There were two stories in the past three days looking at grocery stores and prices. Reuters has a piece up about how grocers are on the defensive because of dollar stores. Such chains are expanding rapidly and capitalizing on consumers’ frugality in the face of the difficult economic conditions. Meanwhile, the Wall Street Journal today had a piece about the positives of low grocery prices. That story’s position is that deflation in food prices has made supermarkets more competitive with discounters and warehouse clubs.

So I’m confused. Are supermarkets doing better or worse?

Here are some other news and notes on retail and retail real estate from around the Web today.

• Another WSJ piece looked at the record quarter turned in by REITs. After several quarters of steep declines, REITs turned it around in the last three months. In the end, the quarter proved to be the best in the industry’s history.
• There were two interesting RetailWire threads today. One looked at the Sears new buyer protection program, which we blogged yesterday. The other thread examined whether in-store shops are a problem for department stores.
• Retail Chatr asks,”How Long Until We See A Steady Stream of Distressed Real Estate Assets For Sale and How Hammered Will Non-Distressed Properties Get?”
• Calculated Risk posted its monthly Economic Summary in Graphs.

I found this comment–in response to our “Retail Landlords Grant Temporary Deferments, Come Up with Barter System to Set Off Rent Declines” news analysis to be very interesting. I have put it here to see if there are additional thoughts on this topic.

Only a greedy, stupid lender would force a Landlord to hold rents, when a Landlord deems it necessary to help a tenant, and the Landlord that agrees to such language in a lending document must be weak to begin with. Who knows the business of shopping centers better than the people who have to lease them? An accountant only knows how to add up the numbers, and has no clue what needs to be done to keep a shopping center full with the right kind of tenant mix. Sure there’s a market out there if you want your center to have H & R Block on the mall, or some Temp operating because Gap couldn’t catch a break from the Landlord, but what is better for the mall is to have that Gap store operating. I’m not promoting a total collapse of a rent roll, but reasonable treatment should be the norm, and not something that anyone needs to boast about or hide. That is how this industry became an industry, and that is the way it will get back to profitability.

The whole industry went haywire 10 - 15 years ago when the accountants and the SEC took the business from the real estate/leasing teams, who were the entrepreneurs that made centers work in the first place. The “Trend” began when companies going “Public” had to figure out how to sell their companies for more than they were actually worth, which is pretty close to the definition of Greed. All this to guarantee that every dime of rent that was promised was paid. Now all you have is REITS and public companies that do business based on getting more rent every time they have a chance, which leads to market values (rent costs) that are not realistic. A good Leasing rep knows when a tenant needs help, and should always be free to make something work for, or with, the landlord and the tenant’s long term best interest in mind. If the tenant is strong enough to make it in the mall in the first place, then some day this tenant will return the favor when the LL needs it.

Sometimes trends lead us in the wrong direction, and the REITs, and SEC, have all fallen into this trap of hardball negotiations. When the trend finally reverses itself, landlords who bend a little, without breaking, will come out on top. Those who succumb to the greed, and are blind to those needing help, will be gone. Likewise, lenders who break a tenant or a landlord to keep their balance sheet clean should be hung out to dry, which is what is happening to them right now also.

Originally posted as a comment by Jim Donofrio on Retail Traffic using Disqus.

One constant piece of commentary I heard at ICSC’s RECon show in May was that retail property owners are trying whatever strategies they can think of in attempts to boost traffic at their centers. They are increasing the number of events. They are looking at traditional marketing media like local radio and television stations and newspapers. The more experimental owners are trying email blasts, Tweets, texts or setting up Facebook pages for individual shopping centers.

In that “Try Anything and See What Works” vein, Foothills Mall in Tucson, Ariz. is conducting a one day experiment by displaying live models in retail store windows.

Marketing Director Mary Stahl says Saturday’s test seems to be working. “We’re all trying to find ideas and ways to drive traffic into the mall and you have to think out side the box right now.”

Styles for Less store manager Belinda Pacheco hopes to see more mall promotions like this. “It brings people in. It shows we’re trying to do different things to try and get their attention.”

Stahl say it’s an expansion on an idea from retail stores in Chicago who report a 30% increase in foot traffic. “Our main objective is to let people know that it’s a wise move to come to this mall and spend their money. They’re going to get the best value.”

