Welcome to Chicago, no Atlanta, no Chicago, no San Antonio, to hell with it, I’ll see you in New York

It’s that time of the year when it seems that almost every week there’s a regional ICSC dealmaking show somewhere, so I’ve been on the road a lot. After Philly, I went to the Chicago show, then Atlanta. Today, I’m leaving for the "Open Air Centers" conference in Chicago and from there I’m meeting Ann in San Antonio (Josh is coming this trip. He graduates high school this year and will be touring five campuses in Texas while we man the booth). There’s also the Phoenix and Tampa shows, but I won’t be attending those. So after San Antonio the next show for me is New York, the second largest show of the year, where I hear attendance will be up.

Someone asked me in Atlanta if I hated attending all of these shows and the answer is no, it’s the airports that are murder, at least checking in. Yes, the shows can become boring after a while, since 15% to 25% of the people in attendance also were at the last show and there’s no "catching up" when you just saw the person a week before. But then the positive side is you become comrades in arms with a small group of show warriors who are almost professional exhibitors. The part of exhibiting I do enjoy is meeting new people, learning what’s happening in their region and seeing the difference in leasing, marketing, retailing and development in each section of the country. And, of course, it’s always great to see "old friends" I haven’t seen since Vegas. ( FYI...it often amazes me that I end up going out to dinner with someone in Texas or wherever, who lives 20 minutes from me in Jersey, and the only time we see each other is at an out-of-town show.)

Anyway, the Chicago and Atlanta shows had two things in common. 1.) attendance was up at both, and 2.) they were both decent shows, with Atlanta being the better of the two. So far, all the shows I’ve attended since Vegas have been decent and most have had an increase in attendance. That speaks well for our industry, but I often wonder why more people aren’t coming to these local events because they make so much sense. As one broker said, besides the networking and possible leads, he learns more at one show than he does in two months of phone calls and driving. If someone’s main occupation is retail real estate, not coming to their local Dealmaking show is insane.

Getting back to the specific shows, Chicago had a good turnout (as I said) and most attendees were upbeat BUT all expressed concern about the industry. Business is down, no ifs, ands or buts about that, but for the developers and brokers it’s still good enough for everyone to pay their bills and enjoy the good life. The financial companies I spoke to seem to be working harder to loan less. First, because there’s less need for financing as many developers have already refinanced, there’s fewer centers being bought (blame that on the CAP rate, not the lack of interest in acquiring) and second, the banks, while still wanting to loan money, are becoming more restrictive in their loan criteria.

Chicago, by its mid-western nature is one of the more conservative shows, so they’re not as loud as New Yorkers or party-oriented as Atlanta (personally, in my humble opinion, the party capital of the U.S. is in the south. The Atlanta, Florida and the Charlotte shows have the most and best parties. Yes, Vegas has the most hangovers but, per capita, the southern parties are the best), but the dealmakers in Chicago worked the floor hard, shook a lot of hands and were displaying their leasing plans at every available table; they were determined to do a deal with someone; who didn't matter.

At both shows, I continued to hear drops of 3% to 6% in sales from retailers and some brokers were saying they were down as much as 40% over last year in commissions. But, in fairness, last year for many was their best ever. So even after being down 40% this will still be in their top three to five years of earnings. Of the three main groups (retailers, brokers and developers) brokers are the happiest and retailers the most upset. Few retailers as of yet are drastically changing their expansion plans, BUT if the recent 3% to 6% drop continues, they will be cutting their growth by big percentages and that will make for unhappy brokers and evidentially depressed developers.

While Chicago was good, Atlanta was better and had a higher attendance. The developers and brokers from Florida were, by far, the happiest, with almost all reporting that leasing and development were still going strong. The Atlanta show has its "Retailer Runway" which is both well attended and received. Why more shows don’t incorporate this idea is hard to understand. There are more retailers exhibiting on the "Runway" than at the trade show, so it’s a must-attend event.

As an industry we’ve been fortunate the last two years as the faltering economy has had minimum impact on us, but I see more weaknesses now than I did 18 months ago and our beloved government claims we’re coming out of the recession, which sounds more like Bush Sr.'s "what recession?" I believe it will get worse before it gets better. We can’t count on the government for any help. Its answer is to lower the interest rate, which at this point will have little impact except to make the stock market go higher. But it will not help the vast majority of consumers who we need visiting and buying in shopping centers. With almost every large purchase the consumer can make except for homes, which have been refinanced already, they are being offered 0% financing for three to five years. Lower interest rates mean nothing when you can make a deal like this and lower rates don't lower credit card interest, and Bush's idea of lowering taxes will only help those with incomes of $250,000 a year and that contribute to the Republican party. FYI, someone at the Chicago show asked if I was a Democrat. The answer is no; I'm a Libertarian.

Changing subjects, I had an interesting meeting the other day. It was with a developer from mainland China who builds retail, residential and commercial projects, but now wants to "push" their retail with Wal*Mart and Home Depot as their main anchors. The "main man" doesn’t speak English and I can’t understand Chinese, so I’m sure a lot was lost in the translation. But it appears that China, with its 1.25 BILLION citizens, is about where this country was 20 to 25 years ago; there’s tremendous growth going on, (their middle class is 15% of the population compared to our 60%) and little retail. It’s the wild west of retail real estate all over again. They hope to develop five million sq.ft. yearly, which I said was too ambitious. But who knows, anything is possible. I asked if there was a decent size middle class that could support many centers and was told percentage wise "no," but in absolute numbers, "yes." I guess, if you have 1.25 billion potential customers even 15% works.

There are two main problems they have (at least in my opinion) that came up in our conversation. 1) Financing is very limited (and you can’t own land, only lease it for 50 years if it’s commercial and 70 if it’s residential, then there’s some sort of formula for buying it at the end of the lease. 2) There are few "big box" retailers to anchor their centers, so they’re very dependant on foreign companies. To really succeed in their ambitious development program they will have to start "growing" local retailers to be "big box" and profitable. I was envious of their Chairman, while he’s in it for the money (good motivation), he has no idea how much "fun," grief and challenges are ahead for him. I’d love to be there.