Archive for November, 2010

Breaking Down Black Friday

by David Bodamer November 29th, 2010

The Monday morning quarterbacking has begun as details emerge on Black Friday.

The quick and dirty numbers:

  • ShopperTrack reported that retail spending increased 0.3 percent over 2010 while traffic was up 2.2 percent.
  • Planalytics reported that Black Friday Weekend was the coldest in three years, which helped boost the figures.
  • The National Retail Federation reported that 212 million shoppers visited stores and websites over Black Friday weekend*, up from 195 million last year. People also spent more, with the average shopper this weekend spending $365.34, up from last year’s $343.31. Total spending reached an estimated $45.0 billion.
  • ComScore reported that online sales on Friday amounted to $648 million, up 9 percent from a year ago while online spending in general is up 13 percent for the season so far.

Business Insider performed its own look at the numbers on Friday. it looks at much of the same data I have cited above, but also takes a deeper look at some online sales metrics and some winners and losers among retailers.

The mainstream business press, of course, has rounded up various soundbites and other reactions to the weekend.

  • According to the Associated Press, the season got off to a “respectable start” and retailers are “feeling encouraged.” In addition, the story argues that discounts led to some shoppers spending more than they had planned.
  • Bloomberg looked further at how online shopping trends are shaking out for the season.
  • Reuters focused predominantly on anecdotes and interviewed shoppers that came out to cash in on doorbusters and other bargains.
  • The New York Times noted an uptick in discretionary spending. Shoppers didn’t just grab gifts, but also snagged some things for themselves. It also looked at how malls and stores handled crowd control challenges.

Some more detail on the headline numbers after the jump. Read the rest of this entry »

1 Comment Related Topics: Commentary, News, Research, Retail, Retail Real Estate, Trends |

More on the J.Crew Deal

by Elaine Misonzhnik November 24th, 2010

There was lots of follow-up to yesterday’s news that J.Crew has agreed to a private equity buyout and it looks like we are not the only ones questioning what the game plan is. The New York Times has focused on Mickey Drexler and his credentials in the retail world.

But a New York Post story offers a more interesting theory. TPG and Leonard Cohen might want to reap the rewards of helping J.Crew expand internationally.

Meanwhile, some industry insiders feel that given J.Crew’s solid performance, the buyout offer is too low and might result in a shareholder lawsuit.

We’d love to know what everyone else thinks.

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Texas Pacific, Leonard Cohen to Buy J.Crew

by Elaine Misonzhnik November 23rd, 2010

Just as we predicted earlier this year, private equity firms are starting to pay closer attention to the retail sector. This morning news emerged that TPG Capital and Leonard Cohen & Partners have agreed to acquire J.Crew for approximately $3 billion.

While investing in a mid-market apparel retailer would seem to be a risky bet in today’s environment, J.Crew has a few things going for it that other apparel chains don’t. To begin with, in spite of its somewhat upscale pricing model, it has performed better in the downturn than some of its competitors. It even got an unexpected marketing boost from the First Family last year.

It has also continued growing through new concepts, even during 2009. Plus, J.Crew’s chairman Mickey Drexler has become so revered in the retail industry for his work at the chain (and his previous expansion of Gap Inc.), he’s a bona fide celebrity.

The interesting thing in today’s deal is not why TPG and Leonard Cohen would focus on J.Crew, but how they hope to capitalize on their investment. In the past, the standard private equity play would involve financing the transaction through selling off the retailer’s real estate holdings. Today, the retail real estate market might be in better shape than it was in 2009, but it’s still nowhere near healthy. So there couldn’t be much profit in J.Crew’s store portfolio–at least not yet. And the chain is not struggling, so there is not much for TPG and Leonard Cohen to do on the management front. So what’s the plan then? We’d be curious to hear your thoughts.

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USGBC’s LEED for Retail and LEED Volume are Great Next Steps

by David Bodamer November 22nd, 2010

The big news in our industry from the U.S. Green Building Council at last week’s Greenbuild Conference in Chicago was the official unveiling of the LEED for Retail and LEED Volume designations.

These programs have been in the works for years as retailers and developers have helped shape the guidelines. The programs will now make it much easier for retailers to gain LEED designations. The LEED for Retail sets up standards designed for the retail sector that take into account the way retail spaces are used and how they differ from other building types. Perhaps more importantly, the volume program will enable retailers to have a design concept certified and then every subsequent store built with those specs will automatically be LEED certified without having to redo the entire LEED process.

