The revelation came at the the end of Frank Lowy’s last annual general meeting as Westfield’s executive chairman, after 51 years at the helm. According to the article, Lowy said that the firm has already identified 10 malls that will be for sale, a number of them in California. That doesn’t mean Westfield will cut all ties to the centers, however. In certain cases, it is reportedly looking to put the properties into 50/50 joint ventures. Potential partners might include the Blackstone Group and Morgan Stanley.
It’s another confirmation of the shakeout occurring in the regional mall sector. Regional malls weathered the Great Recession better than most other retail property types and remained poised to do well. But its likely that only the best malls will do well. Lesser malls may need to be redeveloped or repurposed entirely. This could be why Westfield–along with other regional mall REITs–are so openly talking about cutting back on their portfolios.
This morning, I posted a series of takeaways to our Twitter feed–a stream of consciousness of sorts recounting some of the major themes I heard in meetings and other conversations at the ICSC RECon show that took place in Las Vegas from Sunday through yesterday.
For those of you not following us on Twitter, here’s what I posted. I would love to hear others’ thoughts on themes from the show as well:
The industry is realizing that the future is clicks and bricks. Online sales will grow, but retailing will increasingly be a blend. People use the net to comparison shop already. As more people get smartphones, they’ll do that in the store too. Consumers will also be able to research products online while looking at them in person.
Social media had a much bigger presence at this year’s show. ICSC had a Social Media pavilion that had tons of content. Many more people were Tweeting from the floor. And there were noticeably more tablets. Leasing guys were using those for presentations. And many booths featured one or more QR codes.
As one person said, “The show went from being a job fair back to an actual dealmaking convention.” In addition, there was a sense that meetings this year resulted in more actionable items. Last year there was a lot more caution. Meetings that took place were more about touching base and feeling out the market than they were about doing deals
Whether you’re talking investment, leasing or development, class-A in best markets rebounding fastest.
The retail development pipeline is in the early stages of restarting, but it will be a while before a real uptick in openings. And many projects on display were ones that got mothballed and then tweaked. The exception to this was the outlet sector. A few projects were announced at the show and other companies talked of intentions to build both high-end and value outlet projects.
CMBS 2.0–a term that’s gotten thrown around a lot as CMBS issuance has risen–is a misnomer. A more accurate description would be CMBS 1.1. About the only thing that has changed is that underwriting is tighter. But a lot of things discussed when the market had frozen–such as lenders putting more skin in the game or changing how pools are put together–are not happening. Predictions of 2011 issuance varied from $30 billion to $60 billion.
The investment sales market continues to mend. First quarter volume was up in 2011 over 2010. Most expect healthy growth for 2011. We might even see a few portfolios become available, although nothing massive will hit the market. The Blackstone/Centro deal was an aberration. There are no other giant mergers like that cooking.
Some new concepts and international retailers are in the market looking to take advantage of vacancies to expand, but not a huge amount. One reason is that it is hard to finance startups. Established retailers are in a position to expand, but most are taking a cautious approach. The highest-quality retailers want the best locations and many are also looking at urban markets. That dovetails with a trend among big-box tenants to reduce store footprints. In part it’s being driven by efficiency and better merchandising. But it’s also stemming from a desire to open in urban spaces. Retailers in some markets also have taken advantage of market conditions to upgrade from class-B or class-C centers to better locations. The outlook for lower-quality properties remains murky.
Lastly, tenants are asking for kickouts tied to cotenancy and/or sales, free rent, and tenant improvement allowances, but not necessarily reductions. One hitch is that owners that have debt that’s in special servicing may have a hard time getting approvals to grant those allowances.
One of the big plots at ICSC’s RECon show has been the search for tenants.
Some retailers are out looking for deals, but the rate of expansion is nothing like what it was at the market’s peak. The pace of absorption means that it will still take a while to fill all the empty space that does exist. Moreover, most tenants are only interested in class-A space. There are fewer inquiries for class-B and class-C assets and the outlook for those properties remains murkier.