The tactic is sure to get some attention. It already has, clearly. The question, however, is whether doing things like this brings in people that are actually going to spend money at a property or whether it just draws people that have nothing better to do than gawk at models. I don’t see, for example, how having live models in a mall gets the message across that shoppers “are going to get the best value” by shopping at the property.

Events and publicity stunts, to me, seem like a shot in the dark, especially in this economic climate. People that don’t have money to spend but are looking for something to do can be drawn in by mall events. It will boost traffic, but not necessarily do a thing to help retailers get better sales numbers. In the end, it seems like owners need a more sophisticated and targeted approach that delivers not just masses of people but specifically engages consumers looking to spend money. That, ultimately, is what tenants need. And the ability to deliver paying customers can become a selling point for a landlord that separates your center from the property down the road, which does not have this capability.

Here are some other news and notes on retail and retail real estate from around the Web today.

• The Financial Times Alphaville blog took a good look at the way S&P will alter its method for rating CMBS bonds. The changes could result in $235 billion in CMBS bonds losing their AAA status. Henry Blodget also noted the potential downgrades at the Business Insider.
• The Wall Street Journal’s Heard on the Street commentary highlighted the potential damage commercial real estate may yet wreak on bank balance sheets. It noted that some banks have accounted for no hits to their commercial real estate loan portfolios despite heaps of evidence of massive distress in the sector.
• Seeking Alpha asks whether Sears Holdings should consider becoming a REIT.
• ICSC published its latest Retail Real Estate Business Conditions report. Among other things, the report highlights the jump in the U.S. personal savings rate.
• One of our sister publications, Business Finance has a look at sale-leasebacks as a strategy for firms looking to monetize their real estate holdings.
• Our Chart of the Week looks at the latest Moodys/REAL commercial property index numbers for retail. The retail index fell to 1.43 in the first quarter—the lowest level since the fourth quarter of 2004. (A score of 1.00 represents where prices were as of the fourth quarter of 2000.) The index peaked at 1.68 in the third quarter of 2007. In the five quarters following the peak the index fell by an average of 0.02 points per month. The drop from the fourth quarter of 2008 to the first quarter of 2009, however, represented a 0.13 point drop in the index.
• Our online feature looks at private equity’s checkered record in buying out retailers.

Dow Jones Newswires has a look at the trend of pop-up shops in urban markets. “Retailers are embracing the concept for a broader reach in cities like New York and Chicago as shoppers look for bargains or special items. Landlords see the short-term deals as better than no deal at all, receiving some income from hard-to-fill dark stores as they hunt for permanent tenants.”

This is a trend we’ve tried to track in recent years, particularly the shops that have showed up in the New York area. For example, Teen Vogue operated The Haute Spot at the Mall at Short Hills in New Jersey in December. Target had four bodegas in New York city last fall. Toys ‘R’ Us operated a pop-up store in New York during the 2007 holiday shopping season. JC Penney had a shop in Times Square in spring 2006. We also ran a feature story on pop-up shops in February 2006.

Here are some other news and notes on retail and retail real estate from around the Web today.

George Whalin wrote about the tough times for apparel retailers. He highlights the closure of RUEHL and Eddie Bauer’s bankruptcy. It is estimated that Eddie Bauer’s restructuring could result in 120 store closings.

Meanwhile, Passions of a Zealot also looked at the demise of Abercrombie & Fitch’s RUEHL. He writes that the failure was in part due to the firm’s arrogance.

Abercrombie’s downfall with Ruehl (and the considerable sales drop at other Abercrombie brands of late) came from their arrogance to refuse to acknowledge the state of the economy and price their clothes accordingly – or at the least, provide sales or discounts or specials. For almost a year now Abercrombie’s President and CEO, Mike Jeffries has continually stated that Abercrombie (and affiliated concepts) are premium brands, discounting them or placing sales on their products – even temporarily – will damage the reputation of the brands and make it more difficult for the brands to return to their premium status.

Here are some other news and notes on retail and retail real estate from around the Web today.

