8,000 retail real estate dealmakers gather in NY to make 2006 a Great Year

It's All Over With, But the Shouting -- and There's a Lotbelieve 'em, they've made too much money off of it).
of That to ComeThe Chicago show, more than most dealmaking
The second largest gathering of retail real estateevents, attracts small developers (other shows that
professionals of the year is coming together in Newattract these entrepreneurs are Atlanta and Charlotte),
York and there's a lot to celebrate. With 2006 endingin addition to the Simons and Kimcos. I'm more at
up as being a great year (We can debate which washome with the "little guy" than the "Simons" of the
better, 2005 or 2006, but what difference does itworld. They move quickly, know what they want and
make?), the big question is, "What will 2007 be like?"understand that if they don't produce they die. And
and that's a question that no one really knows theabove all, since most are self made millionaire$ they're
answer to. If they claim they do, they're either lying ornot too conceited or arrogant. The large companies
insane, but that won't stop "the experts" from makinghave one major advantage over 'em, MONEY, lots of
predictions anyway. My answer? I have no clue. Rightit, which usually covers their butt on some of their
now, my money is on 2007 being decent but not asdumber moves. Because the larger companies have
good as 2006. But, there are too many outside factorsbeen doing so well lately, they can afford numerous
that can make 2007 a disaster (more can go wrongblunders before they're in real trouble. The little guy
than right), so all we can do at the show is meet anddoesn't have that luxury. Now I'm not saying the big
greet old and new friends, go out and party in one ofguys are dumb, I just believe their size prevents them
the greatest cities in the world and do a lot offrom making the most logical and efficient decisions
dealmaking and praying. (Oh, before I forget, Alyson(bureaucracies are a bummer). For example, larger
went to the ICSC show in Sacramento. It was a smallcompanies add to their layers of leasing personnel by
show, with 350 in attendance (last year was 295), buthaving individuals that specialize in "Big Box," medium
she said the size made it "intimate" and verybox and small shop leasing. I'm waiting for them to add
entrepreneurial. Right now, the show is marginal, buta specialist for Chinese buffets. Makes no sense to
give it three or four years and it could be anotherme; can't their people handle the whole gamut of
winner.)retailers wanting to lease space in a particular center?
For good or bad, the change in Congress after the lastIt really isn't that hard. Anyway, rambling on, I read an
election will have an impact on our industry and myarticle in SCT Xtra that lifestyle centers will represent
"gut" says the Fed will raise interest rates in January or65% of all new developments over the next three
February. (Hopefully, I'm wrong) So, be prepared to liveyears. If that's true, a lot of "poor" performing centers
in "interesting times" for the next year.will be built, as lifestyle centers, by their nature, are not
There's no doubt in my mind -- short of a blizzard (Godmeant to be located at every street corner (it's not the
forbid) hitting the show the day before or the day itconcept I have problems with; it's the execution). The
starts -- New York will set another attendance recordeconomics of these centers don't work for Middle
and, candidly, the Hilton can't handle the crowd, butAmerica and the "upscale" consumer represents only
somehow we'll all make it through the event and be15% to 20% of the population, so there's limited
better off because of it. What makes me feel old andmarkets they make sense in. Plus, a lot of these
sometimes not as successful as I thought I might be is"lifestyle" centers are really power centers in disguise,
when I speak to some friends of 20 or 30 years and Iusing lifestyle as a name because it represents today's
ask where they're staying in New York. Many of 'em"vanilla."
reply, "I'm not going, I'm getting too old and tired for it; I'mEvery mall developer is converting their "C, D and F"
sending 'my people' instead." I guess I'm not important,centers to mixed-use and lifestyle centers, and I
because I still have to attend, along with "my people."contend that in 60% of the cases these redeveloped
But then, I'll be in good company.projects will fail. It's a little like 25 years ago when all
Talking about ICSC shows, several of the dealmakingthe failed malls were being converted to outlet centers.
conferences in other towns are being relocatedThe developers believed they found the magic cure,
because "we've" outgrown the old facilities.but five years later the failed center was still a
Unfortunately, the Hilton (short of the Javits Center) isbummer. Then they believe their "salvation" was
the largest conference facility in the city and Ientertainment centers and that also failed. To prove I'm
personally don't want to go to the Javits Center orold, I remember my grandmother living over retail
move outside of New York, so we're stuck with thestores in Newark, NJ in the 1940s and saving up
problem, a great problem, but a problem.money so she could move into an apartment, which
Changing subjects, we're an industry where you don'twas considered more prestigious. Today, the condo
have to be a rocket scientist to succeed and make aover the retail is considered upscale, proving my
good buck, BUT I sometimes wonder if some (not all)grandmother was a smart lady.
of those in the business have any idea what they'reRambling on...Ann, Alyson, Terry, Rich, Josh and myself
doing. I got a call last week on a building we're leasingattended the Philly show the following week after
from another broker who inquired about the leaseChicago and another winner in attendance was
rates. I told 'em we had a lease out on the property,posted; Philly was smaller than Chicago (the East
but leave me your number and if the deal dies, I'll call.Coast considers the Philly and the New York shows
He then asked what it would take to get his client theas "theirs," so many wait for December to attend a
deal over the current prospective tenant and I saidshow instead of attending both. I disagree, but that's
$13.50 psf, net. He then explained I was nuts, thewhat makes horse racing. Attendance was up about
market rent is only $10 to $11 psf and I agreed and said400 to 2,300 this year over 1,900 last year. The
that's what the current tenant is willing to pay BUT ifcocktail party the night before was jammed with
the owner is going to be a whore, they want to be aeveryone upbeat. After the cocktail party, most
well-paid one. We got into a major debate and I endedattended private parties such as Fameco's event at
the conversation saying, "Why don't I call you if this onethe Hard Rock (which was the busiest). Legend
doesn't work out. I'd be a lot more cooperative." HeProperties' party was packed also and they
then called me a thief and hung up. Now don't get meannounced Maria Aristone was appointed president of
wrong, I have no pride. If my current deals dies, I'll callthe company; they bumped Jim Depetris to chairman.