But I did stumble across one intriguing bit of news when sitting down with Matthew Bordwin, co-president of GA Keen Realty Advisors. Last week, the firm was retained to assist in the marketing and disposition of 41 leased properties across 21 states operated by Metropark – a high-end clothing company that filed for bankruptcy earlier this month. Overall, the firm had 70 locations and 29 of the leases were rejected and returned to landlords. Keen is running an auction on the leases this week. Bids are due tomorrow and the auction will take place on Thursday.
Incredibly, all 41 leases up for grabs are now taken. And amid the inquiries, Australian retailer CottonOn has come through with an aggressive play. It has an agreement in place to take 33 of the leases. CottonOn is a 20-year old retailer that operates more than 600 stores nationwide. According to its site, in the U.S. it currently operates 46 Cotton-On stores, one Cotton-On Body store and one Rubi shoe store. So grabbing 33 leases would represent a huge expansion for the firm.
In addition to CottonOn, another retailer has a deal to take the other eight leases up for grabs.
It means that less than a week after gaining the assignment, all 70 Metropark leases will be resolved–29 to landlords and 41 to other retailers. The auction still has the possibility of changing the mix. Regardless, every spot will be spoken for. If it’s a barometer of the retail real estate conditions, it means that the market is in a much, much better position to absorb retailer closures and bankruptcies than it has been in some time.
The one caveat to that is that Metropark had spots in a lot of very, very good malls. So there are a lot of desirable locations in the mix–leases at Ala Moana Center, Mall of America, Garden State Plaza, Roosevelt Field, Houston Galleria and other big-time centers are all on the table. So aggressiveness in this auction dovetails with the broader notion that class-A space is in demand.
Still, I’d take this as a hopeful sign that the business is continuing to recover.
Marcus & Millichap’s annual Retail Trends event is on.
Here’s a blow-by-blow of the event.
5:35 PM: Bill Rose, M&M’s new national director of retail, and Hessam Nadji, M&M’s managing director of research and advisory services, are tonight’s moderators.
5:36 PM: The panel includes Roddy O’Neal, CEO of Goldman Sachs Commercial Mortgage Capital; Jeffrey Berkes, EVP and CIO of Federal Realty Investment Trust; Donald Wright, SVP Real Estate and Engineering of Safeway Inc. and Robert Roscoe, divisional vice president, asset development with Walgreen Co.
5:38 PM: Nadji kicking things off with a run-down of recent history. Recounting how far we’ve come just from 2008 to get where we are today…. Economy today is tug-of-war between headwinds and recovery.
5:40 PM: Nadji: Housing remains a drag and is in a double-dip. Household debt is also still too high. And some of momentum of recovery will be robbed by deleveraging and paying down debt that needs to occur.
5:42 PM: Nadji:High energy prices are another drag. Higher gas prices sapping GDP growth.
5:43 PM: Nadji: Positives: Consumer spending has rebounded much faster than expected and is exceeding pre-recession levels. Corporate profits have recovered.
5:44 PM: Nadji: On pace to add 2.3M jobs in 2011–less than 10 percent temporary. Last year 30 percent of 900,000 jobs added were temporary. … But sentiment remains fragile. More than 500,000 professional and business jobs added. More than 400,000 education and health services. Even 200,000 manufacturing jobs. Means the recovery is broad based. Big loser is government, which at all levels has shed 400,000 jobs.
5:46 PM: On to panel discussion.
5:47 PM:Berkes: Wright: Lot of deflation is out of grocery sector. Modest inflation taking place and consumers are tolerating. The best-run with strongest balance sheets are gaining traction and gaining share. Kroger was first in on price side and now they have very good comps. … As economy improves, price will still be important, but people look for value. That bodes well for Whole Foods. They are running 7 percent comps and talking about how they want to have 1,000 stores. You see that happening. … I think there are have and have-nots and haves will continue to strengthen.
5:50 PM: Roscoe: Walgreens sales performance has been fine. Most recent monthly comps were up 5 percent. Transactions up, basket sizes up and trips are up. So things are measuring well across the board. Some pressure on pharmacy side with reimbursements. There is a continued drive by insurance companies to lower reimbursement rates to drugstores. … Overall, think things are on the rise.
5:52 PM: Berkes: There is much less water leaking out of the bucket today, which makes it easier to keep occupancies up and rents growing.