• Some good news first. Bloomberg’s U.S. economy preview noted that consumer spending in the U.S. probably rose in May for the first time in three months.
• We posted a feature about how mixed-use developers remain committed to the hospitality sector.
• The Retail Doctor wrote a post with some interesting tips for retailers looking for good locations: Check the trash.
  

  Find out the trash collection days and times for your intended area. Go and observe how many have put their trash out prior and you’ll have a good indication of how dynamic your neighborhood really is.

• Wal-Mart is having some trouble with its in-store clinics, according to Business Week. Two years ago it said it planned to open clinics at 400 of its stores by 2010. By February 2008, the firm had been able to get 78 up and running so far. Now, however, it is down to 31 due to failed venture-capital collaborations, a few faulty partnerships, and a reassessment of the business model. In other health and retail news, the Mayo Clinic is opening a location at Mall of America. Officials aren’t sure yet what services the site will offer, but they could include diagnostic screenings, wellness counseling and other services that might direct patients to the home campus in Rochester, Minn.
• Aeropostale, one of the few bright spots in the apparel sector, is launching a new kids concept called P.S. VMSD has more. “The company says the concept offer trend-right merchandise at compelling values within a fun, playful and inviting store environment. The first P.S. from Aeropostale store is planned to debut in June, with an online component shortly thereafter.”
• You’ve probably noticed of late that Pizza Hut has been hawking everything but its pizza. It’s pushing its P’Zone thing and its pasta. This, apparently, was in a run-up to a adding a secondary branding mark for the franchise. As the Consumerist reports, it will now also be known now as “The Hut”.
• The Wall Street Journal reported on some troubles among booksellers. It also has a report on how land deals are helping developers muddle through the downturn in new building.
• There were a flurry of stories appearing today taking up the “commercial real estate is the next shoe” angle. PropertyWire had a piece about property values being down up to 33 percent from peaks in some markets. The numbers were gleaned from the latest PwC/Korpacz Real Estate Investor Survey. Baltimore’s CityBiz Real Estate also reported on the survey. Meanwhile, Reuters summarized a new Realpoint report that showed yet another rise in CMBS delinquencies. Steve Christ wrote at Examiner.com about the day the mall died–a summary of the bleak picture for retail real estate. The WSJ, meanwhile, reported on the latest stats from Moody’s, which indicate the commercial real-estate prices fell 8.6 percent in April. And in the bleakest story of all, Reuters reported on comments from a head analyst at Deutsche Bank Securities who said the The U.S. urban commercial real estate markets probably will not recover until 2017. It seems a little absurd to me to project 10 years out, but what do I know?
• There were also more stories looking at how REITs have raised cash. This is an angle that’s gotten picked up by a lot of publications, including us. Today, both Fortune and the New York Times wrote about the trend.
• Home Depot celebrated its 30th anniversary.
• China electrics giant Gome plans to raise $417 million through an investment from U.S. private equity firm Bain Capital.
• The Boston Globe has an update on the coffee wars. McDonald’s is gaining ground on Starbucks and has now passed Dunkin’ Donuts.
• Finish Line has struck a deal to sell its 75-unit Man Alive brand for $7 million.
• Lastly, there’s an update on Atlantic Yards.
  

  Bruce Ratner had originally had agreed to pay $100 million to the Metropolitan Transit Authority for a nine-acre site where a railyard is located, but with the economy slumping, the developer had asked to defer some of the payment. The revised agreement, which became public on Monday at a meeting of the authority’s finance committee, would call for Mr. Ratner to pay $20 million up front for the property, and $80 million in deferred payments for the air rights — a payment scheme that would stretch out until 2031.

Here are some news and notes on retail and retail real estate from around the Web today.

