Archive for the ‘Commentary’ Category

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.

1 Comment Related Topics: Commentary, Finance, International, Investment, Management & Leasing, News, Research, Retail, Retail Real Estate, Trends |

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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How the Elections Affect Retail Real Estate

by David Bodamer November 3rd, 2010

You know all about the the sweeping Republican gains in Congress and statehouses. That in itself will affect the industry.

To just name one example, the threat of a rise in the taxation rate for carried interest will be a virtual impossibility. Republicans staunchly opposed that proposal. It only ever was able to gain traction in the House when it’s been brought up in the past. It has never been able to move forward in the Senate. It seems unlikely that the lame duck session will take up this issue at all.

On the flip side, a combination of a Democratic President, Republican House and an essentially split Senate spells gridlock. Will Congress get anything done in the next two years at all? Some might argue that the best Congress is an ineffective one since not passing any major legislation means they won’t be able to mess things up worse than they already are. But if the economy continues to flounder, I don’t think voters will be too pleased two years down the line if this next Congress has no accomplishments to lean on.

Beyond that, a common theme in the business world leading up to the election was that the uncertainty about what might be coming out of Washington in terms of taxation and regulation was holding back investment and job creation. An improving employment picture, of course, is essential for a robust commercial real estate recovery to occur. The implication of that certainly seemed to be that a Republican victory would be better for business, since that would make tax increases or increased regulation less likely. So now we’ll just have to see if the victory does translate into businesses loosening the purse strings and beginning to hire and invest. Let’s just hope that this wasn’t merely a talking point.

In addition to the big changes, there was one ballot measure in Maryland that you may not have heard about that sets an interesting precedent for retail real estate. In Anne Arundel County, voters approved a ballot item that will enable Cordish Co. to add slot machines to Arundel Mills Mall.

A bitter fight was waged for months between supporters and opponents of that measure. The passage means that Cordish will be able to add a $430 million casino to Arundel Mills. This was a quirky situation, but it does lead me to wonder if this works out well for Cordish and the state (with the boost in tax revenues) whether this is something other mall owners might explore for some properties.

Update 11:55 AM: The National Retail Federation has put together a very useful write-up of how the election will affect issues important to retailers. Definitely worth a read.

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

Help Us Update Our Blogroll

by David Bodamer November 2nd, 2010

Hey folks. It occurred to me today that it has been a painfully long time since I updated the Traffic Court blog roll. I am positive that some of the links on our list have now expired. And I know other very good commercial real estate and retail real estate blogs have emerged since the last time I really updated that list.

So if you know of good blogs for the space (or produce one yourself), let us know in the comments section, Tweeting it to us or sending me an email directly.

2 Comments Related Topics: Commentary, Quirky |

GGP To Emerge From Bankruptcy on November 8

by David Bodamer October 22nd, 2010

The big news overnight was the announcement that Judge Allan Gropper of the U.S. Bankruptcy Court for the Southern District of New York confirmed General Growth’s plan of reorganization. It will emerge on November 8 with most of its debt restructured and infusions of equity from a list of big name partners. Overall, the reorganization process will have lasted about 19 months. GGP’s riskier assets will be part of the new Howard Hughes Corp. entity, which includes many remnants of the land and development portfolio GGP acquired as part of its takeover of Rouse Corp. several years ago. What remains of GGP proper will be a company boasting a large portfolio of stabilized assets. It plans to follow the reemergence by raising roughly $2.3 billion in equity in a public offering.

From the firm’s release:

GGP will emerge from its financial restructuring with a strong balance sheet and substantially less debt, providing it with a solid financial foundation on which to execute its growth strategy. Upon emergence, GGP will have a significantly improved capital structure, having secured $6.8 billion in equity commitments from Brookfield Asset Management, Fairholme Funds, Pershing Square Capital Management, Blackstone and The Teacher Retirement System of Texas. GGP has also successfully and consensually restructured approximately $15 billion in project-level debt, renegotiating terms and extending maturity dates. In addition, all pre-petition GGP creditors will be satisfied in full.

There are several good reports on the latest news including at Reuters, the Wall Street Journal and Bloomberg.