The LEED for Retail rating system recognizes the unique design and construction needs of this market sector, enabling forward-thinking retailers to integrate green building design, construction, and operation into ground-up construction, retail interior and build-out projects. Nearly 100 national and independent retailers and franchisees, including Bank of America, Best Buy, Chipotle, Wells Fargo, Citigroup, Kohl’s, LL Bean, McDonald’s, Pizza Fusion, Starbucks and Target, have participated in the pilot program since its launch in 2007, providing valuable feedback to inform the rating system’s development.

In today’s market, savvy retailers see the value in building designing and constructing environments that enhance the customer experience, nurture a more productive employee base, while saving precious resources,: said Scot Horst, Senior Vice President of LEED, USGBC. “LEED for Retail builds on the strengths of other commercial LEED rating systems while taking special care to address the distinct needs of retail spaces, from occupancy demands to waste streams, energy and water use.”

Also launched at Greenbuild was the LEED Volume Program, a certification program that was created to streamline and make the LEED Certification process faster and more manageable for high-volume property developers such as national retailers, hospitality providers and local, state and federal governments. Utilizing a prototype-based approach, the program enables large-scale organizational builders to deliver a consistent end product, thereby earning LEED certification faster and at a lower cost than would be possible with individual building reviews.

“With a more cost-effective, streamlined process, the largest users of LEED are now able to make a larger impact on their building portfolio without compromising the technical rigor LEED has come to stand for,” continued Horst. “This program enables us to move further faster to our goals of green buildings for all within a generation.”

Our sister publication increasingly important to both landlords and tenants according to an annual Green Building Survey conducted by NREI, the U.S. Green Building Council and Retail Traffic.

It’s also key because now developers and retailers each have their own set of guidelines to work against in gaining LEED certification. Developers can work with the existing programs for New Construction, Commercial Interiors, Core & Shell and Existing Buildings: Operation & Maintenance.

No Comments Related Topics: Architecture & Design, Commentary, Conference Coverage, Development, News, Retail, Trends |

Shopping Center REITs Post Respectable Numbers in 3Q2010

by Elaine Misonzhnik November 18th, 2010

Now that all 13 shopping center operators in the REIT universe have posted results for the third quarter of 2010, it looks like the sector continues to have good momentum heading into 2011. Some of the operating metrics were not as strong as those of the regional mall players–occupancies decreased for at least four of the REITs and NOI growth was positive for only half of the shopping center landlords. But all in all, fundamentals are looking up.

Five shopping center REITs outperformed analysts’ FFO expectations in the third quarter, by a range of $0.01 per share to $0.04 per share. The outperformers included Kimco Realty Corp., Regency Centers Corp., Weingarten Realty Investors, Ramco-Gershenson Properties Trust and Urstadt Biddle Properties. Seven companies missed estimates, most by only $0.01 to $0.02 per share. These included Developers Diversified Realty, Federal Realty Investment Trust, Cedar Shopping Centers, Saul Centers Inc., Acadia Realty Trust, Inland Real Estate Corp. and Equity One Inc.

Kite Realty Group was right on target.

With the exception of Equity One, portfolio occupancies in the sector stayed well above 90 percent.

“We continue to believe that the retail REIT universe will continue to enjoy steady earnings growth in 2011 and 2012,” wrote Rich Moore, REIT analyst with RBC Capital Markets in a Nov. 12 report.

shoppingctrreitsQ32010

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Crisis Period is Behind Us, REIT Execs Proclaim

by Elaine Misonzhnik November 16th, 2010

Remember when commercial real estate was “the next shoe to drop”? Listening to REIT executives talk about current market conditions at NAREIT’s annual convention in New York, it became apparent that the days when everyone was waiting for Armageddon are thankfully behind us.

For one thing, it seems that the pace of leasing has picked up considerably in the past six months. Michael Glimcher, chairman and CEO of Glimcher Realty Trust, talked about foreign retailers starting to enter new U.S. markets. Executives from PREIT noted that they are actually postponing lease renewal conversations until after the holiday season, instead of locking renewals in right now. The 2010 holiday shopping season is likely to be a strong one, they said, and next year the leasing environment is going to be more favorable for landlords.

In fact, according to comments by Milton Cooper, executive chairman of Kimco Realty Corp., and David Simon, chairman and CEO of Simon Property Group, the most recent real estate downturn has been a piece of cake compared to the one they lived through in the early 1990s. Back then, “real estate” remained a dirty word for several years and it was virtually impossible to convince investors to put money into commercial properties. The modern-day crisis has abated within a much shorter time span. Today, both debt and equity are readily available for anyone with high quality assets.