him BUT I would have been less offended with beingSmart move on their behalf. Also, Marcus and Millichap
called a whore than a thief. I tried explaining that with aand Metro Commercial had parties, which were
tenant "in-hand," why would I even try to be "fair?" (Oh,packed. One thing our industry does well is eat, drink
both tenants have similar financial statements.) Heand party.
wanted to me to do a deal with him for 25The Philly show got off to a slow start on Thursday
cents-per-foot more; fortunately my client works 5thmorning, but by 10 a.m. it was hectic and stayed busy
Avenue, not 42nd Street.until the end at 3 p.m., which is good. It used to be this
Anyway, changing topics again, retail seems to beshow ended right after lunch, so its value over time is
dividing our industry like politics, but instead of blue andimproving. The best comment I heard at the show
red states, we have high and low end retailers with thewas from Rene Daniels, who said: "Lot's of people
ones in the middle struggling. The Nordstroms of thepresent, but few decision makers." Cute, but
world are doing great (department stores are "back in"unfortunately true. As our industry expands we gain
with the consumer) but it seems that even themembership, but the ability for these dealmakers to
almighty Wal*Mart is having some problems. Themake decisions is lacking, which is why every deal
middle class in America finds their purchasing powertakes forever to be finalized. Oh, I read an interesting
diminishing and they're having difficulty surviving andarticle last week; the author contends that if we don't
when they hurt, so will our industry.have a good Christmas (guesses are between 2.5%
I've heard a dozen reports on what type of Christmasto 5% in sales increases) then Sears will start selling
we'll have this year, anything from setting records tooff underperforming Kmart and Sears stores, just
down 3%. So, it's a wait-and-see to find out how 2007what our industry needs, more available real
will start off. But what really confuses me is Wallestate.posted by tedkraus at 6:10 AM 0 comments
Street. I'm the first to admit that finance is not mylinks to this post
strong point but as I write this, the Dow is climbingFriday, September 01, 2006
because the Fed has indicated they won't be raisingMickey Hits Another Home Run
rates in December. That in itself I understand but theAnn, Alyson, Terry and myself attended the Orlando
other news that Wall Street seems to be ignoring isICSC dealmaking convention, which proved to be
that sales and, for many companies, profits, areanother home run. Lots of busy and happy
dropping. To my way of thinking, I rather have higherdealmakers gathering for three days to wheel and
interest rates along with good profits than lower ratesdeal, a task they were all equipped to do and do well.
and lower profits. I think there's trouble brewing inThe cocktail party on Sunday, while active, seemed
Dodge.(but I'm not sure) to have a little less in attendance than
When it comes to stupidity, right now, I feel like the king.in the past, and I have two theories why (the third is I'm
A couple of months ago, we got a shopping center towrong) 1) Airfare and hotel costs have gone up, so
sell and through a MAJOR miscommunication on mysome elected to come for one day less to save some
behalf, we underestimated the income by $150,000.expenses; 2) There was confusion on which day the
During this period we received several offers forcocktail party was, many thinking it was on Monday,
about $1 million less than the owner wanted and I, bynot Sunday night. Either way, the show itself ended up
pure luck, convinced the seller to lower his pricewith nearly 5,000 attending over last year's 4,300 and
substantially. Long story short, we finally got anthe cocktail party was a success with all attendees
interested party that, before going into a LOI, wantedbeing in an upbeat mood. We can't ask for more than
more information than what we had. So, I requested itthat.
from the seller and after reviewing the numbers,The reoccurring complaint I heard was on the
realized my screw-up and before sending the info outincreasing costs of construction and insurance in the
to the potential buyer, I called the owner andFlorida market since last year's hurricanes. The details
confessed to my stupidity. He asked how long it wouldhave been reported everywhere, but I'm told some
take to "repackage" and get new offers and I said 60insurance costs have gotten close to the $3 psf mark
to 90 days, whereby he responded, "No, close fasterand construction costs are up 25% to 30%. Some
at the lower price." (Thank you, thank you, thank you.)claimed that it marks the beginning of the end of
I then sent the info to the buyer and told him of myFlorida's great retail market, but I doubt that. It will make
screw-up. To say the least, he was a happy camperdealmaking more difficult, as more secondary sites are
but wanted to know if he was competing with anyonerejected and greater "discussions" on acceptable rents
else. I said, "Yes and no." No one else had received thethan in the past occur. The great curse of life. May
updated information BUT I will be resending the newyou live in interesting times.
numbers to companies that made unacceptable offersAnn and Alyson attended the Ladies in the Biz cocktail
in the past, explaining my screw-up and seeing if thereparty on Sunday and they seemed happy with the
was new interest. It was then that the conversationnetworking opportunity and the excellent turnout. From
got nasty; he contended I was being unfair (at least hewhat I could see, the booths at the actual dealmaking
wasn't calling me a thief) and should not provide theshow were sold out with just a few no-shows, so by
income statement to anyone else.every definition, Orlando was a winner, as has become
I asked if he was prepared to go into contract and hetradition with this event. Every exhibitor I spoke to
replied, "Not for another week." I said that I thereforeexpressed satisfaction with the show, so even with
HAD TO keep marketing the property. We're stillsome problems on the economic horizon, the Florida
talking and I do believe he'll make an offer, but we'remarket is still hot. Of course, trying to figure out the
not as friendly as we were in the past. No deal evereconomy is impossible; One day inflation is down, the
seems to go smoothly.next up. One day consumer spending is up, the next
Speaking of whores, I was talking to the VP ofdown. One week, unemployment figures are up, the
acquisitions for a decent-sized company and he wasnext down. It's totally confusing, and anyone claiming to
explaining how he "beats" the competition out on deals.understand what's happening is a fool or a liar.
