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Emerging Trends 2011 Touts “Era of Less”

by David Bodamer October 13th, 2010

emerging-trends-real-estate-2011PwC and the Urban Land Institute just completed the unveiling of the Emerging Trends 2011 report. (You can find the full report here or here.) I posted a blow-by-blow of the proceedings at the Retail Traffic Twitter feed.

The main takeaway from the report, which was compiled through interviews with 875 industry leaders, is that while 2011 will mark the beginning of the recovery in the commercial real estate, by and large we’re entering an “era of less.” We’re not returning to the go-go days that marked the run-up to 2007 any time soon, if ever. We’re looking at an industry that will be smaller than it was and generate lower returns, even on properties that are generating a healthy cash flow. And you can forget about development. Respondents think we’re still three to five years away from a period where widespread development will make sense. For retail real estate, the wait may be even longer.

While prospects have improved for all markets and property sectors from last year’s report, it’s hardly a robust environment. If you have cash, you’re sitting pretty. Debt is more available than it was, but lenders primarily are only comfortable lending long on class-A properties in top-tier markets. Owners of assets that are generating cash flow in need of refinancing should fare OK. But we may be near the end of the “pretend and extend” moment that has gripped the sector in recent years. There will be more workouts and realization of losses.

There is also a realization among respondents that solving commercial real estate’s problems is not something entirely within the industry’s control. There is uncertainty about what kind of policies will come out of Washington. Some believe there should be more support for the industry. Others think that too much government intervention is the problem and that until Washington gets out of the way, things cannot move forward.

In addition, everybody knows there needs to be more jobs created to sustain commercial real estate, but nobody at all has a clear view of where those jobs are going to come from. It’s worth recreating the Powerpoint slide from today’s presentation in its entirety:

It’s All About Jobs

  • Global competition: America’s high cost labor market loses to lower cost places
  • Internet/Telecom: Manufacturing jobs losses now extend to service and tech sectors
  • Firms learn to operate profitably (read: higher productivity) with fewer workers in less space
  • Jobs shift to lower paying right to work states
  • Technology eliminates many traditional middle class jobs
  • States/local government cut workers to balance budgets





The Top 10 Markets, according to respondents:

  1. Washington D.C. 7.01
  2. New York 6.56
  3. San Francisco 6.34
  4. Boston 6.20
  5. Seattle 6.09
  6. Houston 6.02
  7. Los Angeles 5.84
  8. San Diego 5.63
  9. Denver 5.58
  10. Dallas 5.50





The outlook by property sector:

  1. Apartments 6.19
  2. Industrial/Distribution 5.07
  3. Hotels 4.78
  4. Office 4.72
  5. Retail 4.50

No Comments Related Topics: Commentary, Conference Coverage, Development, Finance, Investment, Research, Retail Real Estate, Trends |

Let the Holiday Sales Speculation Begin! (Wednesday’s News & Notes)

by David Bodamer October 6th, 2010

With ICSC and the NRF each providing their holiday sales forecasts, the real fun now begins as people search for clues as to how the season will truly play out.

For what it’s worth, ICSC is projecting same-store sales to rise between 3 percent and 3.5 percent over the November/December period while the NRF thinks total sales will rise 2.3 percent to $447.1 billion. In addition, Retail Forward has projected a same-store sales increase of 2.5 percent and Deloitte has projected total sales to rise 2.0 percent. (ShopperTrak and NPD Group will release their projections within the next couple of weeks as well.)

Reuters chose to focus on the positive and highlighted the fact that if these projections come to fruition it would mark the strongest holiday sales season since at least 2006.

The New York Times opted for a different tactic and looked at the seasonal hiring patterns. It appears retailers will not take on a ton of temporary workers for the holidays. (As a side note, while Reuters explicitly called the back-to-school sales “better than expected”, the Times described them as “disappointing.” For the record, the consensus was that August sales were stronger than expected and we don’t get the final September numbers until tomorrow.)

Lastly, the Wall Street Journal is saying that the success of the holiday shopping season for many retailers will hinge on discounting.