That’s not to say that the REITs haven’t learned some hard lessons during the more recent downturn–most having to do with maintaining low leverage ratios and investing in only the highest quality assets. Cooper, for example, noted that if he had to do it over again, Kimco would not deviate from its focus on shopping centers. (He mentioned that the company invested in some assets that were not pure retail because they offered higher yields, but even though those assets had performed well, he now views the strategy as too risky). Simon cautioned investors against risky assets as well, noting that it’s wiser to concentrate on current cash flow than on future potential.

Commenting on the need for REITs to stay away from complex financial engineering, Simon also made an aside about General Growth Properties, which emerged from Chapter 11 bankruptcy protection earlier this month. In his view, it was fortunate that the judge in the GGP case allowed the properties that were held in special purpose entities to be included in the company’s bankruptcy filing. Otherwise, the case would not be a reorganization, but “a liquidation,” Simon noted.

No Comments Related Topics: Commentary, Conference Coverage, Investment, Management & Leasing, REITs, Retail Real Estate, Trends |

What’s Been Going On?

by David Bodamer November 11th, 2010

It’s been entirely too long since we put up a roundup post. We’ve got a slew of retail and retail real estate links to share today. Some of these are a tad old–but still worth reading if you haven’t seen them yet.

In particular, there have been a bunch of posts and stories recently talking about why now is–or is not–a great time to invest in real estate.

On Monday, we got Property Sales Get `Cash for Clunkers’ Boost in Tax Uncertainty from Bloomberg. It talks about how tax uncertainty may prompt some owners of real estate to sell now–before any tax hikes come–rather than wait and get penalized later.

This was the exact opposite message of a story from November 9 on StockMarketsReview.com that proclaimed quite confidently, “Now is The Best Time to Purchase Commercial Real Estate In Decades.”

In a similar vein, CoStar asked Have Commercial Real Estate Prices Bottomed Out? That, too, would make a case for why now might be a good time to buy commercial real estate.

This notion was further backed by a prediction from Jones Lang LaSalle that commercial property deal volume might grow by 40 percent in 2011. Research compiled by Retail Traffic, NREI and Marcus & Millichap Real Estate Investment Services also shows that investors are more bullish heading into next year.

Perhaps all of this points to why Commercial Real Estate Needs Better Data and Metrics–a point argued by Marketwi.se’s John Reeder.

The lesson–as always–is that it’s dangerous business making blanket statements about the outlook for commercial real estate. A lot of what makes a particular deal work has to do with local conditions, not some macro outlook for the sector. I think Ron Altoon touched on some important themes in a recent interview I did with him.

The mindset that you can evaluate a deal simply by doing some balance sheet calculations misses that sometimes what can hurt you is what you can’t see behind a building’s walls. And the investors that win in the long run are the ones that not just make the right financial bets, but the ones that are also talented managers of real estate. Financial engineering isn’t enough. Civil engineering is important too–as is architecture, construction, property management, leasing, etc.

There were also a bunch of stories over at Bloomberg Business Week as part of a special report entitled The Comeback of Commercial Real Estate. It’s the most comprehensive attempt I’ve seen by that publication to cover our sector–perhaps a sign of the publication’s continued evolution under new leadership. Perhaps the most interesting piece in the lot is Commercial Real Estate’s Uneven Rebound, but many of the features are worth a look. In addition, the slideshow of America’s Biggest Commercial Landlords was compiled in part from our own list of the Top 100 Managers of retail real estate as well as research from our sister publication NREI.

Aside from the flurry of reports about the investment outlook, there were other good pieces looking at retail and real estate.

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Regional Mall REITs Rack Up Solid Q3

by Elaine Misonzhnik November 10th, 2010

Continuing a trend that began late last year, regional mall REITs reported improving fundamentals in the third quarter of 2010, including increases in occupancy and some upward movement in tenant sales. Of the six regional mall players currently tracked by analysts (the seventh, General Growth Properties has just emerged from bankruptcy protection and as such, hasn’t received analyst coverage), three beat consensus analyst estimates, two were in line with expectations and only one missed.

The outperformers included Macerich Co., CBL & Associates Properties and PREIT, which beat analyst FFO estimates by a range of $0.01 to $0.03 per share. Simon Property Group and Glimcher Realty Trust were in line with expectations. Taubman Centers missed consensus by $0.08 per share.

Even so, according to Rich Moore, an analyst with RBC Capital Markets, the pace of growth for REITs has slowed in the third quarter, as the U.S. economic recovery lost some steam. “The excitement evident in first half of 2010… has given way to a more subdued environment,” he wrote.