Say the seller wants $12 million and they only want toI'm writing this during the last week of August and, to
pay $11.2 million. They enter into a contract for $12say the least, business is slow, at least from the
million, do their due diligence and then, about 10 daysbrokerage end; publishing is busy preparing for all the
before closing, call the seller and say they can't closeupcoming ICSC dealmaking events. Phone calls have
at $12 million but can at $11. Take it or leave it. Ninetyslowed to a trickle, most people I call are on vacation
percent of the time, the seller gets upset and calls offor getting ready to go on one and 99% of the deals
the deal but calls back in a day or two and after muchscheduled to open for this coming Xmas season are
negotiation, agrees to $11.2 or $11.3 million. There wasfinalized, so no one is under pressure to do a deal; they
nothing found in the due diligence period that couldwant to enjoy what's left of the summer. Hopefully, as
justify the lower price, the buyer just plays the game.has been true in the past, this changes after Labor
In a conversation with another director of acquisitions,Day and business becomes hectic once again.
we were talking about their latest purchase and IThe hunt to find centers for sale is as strong as ever,
asked how they could justify a 6.5% CAP on awith most of the brokers and buyers confused and
360,000 sq.ft. center and he said part of it is that theyfrustrated on why CAP rates aren't going up as
jack up CAM and make it into a profit center, whichinterest rates have (In theory, they have; in realty, they
makes the numbers work -- what a business. Overall,haven't). I guess the only logical answer is "If they can
we're a great industry, but we do have our share ofget their asking price, whether it makes sense or not,
a-holes.why not." The single largest complaint I constantly
Anyway, here's wishing you a great show andheard was where/how to acquire property that
holiday.posted by tedkraus at 7:33 AM 0 commentsmakes economic sense, and there is no answer.
links to this postWhere I'm really confused is all the reports that I've
Monday, October 30, 2006read contend there's a slowdown in leasing and retail
The South Not Only Rise Again, It Won, Oh and Moresales, but in the majority of markets, rents are still
About Josh..Almostincreasing and a retailer has to be a real fool to pay
Ann and I attended the Texas Dealmaking show andhigher rents on declining sales. I must be the exception
over 3,000 "Tall hats"showed up to wheel and deal,to the rule because every property we're leasing I'm
nearly a 20% increase compared with last year'sshow.finding it harder to get decent rents and tenants are
You can't ask for more than that, especiallyfighting harder on renewals. Of course, some of it is
considering it was onlyfive or six years ago that thesticker shock, when after 10 years a tenant's rent
show attracted only 750 or so dealmakers.goes from $7.50 psf gross to $18.25 psf net, it can be
High energy is the only way to describe this event.difficult to accept. Of course, the retailer's gross has
Texans love dealmakingand socializing, and they do itincreased substantially over the years and that they
well. Here's another market in which smalldevelopershave no problem accepting higher sales volumes and
excel. The South seems to be an area that smallerthe incoming profits.
developerslove; they've found a niche that the REITsAnother change in the sale of properties is that, while
can't touch. They may never beCAP rates have not risen, it is taking longer to make a
Kimco or DDR, but they live the good life and have fundeal and I've noticed more deals are coming back onto
-- a great way tomake a living. The only real complaintthe market after a LOI was signed. Deals seem to be
we heard at the show was the lack ofdying more often; it now often takes several
"real" retailers, and that seems to be the rule at mostacceptable offers from different buyers before an
events, so get overit. The broker has become theactual deal is finalized. If the due diligence doesn't come
mainstay of dealmaking for many, if not most,retailersthrough perfectly the buyer wants to renegotiate.
and you're going to pay that commission, like it or not.Switching subjects, Josh, as I mentioned attended the
Another change I noticed at this and most shows isICSC's University in Lansing, MI and they appear to
that the actualdealmaking is lasting longer. In the "oldhave done a decent job of teaching him the basics
days," if the dealmaking startedat 8 a.m., for all practicaland providing lots of networking opportunities, many of
purposes, it was over by 1 p.m., even if theofficialwhich will probably last him a lifetime. The reason I think
closing time was 3 p.m. or 4 p.m. Now, the activitythey did a decent job is that he came back with lots
goes on 'til 2p.m. or 3 p.m. So, people are staying longerof buzz words and sat down with Ann and myself
and hopefully making moredeals. I had one interestingand explained all the things we've done wrong over
conversation with a developer who had justfinishedthe last 30 years. God, I never realized how ignorant
building a Starbucks. He wanted to know what II've been. I guess that's what children are for, to point
thought the CAP ratecould be. I responded with aout all your mistakes. Forgetting the sarcasm for a
6.2% to 6.5% rate. He said that's what hisfriends aremoment, the University was well worth the time and
telling him, he just didn't think anyone was that dumb. Imoney involved. Josh said the "teachers" were great
agreedwith his outlook but said there's a lot of dumband over the five days he had 10 or 11 teachers
buyers out there. Anyway,moving on, Josh and I wentcovering all aspects of leasing and management. It
to the Atlanta show, which was larger than Texaswithreminds me a little of talking to him after his first day of
about 4,000 dealmakers compared to last year's countkindergarten; I was more excited than him.
