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 .
Monday, March 8, 2010
Monday, February 22, 2010
"What Impact Will Expected Acquisitions By Large Landlords Have On Leasing?"
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 .
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 .
Monday, February 8, 2010
Will The Focus By Luxury Retailers On Outlets Have An Impact On Mainstream Shopping Centers?
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 .
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 .
Monday, January 25, 2010
Will Higher Holiday Sales Result In An Increase To Retail Expansion? According To Some, It May Not Happen In 2010
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 .
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 .
Monday, January 11, 2010
With Landlords Strapped For Cash, "When," Many Ask, "Will The Dam Break And Result In A Flood Of Large Acquisitions Of Shopping Centers"
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 .
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 .
Friday, December 18, 2009
Constantly Updating Its Format And Approach To Better Serve Dealmakers, Twice Monthly Newsletter Now Stresses Subscribers Can Make Contact In Seconds
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 .
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 .
Monday, November 23, 2009
Resilience, Positive Attitude Are Universals From Dealmakers--And Anger That ICSC has "Lost Touch" With Its Members
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 .
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 .
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