin Simon & Associates (now Simon Property Group), it was Ken McGuire, then president of Bresler’s 33 Flavors, who suggested: “Ya know, you should take advertising.” Bresler’s then held that cover position for each of our special issues for years until the company was sold some 20 years later.

Most important in providing information, however, you told us, “Get rid of the fluff and puff, and then get out of the way so a dealmaker could begin to deal.” This we continue to do.

And we constantly tweaked the Digest. As projects were being developed that couldn’t be categorized only on the basis of size of GLA, we added another column: Upscale Specialty, Lifestyle, Mixed-Use, Entertainment. Then we added another column dealing with Financials and Sales Reports from retailers and the many owner-developers who became public companies.

We refined the process even more and began adding email addresses and websites to the listings, both for new and existing shopping centers, and for the retailers who were looking to expand into new markets and nationally. Again, making it even easier to begin working that deal.

Best of all, to get this to you even faster, a few years ago we started delivering it to you online, sending you an email with your username and password so when the issue was posted, you could access it immediately from your computer: while out of the office, on the road or at home. This, you told us, gave you a jump on your competitors since the information was delivered a week, 10 days, earlier than the “hard copy” being delivered through post office.

Even better, this means you can link in seconds and email someone about a deal from the Digest directly from your computer even though you’re away from the office.

What are we doing now? Bluntly, this is the last hard copy of Shopping Center Digest we will be mailing to you.

Beginning with the first issue in January, our twice-monthly newsletter will be emailed online directly to you and your computer. No username, no password.
The advantages: We email it ourselves without the delay required by sending to a middleman to post online; it cuts another couple of days off important leadtime--and eliminates the problems a few subscribers reported when they were unable to access the issue after inputting the username and password. We will continue, however, with both online presentations until we’re certain the kinks have been worked out.

Especially for our subscribers in foreign countries, you will now receive the issue at the same time as our domestic readers—though I have to admit the need for speed there may not be as vital.

Emailing the issue directly to you eliminates having to deal with the numerous individual post offices around the country, and their varying levels of efficiency. The one in Bellingham, WA, for example, at first refused to mail our last ICSC New York Issue because it contended we had an “incorrect” ISSN number—though it’s the same one we’ve been using since FOREVER!—but relented “just this once” after the pleading from our local printer.

And, where it hits you, the reader, with great, personal impact, it means that we can avoid a subscription increase . maintaining the same rates we’ve had for the last three years.

For those readers whose companies have very strict requirements regarding size of emails, spam blockers may prevent the issues from getting through, you must inform whoever is responsible to accept Shopping Center Digest as an approved sender, perhaps adding us to your address book.

Now a major warning to you few readers who have not yet given us your email address. Please, please, please, I beg you, send it to me so I can update your record so you don’t miss a single issue. Email it to me directly at mshor@shoppingcenters.com .

And another request: Let’s hear some feedback, pro and con, on the new format and approach. If you want to comment, suggest ways we can improve the Digest, and make it a better tool for you—that wouldn’t hurt either. We need your input.

Further information on Shopping Center Digest, our weekly Eflash, Expanding Retailers, and the annual Directory of Major Malls may be obtained from our website, www.shoppingcenters.com .

Resilience, Positive Attitude Are Universals From Dealmakers--And Anger That ICSC has "Lost Touch" With Its Members

2009-11-23T07:58:00.000-08:00

This “Strolling the Agora” Column Is From The November 24, 2009 Issue Of Shopping Center Digest Being Distributed At The ICSC Conference In New York

Though there are universals present in each ICSC regional conference around the country focusing on leasing and development, there are also distinct differences in themes and outlooks expressed by these real estate professionals. So it was in Chicago last month and--I expect-- it will be in New York at the National Conference and Deal Making in the next few weeks; the ultimate connector being a resilience and positive attitude:“We’re working harder than ever for a lot less, but we’re still vertical and will get through this (the recession).”

A side issue, but strongly expressed by a number of landlords and tenants was anger at ICSC for “losing touch with the needs of its members” and “operating as a business rather than a trade association.” More on this later.

Even before the beginning of brisk, official dealmaking, many were already expressing optimism on the rising economy, basing much of it on rising retail figures just released by a number of leading chains. However, these should be taken with a touch of reality, stressed one top department store executive.

“In retailing,” he pointed out, “we’re zooming down the highway at 100 miles per hour looking backward through our rearview mirror and competing against last year’s figures. It’s great if our same store sales are up 3 or 4%—but last year they were down 15, 16 or 17%. You must consider what we’re competing against.”

Said another retailer: “In that context, we’re still behind where we were two years ago.”

More Time For Recovery

Though some of the national sales figures being released indicate the recession is over, industry observers contend that it hasn’t convinced the average consumers who are still being very cautious on spending for non-essential goods. “Unemployment is still rising around the country and the average shoppers are still fearful of losing their jobs,” said another chain VP. “It’s going to take a lot more time for a full recovery.”

For landlords with troubled properties difficult to rent, it may be worthwhile to “give the space away,” said one strip operator. “We’ve made deals with free rent for some Mom and Pops, with the tenant paying only operating costs for a couple of months,” he said. “It keeps the center active, stops the domino effect of other stores leaving. But,” he stressed, “the jury is still out as to whether it is effective. It depends on whether he can start paying the rent after the free period expires.”

One retail consultant was exuberant about the number of deals he had made recently. “Last year was awful and I really thought we could go belly-up. I was forced to lay off some people; then we increased our marketing, worked harder and longer than I ever have before, and it’s beginning to pay off. It’s re-vitalized me and our entire operation.”

Another agreed, and pointed out that with computers and the internet, “it’s a lot easier to operate and connect. It doesn’t completely replace face-to-face, but it does enable us to cut travel expenses and still negotiate with major landlords, get answers, and satisfy the needs of our retail clients.”

One broker pointed out that she and others “were re-tooling their business plan and dumping the unproductive stuff.”

“Part of the problem of poor retail locations that exist today,” said one veteran dealmaker, “is that many national chains had all these real estate people at the home office signing store leases who never even looked at the site. There are too many coffee or pizza shops on the wrong side of the street, or restaurants in odd-shaped parcels with inadequate parking that are difficult or unable to provide for drive-up windows.”

Wandering In The Exhibit Area

Wandering through the exhibit area, I see it’s crowded with rushing, intense dealmakers networking or heading for appointments, and was struck by several rented but unoccupied booths. On the upper level, where historically six much larger dealmaking rooms were occupied previously by some heavy-hitters, only three were occupied: CBL, Developers Diversified, Jones Lang LaSalle. And these landlords brought a substantially fewer number of leasing professionals than last year, 6 compared with 13 in 2008, said one owner-developer.

Another aspect setting this Midwest meeting apart from other recent ICSC regional meetings was the heavy concentration of booths operated by small cities, villages and counties that were actively seeking retail tenants to help revitalize downtown business districts. Represented by local economic development officials, they highlighted the marketing potential of these communities, and stressed how public moneys, stimulus funds and special tax incentives were earmarked to restore once vital centers that had been deteriorating for years; they pointed to improved lighting, roads, signage, public utilities, transportation, parking, and the like.

“If,” said one planning director, “we can attract a few solid retailers, it would add substantially to our tax base and help us to stop a slide caused by such factors as the admitted local neglect, poor management of past administrations, and the national economic crisis.”

Second Day A Disaster

Though the level of dealmaking opening day in Chicago was impressive and ongoing until the reception that evening, the second day was a disaster. A substantial number of dealmaking booths were left unmanned that morning as many budget-conscious real estate professionals flew or drove home the night before to avoid the extra cost of high hotel rates; many of these neglected booths did not have even token amounts of company literature. Company representatives who were at their booths outnumbered those dealmakers wandering around still trying to connect.

One retail consultant from Atlanta who operates only in the Southeast said he was in Chicago due to a new client of his interested also in expanding into the Midwest market. “I can connect him to a few good sources and contacts and be a hero.”

A number of tenants, landlords, and brokers were outspoken in criticizing ICSC for maintaining high prices and “gouging” its members.

“In these hard times, ICSC should lower its ridiculously high registration fees to only cover the costs,” said one retailer. “They have $90 million sitting in a slush fund for a rainy day. Don’t they know it’s raining out there?”

Another said he hadn’t registered because of budgetary cutbacks forced by national headquarters, and visited the landlords upstairs—where a badge was not required for admission—and did meet with a few others in the lobby to look at leasing plans and talk deals. “In New York [the upcoming conference Dec 7-9] Simon told me to call them when I’m at the Sheraton and they’ll send someone out with a badge to bring me in.”

Arbitrary Decisions

It was understood, one dealmaker confided, that several major owner-developers have already cancelled plans for exhibit space “at the Hilton and Sheraton hotels, and others may be wavering.”

One landlord accused the trade association of arbitrarily making decisions on schedule changes without consulting its membership. “In Las Vegas next year,” he said, “they’ve already changed the convention dates so we have to come in on the weekend. Don’t they know that’s when hotel and travel costs are at the highest, and how short of cash many companies are?”

One VP of real estate and construction with a national chain told me he normally did not attend these regional meetings but sent area leasing reps. “I’m here only because of a retail committee meeting, but ICSC seems to have lost touch with reality and is functioning with no regard to the needs or wants of its members,” he said.

Overall, registrants felt attendance and the number of exhibitors were down from that experienced over previous years. But the overall sentiment was still a strong, positive outlook throughout the conference.

Especially for the seasoned brokers and consultants, who have been through past market downturns and are using the lessons learned from their past experiences to help weather the current storms and control the existing crisis. “Look,” said one, “I’ve cut back before and operated out of my home when necessary. I did it before, I can do it again. We’re survivors. It’s the younger people who have never faced such rough times before who are the most terrified.”

Further information on Shopping Center Digest, our weekly Eflash, Expanding Retailers, and the annual Directory of Major Malls may be obtained from our website, www.shoppingcenters.com .

Roar Of Dealmaking, Demands For Percentage Deals At Core of ICSC Atlanta Event

2009-10-26T08:52:00.000-07:00

Strolling the Agora column from the October 26, 2009 Issue of Shopping Center Digest.

So I’m in the Atlanta Convention Center heading for the ICSC Southeast Conference and I hear this steady hum-- that increases in volume, like a rushing rapids, and then a louder waterfall, and bounces and echoes off the concrete pillars and massive halls until it becomes almost deafening. It’s the roar of dealmaking.

And it’s such a contrast to last year’s “Retailers Meet and Greet” (See SCD, Agora, J227) when a large number of the tables were empty and we graded the entire conference as a D.

Not the case this time, as all the tables were occupied and landlords and brokers eagerly lined up to chat with prospective tenants, trade business cards, and try to schedule appointments for more in-depth discussions and negotiations.

This is not to say that the 2-day event set any records for attendance and overflowing optimism. Far from it. However, the majority of the 2,200 or so dealmakers conceded the fact that due to the economy they had to work harder and longer to make the deal—here and back at the office—and they were not going to get everything they wanted or needed.

But, as one veteran cheerfully said, “It’s something, which is always better than nothing. And this is what we do: ‘Smile and dial’ and a few of those leases will get signed.”

The most common complaint from owners was that “too many retailers were insisting on straight percentage deals. Ask about $1 or $2 added to the gross, and they don’t want to hear from it; straight percentage or forget it, there’s another landlord willing to fill the vacancy.”

One retailer I spoke to admitted his company was taking advantage of the fact that there weren’t that many chains aggressively expanding. “We’re looking for straight percentage leases for three years, if we can get it, and will agree to using the higher payments as the basis for a rent renewal.. If we’re really serious on the location, we’ll drop it to a year or two-year deal.”

Owner-developers generally came in two categories. Either it was “I understand their (the tenant) position and I don’t blame them. I’d do the same thing if I were in their shoes.”
Or “I concede the leverage is overwhelmingly on their side but I don’t like the attitude of their putting a gun to my head. We’ll make the hard deals because we have to, and each party should not be completely satisfied. That’s fair. But we should be left with our dignity.”

Another landlord appraised the current economy which has dampened—to say the least—
dealmaking in the industry and said “Don’t quote me now, but in the long run, it’s probably better for the industry. There’ll be a shakeup and we’ll get rid of a lot of the deadwood and poor projects that should never have been built in the first place.” He added that there may still be some vacant W.T. Grant sites around the country. [Those too young to recall recessions of years past should look it up.]

One strip developer I spoke to said he was getting no action at several vacant stores, except from a Mom and Pop restaurant, who was underfunded. “So, I thought, isn’t it better to put in an operator who will provide good food, and enhance the center? If he makes it, I’ve incubated a good tenant who may remain as a long-time tenant or even expand in the future. And if he doesn’t make it, what have I lost? I couldn’t rent the space to anyway.”

Regarding mergers and acquisitions, one leading owner of smaller centers remarked that “last year we were getting offers of available vacant land. This year, it’s existing shopping centers. But we can’t do anything about these projects because the banks are still overly cautious about lending money.”