5:54 PM: O’Neal: Consumer confidence is stronger. We finance centers across the country and we are seeing an uptick in sales and we have enough data points to see the recovery is playing out.
5:55 PM: Nadji asks about whether the panelists are expecting a double-dip recession. Wright, Berkes, Roscoe and O’Neal all say no. But Roscoe says “But we are preparing for one,” which elicits some laughter from the crowd.
5:57 PM: Nadji is drilling into some more numbers. Finds that the fastest growing part of retail sales is etailing. Online sales still account for just about 10 percent of retail sales. … But online sales not just about people buying online. It’s now a mix of bricks-and-clicks–an integration of online and physical retailing. Apps, social networking, etc., all enhance the retail experience…. Store-based retail sales is also growing, which is driving positive net absorption too.
5:59 PM: Nadji: By segment, furniture stores took a big hit and have not recovered much. Luxury, on flipside, took a big hit, but has a very rapid bounceback.
6:00 PM: Nadji: Construction pipeline is at an all-time data in data that goes back to 1980. … Vacancy by age of center shows highest vacancies in newest centers (less than 3 years old). Centers 7 to 11 years old have lowest vacancy rates.
6:02 PM: Nadji: Variation by metro shows that San Francisco has lowest retail vacancy rate at 3.9 percent. Cincinnati has highest at 13.4 percent. But dynamics are changing rapidly with product mix and job growth. The pace of recovery is very different in many markets.
6:07 PM: Berkes: (On development) If you step back and look at the country, we are completely overstored and overretailed. There is too much space. There are not as many retailers. Those that are healthy don’t need square footage they needed. It is also difficult to finance new retail businesses. So development will be slow, except in high-barrier to entry markets where there is a proven demand for more space or more retail sales. Those types of locations are always going to be active. It’s difficult to develop in those environments. But that’s a good thing, because it’s kept a lid on supply. … You need to really look in infill trade areas and find places with lots of people and not lots of space. But don’t know when we’ll see the kind of development we saw in the last cycle.
6:10 PM: Roscoe: Growing store base at about a 3 percent annual clip (down from 8 percent during boom years). That translates into opening about 225 stores per year. Company is looking at the high-barrier to entry markets where the playing field is known. There’s no more expansion based on housing growth.
6:12 PM: Nadji: Lending picture has improved. CMBS 2.0 is not accurate. More like CMBS 1.1. Not much has changed except for underwriting. … In terms of investment sales volume peaked at $102.3B in 2007 and fell to $33.9B in 2009. Rebounded to $51.1B in 2010. But probably 30 percent to 40 percent off what Nadji would consider a normal marketplace. … Looking at first quarters, seeing a continued upcycle–up from $7.0B in 2009 to $8.5B in 2010 to $12.6B in 2011. But a lot of the deals are in $20M+ deal size–where institutions play. Still waiting to see broader recovery up-and-down the entire price train.
6:15 PM: Nadji (cont): Cap rate by type of market, you see large gap between primary markets and secondary and tertiary markets that is only now just beginning to close. … [Improving capital markets, confidence and other factors] will lead to improvement in secondary markets, but not yet tertiary markets. … Looking at gaps between interest rates and cap rates–when gap has gotten large, those have been good buying opportunities. Today the gap between single-tenant and multi-tenant cap rates and interest rates is near historic highs.
6:19 PM: O’Neal: (Talking about restarting CMBS) In 2009, there was no securitization market. It was virtually 0. We had client–DDR–took 23 of their centers, pulled them into securitization pool, took it to market and it was a $554M transaction. All of the bonds got treated as investment grade and it was substantially oversubscribed. Got from that there was demand. … Are now in middle of fourth multi-borrower, multi-property issuance since then. … We knew that would drive competition to marketplace. Now people saying $50B to $60B number for the year. If we get to $35B, it will be good year. Challenge is finding the properties that fit. B-piece buyer pool is a bit shallow right now. Can’t get the returns they need.
Parting Words
6:28 PM: Wright: As a shameless pitch, a lot of time people don’t look at us as buyers. But if you have center–particularly if we happen to be in it–give us a call. Right now 42 percent of our real estate is owned by us. We prefer to own. … If you see opportunities for redevelopment, keep us in mind.
