Archive for the ‘Investment’ Category

NAREIT REIT Week Live Blog: Developers Diversified Realty

by David Bodamer June 7th, 2011

President & CEO Dan Hurwitz and David Oakes, CFO and Senior Executive Vice President are presenting for Developers Diversified Realty at NAREIT’s REIT Week.

Refresh page for updates.

Below are notes from the session:

10:11: Hurwitz: As a company, we’re very excited about where we sit today. … As a company, we’ve leased in 2009 and 2010 combined 22 million square feet of space and on track to do another 10 million square feet in 2011. That provides us with considerable organic growth. … We are no longer a company that’s just focused on FFO. We think it’s important and it’s a metric we track very carefully. But NAV growth is really the driver of decisions we make internally. … We’ve sold more than $2B in dispositions since 2007 and most recently we’ve become an acquirer and have made $100M in acquisitions in the last three quarters. … Our primary focus in the past two years has been to reduce the risk profile. Debt duration has been(lengthened) and we have been upgraded by Moody’s, S&P and Fitch.

10:15: Hurwitz: We are extremely optimistic coming out of Las Vegas. Tenant demand is extraordinarily high and clearly outstripping the supply for space. The positive trends that you have seen in our operating metrics … will continue for the foreseeable future.

10:17: Oakes: On leasing side, positive spread the last several quarters. … On new leases, high single digits and could go into double-digits. On renewals, low-to-mid single digits. … Seeing positive trends that are getting better in terms of headline rents and net effective rents.

10:18: Hurwitz: One of biggest surprises we had at RECon is view that reduction of store size is negative. We like smaller store sizes. (Greater efficiencies, higher merchandise turnovers, other positive factors.) … One of the things that is happening is that in our prime portfolio we are 94 percent leased and will be higher at the end of the year. So there’s not a lot of space to lease. So if you have tenants looking to reduce, you can free up space to bring in a new tenant at a higher rate. … The operating metrics, the financial metrics will improve for tenants and it will give us opportunity for organic growth on assets where it otherwise would be muted by the high occupancy rates.

10:25: Hurwitz: (Small shop space) has improved dramatically. … There’s a couple indicators that are very exciting. We met with a number of franchisees and franchisors and business is picking up in that area. Franchisors are offering a lot of financial stability to franchisees, which is important because it’s not easy to get a lot of financing today. … SBA loan volume is up as well. That’s good for us. Franchisee will use that to secure space and inventory. … Have to keep in mind that we’re coming off a low base. Numbers are positive, but we’re not quite back to where we were.

10:28: Hurwitz: It’s fashionable to talk about development, but don’t think we’ll see a lot of it. … We will have in our case some projects that we’ll proceed with where we already own the land. But overall to go out and find new sites to provide growth opportunities for retailers, it’s much wiser to do that in redevelopment play than a development play. … Projects are zoned and entitled. And retailers are being flexible in prototypes to accommodate redevelopment. … We’re better off focusing on redevelopment than development.

10:30: Oakes: We would lean more to duration issue than overall level of debt. The duration was what hit us harder than others. That’s huge focus and continues to be a huge focus. Taken duration out from less than three years to more than four years today. … We will push that out further. Our largest year of maturities is still 2012. … Still have more than $1 billion maturing in 2012. There is a $550 million term loan that is the major focus. … On overall leverage level, debt-to-EBITDA down from more than 10X to low 8X, with plans to bring it down further. … You’ll continue to see continued progress on that metric, largely driven by EBITDA growth.

10:35: Oakes: Are seeing more buyers and more capital being raised and debt being more available, so we will continue down a path to sell our non-prime assets.

10:37: Hurwitz: Seeing a lot more financial engineering coming back to the market. … We think the operational risk is sometimes being ignored. There’s a very good chance that there will be a decline in NOI on some of these assets. … What has encouraged us is that there are more people ignoring the operational risk and focusing on the financial risk and the financial risk is lower today than it’s been in a while.

10:40: Hurwitz: With the exception of Centro, there are no big portfolios. … Where you see people talking about selling lots of assets, it’s a process, not an event. … You have to be realistic about. Realistically, we are going to see many one-off transactions.

