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Observations & Conversations
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Observations & Conversations It's all about making the numbers work
We're in a crazy business; lucrative no doubt, but sometimes the dividends, commissions or bonuses would be best itemized as combat pay. It doesn't matter which side of the fence you're on, whether it's a retailer negotiating on new sites, renewals, terminations and grappling with operations. A buyer wooing a seller for the best price. Or a developer fighting or cowing to city hall depending on the day of the week - - while lining up financing or doing dog and pony shows to investors with a juggling routine on the leasing side to keep the deals alive. Then throw into the fray a few attorneys and brokers, voila! You've got the typical day in the life of most people milling the floor at any ICSC function. We all have high stress and lots of pressure. The retailer's real estate department has to jump through hoops to justify their site selection and satisfy the operations department's whims before the deal gets done. Then after the store opens, if it's not a home run the real estate mavens get blamed for picking the site. Adding salt to the wound, they usually don't get a pat on the back when the store is a winner. On the development, acquisition and leasing side it's all about making the numbers work and someone is going to bleed before any deal gets done. Mix into the recipe the fact that you can't believe most of what you're told. In addition, you have a 50-50 shot at the person with the mortgage company or the retailer that you've been negotiating with for the past few months still being employed next week. Some of us just get bitter and others make sure they have a good time and share a laugh between fighting over the last dime in every deal. Hopefully, you're in the latter of these two groups. If you're competent at your job, it's hard to balance a lot of business travel, time spent in meetings, handling the prep work, reviewing reams of documents and the subsequent follow up. Our business is definitely one in which we have to duck and cover from making million dollar mistakes on a daily basis.
Talking about million dollar oversights, I was told a story about a retailer with around 20 stores who acquired a site that fell by a hair within the radius restriction of one of its newer stores that had more than ten years left on the lease. I'm not talking a small shop. The stores use about 40,000 sq.ft. and they're not cheap to build. About two weeks before the store that the retailer owns and built was scheduled to open, the landlord serves an injunction to enforce the radius restriction on the older store. The landlord doubled his money by forcing rent concessions. I've also heard about a snafu with a chain that has 3,000-plus units. Turns out they signed leases for sites directly across the street from one another. Oops. I know of several developers that routinely run 30% over budget . . . must be nice to have such a big margin that you can still make money even when everything goes wrong. We're in a business that when you make a mistake, it can cost millions.
On the flip side, I've been doing some work lately for a few meticulous retailers. They have extremely restrictive uses and a highly defined site criteria, but with excellent credit and stellar reputations. These chains aren't the most desirable tenants and they wanted our help to increase the number of submissions they get for potential sites without adding staff to their real estate department or giving brokers exclusives. Working through their campaign to get hundreds of new sites was painstaking, because none of us want to make a mistake and we want to rely more on technology to help weed out sites that don't meet their criteria. The intent is to have a Web site as the entry point to submit a site with a filter that automatically kicks out sites that don't meet the criteria. Some smart person at the planning table suggested that the campaign go in modular and incremental steps so we could react quickly and either pull the plug or put it in second gear to iron out the kinks or if all was well put the pedal to the metal. It's interesting setting up a screening process that responds quickly with a polite "no interest" or with a "wait, wait, wait, we're reviewing it" response. Part of the process requires registering each broker and dealing with the stickiness of having the same site submitted by different brokers. I'm finding it fascinating hashing out the potential hazards and in about six months to a year, we should know if any of our ideas work. My gut tells me that they'll achieve their goals for new store openings. Their real estate department probably won't have any hair left after this adventure. However, it's only painful when you're pulling it out in fistfuls.
It's been an interesting 2006. Not only are we still at war, but the upheavals in the recent elections may have a big impact on how well the retail industry performs next year. In talking with some retail gurus and a few analysts, they think we'll be okay and won't see too much retailer carnage next year. But its going to cost more to build and asking prices to buy shopping centers won't go through the "rapid correction" or drop as residential sales have. We'll have to wait and see how retailers react when rents go up accordingly and I don't think the bottom feeder buyers are going to be circling like vultures next year.
This year's ICSC New York show will be crazy; I suspect the convention floor will be so crowded that making appointments on time will be next to impossible and considering that the Sheraton will have exhibit space too . . . bring roller skates or your Segway ‘cause it's going to be hard maneuvering through the crowd. Our Eastern States show issue is the second largest magazine we've published this year. There's lots of deals to be made by just reading our editorial pages and the ads. This issue has leads on retailers looking to open more than 9,000 stores; leasing activity on 50 million sq.ft. of retail space and $2 billion earmarked for acquisitions and financing. Also, another ground breaker for The Dealmakers is that we have more mixed-use projects represented in this issue than at anytime in our 28-year history. We've always had a good track record for reflecting the "here and now" and the future of retail real estate on a national scale. I think I'm one of the few, if not the only, publisher of a trade magazine in our industry that actually understands firsthand what it takes to sell, buy, lease or broker a retail site. It's not what I do for a living today but my dealmaking teeth were cut long ago, so speaking your language is second nature to me. We strive to provide you with great leads every week. This issue also has some excellent insight into what's happening in the Northeast. We have an article tapping the minds of some brilliant people in our industry. Their thoughts will give you a good pulse on the Northeast's retail scene, and even if you're working sites just in the Midwest, west coast or down south it's still worthwhile reading. We also have leads on some noteworthy start ups, one of which is Suzanne's Kitchen, a DIY meal-prep concept that's a joint venture with Suzanne Somers the Thighmaster queen and best-selling author. Growing retailers reported on in this issue include Dr. Mojoe, a small chain specializing in denim with $180 jeans being its average price point and Octane, a chain with sales floors that also have a heavy emphasis on pricey denim apparel. I knew our New York show issue would be huge, just not this big. It's a great way to end the year. To all of our readers and advertisers, thank you. Oh, be sure to stop by our booth in New York and say hello. Wishing you and yours a healthy, happy and prosperous New Year, |