of 3,500. (It'salmost getting boring to announce all theseOn a different note, we're marketing a center for sale
increases in attendance. I'mwarning you in advance:that, to say the least, is problemed and we're having
The New York show in December will be atrouble generating any interest. I called a few brokers I
nightmare;there will be way too many people.)know who specialize in sales and said we should
The energy level of the Texas show was higher thanco-broker and then sent out a complete package. A
Atlanta's, but theattendees still did their share ofweek or two later one of the brokers called, saying
"dealmaking." Like Texas, Atlanta has alot of smallervery apologetically that one of his clients made an
developers and, like Texas, their biggest complaint wasoffer but he was ashamed to make the offer. I used a
thelack of real retailers. Atlanta has their "Retailers"line from Lee Cherney of Kin Properties; "As long as
show the day beforethe actual dealmaking and I'dyou don't insult my kids or wife, I won't take it
guess they had 40 to 50 retailers exhibitingat this busypersonally. So give me the offer." He was right, it was
event. But, my gut tells me that the amount oflow ($10 psf to buy) and I promptly turned it down,
retailersexhibiting was less this year than last. BUT, thatBUT I did call the seller and tell him of the offer. The
didn't stop the wave ofdevelopers/brokers stopping bygood news is that, even though he didn't accept the
each booth hoping to do a deal. The cocktailparty inoffer, he didn't get uptight and came back with a
Atlanta was jammed and most people in attendancecounter offer, which the buyer turned down, but at
had dinnerinvitations for various gatherings right afterleast I got him an offer. The other brokers reluctant to
the show. So, there were alot of tired people the nextpresent a low-ball offer reminded me of a trend I've
day, which explains why the show got off to aslownoticed over the last few years. The amount of real
start on Wednesday. BUT, by 10:30 that morning, the"horse traders" in our industry is declining. I'm not talking
trade floor washopping and stayed that way until 30the typical deal between a landlord and tenant where
minutes before closing.the rent starts out at an asking price of $25 psf and
I did hear one interesting tidbit: It seems that theends up at $19 psf, but on marginal properties for lease
government of Puertoor sale. It used to be that companies and individuals
Rico has sent letters to the major retailer developerswould make an offer on marginal centers IF the deal
on the island sayingthey are about to start ancould be bought "right" (and there are still companies
investigation into the possibility that theselandlords arethat only want marginal properties where they can get
gouging the tenants on CAM and electrical charges.in cheap), but I guess that secondary centers are
Talk abouta disaster looking for a place to happen.either too much of a risk or too much work for most
Now, I'm totally opposed to ownersmaking more thanof the "next generation" to be bothered with. Nickel
nominal amounts of money on CAM, taxes, etc.; theirand dime negotiations aren't popular anymore to many
profitcenter should be the rents. BUT, I'm also a great(not all) companies and too many people seem
believer in, "Thegovernment that governs least,ashamed to make a low ball offer; a big mistake in my
governs best." Let's hope the developers dosomethingopinion.posted by tedkraus at 8:19 AM 0 comments
before the government does. Otherwise, it might givelinks to this post
some ideas tostates in the U.S., and then we all lose.Thursday, August 24, 2006
Changing subjects, as you are aware, I've beenAnother Josh Story...well almost
chronicling the "Adventuresof Josh" since he joined theI was speaking to a friend of mine who's VP of leasing
company going on 5 months ago, and I have toadmit,for a decent sized shopping center company. As
it's becoming LESS frustrating (but still frustrating) whilemany people do (since I first mentioned that Josh
tryingto teach him the business. Well, I guess mystarted working for us) he asked how Josh was doing
remarks struck home to a lot ofpeople, since weand I responded with my typical line: "Great on Monday,
received LOTS of e-mail on those MyWay's. Here'sWednesday and Friday but I'm thinking of firing him on
two, whichare typical of the rest:Tuesday and Thursday (three out of five ain't bad). He
Ted,replied: "No really, I want to know for personal reasons
I just started in the real estate business a few monthssince we're having trouble finding decent people at a
ago and enjoyreading your articles. I am in the samesalary we can justify and our Chairman wants me to
boat as Josh and can understand whathe is goinghire young, aggressive, recent college graduates to
through. (Cold calling, asking what seem to be logicaltrain how to lease."
questionsto a higher authority.) I, however, disagree"Don't do it, quit first," I replied, "it's a full time job that
with the statement that we haveto be taughtrequires the patience of a saint. You'll accomplish none
EVERYTHING. It's not that we don't know how to faxof your other work if you have to deal every day with
or pick upbusiness cards, it's that we understand thatthe untrained and some days the untrainable. Your job
our superiors are succeeding atwhat they do and wewill go downhill."
want to learn their style to emulate them. I think it'saNow don't get me wrong, young people are the future
good thing that you have new workers craving toof our industry and they can add a lot to what we've
learn more and more eachand every day. You shouldalready accomplished, BUT man are they a pain to
see that and be excited to teach them. This isyourdeal with. Their inexperience in retail real estate and life
passion, isn't it? As for me, I guess I am getting thein general requires a commitment of substantial time
best of bothworlds. I am starting out like everyone elseand the ability to deal with their mishigosh which too
does, however, I think mybosses have a differentmany of us "old timers" (Ann asked me not to call
view, one tailored more to getting me to their levelandpeople old farts) don't have.
watching me succeed. I think their reply to your friendThey have to be taught EVERYTHING, from how to
would be, "Doit, and find new possibilities." We are notfax, to picking up business cards from every retailer
embarrassed. If we were, wewould sit at our deskthey canvass, to NOT to canvass a regional square
waiting for you to come to us. We are seekers,foot mall for tenants for a 100,000 sq.ft.
readyand willing to combat new things each day. I forsupermarket-anchored strip, to "forcing 'em to call 60
sure know that if I don'task questions, I won't succeed.to 80 retailers a day so as to start to get a "feel" on
For you it's "Location, Location, Location."how to talk to retailers, and to making 'em canvass
For me, it's "Questions, Questions, Questions." Shouldn'ttwo or three times a week even if they're tired. They
you always askquestions before you worry about aKNOW NOTHING and they're always worried about
location? In closing, I think we are anasset and need toembarrassing themselves.
be accepted. All those VPs who are trainingNow they can be an asset also, as they often are,
shouldunderstand and be willing to teach because I amsince most of the time they think outside the box.
sure, back in the day, thosewere the guys buggingThey come up with unusual ideas and some are good.
their bosses up the wall.Because they're new to the industry, they have no
Tom DiCiccopreconceived ideas and that's great, so I'm not
Database Manageropposed to hiring the uninformed, I just realize it
Ted,requires a structure and commitment of time to do it
I read your articles in every issue of Dealmakers and,right. Otherwise, the newbie quits out of frustration or is
typically, they'reperfectly written and have humor tofired because the supervisor becomes too frustrated.