Though some private investors and REITs have said they have money in place to acquire centers, many others complained about the lack, at this time, of the availability of adequate financing, which they say is impacting on expansion and new development in areas that may be under-stored.

The consensus: Tenants and landlords both said they had productive meetings, pointed to positive signs in the economy, but warned that a full recovery is still “quite a ways down the road” and much of what happens in 2010 “will depend on how successful the coming
holiday season will be.”

More information on the twice-monthly SHOPPING CENTER DIGEST and our associate publications, the weekly Eflash, EXPANDING RETAILERS and DIRECTORY OF MAJOR MALLS, may be obtained from our website, www.shoppingcenters.com .

What Is Causing Agita Among Landlords Is The Demand By Tenants For Rent Concessions

2009-10-15T07:03:00.000-07:00

Strolling the Agora column from the October 12, 2009 issue of Shopping Center Digest “The Locations Newsletter”

What has been causing agita among landlords in this industry over the last year or so is the pandemic of retailers rushing for rent concessions as an inducement to remain in a shopping center, renew a lease, or to make a new deal. As we’ve said several times before, the balance of power—due to the increasing number of vacant stores and the decreasing number of chains that are aggressively expanding—has for the first time surged to the tenant side.

It’s a basic rule in the ledger of investors and accountants that supply and demand determines what is the “true value” of a retail project, whether a strip, mall, lifestyle center or what have you. Some landlords have used this for years, establishing the “market rent” on what other tenants would be willing to pay for that specific location in a center; some tenants have grudgingly “overpaid” for these locations as a way to keep out a competitor and avoid a loss of market share.

It is certainly not the replacement cost of the brick and mortar and numerous other variables that went into building the development in the first place. Value has been based on ROI, Return On Investment, and been used to establish various “cap rates” for years.

And when a retailer, as Rite Aid did recently, boasts that it obtained rent concessions of 20% on its worst-performing units, or when Finish Line states it is seeking serious reductions from landlords for the nearly 300 units coming up for renewal next year, the value of the centers housing those stores is substantially diminished.

It is why Taubman Centers has said it will write down the value of The Pier Shops at Caesars by $106-$111 million, and Regency Square by $55-$58 million to about $30 million, and now is turning over the Atlantic City project to the lender, Centerline Capital Group.

It is also why a number of landlords are actively seeking tax reductions on the value of their projects, such as Inland Western, owner of Maple Tree Place in Williston, VT; it is in superior court in Chittenden County seeking a $15 million cut in the $80.9 million assessment.

It is also why Standard & Poor’s Rating Services cut its ratings a notch on Regency Centers Corp, a major landlord of supermarket-anchored shopping centers.

It is also why the new owners of Highland Park Village in Dallas, Steve Summers and Ray Washburne, paid $170 million for 200,000 sq. ft. of retail and 50,000 sq. ft. of offices. Annual sales at the National Historic Landmark are over $1,000 per sq. ft., well above national averages and pretty good even for a luxury-oriented complex, that is going to get even more luxury-oriented.

And it’s also why countless, well-funded investment companies are patiently circling overhead waiting for cash-strapped owners “to get real” on the value of their assets and take them to market. When this finally happens, there will be a flood of shopping centers changing hands and the entire landscape of this industry is expected to change, with some landlords getting even larger.

The dismal state of the economy is blamed for just about everything under the sun right now. And numerous state, counties and towns are passing on to their citizens their need for more dollars, either by directly raising taxes, passing new taxes or establishing numerous new kinds of fees, and/or increasing audits on businesses in effort to collect on unpaid back taxes.

And then, there are other methods, related to the above—but not as numerous—that some communities are using as a reaction to these challenges.

In East Alton, IL, village officials have established tax-increment financing and special sales tax districts to improve business areas that include three small shopping centers: Eastgate Plaza, East Alton Plaza, and Wilshire Village. The action is designed to counter the spread of vacant storefronts in parts of the districts, and to retain existing businesses in a currently viable area from going into decline. Tax collections will begin in January, and then it will be determined how much would be spent on revitalizing the areas with better lighting, sidewalks, streets, utilities, and general cosmetic upgrades.

What this is all leading up to, I guess, is that just about everything is inter-connected—a giant, intricate arrangement of dominoes—and when the first one topples it causes numerous others to follow.

More information on the twice-monthly SHOPPING CENTER DIGEST and our associate publications, EXPANDING RETAILERS and DIRECTORY OF MAJOR MALLS, may be obtained from our website, www.shoppingcenters.com .

Landlords, Tenants, Brokers Begin Drive For New Deals At ICSC Conference In Philly

2009-09-29T07:56:00.000-07:00

Strolling the Agora column from the September 28, 2009 issue of Shopping Center Digest “The Locations Newsletter”

To many dealmakers on the Eastern Seaboard, the ICSC Philadelphia meeting serves as a landmark, the first official session after Labor Day and a formal statement that summer is over and with fall comes the full-court press to get some leases signed.

So it was that some 1,200 landlords, tenants and brokers involved in New Jersey, Pennsylvania, and Delaware—with quite a bit of leakage into Ohio, New York and Maryland-- converged on the City of Brotherly Love for two days of meeting, greeting, and the drive to fill vacant space.

Many tried to maintain a cheerful, optimistic outlook. But…….

“We’re working a lot harder for a lot less.”

“It’s what we do—keep plugging away with the anticipation that a few of the deals we’re working on will come through. I used to have pending deals up to here [signaling up to his brow] and now they’re only up to here [signaling knee high].”

“There are a lot of hungry people out there looking for jobs, but very few openings available.”

“We’re treading water and hope we don’t sink.”

And, “It’s getting nasty and a little more vicious, especially amongst brokers in the same office. Though it has always been a problem, there is a lot more poaching of clients, trying to steal deals, attempting to horn in and share commissions that are undeserved.”

Said one veteran dealmaker, “This is not unique for just this market. I’ve been hearing similar stories over the last few months from friends around the country.”

Higher Concentration Of Brokers

As far as the quality of those in attendance, a substantial majority of mostly local brokers—which is always the case for these ICSC events covering a localized region—representing landlords and tenants involved in small, strip centers. However, there was almost no representation from large mall operators or national tenants, even those who have a substantial presence in the market.

As for national chains, it was pointed out that many of them are farming out a lot of the drudge work to willing brokers in the immediate area.

Beyond just the areas involved in leasing, there was also a lot of speculation about the increasing number of new funds being created daily for potential acquisition of distressed shopping centers that may soon be going into default. However, there are few large portfolios or sales taking place. The sellers are holding on for a better price, and the potential buyers are in no hurry to buy at current values, which they expect to drop even more.

“The owner still has a price in mind that conflicts with reality,” said one veteran who acknowledged he has several large investors, a good number of them with financing coming in from Israel, China, and various European countries, and is waiting for a better deal.

“We’re eye to eye, waiting to see who blinks first, and there’s no pressure on us to blink at all.”

Growing Numbers Of Vacancies

One owner: “We have a good center and have been paying our monthly mortgage all along. But we lost a couple of key tenants and technically, therefore, we’re in default. We look at the situation, are leasing a lot of available to offices, and see we can pay it off in four years.

“Mortgage lender sees this, too, and tells us he’s going to foreclose. Luckily, we can come up with the cash and pay off the loan. Now, we’re looking for similar landlords who are being foreclosed on who cannot come up with the cash.”

The problems of growing vacancies has made many landlords eager to negotiate and strike deals to fill space they never would have considered before. We’ve remarked on this in numerous columns over the past year. And it’s the reason why medical and dental offices are becoming a greater presence in major malls. They always wanted the visibility and the access to the affluent customers, but could never meet the rental demands; now they can as rents have dropped many dollars below last year’s asking price.

It has even affected retailers whose customers are blue collar, low-income ethnics, and whose main locations are small strips and storefronts in the inner cores.

Said one leasing director for a major apparel chain, “We now have so much more to choose from. No way, are we going into malls; but because there are so many more opportunities coming to us out there, and the rents are so low, we’re able to expand at a much greater rate than we anticipated. We’re locking in those low rents now, and will be in a much better position in one or two years when the industry gets back to normal.”

Speed Dating

The main purpose of the two-day session was dealmaking, with several hundred booths set up mainly by landlords, brokers, and tenants for the Thursday session. The day before, though, there were a number of workshops and panels on various topics of interest to early arrivals. The best attended and popular was the called Speed Dating, where some 19 retailers held court at individual tables, explained who they were, the demographics of their markets, size of stores, and what they were looking for in new locations, handed out fact sheets and exchanged business cards. Among those were Chipotle, Great Clips, Ikea, Subway, Panda Express, and a number of local supermarkets.

After a few minutes, the presenters stayed in place and the landlords went on to another table and took some more notes.

It was something, said owner-developers and brokers who participated, and certainly “better than nothing. But it was still,” said one hungry landlord, “like having a nibble at a banquet. Still it gives us something to work with. And, we’re dealmakers, which means we have to always look on the positive.”

P.S.---One sad note, which brought back so many memories to us old farts in Philly: the passing of Mel Simon, one of the stalwarts in the industry, a hard-driving, fun guy, and with Herb and Fred built a great company. Here’s to ya!

More information on the twice-monthly SHOPPING CENTER DIGEST and our associate publications, EXPANDING RETAILERS and DIRECTORY OF MAJOR MALLS, may be obtained from our website, www.shoppingcenters.com.

With Leverage Finally On The Side Of Tenants, How Are Landlords Reacting?

2009-09-10T07:30:00.000-07:00

Strolling the Agora column from the September 14 special issue of SHOPPING CENTER DIGEST

As long as this shopping center/retail chain industry has been around—at least for the last 40-some years—the leverage at the negotiating table has been overwhelmingly with the owner-developers. That is until this massive recession hit, new development came almost to a standstill, and vacancies from the smallest strip to the biggest mall began to go through the roof (pun intended).

Tenants, and it’s not just the discount/dollar stores, the fast food and restaurant chains, the sporting goods operators or electronics retailers still in business, or the teen-oriented specialty chains that are taking advantage of this new-found power. It has spilled over to regional operators, Mom and Pops, temporary retailers, innovative merchants wanting to test new concepts and markets, and even those not normally interested in locating in a shopping center but lured by rock-bottom rents, central location, and numerous other reasons and concessions. Franchising is a big source of potential retailers as numerous operators eye entrepreneurs as likely partners due to their access to off-shore financial markets.

Oh sure, some may contend the landlords never had overwhelming muscle when it came to striking a deal, because they “really needed that anchor, or that dominant retailer, or that high-prestige fashion plate” to make the project happen. And there’s a lot to be said for the need by high-profile merchants to have some say in how the center or mall is marketed, or what other retailers would be permitted in, and what prime locations they would have.

Heavyweights Of The Past

This is behind the retail heavyweights of the past, such as Sears or May Stores or Dayton-Hudson for malls, or Giant Foods, Acme Stores, Safeway Stores or Gamble-Skogmo for grocery-anchored strips, establishing their own development divisions. Or why discounters like Wal-Mart or Kmart designated operators in key markets to be their prime developers.It was all done to protect their substantial financial investment and to be able to control their destiny within the shopping center.

These were the exceptions. In most instances, the landlord set the rules and Triple-A or national tenants got the best deals, the earlier they signed the better; they were necessary to hit that 70% of signed leases to obtain financing, but they still had little, real bargaining power. And the other retailers provided most of the profit for the project. With the surge to the formation of REITs and the creation of behemoth landlords, the balance was tipped even more to the side of the owner-developers.

Now, pointing to the depressed economy and declining retail sales and profits that have caused many competitors to close up, the remaining merchants still in business and looking for locations are relishing this change of fortune. A cliché: “In the country of the blind, the one-eyed man is king.” A viable tenant who used to open 50 stores annually and is now looking only for 20 when others aren’t ‘open to buy’ has a lot of muscle.

So rent reductions, and fixture allowances, and “finished stores” and dozens of other demands that a few years ago would cause a landlord to ask for a sanity hearing, are now part of the opening gambit in negotiations.

How The Landlords React

So, how is the landlord, more used to a “take it or leave it” approach reacting to this? How is he and his leasing representatives working to turn the tide and make those deals that will keep the tenant list filled and the shopping center viable?

Among the first steps is getting existing tenants to renew, which both sides are agreeable to, with rent reductions, tenant improvements, reducing operating hours, co-tenancy clauses, and numerous other concessions and details being hammered out.

With many empty big-box stores and prime locations going dark, landlords are eager to fill the gaps with almost any tenant offering a basic rent. This is why many of these locations are going to “pop up” stores, temporary and specialty tenants, salvage grocers, kiosk-oriented tenants, retailers looking to test new concepts and new markets, deals with permanent chains offering very short-term leases of two or three years, permitting “kickouts,” percentage rents, finished stores, etc., etc.