The shift back into discounting mode is an about-face from the previous holiday season and earlier this year, when lean inventories allowed retailers to hold the line on prices. But retailers were forced to roll out promotions to bring customers into their stores when shopping sputtered out in late spring and summer.
…
The September price wars were particularly evident in the teen sector. Aéropostale Inc., a heavily promotional retailer, saw more competition this season as its higher-priced peers took deep discounts. It responded with select hoodies on sale for $14.99, the same low level it offered on Black Friday last year, says John Morris, an analyst at BMO Capital Markets.

“There’s no doubt that the current climate is more promotional,” said Aéropostale Co-CEO Mindy Meads at a conference last month. “In select categories, (our competitors are) hitting a little harder, which is causing us to promote harder.”

Here are some other highlights from around the retail real estate world.

No Comments Related Topics: Commentary, Development, International, Management & Leasing, News, Research, Retail, Retail Real Estate, Trends |

Presenting GGP’s New Board

by David Bodamer October 5th, 2010

General Growth Properties announced its new board. And, as reported last week, the Bucksbaum family is not on it.

Bruce Flatt will serve as the chair of the new board. Flatt is currently CEO of Brookfield Asset Management Inc. Another notable name is Adam Metz, the CEO that has led GGP through its restructuring and who plans to stay on board for for at least one more year after the restructuring is completed. In addition, Mary Lou Fiala will be on the board. Fiala is the former president and COO of shopping center REIT Regency Centers.

The full board is below.

# Ric Clark – Chief Executive Officer of Brookfield Properties
# Mary Lou Fiala – Former Chairman and current member of the Board of Trustees of International Council of Shopping Centers (ICSC); Member of the Board of Directors at Macquarie Global Growth Trust; Member of the Board of Directors at Build-A-Bear Workshop; Member of the Board of Directors at Flat Out Crazy, an Asian restaurant; Former President and Chief Operating Officer of Regency Centers Corporation
# Bruce Flatt – Senior Managing Partner and Chief Executive Officer of Brookfield Asset Management
# John Haley – Current member of GGP’s Board of Directors; Retired Partner, Transaction Advisory Services (TAS) at Ernst & Young LLP
# Cyrus Madon –Senior Managing Partner at Brookfield Asset Management responsible for restructuring and lending activities
# Adam Metz – Chief Executive Officer of General Growth Properties, Inc.
# David Neithercut – President and Chief Executive Officer and a member of the Board of Trustees of Equity Residential, one of the nation’s largest REITs as measured by equity market capitalization
# Sheli Rosenberg – Currently lead director of General Growth Properties; Retired Chief Executive Officer, President and Vice Chairwoman of Equity Group Investments, Inc., a Chicago-based, privately held investment company
# John G. Schreiber – President of Centaur Capital Partners, Inc. and a Partner and Co-Founder of Blackstone Real Estate Advisors; Former Chairman and CEO of JMB Urban Development Co.

No Comments Related Topics: Commentary, Management & Leasing, REITs, Retail Real Estate |

WSJ: Bucksbaums Denied Board Seats … Is That Fair?

by David Bodamer October 1st, 2010

Talk about harsh. The Wall Street Journal is reporting that the Bucksbaums–the family that built General Growth Properties into the second largest mall owner in the country–will have no representation on the boards of directors of either of the two entities GGP is being split into as part of its restructuring.

Former CEO John Bucksbaum obviously bears a good deal of the responsibility for the straits General Growth faced. An aggressive series of deals in the early and mid 2000s left the company saddled with more than $27 billion in debt. The combination of the crash in commercial real estate values since early 2007 and the credit crunch meant it could not refinance debt it had coming due on assets that were no longer worth what the firm had paid. This ultimately forced the company to seek bankruptcy protection and restructure.

That process, for what it’s worth, has gone much better than many expected. The company will emerge largely intact as two companies. It was not forced to sell off top assets. And it fought off a bid to be taken over by rival Simon Property Group. At its nadir, the company was delisted from the NYSE and traded on the pink sheets, bottoming out at about $0.25 per share. But its stock has since rebounded massively. In the process, the firm became a rarity–a company returned to the NYSE even before it emerged from bankruptcy. Today its stock trades north of $15 per share.