The momentous announcement prompted me to look back at a story we published in February 2009. At the time, GGP had not yet filed for bankruptcy, but it only seemed a matter of time. We had never seen a REIT bankruptcy of that magnitude and no one was entirely sure how it would play out. So we interviewed attorneys and REIT experts and had them spell out what they thought would happen.

It turns out that things played out much as we predicted. The story concluded that REITs were better candidates than traditional C-Corps. to emerge from bankruptcy intact.

What we wrote then:

The sector may not have been tested by a big bankruptcy yet, but enough is known about how the companies are structured and how a bankruptcy proceeds that experts think the industry should emerge fine, even from a series of bankruptcies. Further, there is reason to believe that because REITs control a tangible base of assets through large portfolios of real estate, these firms may be more likely to survive bankruptcies than other companies that’s value is harder to pin down or could be subject to liquidation.

The piece also said that it was likely that given the state of credit markets that white knights investing equity would be a better bet than traditional debtor-in-possession financing. (In fairness, experts did say finding white knights after the bankruptcy filing might be difficult. In GGP’s case, it was able to find them.)

The story also said that REIT shareholders would be more likely than traditional shareholders to come out okay in a bankruptcy filing. As it turned out, GGP’s stock ended up appreciating from about $0.25 per share at its low point to $16.80 today. In fact, General Growth has the rare distinction of regaining a spot on the New York Stock Exchange while still in bankruptcy reorganization. It was briefly delisted when its stock was trading under $1.00 per share. But anyone that bought then ended up making a killing as its stock recovered when it became clear that GGP was going to survive in good shape.

At any rate, revisiting the story made for an interesting read. And it’s nice to know that we–at least sometimes–know what we’re talking about.

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

Navigating The Uncertainty of FAS13

by David Bodamer October 20th, 2010

There has been a flurry of analysis in the past couple months about Financial Accounting Standards 13 (FAS 13), proposed new lease accounting standards from the U.S. Financial Accounting Standards Board and the International Accounting Standards Board. The standards would require all lease liabilities to be accounted for on corporate balance sheets as capital leases rather than as operating leases.

We tried to summarize some of the implications for retail real estate in a recent piece. Our sister publication NREI also examined the issue in a piece in September.

But there are several other good primary reports out there that folks in the industry should find of interest. Read the rest of this entry »

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

Refreshing Honesty at ULI

by David Bodamer October 18th, 2010

The Urban Land Institute’s Fall Meeting last week in Washington D.C. was a compelling show to attend. I went to a ton of sessions during the show spanning a wide range of topics. I shared some of my thoughts on the blog last week in addition to providing Twitter updates and a couple long stories posted over at our main site.

Something that struck me throughout the conference was the refreshing amount of honesty coming from the podiums. There was no fluff and no attempt to cheerlead. There was a frank assessment of the commercial real estate industry’s missteps and a palpable sense that people are trying to grapple with the challenges that remain.

I can’t tell you how many times I’ve heard at one time or another from folks in commercial real estate that by not emphasizing positive news or talking up the industry, that Retail Traffic somehow has done a disservice. I’ve never quite understood that argument. It’s always seemed to me like saying that if we don’t talk about what’s happening, then it doesn’t exist.

That is incredibly dangerous. Without an honest assessment of the true market conditions, investors are likely to make bad decisions. And looking the other way in the face of irrational exuberance is exactly one of the things that caused this Great Recession to be so painful. Things were out of control for so long that when it all imploded it created massive carnage that we’re still sifting through.

I was struck most of all by the remarks of ULI Chairman Jeremy Newsum. Newsum said that the commercial real estate industry needs to own up to the fact that it contributed to the problem and was not an innocent bystander that got swept into the tsunami by the banks. Most pointedly, Newsum bemoaned the fact that the industry let investment funds come in and dictate the agenda. Control of the industry slipped from the hands of experienced owners and operators to financial engineers looking for instant returns juiced by massive amounts of debt. “Real estate is not primarily about money, and we should not have allowed real estate to become just another playground for financial engineers,” he said.