• Bloomberg did an update on the Fed’s plans to help commercial real estate, which said that the program may have few, if any, securities deals to start. Fed officials said it they weren’t surprised by the slow start because it takes longer to ramp up CMBS deals. Today’s application deadline applies to securities issued this year. In late July, the Fed will start accepting investor requests for loans to purchase older CMBS. In other securitization news, Felix Salmon wonders if the proposed regulations are workable. Talk has heated up now that details are leaking as to what the government has in mind to put some restraints on the securitization machine while allowing it to get back into operation again. Salmon thinks some of the proposals make sense and others–not so much.
• Seeking Alpha looked at the plight of GGP shareholders, who are stuck waiting out the REIT’s bankruptcy. The situation has grown contentious with many lenders challenging the inclusion of specific properties in the filing. MetLife has joined that bandwagon and it wants Providence Place removed from the filing.
• The Chicago Tribune looked at how drugstores are rethinking beauty counters in light of the recession. The story says, “CVS Caremark Corp. is rolling out modern, spa-like beauty boutiques attached to its drugstores while Walgreen Co. is redesigning beauty departments in select locations, most dramatically at its new Times Square store in New York.”
• CityBiz broke the news that Hines has a new REIT in the offing. It is looking to raise up to $3.5 billion to invest in a diversified portfolio of quality commercial real estate properties and other real estate investments throughout the United States and internationally.
• Gas prices rose for the 49th straight day. Higher gas prices were a big reason why May retail sales rose 0.5 percent from April.

About a week ago, word leaked that Benderson Development was buying back 11 properties it had sold to Developers Diversified at a 30 percent discount to what it sold the properties for in 2004. I speculated that a 30 percent discount to 2004 might represent a 50 percent discount to the 2007 peak. But I based that estimation by figuring out an average price per asset. Here is what I wrote:

The deal in 2004 between the companies works out to $122.34 per square foot. That is right in line with data from Real Capital Analytics. According to the firm, the average price on closed strip center deals in the first quarter of 2004 was $121.80 per square foot. However, values on strip centers didn’t peak until the second quarter of 2007. Then, the average price on closed strip center deals was $180.69 per square foot. Similarly, the average cap rate on closed deals in the first quarter of 2004 was 8.3 percent vs. a low of 6.6 percent reached in the second quarter of 2007.

Per asset, the 2004 deal works out to about $21 million per property. If the $160 million to $175 million price range is correct, that puts the price per asset at between $14.5 million and $16 million. If you do the math, if the Benderson portfolio had traded at the peak of the market in 2007–at $180.69 per square foot–the total portfolio would have been worth $3.4 billion, or $30.8 million per asset. That means–potentially–that these assets traded about 50 percent lower than what they were potentially worth at the peak of the market.

That, admittedly, is far from the best way to figure out what was paid. Without knowing the square footage of the centers in question, you can’t really figure out an average price per asset based on 110 properties on one hand and 11 on the other. Also, some of the properties in the full portfolio may have been really stellar assets that were worth more than the subset that got traded here.

Now, however, I have a little more information. I’ve gotten Real Capital Analytic’s data on Buffalo, which includes estimates on five of the properties that changed hands in 2004 and in 2009. RCA’s data puts the price paid in April 2004 at $96 per square foot per asset and puts the price on the current deal at $53 per square foot per asset. (One asset, however, shows up in RCA’s data in 2004 at $12 per square foot.) Moreover, one of properties in the Buffalo market that was originally part of the 2004 DDR deal traded in January 2007 at $131 per square foot. In June 2007, another property from the 2004 deal traded at $138 per square foot, according to RCA’s data. That was right during the stretch when the market peaked. However, two other properties from the 2004 portfolio also traded in June 2007, but only at $102 per square foot.

Put that all together and what do you get? The pricing drop from $96 per square foot to $53 per square foot represents a 45 percent discount to the 2004 price. The discount to 2007 is somewhere between 45 percent and 60 percent, based on the 2007 prices.

Now, what’s clear in looking at the data is that RCA looks at the total deal price for a portfolio and averages that over every asset. So every asset in 2004 gets a $96 per square foot valuation. This cannot be the true value since I’m sure there are asset by asset differences. But it’s the only data I’ve got to go by. I expect we’ll get a better picture when the deal officially closes and DDR discloses more of the details about the transaction.