Bucksbaum, along with other members of GGP’s management, paid a hefty price for what happened. Bucksbaum resigned as CEO and other members of the C-suite exited as well as new leadership was brought into place. Still, up until now, Bucksbaum has remained as chairman of the board.

The Journal story indicates, however, that Bucksbaum will lose that post. The family will retain a sizable financial stake in the two emerging companies, but will now have no say on the firm’s future direction.

Is this a fair result? Wasn’t it enough that the Bucksbaums ceded day-to-day control? Is it right that they will no longer have a place on the companies’ boards as well?

Key excerpts from the WSJ story are below.

In a final slap to the family that founded mall giant General Growth Properties Inc., the overseers of the bankrupt company have decided against giving the Bucksbaums any representation on the company’s boards or executive offices.

Even though founding family scion and former Chief Executive John Bucksbaum privately campaigned for a seat on either of General Growth’s two new boards, the committee making the selections opted not to name him a director, according to people familiar with the matter. The Bucksbaums still will own roughly 7% of General Growth’s stock even after the company goes through a $7 billion recapitalization as part of its exit from bankruptcy.

…

The omission from the board is a stinging rebuke for Mr. Bucksbaum in particular. Mr. Bucksbaum spent his entire career at his family’s company, ascending to CEO in 1999. He presided over General Growth’s rapid expansion in the past decade, when it boosted its debt to $27 billion to finance acquisitions.

General Growth’s board removed Mr. Bucksbaum as CEO in October 2008 for failing to inform it about $100 million of loans his family trust made to two General Growth executives to help them cover margin calls on their General Growth stock holdings.

…

Mr. Bucksbaum had politicked to be named to one of the new boards. He called members of the committee of directors making the selections, as well as big investors including William Ackman of Pershing Square Capital Management LP, people familiar with the matter said. But the board-selection committee wanted to separate the new company from the troubles of the past, these people said.

…

Mr. Bucksbaum also has pledged that his own portion of a family trust will incur all losses from the loans to the two executives. His cousin, Mary Bucksbaum Scanlon, sued the family trust and its attorneys last year, alleging they mismanaged the trust by allowing the loans, among other things. The defendants have asked that the lawsuit be dismissed.

It is rare in the U.S. mall industry for a founding family to have no governing role in its company. Founders or their scions hold executive and board posts at each of the other five largest mall owners.

General Growth’s new boards will feature few surprises, people familiar with the matter say. The larger company’s board will include three Brookfield representatives, including Brookfield CEO Bruce Flatt as chairman. Also included are John Schreiber, a veteran of General Growth investor Blackstone Group LP, current CEO Mr. Metz and two holdovers, Sheri Rosenberg and John Haley.

The smaller company’s board will include Mr. Ackman and two of his appointees. Others are a Brookfield appointee and Steven Shepsman, chairman of the equity committee in the bankruptcy case.

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

Big Moves for GNC (Thursday’s News & Notes)

by David Bodamer September 30th, 2010

Retail real estate execs are always on the prowl to find the rare retailers willing to expand in today’s climate. So there’s some doubly good news on that front from GNC today.

The vitamin and nutrition specialty retailer is planning a $350 million IPO that will help facilitate its plans to open 4,800 company-owned and franchised locations to its store base. The firm currently has 7,100 locations. So this would represent a fairly sizable increase in its portfolio. Its expansion plans also will move it more aggressively overseas, including into China.

There is no timeline for how quickly it would like to add those stores. But that’s an aggressive target no matter how you slice it.

Here are some other news and notes from around the retail real estate world.

No Comments Related Topics: Investment, News, Quirky, Retail, Retail Real Estate, Trends |

Tanger CEO Opines on the American Consumer

by David Bodamer September 29th, 2010

Tanger Factory Outlet Centers CEO Steven Tanger appeared on CNBC yesterday and talked about what he saw happening with the American consumer. In part it’s a reaction to the consumer confidence numbers, which remain quite grim. Tanger says that his portfolio has seen growth and comp income has increased.

You can watch his appearance below.