6:29 PM: Roscoe: Will be continued consolidation in drugstore business. Lines will get blurry in terms of who is in what business. As health care changes, it is a good category to be in.
6:30 PM: Rose: You’ve got four of most active participants saying shoe will drop, interest rates at absolute low and saying now is best time to invest in retail real estate.
And, in fact, in mid-March, Tanger and RioCan also announced plans to build a property in … wait for it … Halton Hills!
So are there really going to be two outlet centers going up in the same place? Or does this raise doubts about the Tanger/RioCan project? Tanger and RioCan said they had purchased a 35-acre parcel and were aiming to open in April 2013.
Simon’s release, intriguingly, includes a quote from the town’s mayor. Simon and Calloway also say they, like RioCan and Tanger, have procured a site. They don’t list a target opening date, but do say that they think construction will begin next spring.
So it appears there’s a race on. It seems hard to believe that both projects can succeed. It will be interesting to track leasing announcements to see where tenants end up signing.
From Simon’s release:
Simon Property Group, Inc. and Calloway Real Estate Investment Trust announced today that they have signed a Letter of Intent to develop the first Premium Outlet Center® in Canada. The center will be located in the Town of Halton Hills, Ontario, just 15 minutes outside of Toronto.
…
The Halton Hills site, located at Highway 401 and Trafalgar Road, with its in-place zoning approvals permitting outlet center uses, is in the process of obtaining additional municipal approvals and permits required for a construction start in spring 2012.
“We are excited to bring the Premium Outlets branded concept of upscale outlet shopping to Canada. This location will enable us to serve over 6 million area residents within a one-hour drive,” remarked John R. Klein, President of Simon’s Premium Outlets platform. “Coupled with Calloway’s depth of management and its major shareholder SmartCentres’ proven track record in development, we believe our first project in Canada will be a resounding success.”
…
“Calloway is very excited to work with Simon Property Group and its Premium Outlets division, which has established a reputation of providing shoppers with the highest quality outlet centers. Outlet shopping is an underserved segment of the retail landscape and we intend to satisfy the pent up consumer demand,” said Al Mawani, President and Chief Executive Officer of Calloway.
“We are thrilled that Simon Property Group has chosen to work with Calloway on this exciting project. The Town staff has been working closely with representatives of Calloway to proceed expeditiously through the planning process. The significant financial investment by Simon Property Group/Calloway in our community as well as the hundreds of jobs that will be created as a result of this development are very important to the economic vitality of our town,” said Halton Hills Mayor Rick Bonnette.
ICSC’s 2011 RECon show is officially underway. The real action starts tomorrow when the Leasing Mall opens. Today there were a handful of sessions and networking opportunities. And, of course, the cocktail parties will begin shortly.
Retail Traffic–with an assist from our sister publication National Real Estate Investor–will be providing continuing coverage of the conference in a variety of ways.
I’ll be posting updates here at the Traffic Court blog. I’ll also be Tweeting from the conference floor. (You can follow me here. And don’t forget to monitor the #RECon hashtag to see the posts from everyone that’s Tweeting from the show.) Lastly, you can read our coverage on your smartphones at on our mobile site.
And if you just want to see everything we’re publishing in one convenient place, keep checking our special ICSC RECon 2011 Conference Coverage page. There, you’ll find all the news and analysis pieces we’ll file from the show floor in addition to a feed from this blog, my most recent Twitter posts and links to Jones Lang LaSalle’s ICSC blog. We’ll also be shooting some videos from the show floor. Those will start appearing Tuesday evening and Wednesday and we’ll continue to post them after the show’s over as we get them all edited.
We’ll be recapping all this coverage in our weekly newsletter–which we’ll send Wednesday morning. And then next week we’ll have one last look back at the show, which will include links to all the video interviews we put together in the next few days.
I don’t know what’s worse for the guy–the fact that this happened or the fact that the video is now going viral.
Up until the last moment, this had the makings of being the classiest thing to ever happen to a Cinnabon. The dude did everything right. He dressed up. He had wonderful things to say. He got a guy on acoustic guitar to help serenade her. In the process, he managed to turn the Sherman Oaks Galleria mall food court into a romantic spot.