Newsum added that developers and owners also need to keep in mind that they have a responsibility to surrounding communities. They have a mandate that goes beyond turning profits and extends to creating spaces where all people live, work and play. You can find more of his thoughts encapsulated here in a statement issued in conjunction with the show.

That tone of honesty was also evident in the remarks of Stephen Blank and Jonathan Miller in assembling the annual Emerging Trends report. I wrote about what they had to say here and here.

In addition, you had Vornado CEO Mike Fascitelli admitting in one session that his company was too conservative when it could have struck and made some investments that would have generated huge returns.

And the honesty extended beyond the commercial real estate content. Sheila Bair questioned whether lenders really learned the lessons of the last cycle about being too loose with their terms. Political pundit Larry Sabato offered a frank assessment of the upcoming elections and former Fed Vice Chairman Donald Kohn was equally straightforward in analyzing why the economy took the turns it did and where things are headed. I posted a lot of their comments at our Twitter feed.

So in the end, I gained a lot of insight into the current state of the industry and the challenges that remain. I just wish this honesty wasn’t such an exception. It would make things a whole lot easier if people said what they thought rather than said what they thought you wanted to hear. It would be better to be honest about the challenges that face us than pretend they don’t exist. We can’t talk the problems away. They have to be dealt with.

No Comments Related Topics: Commentary, Conference Coverage, News, Trends |

Retail Panel: It’s All About Experiences

by David Bodamer October 14th, 2010

I attended an interesting retail panel at the ULI Fall Meeting. It explored how entertainment, experiences, landscaping and design can make a big difference in the current economic environment. Panelists talked about how consumers want more than just places to go and shop. They want community. They want to be entertained. They want to be amused. They want to be in pleasant settings where they can linger.

The panel was moderated by Alan McKeon, president and CEO of Alexander Babbage Inc., and featured Julie Brinkerhoff-Jacobs, president and CFO of Lifescapes International Inc., Blake Cordish, vice president of Cordish Co., NormaLynn Cutler, president of Cutler Enterprises and Anselm Fusco, senior vice president, investments of Madison Marquette. It looked at projects including Caruso Co.’s The Grove in Los Angeles, Cordish’s Power & Light District in Kansas City and Madison Marquette’s Asbury Park in New Jersey, among others.

All the speakers emphasized how providing unique experiences can make projects magnets of activity, which then creates more sales opportunities. For example, Asbury Park–which is a redevelopment of a classic boardwalk that fell out of favor–once again buzzes with activity. Creating a community spot means embracing some unconventional activities. Fusco talked about how a weekly drum circle now comes to the site. That’s the kind of thing that would never fly in a mall. But it’s the kind of organic community activity that has helped turn Asbury Park into a success. After an uphill battle, the site is now fully leased and generating same-store sales increases at a 20 percent to 30 percent clip.

Cordish, meanwhile, admitted that the downturn had tested his firm’s faith in building entertainment-themed projects. But they opted to not only remain committed, but to up the ante and increase the number of events at properties throughout its portfolio. That too is paying dividends for the firm. And it’s provided a lesson as well. The answer is not necessarily doing the same thing on every site. Connecting with local communities means tapping into local interests. It’s not about replicating tenant mixes or adding the same kinds of entertainment options at every project. As he put it, “Ambiance is the anchor, not concepts.”

Brinkerhoff-Jacobs added that projects didn’t necessarily need to be large scale in order to apply these kinds of lessons. Her firm has worked on projects both big and small. But in all cases what her landscape architecture firm has tried to bring to the table is a focus on creating “delightful landscapes environments.” This can be as simple as providing ample shaded seating in an outdoor common area. Or it can be more ambitious–performance spaces, fountains. Regardless, the idea is to build spaces that people want to spend time in. That, in turn, will translate into repeat visits and more sales for retailers at the center.

Food for thought. Consumers have less to spend and more options for how to shop. Online and mobile shopping will continue to alter behaviors. The best bet is to get on board with ways to use those technologies to drive and enhance in-mall shopping experiences. Just delivering goods is not going to cut it. Going forward, the retail real estate industry needs to be about creating experiences.

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

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 |