An interesting trend is that many discounters, home improvement chains, ethnic-oriented merchants, even dollar stores, are willing to take a risk on major downtown locations in large cities they usually ignored, cities like New York, Chicago, Miami, Los Angeles, Portland, Dallas.

In essence, on the table are any concessions a viable tenant is willing to ask for. And many times, to their surprise, they are being accepted by landlords.

They are eager add medical and dental offices, schools, libraries, municipal agencies, to try new concepts, such as water slides or indoor go kart tracks in place of empty “canyons,” nearly-new shops, pawn shops, and they may even look the other way when merchandise edges out into the common area—unless there’s a strong complaint from a retail neighbor.

Hoping For A Turnaround

Many in the shopping center/retail community are optimistic that there will be a turnaround next year, with the most cautious not expecting it until the second half of 2010. As reasons for their optimism, they point to more positive financial results from key retailers, polls showing a rise in consumer confidence, improvements in numbers from Wall Street, drops in the increases of jobs lost, rising home prices in some areas around the country, and the like.

Though back-to-school was not a great success for the majority of tenants, some were gratified with better-than-expected sales. However, all mavens are holding their breath awaiting sales figures for the most important selling season of all, November-December holiday sales.

No matter what their expectations and plans are now, all can change if those few weeks produce dismal results. However, if sales improve and are better than expected, the optimism may spill and result in more leasing and development deals from early 2010 and beyond.

It may take years though, many contend, before all the current empty stores are filled and a big push for new development and shopping center expansion swings leverage back to the side of the landlord.

More information on the twice-monthly SHOPPING CENTER DIGEST and our associate publications, EXPANDING RETAILERS and DIRECTORY OF MAJOR, may be obtained from our website, www.shoppingcenters.com .

The Fine Points Of Finance That Are Driving This Industry

2009-08-24T06:39:00.000-07:00

Strolling the Agora column for August 17, 2009 issue of SHOPPING CENTER DIGEST

In broad strokes, I can understand only some of the financial workings that have been driving this industry for so long—certainly not the fine points--and I’m somewhat comfortable with that. Though there are times I wish I had the expertise and understanding of Milt Cooper, who led Kimco and the landlords of this industry into the REIT market in ’91, rescuing it from the lack of funding that was crippling development and growth.

There’s no doubt that we may be heading into a similar situation dealing with money now --though slightly different. According to First American CoreLogic, “almost $165 billion in U.S. commercial real estate loans will mature this year and need to be sold or refinanced as rents and occupancies fall…”

Also, according to the index developed by MIT’s Institute of Technology Center for Real Estate, there has been an increase in commercial sales, but also a record drop of 22% on the price sold by institutional investors.

We’ve been writing for months now about the larger landlords reducing their debt and positioning themselves to acquire new properties and mortgages from strapped owners forced to sell or liquidate their holdings. So far, few “large” acquisitions have been made. There have been numerous new companies or divisions formed by savvy investors and private equity companies to acquire distressed properties, but with few actual large deals being made, and there are many confusing signposts out there.

Extend Rather Than Sell

One financial maven said “we’re seeing lenders generally extending their loans when possible to avoid having to sell properties at current low prices and into a market where potential buyers are having difficulty arranging new financing.”

Sure, it was just announced that Cadillac Fairview Corp (owned by Ontario Teachers’ Pension Plan, is paying Macerich Co $150 million for 49% of its very successful Queens Center, and its $342 million mortgage; this is the first of three joint ventures by Macerich to cut its $7.9 billion debt by $1 or $2 billion within two or three years. And earlier this year Simon Property Group sold $1.7 billion in stock, and numerous others--Forest City, CBL, Kimco, etc., etc.—have put themselves into a more comfortable financial position by reducing their debt. Thus far, General Growth Properties is the only major developer that was forced into bankruptcy when it couldn’t re-finance and control its debt.

It’s interesting how GGP’s troubles have impacted on statistics for our industry. Delinquency rates for securitized mortgages on shopping malls fell in July to 4% from 5.9% a month earlier. Mainly, according to debt-rating firm Realpoint LLC, because the landlord resumed paying interest on several of its delinquent mortgages after filing for bankruptcy in April. In June, GGP accounted for 43% of delinquent mortgages in retail; in July, that shrank to 18%.

Not Looking To Wall Street

Now, if you listen to the pronouncements, some shopping center developers won’t be looking any longer to Wall Street for funding, at least for the time being. Kimco, said CFO Michael Pappagallo, will not “look to the equity market to bail us out. I don’t think our investors are going to keep buying into massively dilutive equity issuances solely to pay down debt.”

He continued: “Down the road, there will be circumstances where value-creating shopping center opportunities will be available. Issuing equity at that point would make sense if our price and” returns supported such a transaction.

Then there’s Equity One, stating that there weren’t too many bargain real estate deals out there, saying it’s shifting its focus from property purchases to manage existing properties and paying down debt. And Regency Centers also says it will avoid debt and will be cautious on acquisitions.

Financial advisor Ernst & Young released a recent survey finding that though 53% of its respondents had acquired non-performing properties or loans in the last 18 months, 45% of those who have not believe it’s too early to even attempt to purchase distressed properties or loans.

So, essentially, large acquisitions and mergers may not be happening for a while, at least regarding shopping centers and real estate. As for residential, PennyMac Mortgage Investment Trust—founded by former execs at infamous Countrywide Financial Corp—was able to raise only $335 million from the hoped-for $700 million IPO it announced in May.

Then, The Tenants

But then, on the other side of the negotiating table, are the tenants.

Among its annual list of Hot 100 Retailers, said STORES magazine, 7 of the top 10 earned that position through acquisition, rather than growing “organically” through opening new stores; to be eligible, the chains had to have at least $300 million in annual sales.

Those that had impressive boosts through opening stores and increasing its revenue from its units were American Apparel, ranked No. 2, with a sales jump of 57.6% through organic growth; Apple Stores, ranked No. 5, increased its sales by 46%; and the third retailer was jeweler Finlay Enterprises, No. 8 (Bailey Banks & Biddle, Carlyle, and Congress jewelry stores). [Interesting commentary on this last: Finley has just filed for Chapter 11 and plans an auction to sell its business and assets].

Leading this Hot list is DineEquity, formed by the merger of Applebee’s and IHOP. And the supermarket mergers, Susser Holdings (Town & Country and Village Market) No. 3, A&P (acquisition of Pathmark) No. 4; Wendy’s/Arby’s (No. 6).

Granted, there have been many instances over the last year of household names disappearing from the list of tenants in our shopping centers. Some of these brands may live again as internet retailers, or as a division of another mainstream retailer: Goody’s and Sharper Image, for example.

And then, there may be more acquisitions and mergers and investors on the horizon for successful retailers. Several financial mavens have said that Kohlberg Kravis Roberts, a leading private equity company, is considering an IPO to take Dollar General public. Also, Irving Place Capital Management, parent of, Vitamin Shoppe said it plans to raise $143.8 million from an IPO to double the number of its stores, now at 425.

And jvs are still being considered by owners of malls and other shopping centers. Macerich, for example, expects to announce one or two more agreements with institutional investors within a month or two, and says it will receive more than $500 million from investors for the year.

So even if many dealmakers say there’s isn’t that much leasing and developing taking place, never let it be said that there isn’t any activity going on in this industry.

More information on the twice-monthly SHOPPING CENTER DIGEST and our associate publications, EXPANDING RETAILERS and DIRECTORY OF Major Malls, may be obtained from our website, www.shoppingcenters.com.

"Running Like Crazy And Trying To Stay In The Same Place," Is How Some Dealmakers Describe Their Efforts To Fill Ever-Growing Vacancies In Centers

2009-08-03T07:02:00.000-07:00

Strolling the Agora column for the August 3, 2009 Issue of SHOPPING CENTER DIGEST
“You know,” a top real estate executive with a major owner-developer of shopping centers told me, “it’s as if I were a tiny hamster racing around one of those wheels in a cage. I’m going like crazy and at the end of all that rushing and running I’m still in the same place—if I’m lucky.”

What he was referring to was that most of his efforts and energy are being spent re-negotiating existing deals--trying to find new ways to retain tenants, preventing them from closing stores and contributing to the ever-growing increase of vacancies in his shopping centers—than prospecting for new tenants. “And trying to locate new retailers to fill the holes… we’re trying, but it’s very difficult to tell our story to them, or their reps, if we don’t already have a relationship with them. There aren’t enough hours in the day for that.”

This struck very close to home last week when I was discussing the reasons why a high-end, specialty retailer had not renewed her subscription to Shopping Center Digest. “We’ve been told by the home office to cut all expenses,” she said, “and why do I need a publication about new shopping centers or expansions when so little is happening now. And I’m besieged with offers of great locations and great, new deals by my current landlords and people I’ve never done business with?

“However,” she added, “when developers start building and expanding malls, and I need that information before my competitors, we’ll be back.”

Nick Lillo of SLF Associates, who specializes in restaurant leasing in malls and life-style centers, admitted that “…but for a very precious few, our business remains in limbo…requests for rent relief, closings, cautious lease renewals with operating ‘safe bailout contingencies’, are the talk of the day.”

Landlords Being Realistic

Paul Fetscher of Great American Brokerage, another dealmaker specializing in the restaurant niche, is making some new deals. “Fortunately,” he said, “I am spending plenty of time with active franchisees…and landlords willing to be realistic and those who realize that yesterday’s rents weren’t the real rents—are coming to the table and willing to cut reasonable deals.”

A veteran leasing professional with a national apparel chain explained that with the slowdown in his company’s growth plans, “we’re focusing primarily on leases coming up for renewal in the next three years. This enables us to offer an early renewal to the landlord in return for reductions. It helps with making the process a bit less contentious.”

With so many big box stores going dark because of the disappearance of Circuit City, Linen ‘n Things, Comp USA, numerous department store anchors, category killers, etc., etc., many landlords fear that excessive percentage of vacancies could trigger other tenants from using their co-tenancy clauses as a reason to close their stores. This is part of the reason why, as we mentioned at the end of last year, some key retailers were being allowed to remain in their locations by paying only percentage rent, or in some cases, without paying any rent.

But many of these vacant stores, a leading broker stressed, “are ideal locations for value-oriented, expansion-minded retailers like T.J.Maxx, Kohl’s, Target, Home Depot, Lowe’s, Babies R Us, numerous supermarket chains, and the like.”

Opportunities Not Available Before

Which is an important reason, said Lillo, “for new space being negotiated on an entirely different, much lower ‘sales pro-forma’ base than even one year ago…reduced hours of operation, fixed pricing, ‘smaller plates’…all now a big part of our new playing field to lure customers back. Burgers, Wings, the QSR are now being given opportunities in locations, shopping centers that would have been impossible only a year ago.”

Among the brands he expects to “lead the charge back into the light…[are such moderate-priced, family friendly operators as “Darden, Cheesecake, CPK, Changs, Bravo, Brinker, B.J’s…”

One VP with an apparel chain echoed the comments about landlords becoming more reasonable in their demands: “In the past year or so, I haven’t lost a deal to a competitor who was willing to pay more—and it’s not because we’re stretching our maximums. We’ve also been able to lower our rent as a percentage of sales, down to single digits in a few instances.”

Another national tenant said part of the reason for his company’s slowdown of new development is due to the lack of financing which have delayed or killed some projects, or landlords are reluctant or not able to provide “sizable tenant allowances we have become accustomed to…”

Despite all the doom and gloom we’re hearing today, it is far from all negative, with numerous dealmakers seeing future opportunities on the horizon.

The retailers with vision, said a national consultant, are the ones taking advantage of the current economy and willing to make great deals now. “Spaces aren’t going to ‘The Greater Fool’…They are going to those who are willing to step forward in this market. I haven’t spoken to anyone who doesn’t believe that in the next decade, we will have numerous years of prosperity. So let’s lock in a good deal today and lock in those rents!”

More information on SHOPPING CENTER DIGEST, and our associate publications, EXPANDING RETAILERS and the DIRECTORY OF MAJOR MALLS may be obtained from our website, www.shoppingcenters.com.

Though Many Are Directing Their Expansion Offshore, They And Many Others Are Preparing For Major Growth in the U.S. and Canada

2009-07-22T08:35:00.000-07:00

Strolling the Agora column for the July 20 edition of SHOPPING CENTER DIGEST

For months now, we and a multitude of very experienced people in the real estate industry have been directing our attentions to high-profile activity offshore—especially those larger landlords and tenants with the financial capabilities to grow and expand their brands. No question, it was a lot sexier to talk of building in China, Brazil, Russia, and the like--when we could all see that no new development or retail expansion of any note was taking place here--and that numerous projects announced just months ago have now been placed on the back burner.

Right now, the opportunities domestically have been limited due to the economic crisis, said these senior sages, consultants, investors and developers.

However, that does not mean that many of them are not now positioning themselves to take advantage of these falling values when “all the ducks line up.”

