Archive for the ‘Investment’ Category

Texas Pacific, Leonard Cohen to Buy J.Crew

by Elaine Misonzhnik November 23rd, 2010

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

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

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

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

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

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 |

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 |

Bill Ackman Strikes Again (Friday’s News & Notes)

by Elaine Misonzhnik October 8th, 2010

Bill Ackman’s Pershing Square Capital Management seems to be everywhere these days: the firm has been an investor in Target, Borders and Sears, as well as in General Growth Properties, the country’s second largest mall owner. The firm has also made a high-profile attempt to take over Stuyvesant Town-Peter Cooper Village, a sprawling residential complex in the midst of New York City.

Now, Pershing Square has disclosed that it bought a 16.5 percent stake in J.C. Penney Co., making it the department store chain’s largest shareholder. Ackman, a hands-on investor, reportedly already has some ideas on how to improve the company’s perfomance. To read more stories about retail and retail real estate, follow the links below:

No Comments Related Topics: Finance, Investment, News, Retail, Trends |

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 |

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 |

Burger King Sale Raises Eyebrows

by Elaine Misonzhnik September 9th, 2010

Now that Burger King has agreed to sell itself to 3G Capital for $3.3 billion, retail industry insiders are collectively scratching their heads as to what might have prompted the Brazilian-backed private equity player to bet its money on such a challenging acquisition. Yesterday, Fortune published a story outlining everything that had gone wrong for the chain in the past couple of years and trying to gauge how difficult it might be for 3G Capital to fix it. Today, Bloomberg Business Week has taken a closer look at what 3G’s strategy might be in the coming months. One thing seems certain: it won’t be an easy turnaround.

(Meanwhile, Burger King shareholders seem blissfully unaware of how the chain is perceived in the business world and have started a lawsuit against it for accepting a low ball offer).

Let us know what you think. Is Burger King doomed to forever be second best? What do you think 3G Capital will do when it takes over operations? Will Burger King be around in 10 year’s time or will it be run into the ground by private equity’s cost-cutting measures?

No Comments Related Topics: Commentary, Investment, News, Retail |

JLL to Manage Xanadu Meadowlands (Tuesday’s News & Notes)

by Elaine Misonzhnik September 8th, 2010

One of the biggest questions of this era in the retail real estate industry might be whether the Xanadu Meadowlands project in the New Jersey Meadowlands ever gets built. The project, an ambitious undertaking combining a sports and entertainment complex, a regional mall and office and hospitality space, exemplified the bold thinking and excesses of the boom years. At 4.5 million square feet, it was set to be the largest center of its kind in the U.S. and the third largest in the world. But it kept being delayed, first by the troubles at the Mills Corp., then by the credit crisis and now by the apparent lack of a developer brave enough to try to sort out the mess the project has turned into.

A few weeks ago, the lenders on the project opted to take Xanadu Meadowlands back from its most recent owner, Colony Capital LLC. Some industry sources felt that was because Colony Capital insisted on leaving much of the original plan intact, in spite of lack of demand for so much retail and entertainment space in the market. This summer, news emerged that the Related Cos. was taking over the responsibility for the Xanadu Meadowlands. But now it turns out Related never signed an agreement to complete the center. Instead, the lenders are bringing in Jones Lang LaSalle to manage the project while they continue negotiating with potential operators. For more on this story and other news about retail and retail real estate, follow the links below:

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