them. This is something I appreciate andlike, sinceIt's a "lose-lose" for everyone.
sometimes I feel this industry lacks some comic reliefThere are many development and brokerage
and tendsto be too serious too often. Having said allcompanies that have a formal training program with
that, your article about Josh,while well taken and asupervision from full time trainers, and that can work
point probably shared by many seasonedbrokersgreat. These companies are educating our future
retailers, has some "holes" to it. I started in this businessleaders. But to tell a VP of a company to be the
justover six years ago, when I was 22. Now, my storytrainer is a problem looking for a place to happen. The
is somewhat different inthat my father has been in thisgood news when it comes to these newbies is that
industry since 1981. Because of that, I hada very smallthey are perfect for telemarketing to retailers and
and limited knowledge of this business when I started. I,canvassing, something that is hard to justify when
too,however, needed that training to get the necessaryyou're paying a leasing guy $100,000 to $150,000.
knowledge to besuccessful. Here was the key thatJosh's trials and tribulations must be common for most
helped me become successful:young folks, as I recently received this e-mail: "Hi, I am
Our company is a very small company in terms of24 and new in Retail after just finishing school in
number of employees.Southern California. I was reading your Real Estate 101
However, we compete on a larger scale with the likesarticle today about your son Josh and I couldn't help to
of the Mid America'sand CB Richard Ellis's of thechuckle at the similarities between him and I when it
world. Our inventory is massive compared tothecomes to being optimistic about deals that will never
amount of people we have that work the brokerageget done. I am currently cold calling like crazy to fill my
end of this business.listings in Northern Utah. Anyway, I wanted to further
Currently, we only have three brokers here, includingmy education as a new "optimist" in the industry and
myself. When I startedhere, there were only four: Thewanted to speak to Josh about his experience at the
three principals of the company and oneother broker.ICSC University in Michigan. Would you be able to give
Since my father is the President and principal ofme his contact info when he gets back?"
thiscompany, he certainly had no time to train me eachI give him credit, he knows he doesn't know and wants
and every day. Hispartner was and still is equally asto talk to another newbie to reassure himself that he's
busy as my father. The third principal,too, was busynot alone. And he not. Josh just left for the University
doing her own thing.and I'm extremely anxious to hear his thoughts and
My job was simple. I began as Database Managersee what he learned.
here. I took an "old school"Changing subjects, I recently came across an article
3-ring binder crammed full of years and years ofsaying: "Wal*Mart Builds, Waits for Communities to
contacts (both locally andnationally) and computerizedCatch Up." In essence, it says Wal*Mart started out in
them. Now I didn't just type them in acomputer, I calledmostly rural areas where other large retailers chose
each and every one of them. Some were long gonenot to build and now is saturating urban and suburban
and nolonger in business, but most were still active.areas. Now, the retailer is looking to add stores in
Throughout my life, myfather has always preached tocommunities "in the making." In other words, they're
me about work ethic and striving to bestore "banking." opening up in areas that are not quite
"moresuccessful than he is." Obviously, that is a typicalready for a Wal*Mart but will be in the near future.
statement and wish froma father to his child. So, for asThey buy and build now, banking on future growth to
busy as my father was, he always took thetime tomake the store profitable, which it isn't now but will be
tutor me because, not only was I an investment to himin the near future. I give Wal*Mart credit for being
personally ashis child, I was and still am an investmentforward thinking but it's nothing new, since Sears,
to his company. Additionally,this was his way of trainingKmart and JCPenney were doing that 30 to 40 years
me. He put me on the phones making calls,getting toago. But as the costs of acquiring land and then
know who people were, learning terms of the businessoperating these non-profitable stores grew, they
and gettingmy own name out there.stopped expanding based on future growth. Wal*Mart
See, that is what the "elders" of this industry need tohas the money to wait and they are. Smart and
realize: Youngnewcomers in this business are not along-term thinking, something most retailers don't do.
pain in the neck. We're an investmentto the companiesRanting on...I recently had a meeting to try and get the
we work for. We're not just around to bug busyleasing for a decent sized, well-anchored center in an
brokers toask questions. We're here to soak in theaffluent market that has about a 5% vacancy rate.
knowledge from them. The one thingThe owner had called me to set up a meeting saying
I will always do is, when someone young enters intothey desperately needed help. I hadn't been to the
this business, whetherit be a friend or just someonecenter for several years, so I arrived early to walk the
coming to work at our company, I will alwaystake theproperty and see what was happening. Except for
time to talk to them and give them as much help andbeing a little tired, the center was in good shape, well
information asthey need. I needed it when I started, soleased with a mixture of regional, national and local
will they.tenants. Candidly, I couldn't see what the problem was
Remember this, at some point or another, weand I'm used to seeing problems. My first question
(meaning all of us in the realestate business) were all inwhen the meeting began was: "What's the problem.
the same boat. I'm sure you were when youstarted inYou have a 5% vacancy and the center looks decent,
real estate, and I'm sure there was someone there tojust needs a facelift."
tutor andmentor you along the road. That's why CBThe owner explained that they will be undergoing a
Richard Ellis is as successful asit is today. It seems asmajor rehab shortly and will be replacing most of the
though the majority of seasoned brokers from thefacade, so they knew that problem without my help
Baby Boomer era all started at CB (formerly, justHis concern is that the center's traffic has been off
Coldwell Banker). They hadit down perfectly. Eachover the last few years (FYI: over 500,000 sq.ft. of
new entrant into the business "ran" for someonenew developments have opened within five miles in
whowas seasoned. My father happened to get histhe last three years and, while the market is good, it's
first real estate job with CB,and the man he "ran" fornot that good) and about 10% of the tenants are
taught him some valuable lessons, which werecomplaining and asking for a rent reduction. I asked
passeddown to me.what they currently do to market the center to
All in all, let's take it easy on the young newcomerstenants and was told they wait for brokers to call. Not
because one day, wewill be the generation that is theexactly a pro-active approach. I asked why they were
majority within this industry. And again,not doing more and was told they never had to,
I know for sure that when the next wave of youngenough people called in the past to keep the center
sales people come throughwhen I am old and haveleased. I explained that they were no longer that cute,
many years under my belt, I'll be sure to fill themup withlittle 18-year-old girl; they're now a mature woman who,
as much knowledge as I can!before going out on a date has to put on makeup,
Jason R. Lenhoffspend time on their hair and dress right. Their body
Horizon Realty Services, Inc.appeal ain't what it used to be, but that doesn't mean
Nick D'Amoreposted by tedkraus at 12:21 PM 0no one wants to date 'em.