In fact, one investor, Tom Shapiro of Golden Tree InSite Partners, classifies the US as the new emerging market. Moody’s/REAL National All Property Type Aggregate Index states that the value of real estate domestically has dropped to levels not seen since September 2004. And others are predicting that these prices could be 50% off the values established just before the economy tanked.

The latest of the heavy-hitters entering this now crowded field is Vornado Realty, which expects to raise $1 billion to fund distressed real estate acquisitions in New York and Washington, DC.

Based on their record-breaking, positive performance over the second quarter, the larger, established REITS are expected to lead the way in aggressive acquisitions [Simon, Macerich, Developers Diversified, CBL]. Granted these funds with their returns of well over 100% have achieved these levels because they were among the hardest hit when stocks plummeted; but by refinancing and reducing their debt, they are now in a good position to buy for cash and avoid the trap of chasing properties using highly leveraged instruments.

And numerous others have formed new companies or divisions for this purpose. According to one marker, some $13 billion has already been raised in the stock market since March just for this purpose.

Financing new projects, said Simon Ziff of Ackman-Ziff Real Estate Group, is still a major challenge. Two years ago, he continued, the average loan his company made was $75 million; today it is $15 million, “and you have to go to 100 lenders to get a deal done.”

To this mix, now, add the foreign investors who are beginning to consider shopping centers ripe for investing and acquisitions, with most of their attention being directed at strips, mainly those that are anchored by financially sound, chain supermarkets, and with high occupancy rates.

The biggest obstacle right now, though, is that despite all the talk of substantial vacancies, foreclosures, distressed properties and the like, there really isn’t that much in the shopping center/retail industry that is available right now for these buyers-in-waiting. Lenders have been easing payment requirements to numerous strapped landlords, many through short-term extensions; but with increasing vacancies in these properties, and the rent decreases being demanded by retailers, landlords may still not be able to service these loans.

Many anticipate, therefore, that even these loans that have been re-negotiated may be in trouble unless the economy begins to pick up. The more conservative are estimating that it could take three years; most, however, are hopeful that activity will begin to improve later in the year or by early spring.

What most, however, are in agreement on is something we noted earlier (See Agora, May 11, 2009, P. J385): The landscape is changing and as it contracts more shopping centers will be controlled by fewer and larger owner-operators.

So, those with the cash are facing off against those who need it, and the question is who’s going to blink first? There’s little question that the more financially sound companies can afford to wait and have no reason to open their wallets until they think the price is right.

More information on Shopping Center Digest “The Locations Newsletter” and our associate publications, Expanding Retailers and the Directory of Major Malls, may be obtained from our website, www.shoppingcenters.com.

Cash Is King, As Dealmakers Say The Biggest Obstacle To Making A Deal Is The Lack Of Financing

2009-07-06T12:11:00.000-07:00

This column of Strolling the Agora appears in the July 6 issue of Shopping Center Digest

Whether you want to build a shopping center or expand it, grow your retail empire by entering a new market or open another store or two, cash is king. Without it, forget it. Nothing new here. We’ve been hearing this refrain from many dealmakers around the country: “It’s the economy, stupid.”

It’s the main reason, for months now, dealmakers have been complaining about the lack of movement and deals are being frozen, even those that “were made” just recently at the Las Vegas RECon. And few of them are optimistic about the freeze lifting in the near future—though we are now in summer and there are many economists and mavens in and out of the administration who are pointing to positive signs.

“Even if there are some convincing signs,” said one investor, “these have not filtered down yet to commercial real estate such as shopping centers and retailing. First there has to be enough positive movement in other areas to be considered a trend, and that will have to take place primarily in a reduction in unemployment, and an uptick in residential values.”

The biggest obstacle to moving forward?

To Kenneth Roosth of Roosth Construction: “I am finding that Financing is the biggest hurdle right now.”

To Ira Meislik of Meislik & Meislik: “…the most common barrier is the inability to obtain financing. Principals are calculating ROIs based upon leverage, and it seems that the numbers don’t work without leverage.”

To Mary Farwell of Noteworthy Investments and Managemednt: “Financing, financing, financing. Working on now that is less than 50% LTV with perfect credit and clean environmental but they still have taken excessive time and, just today, hit my client with an extra point. Now is definitely the time to be creative in our financial side and specialize in exchanges, owner-finance, lease purchase, etc.”

In addition to financing problems, Alan Smith of Bourn Partners cites issues of co-tenancy, terminations, and the demand to "make it worth my while." And, "impact fees are raising the barrier as ...we are faced with $4.00 and to $5.00 of fees to obtain approvals from the municipalities."

One financial maven stressed that lenders are reluctant to lend without a strong cash flow and excellent sponsorship. “They are trying to make agreements more creative and more palatable, but they are becoming difficult for borrowers to accept. Some are putting points up front, or perhaps even trying to reduce the amount of the financing it is willing to provide.”

One national chain which has cut back on the number of new stores it plans to open this year attributes the decision to developers who have halted or delayed building plans. “We haven’t seen such a lack of new projects in 20 years,” he said.

“It’s hitting the smaller operators especially hard,” said another dealmaker, “especially those who have been using credit cards and have depended on long-standing credit lines to keep their business afloat. Some banks have arbitrarily cut back on these credit lines, especially over the last six or seven months.”

It’s much worse than in the early ‘90s when traditional financing “froze up completely,” said a senior dealmaker. “Then, to get the ball rolling, many turned to Wall Street and IPOs as owner-developers re-invented the REIT (real estate investment trust) industry, which had never established a foothold in the shopping center/retail chain industry, except for several owners of strip centers.

Some in the industry say REITs are expected to lead the rebound in commercial real estate, mainly because they have the ability raise money by selling securities; the IPOs are the example they cited when shopping centers became an important part of this niche. Such companies as Simon Property Group, Macerich and Kimco Real Estate have already re-financed much of their debt.

“Now,” he continued, “these landlords—and tenants—are directing their attention offshore where there are less hassles, easier deals, a more welcome environment, and the opportunity for joint ventures and partnerships.”

[We had discussed this in earlier columns, and the fact that some foreign investors—in development and in retailing--were beginning to fill the vacuum here by expanding into North America.]

Perhaps another deterrent to making a deal today can be the local laws, codes, zoning and the like, especially in those markets where retailing is considered to be saturated, and over-stored.

Said Jeffrey Evans of Intertech Design Services: “It seems as though tighter restrictions have been made on what is and what is not allowed in regards to signage and trade dress. Certainly I understand that there needs to be restrictions, but how far do companies need to go in diminishing their brand[?]”

It can be simplistic to base most of the gridlock on just one aspect, lack of funding. However, this is the main cause that many dealmakers point to.

More information on Shopping Center Digest and our associate publications, Expanding Retailers and Directory of Major Malls may be obtained from our website, www.shoppingcenters.com

The Reasons Why US And Canadian Developers And Retailers Are Expanding Into Foreign Markets

2009-06-18T09:04:00.000-07:00

Strolling the Agora column for the June 22 issue of SHOPPING CENTER DIGEST.

For several years now, “civilians” ignorant of the industry or how it operates have been calling it dead in the US and Canada, and writing its obituary in newspapers, magazines, on television specials and on the internet. Especially that niche involving large malls. Meanwhile, we have continued to flourish and re-invent our projects with mixed-use developments, lifestyle centers, entertainment-oriented projects, hybrids, and the basic, ever-present strip center.

Now, with increasing vacancies reaching historic proportions here—resulting in liquidations and bankruptcies of major and minor retailers and developers—some solvent behemoths on both sides of the negotiating table are focusing on offshore, more fertile ground for new development and expansion.

China, India, Brazil, Dubai, South Korea, Russia, the Middle East, the Far East, Europe, in essence, any market or emerging/developing nation with a stable government, growing population and prosperity, whose welcoming arms offer joint ventures and attractive financing, are attracting North American landlords and tenants.

Why There Instead Of Here?

Why there instead of here? The easy responses are the clichés and platitudes that have become over-used in relation to the industry domestically: We’ve reached saturation. Over-building has resulted in duplication of goods and services. The internet has made it too easy to shop based on price, or made the shopping center redundant. Too much competition has destroyed opportunities for future growth. New developments face extensive public opposition, litigation, and excessive time and costs due to requirements for numerous layers of governmental approvals. Etc., etc. Sad to say, there’s more than a kernel of truth in much of this.

But the potential elsewhere? One report says more than 100 malls encompassing 30 million sq. ft. are to be built in India by the end of 2010. Though China has a population of 1.3 billion people with most of the per capita income at the poverty level, much of its growth is centered along the coastal regions where income and population are booming and a city of 1 million people is a small town. The stock index in the last three months has jumped 64% in India, 41% in Brazil, 37% in China, 80% in Russia. The largest department store in the world may very well be in South Korea, Shinsegae Centrum City, which covers some 3, 163,000 sq. ft..

Suzanne Gardent of PBW, Czech Republic, says “shopping malls are becoming a key feature in the retail panorama. Since the fall of communism over 250 shopping centers were built in the Czech Republic, with many of them now over 100 shops—this is huge for Central and Eastern Europe.”

Even though Czechs have a relatively low income, she says, “food and drinks are cheap…they still manage to spend a lot of it [income] on fashion clothes and girls especially are increasingly wearing the same garments as other Western girls…tax system in the Czech Republic is advantageous, and GDP per capita is growing…All that brings to interest to develop more shopping centers [here].”

International Profits Are Greater

Paul Fetscher of Great American Brokerage pointed out that chain restaurants are going international mostly as joint ventures or partnerships with established companies in those countries. “At TGIF, for example, its profits internationally are greater than that of all its domestic units combined.”

In China, said John Cirillo of Strategic Market Insites, “…the construction cranes over there are not for decorative purposes (as opposed to the ones I saw rusting in place in Las Vegas).

“A strong(er) economy, emerging middle/upper class households and a thirst for western brands are a few of the drivers for U.S. retailers to look east. Younger consumers in China are not as focused on saving like their parents; much like baby boomers outspent their depression era grandparents.”

Anil Suri with Inorbit Malls Cyberabad, said “there are around 400 Malls in India and the Number is likely to go up to 1000 soon.” In Mumbai malls work “because of the population and Mumbai is finance capital. Retailers & Developers are now targeting tier II and tier III cities because the potential is immense.”

Andrew King, who manages East Europe at Aston Worldwide, points to Poland’s rising economy and its stability “through European membership since 2004. [It has a] Transparent business environment with high level of international compliance,” citing “Government and EU incentives available to foreign companies for a range of business activities.”

Poland Is Highly Skilled, Educated

The population of 40 million, he says, is “highly skilled and educated, multi-lingual labour pool of over 2 million students [and] with low attrition rates.”

The reason for the push for foreign development “is simple,” according to Geok Ser Lee, International AssocAIA, RIBA, NZIA, LEED AP. “The emerging market there is as big if not larger than the US and Canada now and is growing exponentially as their purchasing grow[s] in tandem with high economic growth….the population of China’s middle class alone is the size of the US and is largely virgin territory with unsatisfied demands, high saving rate, well informed by global standard…They may represent a minute percentage of their total population but is a huge market in absolute term[s]…”

“The two main drivers for international expansion [from the retailer point of view],” said Thomas Naslund, strategic commercial advisor at Longship RE, are retaliation and brand upgrade. “…you need to fight your competitors on their own turf in order to make sure that your competitor can’t make excessive profits on their home market. Money that could be used against you on your own home market.” He cites “the Inditex (Zara)-H&M-fight in Spain and Sweden” as examples.

Also, Naslund states, “Most brands tend to go pricey when they cross borders. This brand upgrade would/could have a positive effect in your home market as well.” An example is the sticker many fashion retailers place on store fronts indicating stores in fashion cities “giving higher status to the shopper…”

"The companies are not so complicated," according to consultant Marco Federico Del Ponte. "If their domestic results in the last year don't register a growth, the only way to hope in better results is to invest and plan expansion in new markets. An example? Abercrombie! They are planning new european openings, but in US they are in stand-by.

"And it is the same for european companies/retailers,infact they are investing a lot in asian markets but not at home."

Hazards, Dangers On Horizon

The push to expand offshore, though, is replete with many dangers, experienced dealmakers stress.

Said Lee: “However, it is not a bed of roses and only those who are serious about helping [China] grow and plug into the global grid are rewarded handsomely.” Many have been successful, others have been harmed. “Simplistically speaking, half hearted attempts through sending in their second liners or pinching pennies when recruiting staff to lead their foray into these markets are the primary causes of their failures.”

“While demand is great [in China],” said Cirillo, “retailers need to be aware that Chinese consumers are sophisticated. U.S. firms that go over there resting on their brand awareness laurels will be in for disappointing sales.

“Many market sectors in first tier (Shanghai) and second tier (Hangzhou) cities are already over-stored…and some centers in working class trade areas have a much too upscale tenant mix.”

