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
Thursday, May 28, 2009
Tuesday, May 12, 2009
The Big Transformation Of The Industry Is Underway
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
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
Subscribe to:
Posts (Atom)
Posts