comments links to this postI think this problem is too common today; we've all
Friday, October 06, 2006gotten a little fat and lazy after a decade of expanding
2006, Not As Great As 2005 But Still Greatretailers, tons of new developments and easy money.
Alyson just got back from the Palm Springs showWe, as an industry, don't pay attention to our existing
(next year it will be in San Diego, one of my favoritecenters. We're too busy planning the next center to be
areas in the country. Actually it's La Jolla that I love, thedeveloped or acquired. Long term planning is not part
town north. But either way it's a great place to bum.of the gameplan and that's a problem. Back in "the
The reason for the change is the hotel in Palm Springsgood old days," it was a leasing agent's job to market
can't handle the increasing size of the ICSC show, aa center even if it was 100% leased; replacing weaker
problem we might have in New York). She said thattenants with more aggressive ones and having a
the show was active, with a possibility of nearly 6,000tenant in their "back pocket" if and when an existing
attending this year compared to last year's 5,240, sotenant defaults. It ties into a conversation Ann had
California dealmakers are a happy lot. The cocktailrecently with one of the ICSC's people. They were
party was active, with everyone upbeat, and meetingstalking about the ICSC's "University" and Ann asked
were being held at every available table. Lee Cherney,why they didn't teach a course on "marketing" a
a friend and VP of Kin Properties, was there trying toproperty from a leasing aspect. She was told that
find property for sale. He contends that acquisitionsbusiness has been so good for the last 10 years
have gotten so tough that one broker didn't want tothere's no need, and that's true unfortunately.
deal with him because his company knows whatParting thoughts: I'm trying to do a deal for a big box
they're doing and therefore makes the deal moreretailer I'm representing and, of course we're fighting
difficult (a dumb buyer is the best kind of buyer).over rent. After I made my "final and best" offer, I was
Another developer told Lee he's currently buildingtold it wasn't enough and that they'd lose money on
shopping centers and then immediately flipping 'em at athe deal. Now I don't claim to be bright or an expert on
5.25% CAP in California. I'm getting 5% on my CDs.redevelopment, but "we" are taking a portion of a
Something is wrong here.former "superstore" and I know the cost of TI for us,
Ann and I are going next week to the Texashave an idea what the property costs, brokerage
dealmaking, and the following week Josh and I arecommission, etc. And my offer provides cash flow to
attending the Atlanta show. And in two months, thethe owner above all these expenses. When I explained
"mother-in-law of all mothers-in-law," the New Yorkthis to the owner I was told; "What about the
show will be here (God, the year is going fast). Everyvacancies?" I replied "What do you mean?" and was
indication is that the next three shows will also betold that there was a substantial amount of vacancies
good, and in all probability New York will set anotherafter doing the deal with us and if we don't pay more
record, so 2006 appears to be ending with anotherrent, they have a negative cash flow. Huh? You want
banner year for the retail real estate industry; maybeme to guarantee the entire project is profitable even if
not as good as 2005, but what's the differenceI'm only taking a portion of it? No way. I tried to explain
between an "A" and "A-minus"?they had to add to their acquisition costs the cost of
The great unknown is Christmas 2006 and how goodcarrying the property for two or three years while
or bad it will be. If it's good, we're in for a great start inlooking for additional retailers, but they didn't seem to
2007. If not, lots of retailers will be re-evaluating theirunderstand that concept. We have too many novices
expansion plans and a couple of the weaker chainsin the business. If, and when, the recession "hits," we'll
will go bankrupt. Standard operating procedure for aeliminate many of them and that's good.posted by
weak Christmas. So far, indications are that whiletedkraus at 7:49 AM 0 comments links to this post
some of the economy is slowing, retail is holding itsTuesday, August 08, 2006
own; don't understand how or why, but it is. Of course,The Slowdown Is Here...Now What?
the ongoing wars, who wins the elections in November,Well, the slowdown in the economy appears to be
which way interest rates go and the price of oil will alltaking hold, getting stronger or weaker every day
have an impact on us, but right now we appear to bedepending on how you look at it. But the downturn is
in decent shape. But the smart money, I don't believe, isstill having a minimal effect on retail real estate (thank
betting either way. They're as confused as I am. Oh,God, I need the money). Two observations I've noticed
and the Federal Reserve is saying there will be morein the last month. First, as many of you know, we
defaults on commercial real estate loans. We live inmanage eight forums on the sale, leasing and finance
confusing times.of commercial real estate (to join, go to The amount
On a different note, I read that Kimco bought 19of condos and conversions being offered on the
centers from GE, which in itself is not significantforum for sale have tripled in the last month, mostly for
(they're buying all the time), but the article goes on toFlorida and Vegas properties, and I have to assume
say they're in the process of flipping these centers tothe reason for the vast increase in these offerings is
an investment group, which is now part of theirthat the speculators, who were developing or buying
operating philosophy. Buy, Sell, Flip. If anyone did ancondos on the spec, are trying to get out now before
analysis of Kimco's sales, I'd be willing to bet that fromthey get massacred. Also, while not a scientific
a sales aspect, they are among the largest brokers ofapproach, we recently ran a help wanted ad for an
retail real estate in the country. I have to give Miltonadministrative assistant and probably 25% of those
Cooper credit, he's probably the smartest man in ourapplying were/are real estate agents wanting the
industry. He JVs, manages, buys, sells, loans andsecurity of a weekly paycheck instead of counting on
anything else that can make a buck. He not only sellscommissions. Again, I have to assume the residential
the pig, but also the oink. No one does it better. Thereal estate market is becoming weaker and the
only thing that scares me is that one company controlstertiary players are not making money. However, to
nearly 5% of all the centers in the country. Big alwaysreally complicate matters, every report I read says that
bothers me; That's why I hate the government.leasing is up nationwide in almost every segment
Oh well, ranting on. A trend I've noticed since Joshexcept industrial. Of course, to further complicate the
joined the company (he has several freestandingmatter, I was speaking to a friend of mine who
buildings for lease and has gotten involved in leasingrepresents a big box tenant that demands great deals.