Alas, it all breaks down at the end. As one of the people on the video says, “That was brutal.”
It’s difficult not be fascinated by the “candidacy” of Donald Trump. He’s managed to keep his names in the headlines for weeks–propelled a great deal by joining the absurd birther bandwagon–along with the whole “will he or won’t he?” speculation surrounding him.
But is there real meat to his candidacy or is it all just a big sideshow distracting us from real issues? For a brief moment, Trump was scoring quite well in Republican straw polls. That moment seems to have passed.
Last month we found him leading the Republican field with 26%. In the space of just four weeks he’s dropped all the way down to 8%, putting him in a tie for fifth place with Ron Paul.
Mike Huckabee and Mitt Romney are at the top of the GOP race with 19% and 18% respectively. Newt Gingrich and Sarah Palin are further back at 13% and 12%, followed by Trump and Paul at 8%, Michele Bachmann at 7%, and Tim Pawlenty at 5%.
But judging by the names in the field, there could be more twists and turns to come.
Aside from his attractiveness to voters, I’ve always been curious about the perception of Trump within the commercial real estate industry. He’s become a brand name and is arguably the most well-known person from the industry in the country thanks to his tabloid-worthy personal life and his beyond gaudy successes and failures dotting the industry landscape.
But in my time covering commercial real estate, Trump is largely a non-story. I don’t hear many people talk about him nor look at him as some kind of model. Within the industry, the people that are admired–and that have experienced success and wealth well beyond Trump–are folks like Sam Zell, the Simons, Steve Roth, Stephen Ross, and many others. Trump is an entertainer. Those other guys are businessmen.
By 68 percent to 14 percent, the billionaire is viewed unfavorably by respondents in a Bloomberg Global Poll of investors, analysts and traders. In the U.S., where Trump is more widely known, his unfavorable rating climbs to 79 percent, while those viewing him favorably rises to 17 percent.
“The last thing this country needs is an uber-political, self-serving, egomaniacal media junkie whose all-sizzle-no-steak approach to life and politics only distracts us all from the real issues and problems of our country,” said poll respondent Douglas Schoninger, 50, president of DJS Capital Management Inc. in New York.
So, as pros in commercial real estate, what do you think of Citizen Trump?
Our May cover story Return of the Mall makes a case that enclosed regional malls not only weathered the recession better than many expected, but also seem positioned to continue to perform well as the retail recovery proceeds. The formats that were supposed to mean the death knell of the mall–mixed-use, lifestyle centers, power centers, etc.–have all had a much rougher go of things in recent years and face continued challenges.
Since we wrote that piece, more evidence has emerged that enclosed regional malls remain an attractive play.
Triple Five Group–the firm behind the West Edmonton Mall and the Mall of America–made the decision to enter the picture and try to revive the failed Xanadu project in Northern New Jersey. The New York Times has more about the firm and its plans. Both of its other giant retail and entertainment projects have proved to be successes throughout the downturn and are healthy today. And Triple Five is looking to bring some of that magic to New Jersey at a development that has vexed many others.
In addition, Australian limited property trust Westfield Group said it is upping its development goals in the wake of rapidly improving sales at its regional malls.
Meanwhile, in Boston Ashkenazy Acquisitions Corp. has reportedly reached a deal to acquire the lease of Faneuil Hall Marketplace from General Growth Properties for $136 million. Faneuil is one of the outdoor festival marketplaces General Growth acquired as part of its takeover of the Rouse Co. It reinforces the notion that General Growth is aiming to pare down its portfolio and focus more exclusively on the regional mall sector. It’s also a healthy sign that firms are willing to come in take on and manage projects like Faneuil Hall. It’s hard to imagine that this deal could have happened a year ago.
RECon Takeaways
by David Bodamer May 26th, 2011
This morning, I posted a series of takeaways to our Twitter feed–a stream of consciousness of sorts recounting some of the major themes I heard in meetings and other conversations at the ICSC RECon show that took place in Las Vegas from Sunday through yesterday.
For those of you not following us on Twitter, here’s what I posted. I would love to hear others’ thoughts on themes from the show as well:
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