No Comments Related Topics: Commentary, REITs, Retail, Retail Real Estate, Video |

Not All Fun and Games (Monday’s News & Notes)

by David Bodamer September 27th, 2010

Retailers competing in the toy market have had a notoriously tough time competing with Walmart. The Bentonville behemoth became the top seller of toys in the late 1990s and never looked back. Many department store have reduced or phased out toy departments. Toys ‘R’ Us, once the king of kids retail, struggled for a long time and ended up paring back its portfolio. But at least they are still out there fighting. KB Toys, of course, liquidated in early 2009.

But Toys ‘R’ Us has stumbled upon a way to compete through extensive use of pop-up shops and temporary stores. This season it will operate 600 pop-up shops including 10 under the FAO Schwarz brand.

Nevertheless, the chain may opt to postpone its planned IPO until at least 2011. The reason has more to do with nervousness about the stock market and the appetite for retail stocks than it does with any concerns about Toys ‘R’ Us’ strategy.

But that’s not the only news on the toy front. Sears is trying to claw back market share in the toy sector by opening 85 toy shops at some of its stores. It will open the stores next month, in time to take a bite out of the holiday sales pie.

Given this renewed competition, it will be interesting to see how Walmart responds. Last year it did some pretty drastic price cutting. Could we see more of the same?

Here are some other news and notes from the retail real estate world.

No Comments Related Topics: Commentary, Finance, Investment, News, Retail, Retail Real Estate, Security, Trends |

David Simon Speaks (Monday’s News & Notes)

by David Bodamer September 20th, 2010

Simon Property Group CEO David Simon is not one of those real estate executives that is exactly effusive with the media or in appearing on public panels. NREI interviewed Simon for a cover story a few months back. But the story is notable exactly because Simon doesn’t make himself available much.

So it is noteworthy that last week Simon made a rare public appearance and spoke to members of the Economic Club of Indiana on Thursday at the Indiana Convention Center.

According to the Indianapolis Star, Simon did share some interesting insights in both a prepared speech and a Q&A with the audience.

Some interesting stuff in there. Simon went after Internet taxation–long an issue that ICSC has lobbied Congress to legislate on. Overall he sounds pretty measured. He’s not expecting a robust holiday shopping season, but doesn’t think it will be terrible either. The prediction on lifestyle centers being “done” as new developments and retailers gravitating back to regional malls will be something to watch for in the coming years as well.

The Indy Star transcribed the Q&A, which I’ve pasted below:

What is the likelihood of a double-dip recession resulting from the collapse of the commercial real estate market?

“I don’t think it will be because of commercial real estate, and I don’t think it will be a double dip. But I don’t think we can expect significant growth. Very simply, when you regulate more and you tax more, you are going to have less growth, and that’s the agenda that we’re on, by and large.”

What are your predictions for the upcoming holiday shopping season?

“I think the consumer is still under a lot of pressure, so I would be surprised if it’s robust. I think there is a high correlation between back-to-school and the Christmas season. Back-to-school was OK. My guess is Christmas will be OK. . . . The best stimulus that we can offer in America is confidence, and it’s cheap, right? I think if we have the confidence, frankly, we could kind of get out of the rut we’re in. ”

How has the Net impacted retail?

“The Internet is my biggest concern. Not to get on my soapbox, but the state of Indiana and other states have a real opportunity to level the playing field. Let me just explain one thing about the Internet. When you buy on the Internet, you don’t pay sales tax. When you go to the local mom-and-pop store and buy a blouse or anything else, you pay sales tax. Internet has a distinct advantage, which in my opinion, is unfair, and hopefully we’re looking for fairness in our tax system. If you sell it in the physical world versus the virtual world, it ought to be the same. It’s not happening. It’s killed records. It’s hurting books. . . . It’s had a marginal impact on apparel. I’m worried what will be next. We need to level the playing field tax-wise.”

What is the future of lifestyle centers?

“The lifestyle center was kind of the new project built over the last five or six years. I think that new development of that activity is done. . . . I think we are going to have retail real estate obsolescence. But I think what it will mean is the good retailers will gravitate toward where the retail center is, and in a lot of cases it’s the enclosed mall.”

What part of your properties is in downtown areas of cities?

“We’re in some dynamic places, but not a lot of what I would call true downtowns. Retail in downtown is a challenge unless you have a lot of residents there.”