smaller space than I'm usually involved in). Because ofLong story short, he contends that in the last five
his canvassing, he's dealing with the smaller chainsmonths, the number and quality of 70,000 sq.ft. to
(under 20 stores) many who want to buy their real100,000 sq.ft. boxes being offered to them has
estate instead of leasing, wanting the benefit ofquadrupled and the asking rent has dropped, and if
appreciation or to take advantage of the full valueleasing is strong, why are so many properties being
they bring to a location when they open and bringoffered to him? I'm confused.
additional traffic to a center. Besides his properties, I'mI also see a "little" more resistance to low CAP deals,
leasing/selling some vacant big box stores and I mustespecially if you can get CDs paying 5.5%. And, most
get five to 10 calls a month from brokers representingimportantly, consumer spending was weak for a fourth
"big box" retailers (over 50,000 sq.ft., but small chains)straight month in June as rising gasoline prices left
wanting to buy distressed centers with largeAmericans with little to spend on other items (but July's
vacancies that their client can open and operate in.sales numbers were good). A key measure of inflation
(Oh, I also noticed in the last few months an interestrose at the fastest pace in more than a decade, not a
from some entrepreneurs to open flea markets ingood sign to keep the Fed from raising interest rates.
closed big boxes. I haven't gotten these types of callsThe good news is that retail sales are still decent, but
in years). Half of the tenants Josh is canvassing for onmiddle class and blue-collar oriented retailers seem to
his freestanding buildings expressed interest, but onlybe slowing down their expansion plans. And to make
want to buy and won't lease.matters even more interesting, is it's becoming "in" for
On the same note, we're marketing a 200,000 sq.ft.non-retailers to acquire retailers, such as Lord & Taylor
center with a vacant 100,000 sq.ft. store and I've beenbeing acquired by NRDC Equity Partners and National
approached by several retailers wanting to buy (whichRealty & Development Corp. The trend started 35
the owner is willing to do and the asking price is low atyears ago when Arlen Shopping Centers bought E.J.
$15 psf, but the buyers want it even lower). OneKorvettes, which later went bankrupt and every
retailer offered our asking price, but wanted "us" todeveloper since who has acquired a retail chain has
take back paper for the entire amount, pay interest offiled either "11" or "7" after the acquisition. It's one thing
6% and provide no real guarantee. They couldn'tto acquire a chain for it's real estate and then sell it off
understand why their offer was rejected. I also noticedpiecemeal (that makes some sense) BUT developers
that there's lots of bottom fishers in the smaller chaincan't retail and retailers can't develop; totally different
market (the big boys aren't the only ones), offering toskills are required.
move fast if we did a deal 20% to 30% below market.Now some good news: in conversations with smaller
I guess they're all hoping to find a desperate owner.retailers (we call 500 to 750 retailers a week because
Now, I understand lowballing if you're buying and intendof TenantSearch). We're hearing that the smaller
to be the landlord, BUT if you're going to operate achains (under 25 stores) are doing well and want to
store in the center, it should be location, location,expand, a substantially higher percentage than we
location and demographics being the most importanthear when talking to the "big boys." I guess the
part of the deal, not the cheapest deal that determinesphilosophy that smaller chains can respond to their
if they proceed. Their main business should be retailing,customers quicker and more efficiently than the larger
not real estate (on the same philosophy, I think it'schains is correct.
crazy when a developer buys a retailer). If, and when,All that being said, I've also spoken with a dozen
the recession hits, we could be in deep trouble. Fewbuyers of low CAP centers and, while the CAPS are
buyers or retailers seem to be concerned about theslowly rising, they still don't make sense. What's worse
fundamentals of retailing or real estate anymore.is that the only decent centers they're finding available
On a similar note, while we're encountering toughare still being offered at a 6.5% CAP, about what they
negotiations with the smaller chains, I noticed some ofare paying for money, so they can't justify the deal.
the larger developers, brokers and retailers are takingAlso, in conversations with numerous developers and
a totally different approach. I know I spoke about thisbrokers, they say they're busier this summer than
before, but we're an industry of horse traders (and I'musual, so all the news is mixed with good news coming
proud of that fact) and I don't understand this change,Monday, Wednesday and Friday and bad news on
the reluctance NOT to horse trade (there's nothingTuesday, Thursday and Saturday. If you understand
wrong with tough negotiations, but being a toughthe economy please let me know 'cause I'm confused.
negotiator and NOT making the deal is NOT anOn a different topic, we're working on a center that,
attribute. Being a tough negotiator AND making thebeing polite, I could call "problemed" but being honest it's
deal is a mark of success). I gave a proposal on ana disaster. Anyway, we got a "big box" tenant to
outparcel to a developer of "dollar stores," and theymake an offer, a rotten one but an offer. The center is
came back saying it's too high and then I practically80% vacant and they're willing to anchor 60,000 sq.ft.
have to beg to get 'em to make a counter proposal.at terms extremely favorable to them. I made the
When I asked why they can't come back with aoffer to the owners and had my head handed to me
counter proposal, they claimed that the difference is(Oh, no cash outlay is required by the owner, just
too big. He contended that a million was too much. Itcheap, cheap, cheap rent).