10:45: (What makes assets non-prime?) Hurwitz: They are the assets that do not meet our growth aspirations or won’t make the most money going forward. Some of them can be highly leased. Maybe we brought them from 85 percent to 92 percent occupied. But going forward, we may think it’s more likely that it goes back to 85 percent than it rises to 95 percent. … Very often the time it takes to work on non-prime assets is not appropriate for the return. … Retail is not a commodity. It is a build-to-suit business. … If an apartment or office goes empty, there is a big roster of tenants that can take that space. That is not true in retail.

Session ends

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NAREIT REIT Week Live Blog: Tanger Outlet Centers

by David Bodamer June 7th, 2011

Steven B. Tanger, President and CEO, and James Williams, SVP and Controller are presenting for Tanger Outlet Centers at NAREIT’s REIT Week.

Refresh page for updates.

Below are notes from the session:

9:30: Tanger starts off recapping details of a new line of credit that the firm announced yesterday.

9:33: Tanger: Growth strategy includes not only organic growth … but also ground-up developments in the United States and Canada. … (Tanger also recaps the firm’s recent development announcements, including its JV with Peterson Cos. for a project in National Harbor and its joint venture with RioCan REIT to build outlet centers throughout Canada.) … Tanger is pursuing acquisitions. It has entered agreements to purchases three outlets on deals it expects to close in the third quarter. Overall, it has transactions in the works worth $490 million that would expand its portfolio by about 2 million square feet. These deals are not yet finalized, however. (Tanger also runs through updates

9:42: Tanger: On new deals we target 10 to 12 percent cost of occupancy. When leases come for renewal–and you can see large spreads of 49 percent in first quarter–that’s our mark-to-market. We are able to bring in new tenants at market rents.

9:45: Tanger: Outlets are now a distribution channel for virtually every one of brand name manufacturers and retailers we work with. … We work with tenant partners to understand their long-term view. I’m interested in their three-to-five year strategic plan. .. Their plan is to grow outlet distribution along with … regular retail stores. The business model is simple and elegant for our industry. It is brand names sold directly to consumers. It cuts out the middle man and the consumer gets a great deal every day. … If five years ago there were going to open 10 stores, they may have opened three outlets and seven full price. Now they are talking about seven outlets and three full price. … IN our market, we are under-retailed. It’s probably the only sector that is under-retailed. … Our centers at the end of the first quarter were 97 percent occupied. … There is demand for new space. … The tenant partners we’ve worked with are happy to work with us and the one or two other specialists who know how to own and operate an outlet center, which is a different kind of skill than other centers.

9:52: Tanger: I can only worry about what our plans are. It’s relatively easy for someone to announce an outlet center. … If you are to go a year from now or two years ago and look, you’ll see maybe 5 percent to 10 percent of those actually built. … It’s a very specific industry with specific skill sets and with tenants that are major corporations. We are not dealing with mom & pops and entrepreneurs. We’re dealing with NYSE-traded retailers—the largest corporations in the world. … It’s much more difficult to build than it is to announce.

9:55: Tanger: (When asked about the potential for redevelopment.) We’re contrarian. In the time of 2005 to 2007, when everybody was building on speculation and money was cheap and they were leveraging, we did not. We could not make the returns we wanted. We put $60 million into portfolio with capital improvements, renovation and redevelopment. … We’ve already made that investment. We don’t have to do that again. … We have no plans to do a take down or major renovation. Our portfolio looks great. We’re way ahead of everyone.

10:00: Tanger: 2012 is an election year. All bets are off. Interest rates—because of the election—will stay stable and fairly low. I’m hoping people will go back to work and Congress will not overregulate and strangle the growth that’s going on now. We certainly feel that the markets will remain strong. There is virtually no new construction in our industry. The outlet center industry only has 150 quality outlet centers with 50 million square feet. … Compare that with 176 million square feet of total retail in Chicago market alone. … There is room for growth. … We’re all excited about the future. We’re a growth company. … We feel these are non-replaceable, world-class assets that—would they come to market—there would be a feeding frenzy.

Session ends.