Here are some other news and notes from late last week and over the weekend.

No Comments Related Topics: Commentary, Development, Finance, Investment, News, REITs, Research, Retail, Retail Real Estate, Trends |

Everybody for Themselves?

by David Bodamer September 17th, 2010

I attended Argyle Executive Forum’s 2010 Leadership in Retail and Consumer Goods Forum yesterday. I posted update to the Retail Traffic Twitter before my Droid’s battery decided to quit on me a couple hours in.

The speakers included a mix of top retail executives and tech folks. Social media and mobile marketing were major points of conversation. Yet a lot of the speakers said they have a hard time quantifying the return on these strategies. Everybody agrees that you’ve got to explore these technologies because that’s what customers want. But I just don’t think retailers yet know how to maximize what they’re getting here.

I was also struck by the fact that the companies that spoke have done a tremendous amount of work addressing challenges at their respective firms, but the macro analysis of the state of retail and its future did not come through as clearly.

I definitely get the sense that retailers are doing all they can to retain existing customers and acquire new ones. As one executive put it, retailers need to “get to the consumer first, fast and most often.” That’s the route to success in an environment overloaded with choices and where information is traded at a dizzying pace.

This includes analyzing consumption patterns at a chain’s stores and seeing how spending behaviors have altered in light of the Great Recession. Everyone is trying to understand what’s happened with their traditional customers. And that analysis goes down to the level of seeing how the same customers may alter spending habits at different locations. For example, a shopper may visit multiple Talbots locations and exhibit distinct tendencies. As a result, merchandising strategies can be tweaked at different locations. That’s invaluable information. And it’s something that shopping center owners themselves could gain a lot from knowing.

All of that was great information to hear. And I got the sense from the few retailers that spoke that they are all looking at their customers and their stores in this same way.

I had a tougher time seeing the big picture. And few of the speakers made comments about this. Most talked about their own experiences and strategies. There were not as many observations about whether there has been a secular change in consumer spending behavior.

This is important is because if everyone is just looking at what they’re doing and not trying to understand the broader trends, we’re more likely to see distortions. Retailers may opt to expand too quickly, for example. If they’ve been very successful at tackling their own challenges they may get too rosy a view of the overall marketplace and believe they have more room for growth than actually exists. Or else they may end up with the wrong approach to the various channels that are now available to consumers. When retail spending comes back, it won’t all come back to brick and mortar locations.

What I saw was just a tiny cross section of retail leadership. Ultimately, I was impressed with how savvy firms have been in adapting to the recession and doing what they can to continue to serve and grow their base of customers. But a little more reflection on the big picture wouldn’t have been a bad thing.

No Comments Related Topics: Commentary, Retail, Trends |

Retail Expansion Potential at 18-Year High

by David Bodamer September 15th, 2010

Marcus & Millichap Real Estate Investor Services produced its National Retail Outlook for the third quarter and one chart in particular jumped out at me–something called the Retail Expansion Potential Index.

retailexpansionpotential

That’s a straight shot up from the fourth quarter of 2008 to today. In fact, the index is showing its highest reading in 18 years.

So what exactly is the Retail Expansion Potential Index? According to the M&M report:

The National Retail Expansion Potential Index, which compares retail sales less autos, gasoline and items not sold in stores to retail property stock and effective rent, reached its highest level in 18 years in the second quarter. Driven by a modest recovery in sales of store items and a decline in the national effective rent for the ninth consecutive quarter, the rise in the index during the period indicates new-store openings could represent a high-return strategy for retailers.

The report does hedge its bets, however, by also saying that “retailers will lack the confidence to expand aggressively until the economy improves in a more convincing manner.”

In other words, some conditions make it a great time for retailers to expand and the index is signaling a bright green light. But the macroeconomic risks that remain will prevent retailers from becoming too aggressive in the short term. It could make for pent-up demand from retailers if they go slow. But the overall message is that at some point we should see major expansion by retailers.

So what do you make of the index? Does that analysis hold water? Is the U.S. retail market truly poised for a big run of expansion?

No Comments Related Topics: Commentary, Development, News, Research, Retail, Trends |