The good news is that the consumer still forges ahead, albeit with much caution. Most of the regional mall REITs reported increases in tenant sales per square foot in the third quarter compared to a year ago, ranging from 2.6 percent all the way to 13.2 percent (for Taubman). As a result, all seven operators experienced occupancy increases.

And same-store NOIs rose for at least four of the REITs. General Growth Properties and PREIT reported slight NOI decreases, at 1 percent and 1.5 percent respectively. Taubman does not track same store NOI.

q3mallreits

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GGP Makes it Official and Exits Bankruptcy

by David Bodamer November 9th, 2010

General Growth has wrapped up perhaps the greatest comeback story in the history of commercial real estate by officially completing its restructuring and emerging from Chapter 11.

Text of GGP’s official announcement is below:

General Growth Properties Completes Financial Restructuring and Emerges from Chapter 11

CHICAGO–(BUSINESS WIRE)–General Growth Properties, Inc. (NYSE: GGP) today announced it has successfully completed the final steps of its financial restructuring and has emerged from Chapter 11. The emergence marks the conclusion of one of the largest and most complex bankruptcy cases in U.S. corporate history.

“Today marks the successful end of one chapter in GGP’s history and the beginning of another,” said Adam Metz, chief executive officer of GGP. “Over the past nineteen months, we have taken extraordinary steps to remake GGP’s entire financial structure while at the same time refocusing our operations across all of our shopping mall properties. I am especially grateful to our employees for their commitment and dedication throughout this challenging process. We continue the important work of executing on the many operational and financial improvements we initiated during the reorganization process.”

In its historic restructuring, GGP successfully:

* Consensually restructured approximately $15 billion of project-level debt
* Recapitalized with $6.8 billion in new equity capital
* Paid all creditor claims in full
* Achieved substantial recovery for equity holders

As part of its plan of reorganization, GGP has split itself into two separate and independent publicly traded corporations. GGP shareholders as of the record date of November 1, 2010 received common stock in both companies. The new GGP, which will commence trading tomorrow on The New York Stock Exchange under the ticker symbol “GGP,” is the second-largest shopping mall owner and operator in the country, with more than 183 regional malls in 43 states. The spin-off company, The Howard Hughes Corporation, consists of GGP’s portfolio of master planned communities and other strategic real estate development opportunities. This company will trade under the ticker symbol “HHC” on The New York Stock Exchange.

UBS Investment Bank and Miller Buckfire & Co., LLC are serving as financial advisors to General Growth Properties in connection with the restructuring, and Weil, Gotshal & Manges LLP and Kirkland & Ellis LLP are acting as legal counsel to the Company.

ABOUT “New” GGP

“New” GGP will have ownership and management interest in more than 183 regional shopping malls in 43 states as well as ownership interests in other rental properties.

No Comments Related Topics: Finance, News, REITs, Retail Real Estate |

Retailers Blame Warm Weather for October’s Spotty Sales

by David Bodamer November 4th, 2010

October’s same-store sales numbers are in and the results are a bit of a mixed bag. About an equal number of retailers posted gains and declines. Overall, same-store sales for the 30+ retailers that still bother to report monthly figures were up about 1.5 percent give or take a few basis points depending on whose numbers you want to use.

Retailers blamed the results on the fact that October was much warmer than normal, suppressing sales, for example, for things like sweaters, outerwear and other cold-weather items. Many are hoping that November–which is projected to be colder than normal–will unleash pent-up demand for these sorts of items.

Another factor to keep in mind is that same-store comparisons are now against tougher year-over-year comps. The period from September 2008 through August 2009 was marked by low retail sales (although some retailers did benefit from the fact that competitors were put out of business, bolstering their own sales). Therefore the comps that began in September 2009 were against that weak backdrop. The figures that started last month were in comparison with a stronger 12 months than the ones before, especially as the pace of store closures and retailer liquidations slowed considerably. The retail market has been stable for a while now. So there’s no more survivor bias to the figures. Now it’s just straight comps over the last 12 months without as much noise as a result of the shakeout that began in late 2008.

Going forward, most analysts are projecting a fairly strong Christmas. ICSC, for its part, is saying the November-December selling period will feature same-store gains of between 3.0 and 3.5 percent, making it the strongest year-over-year season since 2006.

At any rate, additional write-ups of the same-store figures are at the New York Times, CNN and the Wall Street Journal.

My look inside the monthly reports is after the jump. Read the rest of this entry »

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