My Way
The dog days of Summer are here
The economy continues to glide along, occasionally hitting a speed bump, but overall doing as well as any of us could hope for (and in most cases better than we thought possible). Most retailers I talk to are down a few points in comp sales from last year but considering last year was in many cases the best year they ever had, being down 2-3% isn’t the worst thing that could happen to a company. There’s no doubt in my mind that the Orlando ICSC show will be excellent, and it might even set some more records (but after 4 or 5 years of record breaking crowds, we might be slowing down a little). Right now, our brokerage business is slow, but that’s normal for this time of year. People are taking vacations and most deals for new stores to open in the fall have been set, so no one feels the need to kill themselves to make anything happen.
Since this is a slow period, and no matter
what we do to get more leasing activity or get more clients not much seems to
work. We’re using the time to plan our marketing for September through May of
2001 and to review our entire operation, with the hope that we can make
ourselves more productive.
At least it sounds good.
While business is still great, there appears to be more vacancy than ever. I read that Wal*Mart has 29 million sq.ft. available for sublease and I’m sure Kmart has their share (as does almost every other big box retailer). Probably half of that available space makes sense for some retailer, but the remaining half has no life left as a retail location, or else the facility is so antiquated that demolition is the only answer. Fortunately the Internet has been actively helping some of these older facilities, since in many cases these older, big-box stores are located near telephone switching stations and have fiber optic phone lines nearby. In addition, the height of the buildings and weight loads are desirable for companies using the ‘cube approach’ to real estate. In New Jersey, a vacant Macy’s in downtown Newark was converted to offices for dot.com companies. The building had been vacant for nearly a decade, but a combination of location and tight market (that’s the key) made the site desirable. In Chicagoland, two vacant Kmarts were converted to telemarketing centers, and again in New Jersey, a one million sq.ft. mall was purchased for $17 psf and will be demolished and converted into a power center. In Tennessee, a former Lowe’s Home Center has become a church and in California, two defunct discount stores are now distribution centers for e-retailers.
In Cleveland, they’re converting a May’s Department store that closed seven years ago into what are being called "telecom-hotels" (they don’t house people, just computers.) In New York city, there’s a proposal to turn a vacant retail center near the basketball arena into a "telecom hotel" along with restaurants and shops. Will all of these conversions work? Of course not, just as 20 years ago everyone and his mother opened outlet malls in former factories and most failed, as will be the case here BUT some will succeed and that’s the key.
Now these types of conversions have been occurring for years; it’s just that in the last three years, because of a booming economy and tight retail market, everyone is becoming more creative. While prime retail space is scarce, there’s also more square footage available than any other time I can remember, so alternative uses for these secondary and tertiary sites are key to the property’s survival. The retail developer, broker and investor of the future will have to be more knowledgeable of OTHER niches, while remaining a retail expert. My advice to anyone planning on being in this industry for the remainder of the decade is: start developing other databases for alternative uses, subscribe to non-retail trade publications and visit the Web sites of REITS that are in other industries. Learn how and who they lease space to and at what rates. The "good old days," when with a Rolodex of 200 to 500 retailers would enable a broker to fill space and make a comfortable living, are over.
On a different subject, I just finalized a co-brokerage deal with a national retail brokerage company representing the property's owner. From day one the deal was difficult, not because of economics but because the broker knew nothing about the site, couldn’t answer basic questions about parking ratios, restrictions, and signage. Even on the subject of rent he wasn’t sure. He couldn’t tell me for sure what rents the owner wanted or at least would accept. Anyway, we finally did get a lease done but as I now try to coordinate construction approvals, signage, etc., I’m told to do so with the broker yet he knows nothing and rarely returns a call. I’ve tried doing other deals with this brokerage firm at their other offices and find the extent of knowledge of all their brokers to be limited, yet they seem to be able to attract large clients. Why? The theory seems to be that because they are national in scope, they can fulfill the needs of the client better than a regional broker. Bull****, when you’re incompetent, you’re incompetent. If you’re a national broker and incompetent, then you’re incompetent on a national scale. Congratulations. I’ve noticed a small but growing trend whereby REITS and national developers are starting to change their exclusives from national brokerage firms to locals and regionals. First, they get more TLC from smaller firms and second they can "pick the best" broker for each market instead of using the one-size-fits-all approach. This makes more sense to me.
Going on... I get two or three calls a month from dot.com start ups, explaining they’re going to be the next Amazon (I always ask if they also plan to be a nonprofit but they never seem to follow my jest). They usually call either because they want publicity in the Dealmakers or @dealmakers.net or, when they are really foolish, they’re seeking investors and want me to part with hard cash. I always ask what will make them succeed and what separates them from the rest of the dot.com pack. They always go through a long dissertation that says nothing and then tell me that I don’t understand the Internet or the future of real estate. Well, maybe I’m wrong and I don’t understand, but after 11 years of being on the ‘Net, I think I have some insight. Yes, the Internet and real estate are perfect together and some of the current dot-coms of real estate will be MAJOR players in the next few years. BUT, most will fail because they either are just "me toos" or their execution stinks. So far, there is no commercial real estate dot.com that is making money; their burn rates will put most of them out of business within a year. And while most are providing decent services for the real estate industry, if they don’t make money, everyone loses. I don’t know what the answer is-- if I did, I’d do it with our site and then retire, but the future of real estate and the Net is extremely cloudy, but within two to three years the sun will shine.
On a different note, I didn’t go to the ICSC Boston DealMaking show, (I lost the flip again and had to take care of Josh and a friend of his visiting from Texas) but Ann gave me a brief overview which I’ll try to convey. She said the show was good, but it appeared to have a smaller amount of attendees this year than last (but not a lot less) and of course, everyone was happy since they are all making money. She did observe that there appeared to be less of the top rainmakers present and instead there were more second-tier dealmakers. While I can’t say if she’s correct (but after 20 years I’ve learned she usually is) it does make sense. The biggest problem facing our industry is that it’s boring. We’ve matured and there is no real excitement or real changes occurring at the moment.
There’s no new unique retailer expanding. The "newest" retail concepts such as entertainment/lifestyle centers are three to five years old, so they’re maturing too. So while we’re all making money, there isn’t the fun or excitement that newer industries, such as the Internet, are incurring. Therefore, while the local ICSC shows are important for dealmaking, they are all starting to look the same, smell the same and taste the same. Probably 25% of the attendees are at almost all the shows and the vast majority of retailers present are the same, just represented by a different person. Now don't get me wrong, I'm 55 years old and if you tell me for the next five to 10 years I'll be earning what I did the last two or three, I'll be a happy, (but not ecstatic), trooper; it's just we need to find a way to have more "fun" at the shows... money isn't everything.