Here’s the relevant data:

Assets sold in 2004 and 2007

• Tops Plaza, 67,992 sq. ft., April 2004, $6.5M, $96 per square foot
• Tops Plaza, 67,992 sq. ft., April 2007, $8.9M, $131 per square foot
• Hamburg Village, 92,934 sq. ft., April 2004, $8.9M, $96 per square foot
• Hamburg Village, 92,934 sq. ft., June 2007, $12.8M, $138 per square foot
• University Plaza, 162,686 sq. ft., April 2004, $15.6M, $96 per square foot
• University Plaza, 162,686 sq. ft., June 2007, $16.6M, $102 per square foot
• Tops D&L Plaza, 148,245 sq. ft., April 2004, $14.2M, $96 per square foot
• Tops D&L Plaza, 148,245 sq. ft., June 2007, $15.1M, $102 per square foot

Assets sold in 2004 and 2009

• Boulevard Consumer Square, April 2004, 708,442 sq. ft., $8.7M, $12 per square foot
• Boulevard Consumer Square, June 2009, 708,442 sq. ft., $37.8M, $53 per square foot
• Marshalls Plaza, 82,126 sq. ft., April 2004, $7.9M, $96 per square foot
• Marshalls Plaza, 82,126 sq. ft., June 2009, $4.4M, $53 per square foot
• Eastgate Plaza, 527,219 sq. ft., April 2004, $50.6M, $96 per square foot
• Eastgate Plaza, 527,219 sq. ft., June 2009, $28.1M, $53 per square foot
• Tops - South Park Plaza, 84,000 sq. ft., April 2004, $8.1M, $96 per square foot
• Tops - South Park Plaza, 84,000 sq. ft., June 2009, $4.5M, $53 per square foot
• Tops Transit Commons, 112,427 sq. ft., April 2004, $10.8M, $96 per square foot
• Tops Transit Commons, 112,427 sq. ft., June 2009, $6.0M, $53 per square foot

The original caveats I added to my first post on this deal still apply:

There are a lot of things we don’t know about these assets. Are they healthy assets or do they need work? What do the current tenant rosters look like? Are the rents at market rates or lower? When do the leases come up for renewal? Did Developers Diversified sell these assets at a deeper discount than is truly reflective of market conditions out of a need to raise cash? Without this information it is hard to draw a full conclusion on what it means for the market. But the fact remains that this represents a massive drop in values from just more than two years ago. And the drop in value is larger than even the most pessimistic estimates have been for the peak-to-trough change in prices for retail real estate.

Here are some news and notes on retail and retail real estate from around the Web today.

• Syms and Vornado won the second bidding for Filene’s Basement. The price tag was $62.4 million. That’s similar to what Men’s Wearhouse was going to pay before it retracted its bid last week.
• Llenrock blog argues that the rating agencies have lost their credibility. This is in response to the jockeying that seems to be occurring between the established and up and coming agencies over whether or not recent CMBS issues should be downgraded. Most recently, Moody’s has asserted its Aaa rating on recent CMBS issues. That means Fitch and Moody’s are holding ratings steady while S&P is considering lowering its ratings. Realpoint is trying to make its way into the conversation as well.
• A thread on RetailWire looks at how Genesco, the parent company of Journeys and Lids, is using its leverage as a healthy retailer to win some concessions from landlords. The firm says it has renegotiated 181 leases across its store base that were up for renewals or had kickouts in 2008, 2009 and 2010. Across the 181 lease renegotiations, Genesco received a five percent reduction in rent on an accounting basis.
• VMSD has some details on Gap’s plans to remodel 50 Old Navy stores. The firm has tested a new prototype at two locations in California and has been pleased with the results. So it’s going to take the design into more locations.
• The New York Observer has a sober take on the Real Estate Board of New York’s Retail Awards. The Observer reported:
  

  Every broker interviewed by The Observer expressed optimism about the future, though some added that their outlook should be taken with a grain of salt. “You have to be optimistic to be a real estate broker,” said Mr. Frischman of JDF Realty, who was an awards nominee. “If you’re not optimistic, you’re in the wrong business.”