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NAREIT REIT Week Live Blog: Kimco Realty Corp.

by David Bodamer June 7th, 2011

Executive Chairman Milton Cooper and Vice Chairman, President, CEO David Henry, Executive Vice President, CFO & Treasurer Glenn Cohen and Executive Vice President & COO Michael V. Pappagallo are representing Kimco Realty Corp. at REIT Week.

Refresh page for updates.

Below are notes from the session:

8:47 Pappagallo: Leasing environment has been on positive track last … year-and-a-half. Lot of national retailers looking to increase footprints and market share. … Small users are also being aggressive to improve market share. Segment that continues to suffer is moms and pops (which cannot access credit markets).

8:50 Pappagallo: Occupancy is 92.5 percent. By end of year we will show an increase. Seeing stabilization in markets in terms of rents. In some place it is starting to increase. It’s still lower than the heights of a few years ago. So you should see downward drift in releasing spreads. … But with weaker retailers being replaced by stronger retailers, the prognosis is positive.

8:52 Pappagallo: Looking to move about 150 assets. Have sold about 17 so far and (other deals in the works). Look to reinvest in 25 markets where we have significant presence or want to have a more significant presence. … So far in 2011 have closed on 6 assets with 825,000 square feet. A few were acquired with institutional joint partners. We very often will be doing business with external partners where we can benefit from fee structure.

8:54 Pappagallo: In addition to U.S., continue to focus on Canada and Mexico. Canada has been nothing but a good news story. Our portfolio is 97 percent leased. Our largest exposure–Zeller’s–will soon become Targets. We are looking forward to having that anchor tenant in many of our locations.

Mexico has been a development story. … Occupancy is 80 percent and looking to get to 84 percent. … Mexican market is recovering like U.S. … We expect Mexico lease up will contribute to $7 million to $9 million in FFO. … We are dispersed throughout the entire country. … Beyond the headlines, Mexico continues to have many of the baseline characteristics that are good for shopping center growth.

8:56 Pappagallo: In terms of what we’ve sold so far, has not been much of an effect from FFO or negative arbitrage. … Many are low occupancy and have not generated much NOI. … We think in longer term that our estimate of these exits is about a 9 cap. … Yes, we expect some negative arb in terms of what we are reinvesting in, but think the upside is bigger than any immediate effects on FFO.

8:58 Henry: Got the larger national retailers that are quite healthy again. Balance sheets strong, earnings are good and they are expanding again. Two years ago they were in retreat. … Occupancy of tenants above 5,000 square feet is in the high 90s. Big boxes are quite healthy and seeing a lot of new leasing activity. Marshalls, Ross, TJX are expanding and beginning to worry about store count in future years. With virtually no new development they have to take a second look at spaces they may have passed on.

9:00 Henry: In general there is a momentum. There is an economic recovery. We’re seeing it in retail. We have a little more pricing power than we did a year ago. … (However), the recovery has to have stronger legs–need housing market to recover, have to see employment get better, need to see community banks lending more. … Smaller banks are still back on their heels a bit and they are not aggressively lending to the small guys. The recovery has to have more strength in it. I think we’d all agree that it’s weak.

9:05 Pappagallo: In terms of new leases and renewals, in last 12 months our composite new leases are about 2 percent from previous rental levels. In any one quarter it can be up 5 or down 10. … In terms of what you will see us reporting in rest of 2011 and 2012, will see negative territory. … Bulk of leasing is trying to keep tenants in space when lease is up. On those we’re about flat. That’s a more important indicator of where markets are and where they are stabilizing. … With lack of new stability, it will add to pricing power from landlord’s perspective.

9:08 Pappagallo: Redevelopment for us is any sort of expansion, outparcel development or redos of centers. Have about $90M of projects disclosed in our supplement. At any given time that’s a good rough number to use. … There is no one number that we use for returns. Generally we like to look at a double-digit return on a redevelopment or expansion scenario. … I think more than anything in the next three to five years, that’s where (growth will come) in Kimco portfolio, especially as the company pares down to the 600 core assets in the portfolio.