Joseph Wan, chief executive of London-based Harvey Nichols, is expanding through local partners in the Middle East, Russia and South America, but is avoiding Mainland China. He says 80% of the population is at the poverty level. “Leave the coastal regions and go inland and you’ll see very primitive conditions, with people struggling for access to electricity and hot water.” In the cities, rents are too high, though “mono-brands are doing well because they charge high margins and can absorb the high rents.”

This concern of areas being over-stored, was echoed by Suri regarding India, “especially in Mumbai there are too many malls and has reached a saturation point…Major real estate companies which were in residential and commercial development have stepped in mall business and a lot of local companies too…We will see a boom till 2012 and then consolidation will happen…”

Domestically, The Future Is Good

“Once the economy rebounds and the industry in the US and Canada recovers,” said one noted shopping center executive, “tenants and landlords have a bright future here. All the guidelines and economic signposts are positive.

“Leading foreign retailers are already seeking locations in our major cities and surrounding markets, especially now when rents are low and there is a push on to diversify the tenant lists in the higher-end markets,” he said.

“With an ever-growing domestic population in North America being forecasted by the census bureau and numerous think tanks—much of course do to second generation citizens reaching maturity and entering the workforce—a strong shopping center/retail industry must grow to meet their demand for goods and services.”

More information on Shopping Center Digest and our associate publications, Expanding Retailers and the Directory of Major Malls, may be obtained from our website, www.shoppingcenters.com .

Money And Time Were The Driving Forces At ICSC's RECon In Las Vegas

2009-05-28T08:11:00.000-07:00

This column of Strolling the Agora appears in the June 8 issue of Shopping Center Digest.

“The two driving forces at the ICSC RECon were money and time,” said Cuthbert as he brought to order the Dinosaur Chowder and Marching Society; the annual gathering of these seasoned veterans is held at the close of the Las Vegas event to gauge their reactions to the 4-day event. “Some of the heaviest hitters, domestic and offshore landlords and investors, have the dollars in hand to buy shopping centers and are patiently waiting until prices drop even more. Interest rates are low, but the banks are not lending.”

“In fact,” chimed in Banker Bob, “the lenders are playing a game called ‘Extend and Pretend.’ Let’s extend our current agreement and make believe we’re lending you money. And those wanting to sell their assets, still have an inflated idea as to what their properties are worth.”

“I concur,” said Dealer Dan. “I offered an owner $36 million straight cash for his mall, he wanted $40 mil, got another buyer for his price subject to financing, and the deal fell through when the buyer couldn’t get the money. The seller is calling me now.”

“Ditto here,” agreed Financing Fred. “I was negotiating on several centers, the owner is asking a cap rate of 8, I’m offering 10 ¼. The point is I’m in no rush. If he takes my offer, fine. If he doesn’t, also fine, I can afford to wait. And if the deal dies, I don’t especially care.”

“I’m representing a landlord,” said Consultant Carl, “who has all the approvals in place, and the main anchors lined up to start building the shopping center. He just bought the land for $15 million. And the bank will only lend him $1.5 million for construction. Ridiculous.”

Looking For C Malls

Leasing Larry said “I have a buyer with $50 mil who wants to buy C Malls. I met with a top exec at GGP (General Growth Properties) and they’re being very slow to sell some of their A projects. Look, I told him, you’re not going to get the price you want for those prime malls—especially since you’re trying to package them with some of the poorer properties. Why not take what you can for these projects that very few of the bigger players want? I’m waiting to hear back.”

“The point is,” said Cuthbert, “too many owners want to get out of their centers the money they have invested in brick, mortar, land and time. It doesn’t work that way. Value is based on ROI, and if they have substantial vacancies and tenants at below- market rents, it deteriorates the property. This industry has always operated on the Golden Rule: Them what has the gold makes the rules.”

After the initial flurry of experiences dealing with buying and selling, the consensus was that though the turnout may have been off by some 30 to even 50% from last year’s, it was still a very good dealmaking event for the large majority of those attending and those retailers still in the market to expand and open new stores and markets. Most of the retail deals were in the low-end of the spectrum, discount stores, dollar stores, fast food, supermarkets, and the like—very little high-end and for A malls.

“Ya know,” said Sassy Sue, “the crybabies stayed home and made it easier to maneuver around the Leasing Mall, in the hotel suites, and get things done. Because of the decreased time pressures, we were able to talk, build relationships, and go well beyond the ‘Here’s the deal, take it or leave it, and I got another appointment waiting outside.’ ”

A Growing Resentment

“I saw a growing resentment against Simon and Westfield,” said Cuthbert, “for moving out of the Leasing Mall into Caesar’s and Wynn’s, forcing dealmakers to waste precious time and money cabbing back and forth from the hotels to the Leasing Mall.”

“Oh, yeah,” said Angry Al. “I blew them off and refused to set up an appointment. Simon didn’t have any dealmakers at Caesar’s, only vice presidents. So I’m gonna sit down and talk while he takes notes to bring back to the guy I deal with, and gets the information garbled, and then I gotta waste time trying to straighten out the lack of communication? No way.”

“And the vacant areas created in all three halls by these developers backing out, by others who made booth commitments and then decided not to come, or the space that ICSC couldn’t lease,” said Cuthbert. “The empty spaces looked like a guy got hit in the mouth with a 2x4.”

“Also,” asked Querying Quentin, “what’s gonna happen next year if Simon and Westfield decide to come back into the Leasing Mall? Is ICSC gonna relocate Centro and CB Richard Ellis and the others who helped them out by taking over those prime locations? It wouldn’t be fair, and it wouldn’t be right. Or, suppose SPG and Westfield decide they don’t need RECon and the heavy costs and make their own arrangements? Remember when we had the convention in Toronto, the major developers didn’t like the facilities and moved their dealmaking activities to Inn on the Park and ICSC had to run shuttle buses to them? It took years to get them all back into the fold.”

“What could work,” said Reasonable Ruth, “is if they wanted to come back, they could be placed at the far end of the South Hall, just beyond the Trade Expo; that area was dying because of the lack of a heavy draw to attract dealmakers.”

“But,” said Tenant Tom, “the retailers on the second level were doing gangbusters, wall to wall people—even though some of it was caused by dealmakers lining up to get a free pretzel.”

“And many of the landlords in the North and Central Halls were complaining,” said Cuthbert, “because putting all those retailers only at the end of the South Hall drew traffic away from their leasing booths.”

Scheduled Appointments

“We’re missing the point,” said Senior Sam. “We’ve been operating for years now on scheduled appointments, whether it’s 15 minutes, 20 minutes, or a half-hour. There never has been much chance for drop-in traffic, so what difference does it make if there’s a crowd rushing down the corridor outside your booth? With this convention, so many left by Tuesday, that Wednesday was like a morgue, and there was very little chance to backtrack on missed appointments. Yeah, the dance cards were not completely filled and there was more time for meetings and real negotiating because of the smaller attendance. We all made deals, but if someone was willing to stand in line 10 minutes for a pretzel, he didn’t have much on his plate to begin with.”

“Perhaps,” said Halloween Harry, “but it felt damned good to now be besieged by landlords trying to make a deal. For years we were chasing developers trying to get locations for our retail stores, and couldn’t get a call back. We must have had over 700 business cards dropped off at our leasing booth the first two days. And we made our first deal for 2009 on October 12, 2008.”

Dealmakers reported a lot of activity by brokers trying to put a deal together, job hunters, and those entering into the new arena of consulting. “These last,” said Consulting Carl, “have to be patient. Most clients are taking longer and longer to pay those bills, instead of 30 days, sometimes 3 and 4 months. It’s best to insist on, at least, a token monthly retainer.”

And Then There’s China

“Hey, we can’t end this meeting without touching on the Far East,” said China Charlie, who has been based in Shanghai since July and heads up a division developing shopping centers on the mainland. “They made many mistakes in the past,” he said, “and my role is to help avoid future mistakes, bring US and Canadian retailers to China, and to incorporate Western and Eastern approaches into a successful operation.

“One thing US-trained dealmakers have to get used to is the difference in size,” he continued. “They have malls and mixed-use projects of 5 million sq. ft. A city with a population of 1 million people is considered a small town. I was offering a furniture retailer a store of 200,000 sq. ft. He said ‘I don’t think I can operate in that small a store. I have stores over 1 million sq. ft., and my smallest is 500,000 sq. ft.’”

“We can go on and on,” said Cuthbert, “telling stories and personal experiences. What we all agree on, though, is that this was one of the most interesting conventions we’ve had in a long time—not the busiest or the most successful by a wide margin. But the most interesting because of the contradictions, the diversity of opinions, and the wide range in conceptions and opinions. Not all of this is good—but it is memorable.

“Now, who’s buying the next round?”

More information on Shopping Center Digest and our associate publication, the Directory of Major Malls may be obtained from our website, www.shoppingcenters.com

The Big Transformation Of The Industry Is Underway

2009-05-12T07:34:00.000-07:00

Strolling the Agora column from the May 11, 2009 issue of Shopping Center Digest

The Big Transformation of this shopping center/retail industry has already begun as an initial reaction to the unheralded number of bankruptcies and liquidations of once-prominent tenants and landlords. However, the record-breaking contraction in the number of actual leading players, according to many veteran dealmakers, is only the beginning and will be the forerunner of a new landscape encompassing those able to react quickly as the economy improves.

“In a nutshell,” said Ira Meislik of Meislik & Meislik, “it will be right-sizing…the retail industry drifts to match its market. The actual behavior of individual consumers [will vary, but they are learning] that they can do with less and they can shop at unfamiliar, previously unconsidered stores [creating winners and losers as the industry adjusts] to the new consumer buying paradigm.”

Though Edward Spivey of Edward Spivey Associates does not expect a “bounce back” like previous downturns, “There will be great opportunities for investors, however, in picking up distressed retail assets and repositioning them or renegotiating lease terms, etc. Cash flow will once again be the main factor in determining asset values, and tenants will likely have more say in what leases rates they are willing to pay.”

Bogus Ploys Are Over

He stressed: “The era of asset values based on bogus financing schemes and refinancing ploys is over.”

Greg D. Icenhour of Shield Engineering says the volume of retail investment is down over 50% and “here in the Southeast almost 80%…As far as new construction, the only activity [in his market of Charlotte, NC] is primarily by end-users,” businesses with specialized space. “With the amount of retail space currently on the market, there should be ample opportunities for lease consultation and property management as these properties change hands.”

Aside from the overall economy, there is little question that the biggest shakeup to the industry has been the bankruptcy filing of General Growth Properties. The experienced dealmakers applaud the refinancing efforts of leaders like Simon Property Group, Kimco, Developers Diversified, Weingarten Realty and Regency Centers to control their debt. They’re skeptical about GGP’s statements that it will not sell off much of its portfolio to return to solvency, and point to a substantial number of owners and investors—including those above—waiting to cherry-pick the better properties at bargain prices.

Sam Zell of Equity Group Investments noted recently that today’s troubled real estate was due to those using too much debt to buy properties during boom times, and that a substantial number of those acquisitions were “under water.” [They] “have no incentive to sell as long as they owe more than their properties are worth” and investors will be picking up this real estate from foreclosure over the next few years.

Others point out that many larger landlords are now focusing future growth and development internationally, especially in emerging nations, China, Japan, India, South America, and the like.

Impact Of Ethnics

“If you’re talking of a changing landscape in the industry,” said one respected dealmaker, “you can’t ignore how changing demographics are affecting us. Yes, more price-conscious consumers are gravitating to the dollar stores, but there is also an increase in ethnic-oriented retailers, in malls and specific mini-markets, a reflection of what’s taking place all around the country and in Canada. Then, such franchise operators as Church’s Chicken are beginning to search out immigrant operators, those that might be able to obtain needed financing through foreign credit markets.”

Harsha V. Agadi, chief executive of the chain which has 1,650 restaurants, stressed that this was only one aspect of its plans to open 120 stores this year and continue an aggressive expansion program. He pointed to Korean, Chinese and Taiwanese banks primarily as financial sources for franchisees.

Another highly-regarded veteran expanded on this point.

“When I got into this industry over 40 years ago, it was composed of mainly white males. Over the years, women became an integral part of developing and leasing, first entering through marketing. Now the entire demographic is like a rainbow, reflecting what is taking place throughout North America. And, as US companies—retailers and owners—expand their interests globally, you see a major influx of this cross-border pollination domestically as more foreign-based tenants and landlords enter the market, which they see as containing fantastic, untapped potential.”

Many of the ethnic groups now an essential part of the industry—African Americans, Asians, Hispanics, etc.—he points out, are native-born or first- or second-generation.

[We’ve discussed this evolving demographic of tenants in this and past issues of Shopping Center Digest, pointing to such apparel chains as Shasa from Mexico and H&M from Sweden, the U.K.’s supermarket chains like Tesco and J. Sainsbury, and others that have been a growing in presence for years: Germany’s Aldi, Belgium’s Delhaize, Mexico’s Gigante, or the existing US retailers that have added more ethnic foods to cater to changing populations.This latter re-tooling of shopping centers to better serve demographic changes has been a vital part of the industry for years.]

