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My Way
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My Way
The
combination of high prices and companies with no expertise taking
Ann, Alyson and I attended the Boston Dealmaking two weeks ago and it was a good show; not great but good. Attendance was up about 5% to 1,200 +/- and the cocktail party on the first night was extremely active and well attended. The show floor the next day was never jammed, but busy all day. In fact, there were people walking the floor at 3 p.m., which is quitting time and that rarely happens. So the show may not attract huge crowds, but it was a workhorse event. Most left the Boston show happy and that’s all you can ask for. I must have spoken to dozens of retailers, all pleased with business and trying their best to do more deals and there were lots of brokers and developers trying to fulfill their needs for space, a "win, win" situation if I ever heard of one. An interesting change I noticed is that for the past few years I always get a dozen or so developers/brokers drop by our booth and ask if we had property for sale in the 7-8% CAP rate, but in Boston they wanted to know if we had property in the 6 1/8 to 6 3/4% CAP range. I guess everyone is getting used to being raped and are willing to start out at a lower CAP. Their expectation level has dropped substantially over the last few years and it appears to be getting worse. One buyer I met is under contract for a "big box" center at a 5.5% CAP. I spoke to several owners who were still attempting to lease space that was available at last year’s show. I'm familiar with the projects and they’re decent centers; the problem being the owners want $25 in a $20 market, so while they had lots of interested retailers, none was interested at the quoted rate. I can’t agree with the philosophy of charging above market rents, but it's the developer's money. I’ll know they’re wrong if the property is still available at next year’s show. But we live in crazy times so maybe they'll get $30 psf. All the owners blamed their brokers for not producing the wanted high rents. I know the brokers and they're good. Stop blaming the messenger. It's all your fault Mr. Landlord!! I got into a conversation with several developers who recently did Steve&Barry deals and I don’t mean to plug ‘em, but at least for the moment their concept is so unique that it does appear to really work in turning around a problem center. Both owners showed before and after pictures of their centers and, while there was no noticeable difference in the property's appearance, the “before” showed no customers while the “after” shots were jammed. I’m familiar with both centers and they're old and tired and that’s being nice. What the Steve&Barry deal did was expand the drawing radius of the center from just a few miles to 10 or so. Both owners claimed substantial increases in the center’s traffic and increased sales for other tenants. The main reason I believe them (How do you tell if a developer is lying? Their lips are moving. By the way, the same can be said for brokers and retailers) is that the only people present were “us” and therefore no one to impress. That’s the good news. The bad news is that Steve&Barry is an extremely tough deal and hard for most developers; not to justify, that’s the easy part, but to make the deal work financially. Unfortunately, there are few retailers in America that can “make” a center. Sure Wal*Mart is “great” but Neiman’s will do more to create a center’s image than Wal*Mart, Kohl’s and Target combined. A Wegman's Supermarket or Old Time Pottery brings in a customer who normally wouldn’t visit the center and, quite often, an affluent one, which is even better. That, to a certain extent, is the reason “lifestyle” centers are so hot right now. Not so much because a Border’s or Barnes & Noble will be a major draw, since they are at every street corner and therefore aren't an important anchor, but because “Crate ‘N Barrel” or "Whole Foods" or "Z Gallerie" is nowhere in the market and their new location is fulfilling a pent up“demand.” Unfortunately for our industry, I personally don’t believe that there’s that much pent up demand nationwide to justify the number of lifestyle centers currently under construction. Oh, before I forget; at the Boston Show, as well as most events we attend, several people came up to me, complimented “MyWay” and said they wished they had a vehicle to voice their opinion (meaning complaints). You do...US. If you have a comment, “bitch” or outlook on retail real estate, which you want to share with our readers, e-mail (ted@dealmakers.net) or fax me (609-587-3511) YourWay. We’ll make you infamous. BUT you can’t name names on who you're bitching about, so just provide an overview of your thoughts. On a different note, here’s real “chutzpah.” I bumped into a developer at the show whose eyes were bulging. I asked what was wrong and was told that one of his national tenants decided (totally on their own) that their CAM costs were too high and therefore deducted $15,000 from their rent to compensate for the high CAM. The tenant never called the landlord to discuss the problem, just acted on their own. I commented that I'd be suing the SOB and the landlord replied he was reluctant to do so, in that the tenant might move out. Well, one, they have a lease and two, unless the center is a real bomb, I'd be at the lawyer's immediately. And even then I'd demand a sit-down meeting. Our industry, nation and government seems over the last decade to have become nasty and inconsiderate and instead of sitting down at a conference table, we all just want to sue. Retailers, brokers and developers seem to be following this trend. Another topic of conversation that came up was on the sale of centers. No, not about the ridiculous CAP rates, we’ve all given up complaining about that, but that centers that couldn’t be sold in the past are now selling at a premium. One broker pointed out that the larger brokerage houses, who usually list just trophy properties, are so hungry for product that they’re now soliciting and offering secondary and tertiary properties that three years ago I'd probably turn down. My in-laws live in Marshall, TX which is basically in the middle of nowhere, and centers are beginning to sell there that have been available for five or 10 years without any offers; all of a sudden retail has become hot in a market that no one lives in. When, and not if, the recession begins, we’re in for years of trouble. The combination of high prices and companies with no expertise taking on troubled centers will be coming back to haunt us. But in the meantime, let the good times roll. In a week or so, we’ll be attending the Orlando Dealmaking and, if history continues its course, it should be an excellent show. I guess the advantage of these summer dealmaking events breaks up the monotony of a slow summer. Business is still good, but the summers are always slower and this year is no exception (which is why this is a short "My Way"). Orlando is attracting more out of state buyers/brokers/developers than ever as it's one of the fastest growing markets in the U.S. and everyone wants a piece of the action (lots of people from California are now aggressively looking at the Florida and Texas markets as they can't afford California). A new trend I noticed is more and more owners are starting to acquire smaller centers than they used to. In the past, a New York developer might buy a 200,000 sq.ft. center in Tennessee but it had to be a larger site. Today, in order to buy a center at a 8.5% to 10% CAP, they're looking at 75,000 sq.ft. to 150,000 sq.ft. projects. It might work. Oh, we just started a new section in Dealmakers called “Profiles,” where once a month we “highlight” a company that is either unique or stands out in the crowd by operating a little different. Kin Properties allowed us to use them as a guinea pig to learn the right way to do this feature. If you feel your company has an interesting story to tell, contact Ann at ann@dealmakers.net. Lately, most "My Ways" have been upbeat and the reason is simple; our business and the economy appear to be doing well. But over the last few months, I've been receiving a few calls a week from retailers, brokers and developers saying that, while their business isn't bad, it's slow and they can't understand why I'm so upbeat. We seem to have an "underground" economy that isn't doing well. Not sure what that means for "us," but it can't be good. Most of the companies "complaining" are oriented towards the blue collar and lower middle class markets. Not good news for the short term.
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