9:11 Cohen: Starting to see financing available not just for A quality properties, but for B quality properties as well. There are a variety of capital sources available. Capital markets are wide open. We wish we could take more advantage, but don’t have a lot of debt maturities in the next two years.

9:15 Cooper: Fundamentals are weak. No matter what we do, we have close to 10 percent unemployment. … We don’t have wage growth. … What puzzles me is that the consumer continues to shop and sales have not been affected so far. There’s a disconnect between the fundamentals and the enormous liquidity that’s out there. … What we have is no new development, and no matter what the problems in the U.S. are, our population grows by 3 million people per year. So I think values will increase and cap rates will continue to decline.

That concludes the session

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Report: General Growth Launching New REIT?

by David Bodamer June 6th, 2011

Reuters, citing two unnamed sources, reported that General Growth Properties is considering spinning 35 of its properties off into a new REIT.

From the report:

The assets going into the REIT consist of neighborhood strip malls, office properties and weaker regional malls the company had planned to sell or return to lenders, the sources said.

It was unclear whether the REIT would be publicly traded.

“GGP has publicly said we will pare our portfolio down to our core properties,” General Growth spokesman David Keating said in an email. “No final decision has been made, nor will it be until we explore all viable options.”

…

“We believe this unexpected step may have resulted from an inability to get desired pricing on its non-core assets, which were being marketed for sale,” Benjamin Yang, an analyst with Keefe, Bruyette & Woods, wrote in a note.

Yang said the pricing for a lower quality mall has been “all over the map in recent months” and that demand may not be “as deep as previously thought.”

When General Growth emerged from bankruptcy after a restructuring process it split some of its assets–such as land, undeveloped malls, master-planned communities and other non-core holdings–into a separate firm called the Howard Hughes Corp.

General Growth retained ownership of the core regional mall portfolio. But it has been talking of selling part of its portfolio for some time.

It has quietly been making one-off moves as well. The firm reportedly has a deal in place to sell Faneuil Hall Marketplace to Ashkenazy Acquisitions Corp. for $136 million. In addition, last week Coyote Management and Garrison Investment Group announced that they had acquired General Growth’s 1.2-million-square-foot Chapel Hills Mall.

And this morning General Growth revealed a deal with Macerich under which Macerich will acquire General Growth’s one-third ownership in two Phoenix-area malls for $75 million and General Growth will get six anchor stores in four states from Macerich.

In all, it remains a busy time for the second largest mall REIT as it continues to right-size its portfolio and clean up its balance sheet.

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Possible Buyer for Borders Stores

by Elaine Misonzhnik June 2nd, 2011

Today news emerged that the Gores Group, a private equity firm, might be looking to buy as many as half of Borders’ remaining stores out of bankruptcy, according to The Wall Street Journal. When the chain first filed for Chapter 11, many retail real estate insiders felt that the Borders locations slated for closing were good enough to be snapped up by alternate users.

It’s clear that the Gores Group, which according to some sources specializes in distressed properties, thinks Borders’ real estate is worth something as well.

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Westfield to Dispose of Non-Core Malls

by Elaine Misonzhnik May 31st, 2011

Australian mall giant Westfield Group has plans to dispose of about $1.2 billion in U.S. mall properties, according to The Sydney Morning Herald, following in the footsteps of peers General Growth Properties and Simon Property Group.

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.

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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:

  • 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.

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Private Equity Activity Heats Up

by Elaine Misonzhnik May 26th, 2011

Private equity started looking at retail chains last year, but it seems activity on that front is really heating up now that the retail industry is showing increasing signs of health.

California Pizza Kitchen just agreed to sell itself to Golden Gate Capital for $450 million. The New York Post reports that discount apparel chain Syms is looking into the possibility of either selling the whole company or its real estate portfolio.

Meanwhile, Bill Ackman has purchased a stake in Family Dollar, anticipating that it will undergo a leveraged buyout.

It looks like we might soon be back to 2006.

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Aussie Retailer CottonOn Looking for Big Boost Through Metropark Portfolio

by David Bodamer May 24th, 2011

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.

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Marcus & Millichap Retail Trends 2011 Live Blog

by David Bodamer May 23rd, 2011

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.

That concludes the program!

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