Internet Shopping

Laurence Hsu, a developer/investor and contractor in China, Taiwan, sees the changing landscape impacting substantially on brick and mortar construction. “The first impact to retail business was caused by eBay which changed the consumer’s behavior…This crisis [will result in an accelerated] “space connect with net shopping.”

Consistent with this assessment, a survey by Forrester Research and Shop.org states that online retail sales in the US rose an average of 11% in the first three months of this year; at least 44% of all e-tailers said sales were up over 10%, and 14% said they increased up to 10%. Citi Investment Research projects US retail e-commerce sales will grow 4.4% to $141 billion in 2009, and then skyrocket 16.5% in 2010.

Many consumers still research their shopping online, and then hit the stores to buy the product, or pick it up at a local outlet. There are few successful retailers who do not now use multi-channel sources to reach their customers.

When we first began the research for this column it was basically a narrow focus, essentially that bigger companies would get bigger, that more smaller operators on the fringe will enter the mainstream. Much of it was due to the current economic crisis, but also on numerous research projections showing a marked increase in future population growth due to the “browning of America.”

Initially, the belief is that this industry is suffering, more than it ever has before. However, just as strong, is the belief that if you can hang in there, the future is bright.

More information on SHOPPING CENTER DIGEST and our associate publications, EXPANDING RETAILERS and DIRECTORY OF MAJOR MALLS, may be obtained from our website,www.shoppingcenters.com

Though The Industry Is Contracting, Those Able To React To Existing Conditons Are Expected To Lead Future Expansion

2009-04-23T10:56:00.000-07:00
Many of the oldest and most experienced dealmakers in this industry like to stress that when the economy is flourishing, or when it is in a deep decline—as it is now—there are always a large number of people who continue to prosper. Part of it may be attitude, mindset, or the ability to see opportunity and react to it.

Each time this industry has hit bad times, there has been a contraction in the number of active developers and retailers; then new companies have formed to replace them, grown to impressive proportions, and all—tenants, landlords, those servicing the industry—have become even more successful. Even in this, the deepest downturn since the Great Depression, we see signs that the industry will revive and that though many existing companies will disappear, others are expected to take their place, and that current operators may grow even bigger because of the opportunities available.

It is not a contradiction, say some, that many operators will expire, others will grow larger, and new companies will be entering the field.

“We can’t talk of troubled companies,” said one respected consultant, “without pointing to General Growth Properties [a victim of $27 billion in debt due to past acquisitions and has missed several bond payment] who is trying to sell off some of its assets. And see that Simon Property Group and Kimco Realty are selling stock to pay off their debt and put themselves in a better financial position.”

Under-Valued Property

This also means, he continued, that with the drop in value on real estate, “some properties are substantially under-valued and could be picked up by these and other landlords and investors. The trend, therefore, is for large, successful developers to grow larger, and smaller operators now off the radar, to join the mainstream.”

Alex Kopicki of Manekin LLC, traces GGP’s problems to its highly leveraged purchase of The Rouse Company. “I don’t think that anyone would consider this consolidation (in hindsight) a positive result of the last positive real estate cycle. While this is a real estate industry trend on the owner/developer end I believe that you could make some similar comparisons on the retailers end, i.e-Rite Aid. At the end of the day, the world is cracked, large or small, there will be opportunity for those who know where to take advantage of those imperfections.”

One smaller, Midwest developer is very concerned about larger landlords moving into his market. “I have a dominant center in a limited area. If a guy with big pockets acquires a small strip down the road, he has the resources to expand it, upgrade the appearance and tenant list, knock me out of the game. I don’t have the dollars available to acquire that competitor to protect my project.”

John Fox of Fox Real Estate Advisory believes that “strip center space is ripe for consolidation, but needs some capital to free up to help make it happen. Equity One and Ramco-Gershenson [a pending acquisition-merger] is an example. You are going to see more of this. The time has come for more consolidation like what you saw in malls in the 1990s.”

New Companies Formed

Along these lines, a West Coast-based developer noted that new companies have been formed recently to acquire distressed real estate, “and existing, experienced operators have established divisions to advise investors for this purpose, or to buy on their own. There will be great opportunities for third-party management and landlords from other areas to expand into shopping centers and retail.”

James Dearsley, European sales manager of Atlas International, does not consider himself an expert but “I expect that companies move in similar ways. Certainly in the Residential world we have seen this happen with a lot of smaller or [larger] companies that have leveraged themselves terribly, already disappear from the market. Personally I think that it is always good in our industry as it removes the dead wood and allows clients to deal with the solid and trustworthy customers. As the markets stagnate it brings on the ethos of Darwin with the strongest surviving and probably, because of an increase in market share, doing quite well.”

He pointed out that “As markets recover, smaller companies will again enter the market and keep the big boys on their toes and giving them a well timed push to change once more to adapt to changing environments…I wonder how the property industry would be now had it not been for the small start up companies back in the early 00’s who relied on the Internet...”

Along the lines of changing environments, as vacancies increase in shopping centers of all sizes, one of the leading trends are the changes taking place in the tenant lineup and merchandise mix at the high end of the retail scale. With luxury-based retailers suffering as cash-starved consumers shop more extensively at the counters of discounters and dollar stores, some real estate specialists are basking in the glow of being on the receiving end.

Said one Midwest discounter, “I have to admit, I’m enjoying now being courted by some landlords who couldn’t bother to return my phone calls just a year or so ago.”

With the closings of Circuit City, Linen’s n Things, Steve & Barry’s, there are substantial big-box units becoming vacant, and being converted to different uses: broken up into smaller stores, turned into offices, spas and gyms, churches, schools, and the like.

Restaurants, Fast-Food Outlets

Restaurants are hurting now, caused in part by a substantial overbuilding in many markets—except in limited area for casual dining and fast food outlets. Such operators as Panera Bread, Buffalo Wild Wings, Chili’s Grill & Bar are taking advantage of the closings of competing outlets to expand into these units quickly and with better deals. Not all, however.

Chris Arnold of Chipotle Mexican Grill said that many of these locations are sub-par. “We’re finding that people who are closing restaurants tend to close bad locations and keep the good ones. We’re not willing to make concessions.”

An interesting sidebar on this issue is that a large number of the growing unemployed are unable to find jobs. Some have decided to hire themselves, either as entrepreneurs becoming Moms and Pops in the retail industry, or buying a franchise. A good number are turning to franchises in the fast-food category, one of the easiest niches to enter.

Bargaining Power

Size, whether it’s a tenant or a landlord, is one of the most important elements in any negotiation.

Ira Meislik & Meislik said that “Almost everything being a question of ‘bargaining power,’ the current economic turmoil has caused some strong shifts in the balance. Today, money issues are getting more difficult…Our national tenant clients are being most successful where they occupy multiple locations with the same landlord. That allows for horse trading without giving up very much.”

This has always been one of the building blocks of this shopping center/retail chain industry, and it works for the developer with many shopping centers, and the tenant looking to tiedown locations in several different markets.

Though the behemoth landlords may, normally, provide them with overwhelming leverage in negotiations, an established relationship may work also to the benefit of the tenant.

One Southern-based apparel chain stressed that dealing with that type of a property owner can be “very helpful when we expand into a new market or try out a new concept in secondary or tertiary markets. This relationship can be a win-win with our getting short-term leases, especially if the landlord has a large number of vacancies so he’s willing to work with us.”

One national retailer stressed that this is an ideal time for all the industry to be creative, to try something different, to take chances. “One developer I know,” he said, “is trying out a water-park in a vacant big-box store, ala West Edmonton Mall in Canada. With all the vacancies, if it works, great. If it doesn’t, what have you lost, are you worse off?”

After The Recession

One leading developer conceded that he and other landlords have cut back and delayed “substantially” numerous new projects and expansions because of the economy. “And, yeah, most economists and authorities are stressing that it will take years for us to get out of this deep hole.

“However,” he stressed, “even if we have too many centers, too many stores, and that we’ve reached saturation in too many markets, all the predictions are that we’re having a surge in population. Where are they going to buy their necessities? The internet will satisfy only a part of that potential increase.”

More information on SHOPPING CENTER DIGEST and our associate publications, EXPANDING RETAILERS and DIRECTORY OF MAJOR MALLS, may be obtained from our website, www.shoppingcenters.com .

A minor irritation is becoming an important issue for landlords as tenants try to reduce costs by cutting hours and days of operation

2009-04-07T08:13:00.000-07:00
Strolling the Agora column from the April 6, 2009 issue of SHOPPING CENTER DIGEST

What was once a long-running and irritating minor bone of contention between landlords and tenants--requiring the latter to give up some control at the store level--has grown to a stronger issue as retailers try to reduce their operating costs. That is, in order to lease space in a shopping center—malls especially—they must abide by agreements determining when they must open and close their stores.

This was a major point made by one national retailer in our column of February 16 concerning ways to get the industry moving again (See SCD, Agora, P. J303): “…we need creative ways to manage expenses to establish a New Norm in terms of the levels of sales we are able to achieve and total occupancy costs that are in line with these sales.” As an industry, he continued, “we should reduce hours of operation, agree to open and close an hour or two later, and closing specific evenings and maybe Sundays. This would save everyone not only on operational cost but it could have a significant impact with energy savings (Think Green).”

Since then, at least two major mall operators, Simon Property Group and Westfield, have begun measures to reduce hours. It also served as topic for discussion by Todd Burton, VP-real estate at Aerosoles, on an industry blog. His question, “Have any retailers been effective in getting reduced hours of operations from landlords in the following venues? Malls, Lifestyle, and Outlet centers?” elicited a number of responses. He noted that existing long hours and work weeks “…in these economic times have become, for many retailers, not just a period of slower business but a financial liability.”

Before getting into some of the replies from concerned dealmakers, a little background.

All tenants leasing space in malls have to abide by the REA (Reciprocal Easement Agreement) made between the owner-developer and the anchors, usually department stores and other large users; this included establishing days and hours when tenants must be open. It was an especially acrimonious issue with Moms and Pops, especially when most malls shifted into operating seven days a week, with late hours on weekdays and during holidays, and early openings before most consumers were ready to shop. Smaller operators either had little free time or vacations, or were forced to add to their occupancy costs by hiring full- and part-time help; larger companies had to increase their staffs and overhead to meet these requirements.

Burton noted that “Morning and evening hours are not historically productive for most retailers, whether national, regional or ‘Moms & Pop’. Further, those hours in these economic times have become, for many retailers, not just a period of slower business but a financial liability.”

Several tenants pointed out that “blue laws” in some communities prohibit most retail sales on Sunday; most notably they point to Paramus, NJ—which has perhaps the highest density of major malls in the industry--where this is still the case, except during the annual Christmas/Hanukkah/Holiday Season. Yet, dealmakers stress, retail sales there are amongst the most productive in the industry.

Mike Zorehkey of Zorehkey & Associates, calls shorter hours “a great idea.” And, “In many cases where we have had poorer performing locations, we the retailers have decided to adjust our operating hours with or without the malls permission.”

He is also in favor of shortening the work week: “…being closed on Mondays would be something that I would highly support. The weekend days is when most of the population is off from working.”

Michael Piazzola of Palatine Asset Management supports “training the consumer with market sensitive, consistent operating hours…” He contended that “Executives, under the ruse of ‘offering the customer more choices’, when the goal is to drive percentage rents, whip out hours [then amend them when anchors wail] that mall teams and retailers wince at during holiday periods, and sometimes all year round.”

“Doesn’t it make sense,” he asks, that the individual malls should “survey the 100 or 200 tenants under their roofs in establishing hours within which retailers perform at their best? And then let regions establish market-by-market mall hours that satisfy consumers, retailers, and mall operators?”

Kaan Keri of Corio NV agreed that modifying hours and days may be efficient and useful, but should be studied carefully. “…there will be great difference in properties which are in metropoles and in other urban areas. The regulation should be applicable in every property within a portfolio of a company, in terms of putting standards.”

On the impact on Moms and Pops, Burton points out that “they are often the ones bringing fresh new ideas to the market. Isn’t it in the best interest of the landlord to facilitate healthy conditions [for] them for that very reason? They may just be the landlord’s most important customer tomorrow.”

Several tenants have approached their landlords on the subject, but though some developers concede it would help reduce operating costs to their tenants, and suggest it could be an alternative to rent reductions, others nod their heads and “take it under advisement,” said dealmakers.

There are indications, however, that the movement to shorten hours could spread.

Said Chuck Breidenbach of MDC Retail Property Group at Mountain Development Corporation: “It makes perfect sense to everyone’s bottom line right now. I’ve been considering this for awhile now.”

More information on SHOPPING CENTER DIGEST and our associate publication, DIRECTORY OF MAJOR MALLS, may be obtained from our website, www.shoppingcenters.com .