• This is not strictly industry related, but new data shows that household wealth dropped by $1.3 trillion in the first quarter. That’s not going to help turn around discretionary spending anytime soon.
• Reuters had a brief report looking at how troubles with chain stores has opened up some opportunities for independent retailers to enter malls. In a related piece, the Milwaukee Journal Sentinel looks at how some malls have turned to small, private retailers as temporary tenants to fill vacancies. “The mom-and-pop is now king,” said Heidi A. Maybruck, a Columbus, Ohio, real estate agent who handles temporary and cart leasing for Steiner & Associates, the operator of Bayshore. Another Reuters story–a roundup of a panel at Reuters Global Retail Summit–asks, “Will empty big-box stores ever get filled?”
• Crain’s Chicago Business asks, “Is it time for the vultures?” in a look at whether opportunistic investors are finally going to swoop in and capitalize on bargains in the market. This is a question we explored in an online feature two weeks ago. The Los Angeles Times, meanwhile, looks at the prospects for small investors looking to buy commercial real estate.
• Lee & Associates has recently opened a New Jersey office. CityBiz has an interview with some execs from the firm looking at its strategy.

Other news:

• Marin Retail Buzz called RREEF’s outlook on retail real estate “too dismal.” Marin writes, “Overall, I disagree with RREEF’s pessimistic view. The data shows that retail growth didn’t accellerate [sic] during the housing boom, and there’s no evidence that structural changes will have a negative impact on retail spending. I don’t see any significant reasons why the retail sector won’t bounce back strongly when the economy recovers.”
• Men’s Wearhouse quickly dropped its bid for Filene’s Basement. The auction for the bankrupt chain will be reopened tomorrow. Syms and Crown Acquisitions lost out on the initial bidding and could step back into the fray.
• Retail sales rose in May, according to the Commerce Department. I posted a brief blog entry on the results here.
• Wal-Mart is planning to build or remodel hundreds of “zero carbon” stores in China. Carrefour and Tesco are also looking to build green locations in the country.
• Reuters posted a piece saying that retail landlords need a reality check. The story makes the argument from the tenants’ perspective–quoting Nina Kampler, executive vice president at Hilco Real Estate–that more concessions are in order if retail real estate owners want to avoid more store closings. In another Reuters piece, it looks at how up-and-coming rating agencies like Realpoint are seeking to step in as alternates to S&P. Realpoint tracks CMBS.
• CoStar posted a piece looking at the disconnect between buyers and sellers when it comes to distressed debt. The piece says that buyers who have been frustrated with sellers’ unwillingness to drop prices on property are finding a similar situation in purchasing mortgages.
• The Big Picture examines how interest only mortgages signed during the boom are beginning to hurt commercial real estate. Barry Ritholz writes, “But these 2 and 3 year commercial I/O lending packages at the tail end of a giant RE book are inherently problematic. Almost by definition, when a borrower users I/O financing, it suggests they cannot afford to make the actual purchase, and were unable to arrange other forms of financing.” The post was a response to a Bloomberg story that looked at mounting losses from I/O loans. The story looks at how investors in bonds that packaged $62 billion of debt for U.S. offices, hotels and shopping malls are bracing for more loan defaults through 2010 as landlords’ monthly payments jump by 20 percent or more.
• Retailer Daily looks at how quick service restaurants like Chick-Fil-A are having success expanding during the current recession.

Here are some news and notes on retail and retail real estate from around the Web today.

• Citybiz posted two stories on the ongoing battle between CoStar and LoopNet. The first story looks at documents released by California Superior Court that seem to be unfavorable for CoStar. The second story features CoStar’s rebuttal.
• A bankruptcy judge okayed Chrysler’s plans to shutter 789 dealerships. For more on the possible effect of car dealership closures, check our story from last week.
• A few stories in today’s Wall Street Journal are of interest to the sector. One story looked at possible relief from Treasury Department as it considers issuing rules that will make it easier for property developers and investors and their loan servicers to restructure debt. A second story explores how regional mall REIT Macerich is looking to sell assets. Company management prefers this tactic for raising cash as opposed to issuing stock or bonds, as other REITs have done. Lastly, there is a brief item about a General Growth mall closing its doors.
• In other GGP news, Reuters looked at how a ruling on the treatment of some of the REITs special purpose entities could be dangerous for the market. According to the story, some investors, lawyers and others are concerned about copycats — borrowers who would try to use bankruptcy as a negotiating tool. This would make lending riskier and could raise borrowing costs. “If GGP gets what they want this could be very dangerous for the market. A lot of people will kind of ‘me too’ file as well,” said Lisa Pendergast, managing director of CMBS research and strategy for Royal Bank of Scotland. We also posted an update on General Growth’s bankruptcy yesterday.

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