Reasons For Attending ICSC's Annual May Convention In Las Vegas

2009-03-13T06:54:00.000-07:00
Though attendance and dealmaking is expected to be down in Las Vegas, retailers and developers still say it’s a MUST event.
Strolling the Agora for the March 16, 2009 issue of SHOPPING CENTER DIGEST.

We understand the reasoning behind recent decisions by hard-hit owner-developers and retailers to cut even further what they consider unnecessary expenses--and to direct these efforts at conventions, travel and hotel costs--when dealmaking in this industry may be at its lowest point ever. For most of us, however, to avoid completely the upcoming ICSC RECon in Las Vegas could be a substantial mistake.

Some companies, and rightly so, will be taking less exhibit space on the convention floor, will reduce the number of registrants from those attending in the past, and will limit substantially the dollars budgeted for entertainment.

Only because of its size as the largest shopping center landlord does the decision by Simon Property Group--to give up its massive presence in the Leasing Mall and take a skeleton crew to deal from hotel suites-- shake up the entire industry. None of us are on a par with Simon, willing to pay seven figures, according to mavens in the industry, to forsake the convention floor, and still consider it as cost-cutting. No matter where SPG operates from, retailers seeking to make a deal or re-negotiate leases will find their way to this landlord even if it chooses hotels miles away from the convention center.

Calls to reach the company for clarification were not returned.

The impact of the economic crisis has been felt in this industry for some time; each of the ICSC dealmaking events I’ve attended since early fall have recorded a drop in attendance and activity from the tally of the previous year. No one expects the Las Vegas meeting to be any different.

Though some may quibble with ICSC’s estimate that “some 25 percent of the leasing deals clinched each year in the U.S. are closed at RECon,” we’ve never doubted that the spring convention has been the most important annual gathering of retailers and developers for some 50 years.

Some comments from industry stalwarts about the May event include:

. Paul Freddo, Developers Diversified Realty: “…it’s about building upon the relationships we have with retailers. Those relationships have never been more critical.”
. Kris Kral, Sweetbay Supermarket: it is “…an opportunity to see deals that might otherwise have been presented to someone else [who] has since slowed their growth...I am looking to take advantage of the opportunities in the market especially backfill locations.”
. Rick DeKam, Midwest Realty Group: “I am guessing that with reduced attendance, the people that do attend will be the ‘core’ of our industry and most likely the ones doing deals. Therefore, maybe this is honestly the best time to attend?!”
. It’s a no-brainer to Shlomo Chopp of The Case Group of Companies: “From an investor’s perspective, there are so many pretenders out there looking to ‘buy’ good deals that today more than ever, you cannot underestimate the value [of] looking the other party in the eyes! From a landlord rep perspective, do you want to risk not knowing about that one retailer that will fill your space?”
. Albert Haddad, GHI Real Estate Advisors: “The key is to continue to evolve as a company, given the events evolving around us daily…it is extremely important to understand all the variables that affect and effect your business; ICSC Vegas has always been at the epicenter of that variable aggregation…those who focus, listen, learn and execute will be the first to rise out of these challenging times…”

Of course, not all are in agreement:
.Jacob Gabrie, El Dorado Hills Town Center Property Management: “This is a tougher market and not everyone has the capital to spend on business development…we have to learn as I have to use all the available resources and I am not sure that this year I will be attending…I believe we have a tough road ahead we have to be creative and learn to use every available resource to gain knowledge and make connections.”
. Keith Kennedy, Durrant Group: “My company has always been on the periphery of the event, but it has always been valued as a good forum for developing new relationships as well as strengthening existing ones. We are still undecided if we are going to attend.”

As a reaction to the reduced number of exhibitors, ICSC has cut the square-footage of the Leasing Mall area by at least 40,000 sq. ft., but will still have 840,000 sq. ft. for 1,000 developers and retailers, while the Trade Show will feature 500 exhibitors. It points out “some 300 retailers are attending this year…including such first-timers as American Dairy Queen, Best Western, Buffalo Wild Wings, Christian Bros. Automotive, Fransmart, Massage Heights, Sandella’s Flatbreads, Starmax and Tim Horton’s.”

Reacting to the large number of experienced dealmakers who have been laid off or furloughed, said the trade association, “…The event will cater specially to those who have lost a job.” Called REConnect, the area will contain specialists including those in executive search to advise on resumes, job opportunities, and the like.

“Even if you’re a retail chain that is not expanding,” said one national tenant, “it is still important to attend, strengthen relationships, keep a dialogue going. We’re gonna get out of this malaise and those who keep the door open are the ones who’ll bounce back faster and be in a better position to flourish.”

The trade association is also stressing discount rates at hotels used for the convention, and package deals. However, rates at other accommodations such as suite hotels including full breakfasts are still less expensive.

More information on Shopping Center Digest and our associate publication, Directory of Major Malls, may be obtained from our website, www.shoppingcenters.com .

The Impact On Leasing/Development From The "Green" Movement

2009-02-27T08:57:00.000-08:00
Strolling the Agora for the March 2, 2009 issue of SHOPPING CENTER DIGEST

One of the fastest-growing trends in real estate—aside from foreclosures, bankruptcies, and acquisitions by rejuvenated or newly founded vulture funds—is the two-pronged effort to reduce operating costs and to demonstrate concern for the environment. The last time we discussed the “green” movement was 1 ½ years ago (See SCD, Agora, P. I 891); then the shopping center/retail chain industry was lagging behind other niches such as residential, offices, etc., but was moving quickly to close the gap.

And that it has. The big question, however, is what impact, if any, it is having on leasing and development.

First a quick glance at some recent landmark moves:

. Simon Property Group has announced its solar panel installation at 1.1 million sq. ft. Shops at Mission Viejo in Mission Viejo, CA, which could be the biggest such project in a US mall, and is expected “to be a cost-effective component of our [SPG] sustainable strategy.”
. Developers Diversified Realty is launching a rooftop photovoltaic system at its shopping centers in California, Colorado, New Jersey and Puerto Rico, and will expand the program to others in its 700-shopping center portfolio.
. Wal Mart Stores’ new CEO, Mike Duke, says he will expand efforts to reduce waste, use renewable energy in its stores, urge its vendors to comply with these new standards, and is investing to develop new technology, such as wind and solar power. It is also testing two types of trucks, hybrids and those using alternative fuels, and will expand them to its entire fleet to double its fleet efficiency by 2015.
. Westfield Group’s Old Orchard Shopping Center in Skokie, IL, will receive $100,000 from ComEd for its $400,000 conservation and lighting retrofitting program that will save it $300,000 annually.
. The food industry is embracing new guidelines advanced by the Green Restaurant Association. According to the National Restaurant Association, four of every 10 full-service operators and almost three of every 10 quick-service operators are devoting more of their budgets to green inititatives.
.ShoreBank Pacific is joining others to provide financing with its Green Building Loan Program targeting “truly committed” developers meetings its sustainability guidelines or that of LEED or Earth Advantage Energy Star.
. Green-oriented units that conserve energy have been opened by Target, Office Depot, Staples, McDonald’s, Subway, etc. Some retailers have installed energy-producing wind turbines, high-efficiency appliances, systems to conserve and filter rainwater, and some pizza operators are re-using the draft from ovens to heat water.
. President Obama has ordered the Energy Department to draft new standards to make appliances and light bulbs more energy efficient, all part of a major effort to reduce energy use and emissions from heat-trapping gases blamed for global warning. Some estimate savings to businesses and households could tally $67 billion over the next 30 years.

“I don’t think,” said one retailer, “anyone can find fault with this trend (referring to actions being taken by shopping center developers, managers and retailers), especially in this economic crisis. However, I don’t think it will have much bearing on whether or not I’m gonna make a commitment to a specific shopping center location on this alone.”

One landlord pointed to results from a recent survey of construction and property managers stating that sustainable commercial buildings are in high demand and are generating higher returns due to premium rents. “Granted,” he said, “that’s mainly for offices and other commercial uses, but it has some bearing on shopping centers also.”

Another developer said “You’re missing the point. We’re going into this not as a device to help with our leasing, but to reduce immediate and long-term costs. If it also scores well with the shoppers or tenants, then it’s an added plus.”

A national tenant said that the move is welcome and long coming. “When our CAM [common area maintenance] costs could be a third or more of our total rent, anything that will help reduce these expenses is a blessing. And with the way costs for air-conditioning, lighting, and heating and the like soared, reductions are needed.”

One retailer recalled some years back when some shopping center operators installed package plants to generate electrical power to service their tenants, supposedly at the same rate charged by local utilities. “In some instances,” he continued, “they became a profit center for the landlord. If the cost savings are not shared with the tenants, what’s the bottom-line advantage, aside from the feel good environmental issues?”

To cut to the chase—a nice cliché—dealmakers welcome any efforts being made to reduce operating costs, and to plug in to their customers’ concerns regarding protecting the environment and reducing their carbon footprint. But as an important part of helping to decide on a lease or location, it’s a very minor point.

This column of Strolling the Agora is from the March 2, 2009 edition of Shopping Center Digest. A sample copy of this issue of our twice-monthly newsletter may be obtained by contacting us directly. Further information on Shopping Center Digest and our associate publication, Directory of Major Malls may be obtained from our website, www.shoppingcenters.com.

2009-02-09T10:15:00.000-08:00
Strolling the Agora for the February 16, 2009 issue of SHOPPING CENTER DIGEST
Developers, Retailers Suggest How To Get This Industry Moving Again.

This is a time of paradoxes. You have dealmakers working harder than ever before, and relatively few leases being signed. According to one research maven: “There aren’t that many retailers out there interested in expansion.” Says ICSC: About 105,000 to 110,000 new stores will probably open in the US this year.

You have new construction and expansions coming in under the original estimates, and yet fewer projects being built; in fact, more are being delayed or cancelled. You have a rising number of vacancies in shopping centers across the board, and yet landlords are cutting back on marketing them. Said one national retailer: “We need a realistic marketing partnership between retailers and developers to build stronger traffic generators.” He pointed out that some landlords have used these dollars “to promote their own ego…by thinking they are creating their name as a Brand—Simon, Macerich, Tanger, Westfield, etc. Do they really think they drive people into their malls because it has their name on it???”

We Created A Monster

You have retailers in all categories cutting the prices of merchandise to the bone, running door-buster sales, yet customers are refusing to open their wallets and purses. One national tenant said “we create a Monster of a Sales Event only to learn we created a Monster that needs to be fed a similar meal next season…customers are more knowledgeable regarding markups retailers charge after seeing almost everyone operate with deep, deep discounts…we need to get more realistic with fair market pricing.”

You have both landlords and tenants focusing on doing deals, yet the greater effort and time are spent on re-negotiating down lease and rental terms. One landlord took issue with retailers “making some ludicrous requests for unwarranted concessions” and warned it could seriously impact on future relationships. A national tenant conceded the point has some validity, but reasoned that with the severe cutbacks of budgets, personnel at all levels, increased operational costs, “there is immense pressure to produce savings that may force us to demand things we don’t believe in. Maybe it’s the mafia cliché: ‘It’s nothing personal—just business.’”

Less Than Replacement Cost

The “value” of shopping centers is dropping as store vacancies increase, yet more companies are being financed and formed to acquire these troubled properties. One national dealmaker noted he had been speaking to several owners “who still want to get out of the center the dollars they had invested in it. But with a large amount of store vacancies, and increased number of properties becoming available, these projects have a market value less than their replacement cost in land, brick and mortar.”

Said another: “All sellers on the market now are distressed and need to raise cash so this is a brilliant time to buy; you just name your price.”

How to get this wounded shopping center/retail chain industry moving again? That’s the bold mission that many of the leading dealmakers are now embarking on.

We’ve been speaking to a number of top dealmakers around the country and one thing they are in agreement on is that we have to begin a new, concerted effort to cooperate. “We need to go back to understanding that both groups [tenants and landlords] need to work together to get back to regain normalcy.” “We must all agree to establish a new consensus for our mutual benefit,” said another.

One national retailer emphasized “we need creative ways to manage expenses to establish a New Norm in terms of the levels of sales we are able to achieve and total occupancy costs that are in line with those sales.” As an industry, he continued, “we should reduce hours of operation, agree to open and close an hour or two later, and closing specific evenings and maybe Sundays. This would save everyone not only on operational cost but it could have a significant impact with energy savings (Think Green).”

Get Out Of Our Comfort Zone

One major owner-developer stressed the need to “get out of our comfort zone, go back to cold-calling, pounding on doors, cultivate new relationships and strengthen old ones.” He pointed out that his company was making a concerted effort to reach out to foreign retailers, to seek alternative tenants other than retailers such as schools, libraries, churches, municipal offices, medical and dental facilities.

Another major landlord agreed with this, but also “We should re-double our efforts to find new small operations, moms and pops if you will, who could be encouraged to expand into our malls, even if it means assisting in financing and discounting rents. One of the most heard criticisms we’ve been hearing for years is about the sameness of our centers. This type of effort would bring in a new vitality and freshness and help our centers to differentiate themselves.”

Now Is The Time To Deal

Several retail dealmakers expanded on these suggestions by stressing their own specialties and their view regarding these categories. From a national consultant to the restaurant industry: “Despite the doom and gloom, I haven’t found anyone who has given up eating. So I believe that my segment of the market still has some hope…Is there anyone who does not believe that during the next decade we will enjoy years and years of prosperity? NOW is the time to lock in long-term deals.”

A broker with varied clients echoed this, pointing out that the increased vacancies, especially in markets with good demographics, offer “ideal expansion opportunities” for national retailers and restaurant/fast food chains, “even in malls that once had a long waiting list for potential tenants. The recession will not change these numbers.”

A real estate executive with a discount chain noted that the quality of apparel merchandise his company is now selling has improved because it has acquired overstock vendors could not sell to high-end merchants. “This is only one of the reasons we are now being courted by some fashion-oriented malls as a replacement for some of their vacant big-box stores or tenants specializing in designer labels.”

Uncertainty In Many Areas

The uncertainty in the marketplace is still impacting on much of the shopping center industry, especially in those locales suffering the strongest downturn in real estate values.
One small Florida developer has his eye on a location to be anchored by a specific big-boxer user. “Nothing [leasing and dealmaking] is happening now in the immediate area with so many homes going into foreclosure and driving down prices. I expect the area to recover by the end of the year or early 2010. The demographics on this site are ideal, but I can’t market it to [the retailer] until I control the site. And then, there’s competing against hundreds of proposals to be one of the handful of new stores it will commit to for expansion.”

Regarding new development and relationships, a leading tenant stressed the need for landlords to improve their knowledge of Retailers Arithmetic, i.e. cost of operation and how it relates to the rent and charges. “Not all retailers operate with High Gross Margins which permit them to recreate new higher levels of unrealistic rents, etc.”

We’ve Become Too Greedy

On the tenant side, he conceded, “we have all become too greedy with ROI’s and Market Share Dominance. This will correct itself in the coming years with lower land cost and a more rational real estate expansion process by retailers…and gone will be the philosophy of a defensive real estate site selection methodology. Enter a more realistic expansion criteria that will not permit building stores 2 miles or 2 blocks from existing stores. Just ask Target and Wal Mart in Phoenix or Starbucks anywhere USA.”

The theme of this column, though, is not on the problems inherent in the industry caused by the recession, but on how we can begin to heal ourselves. Back, therefore, to the one point that everyone we’ve spoken with agrees strongly with: Cooperation.

As one leading landlord emphasized: “The road to success is never flat nor straight but has many turnings…many, many hills going up and down, sometimes drastically. We must maintain focus on understanding each other, knowing what makes us tick, and begin working together, for he who eats alone eventually starves.”

This column of Strolling the Agora is from the February 16, 2009 edition of Shopping Center Digest. A sample copy of this issue of our twice-monthly newsletter may be obtained by contacting us directly. Further information on Shopping Center Digest and our associate publication, Directory of Major Malls may be obtained from our website, www.shoppingcenters.com.

Dealmakers Look At The Shopping Center/Retail Industry

2009-01-27T07:06:00.000-08:00
Strolling the Agora for Jan. 6, 2009 Issue of SHOPPING CENTER DIGEST--(Recap of ICSC NY Dealmaking In December ‘08)

“We have been through many hard times since I negotiated my first lease in this industry over 40 years ago,” said Cuthbert, “but it has never been so rough and terrifying for landlords, tenants, and lenders. And, it will be a longer, wilder ride to recovery than anyone anticipated just a few months ago,” he told the Dinosaur Chowder and Marching Society as it recapped results after the ICSC New York Dealmaking.

“Yeah,” said Developer Dan. “The only time I spoke to a retailer was when he was asking to re-negotiate a lease and threatening to close his store.”

“What’s my alternative?” asked Expanding Ed. “My costs are up, my sales are down, the customers are coming and looking and not buying despite deep discounting.”

“Fine,” said Dan. “Show me your sales figures from last year, your P & L, and certainly if they’re legitimate, we can reason together and re-structure a deal that we can both live with, maybe extend the lease for a couple of years.”

“But,” chimed in Roger the REIT, “if I see that your sales are up 5%, or in some cases 10 and 12%, no way am I gonna drop the rent because your home offices says get a reduction because everyone else is getting one. It’s not fair or right and we’re partners in this shopping center.”

“You can’t base it only on increased sales figures,” said Ed. “I’ve had to compete against competitors who are liquidating, so I’ve cut my prices, have almost no profit margin, and my distribution and marketing costs have gone through the roof. And I’m also competing against internet-based companies that don’t pay for brick and mortar, and are offering free shipping. My sales may be up, but not my income.”

On The Other Foot

"And what about a few years ago,” said Apparel Al, “when you landlords had all the leverage and I needed this location and you said ‘take it or leave it,’ Joe over there is willing to pay $2 more a foot? You said then that you owed it to your Wall Street investors and stockholders to get the most possible for them. Now you can’t take it when the shoe’s on the other foot.”

“If you’re not going out of business and you try to close this store, in which you’re making money, go ahead, I dare you, I’ll sue your ass and I’ll win,” shouted Roger.

“Relax, hold it, calm down,” said Cuthbert. “We’ve negotiated thousands of tough deals over the years and have managed to remain friends and continue a working relationship.
We’ve done it so often that we can punch in all our operating costs, the financing, taxes, anticipated sales, bumps, terms, put it all together and come up with the numbers. It was a science. Now, however, all of that has gone by the wayside and we have to go back to the drawing board-- leasing has become an art again.

“There’s no question,” he continued, “that the smart retailers understand what’s taking place and are exploiting it as much as possible. They’re making long-term deals with no bumps, percentage rents, turnkeys with allowances folded into the rent, that’ll be paying off for them years down the road. I’ve heard of new deals where it’s straight percentage for three years, then they’ll average out the monthly rent and that’s what’ll be for the next seven years.”

Right On Both Sides

“I’ve been told that the deals have to be incredible in order to get them approved by the real estate committee,” said Statistics Sam. “So if I hear that the landlord is covering the full cost of fixturing and finishing the store, and the tenant doesn’t start paying back for 2 ½ years, why shouldn’t I ask for it also?”

“Or,” says Listening Lenny, “a friend tells me he’s paying nothing, zero, period, because he threatens to leave and that’ll trigger more vacancies as other retailers exercise co-tenancy clauses to close their stores? It becomes almost a herd instinct,; if he gets it why shouldn’t I?”

“It’s rough here, and that’s part of the reason more retailers are looking at Canada,” said Toronto-based Canuck Carl. “Most of my retail clients used to be Canadians wanting to do business in the US. Now, only one is; all the rest are Americans looking for locations from Ontario to British Columbia, even to Nova Scotia, Newfoundland and the whole eastern seaboard.”

“There’s a lot of right on both sides of the negotiating table,” said Reasonable Ruth. “Much of the friction is caused by the uncertainty; the situation is changing daily, we don’t know where we stand, we’re out of our comfort zone, and with so much up in the air, we don’t even know how to structure the deal.”

“You got a point there,” said Acquiring Al. “I’ve been talking to a few owners for a while on buying some properties. They have no concept that times are changing and there’s a wide gap between price and value today compared to a short time ago. They insist on taking out their total investment in a center, and I tell them it’s not worth that today. We’re maybe 5% apart from making a deal. Now, comes January and more of their tenants go dark and out of business, and their vacancies increase, the value of the project is going to drop even more. If the occupancy is at 95%, and in a month it drops to 85%, where’s the value? What do they do on price then if they still want to sell?”

Lot Of Cash Waiting

“And,” added Vulture Victor, “with some of the big owners being forced to sell off important parts of their portfolios to cover their debt, and the stock prices of these REITs going in the toilet, that’s all the more reason for me to sit back and make ‘em come to me. I have the cash right now, and I can buy from anyone.”

“Quite true,” said Cuthbert. “There are a number of new investment companies formed within the last few months to take advantage of the current recession and begin buying real estate from strapped owners. Even the banks that were given federal money to lend and put into the economy, are sitting back waiting to buy or to invest.

“No matter what side you’re on, there’s not going to be instant gratification. Most dealmakers I’ve been talking to don’t see any light at the end of the tunnel until 2010, and if it’s approaching quickly it could be an oncoming freight train.”

“I have a long memory,” said one major landlord. “What goes around, comes around.”

Further information on Shopping Center Digest and a sample copy of a recent issue may be obtained by going to our website, www.shoppingcenters.com.

2009-01-26T08:31:00.000-08:00

State Of The Shopping Center Industry

2009-01-26T07:57:00.000-08:00
You don’t have to be an inspired prodigy or a master dealmaker to recognize that “it’s rough out there.” However, it does take experience and imagination and fortitude to recognize the opportunities—“Hey, even in the worst of times, someone is able to make a buck”—and take advantage of them.

And, said one veteran, “The challenge is to survive until a rising tide lifts all boats.”

We all know that the dismal holiday season, with a substantial drop in shopper traffic, retail sales and overall consumer buying—despite steep discounting--is forecasting major retail bankruptcies and store vacancies within the next few weeks; mavens involved in market research are predicting 200,000 store closings this year.

These increased vacancies to shopping center landlords mean reduced revenues, higher CAM costs, more pressure on them to cut rents on new deals and re-leasing; these result in lower values on their portfolios, causing higher interest rates for re-financing—if money is even available. Some have been selling off some centers to assist in re-financing or to raise money for debt coming due, or to put themselves itself into a better position to acquire other properties from competitors.

Some investors have formed new entities designed to take advantage of the turmoil and acquire distressed properties, or choice properties that cash-strapped owners have to take to market. They have advance financing in place so they can move quickly to finalize these deals.

Staff Cutbacks

Retailers and developers have been cutting back on staff across the board to stay viable, letting go some dealmakers with 30 years and more of experience. Some consultants have been moving their offices into their homes to reduce costs; others have started divisions to diversify into other areas of commercial real estate besides shopping centers, such as offices, industrial, warehousing, or residential. And, high on the list for tenants, going back to their landlords for rent relief, improved allowances for fixturing, re-modeling, and the like.

One surprising—and positive-- effect on new development, one major landlord pointed out to us, is that some of their projects—expansions, renovations, and new construction—have been coming in under budget due to lower costs for materials and labor.

Another interesting sidelight is that some younger professionals are returning to college for specialized or advanced degrees, with plans to return to the shopping center/retail industry when the economy and dealmaking improve.

Some industry professionals are anticipating the federal stimulus package by the new administration will begin to impact on the economy by mid-spring and help to improve consumer confidence. They expect, therefore, the positive effect on dealmaking should begin shortly after and carry on through the rest of the year and into 2010.

“Those retailers able to make deals now will be in a better position to take advantage of opportunities to increase their market share over their competitors,” said one.

Current Environment
This, therefore, in very general and simplistic terms, is the current environment. What is being done by tenants, owner-developers, those involved in dealmaking to continue to operate and remain in business?

They are making deals—certainly fewer, harder, and not as lucrative. Some retailers and landlords are pushing for early renewals on existing stores. For the tenant, they can extend the benefits of the existing climate to years into the life of the lease; for the landlord, it helps keep occupancy rates higher and maintain a strong negotiating position for future deals with other retailers.

In order to obtain rent relief, some tenants are agreeing to modify lease terms that are unfavorable to landlords, such as exclusives, co-tenancies or use clauses or renewal options. One developer said he’s agreeing to reduce the rent, provided the tenant agrees to return to the original rent or terminate the lease if a third party offers to lease the store at the original or a higher rate; other requirements could include lease extensions, that the tenant remain responsible for the original amount owed on the lease if he were to default, that the reduction is a one-time deal, and that confidentiality is maintained.

In some instances, a rent reduction may help the tenant stay in business until the economy improves. It saves the landlord from the cost and effort to find a replacement tenant in a challenging environment, and helps him maintain a higher occupancy level in the center; another important consideration: it may deter other retailers from going dark.

Early Agreements

Several more landlords have formed in-house committees which meet regularly to review requests from tenants requesting rent relief, since we first mentioned this in an earlier column, (See SCD, Agora, Page J242).

On new leasing deals, both landlords and tenants speak of the advantages of reaching early agreements now, for openings later in 2009 or even 2010. The tenant gets a lower initial rent, using his current negotiating leverage to keep this expense down, and the owner-developer receives a solid commitment putting him in a better negotiating position with other potential tenants coming to the table later in the process.

Right now, those retailers best poised to continue expansion are the discounters, lower-end chains, those focused on teens and younger adults, and fast-food and family restaurants. Also, for landlords, alternative users who rarely, if ever, sought locations in shopping centers: churches, schools, offices, health-related services.

This column is re-printed from the January 19, 2009 issue of Shopping Center Digest “The Locations Newsletter.” A sample copy of a recent issue of this twice-monthly publication covering development and leasing in the shopping center/retail chain industry in the US and Canada may be obtained from our website, www.shoppingcenters.com.