took me a month to get him to counter offer atYes, I understand that the deal stinks BUT the center
$500,000 and we finally agreed, but why was it sois in a high-crime area, low income and the last deal
difficult?made there was two years ago with a beauty salon
Speaking of Josh (remember he's my only begottenof 1,200 sq.ft. at $8 per sq.ft. and their rent is always
child; that I know of). He's proving what I've alwayslate. The owner's argument is IF the tenant believes in
knew, but have to be reminded of, canvassing pays,the property, they should make a "respectable" offer.
and pays big. Thanks to several friends who gave himHuh? Just because the landlord owns a dog doesn't
centers to work on, he's been doing a decent job ofmean the retailer wants to be stuck (oh, besides low
canvassing and in the last three weeks brought inrent, they want kickouts) with their problems. They're
seven or eight proposals. Only one was acceptablewilling to give it a try and if they succeed, the landlord
but seven or eight proposals ain't bad. The ma&pascan succeed by being able to lease the satellite space
are still expanding, but they need someone to call on(that's the philosophy of the '80s but the economy has
'em to get their interest going.been so good for so long, the newbies don't know and
Talking about deals, I also noticed most of the big boxthe old farts have forgotten the basic rules. FYI, I'm
users are beginning to become easier (not easy, justone of the old farts. Hell, I still use DOS software
easier) to deal with than in the past. I have to assumeoccasionally.
the reason for this change is not that I've become aWhen you have a "winner" center, charge high rents
better negotiator, but it's getting harder for them to findsince retailers can and will pay for proven success.
sites and the amount of vacant big boxes in decentThe retailer may bitch but you can justify the extra
locations is minuscule. However, Real Estate Researchmoney BUT when you're stuck with a dog the risk is
Corp. just came out with a report saying that becauseon you and NEVER, never kill the messenger (the
of the low CAP rates, retail has the lowest interest ofbroker) because you don't like the deal. At least an
buyers of commercial real estate. In addition, secondoffer was made, which is better than no offer at all.
quarter vacancies rose from 7.6% to 8.5%. Maybe tooGoing on with a personal rant for the moment, I
much of a good thing is bad.posted by tedkraus at 2:01recently went to Best Buy to get another computer
PM 0 comments links to this postand monitor for the office. I spent about 20 minutes
Monday, September 25, 2006looking at their selection and finally decided on what I
Chicago Was Hot and So Was The Cheesesteakwanted but there was no inventory for the two items
Alyson and I attended the Chicago (oh, congratulatein sight, so I looked around for a salesperson, which
her, she's now our vice president) ICSC dealmakingtook another 10 minutes to find. He was waiting on
event and, besides the beautiful weather, the showanother customer and, after a moment of me standing
was "hot," with some 3,400 dealmakers in attendance,nearby, said there was another customer he'd have to
setting another record, which all the shows seem to behelp after this customer, so it would be awhile. I asked
doing for the last few years. And while I'm hopeful, Iif there were any other salespeople around and he
doubt this trend can continue, especially with all thesaid no, so I left and went to CompUSA and almost
mixed economic reports that have been coming outthe identical scenario occurred. I became extremely
for the last few months (I know I keep saying this butfrustrated and left, went back to the office and spent
eventually I'll be right).10 minutes online with Dell Computers where I placed a
There were two major complaints I heard at the show:$1,300 order for a monitor and computer. Three days
1) the 45 minute to hour and a quarter wait to get yourlater it was delivered to our office. I understand that
photo and badge IF you didn't pre-register and send in$1,300 won't make or break Best Buy or CompUSA,
your photograph on time. About 25% of the attendeesbut I have to believe I'm not the only customer that
had not mailed in their photo, which caused the longstorms out of their stores because of incompetency.
waits. I recommend to anyone planning on attendingI'm willing to bet they lose million$ every year because
future shows that they e-mail their photos to the ICSCof a lack of help. In the "pre-Internet" days, stores might
NOW so they're not stuck in these lines, especially forbe able to get away with poor service, but with such a
Vegas where the wait might be hours. The goodconvenient, easy to use competitor called the Internet,
news is that at the New York show photos won't bemore retail store sales will be lost to the Net because
required because they don't have the space in whichso few retailers believe in service. They're more
to take 'em. BUT most of the other shows and Vegasconcerned about keeping payroll costs low than
will require it, so don't stall, just do it; 2) was the lack ofkeeping the consumer happy and therefore force the
"real" retailers. There were lots of brokers representingconsumer to shop online. The Internet will not cause
retailers but few actual ones. The only large group ofthe demise of physical retail locations, but it will cause
retailers represented was fast food-oriented andthe end of marginal stores for retailers that can't get
some banks. While the Philly show didn't have atheir act together.
problem with registration, the complaint about the lackParting thoughts...In addition to the troubled center I've
of retailers was the same.described above, we're working on another problem
Anyway, back to Chicago. I attended the Haroldproperty that's for sale. We spent about a month
Eisenberg Memorial Dinner the night before the showmarketing it and couldn't generate any interest or
and it was a sellout with 550 in attendance. It pays tooffers, so I called the owner and suggested he try
attend this event; not only are you supporting a goodanother brokerage company. He asked what I thought
cause, but you're also getting a great networkingof auctions to get rid of the property. I said the good
opportunity at the same time; two for the price of onenews is that they can generate high interest in a short
(Oh, and the food at the dinner was fantastic).time period (but you need a good auction company
The ICSC cocktail party the following day wasthat knows how to market), but it's my experience
jammed and what was really surprising was that thethey don't generate a sale, but do generate "leads."
food was decent (no, I don't have a food fetish).After the auction is over, you contact everyone that
Everyone was upbeat but concerned that the goodbids and see if there's a way to structure a deal, and
times can't last much longer (I am not alone). Oncein 50% of the time, a deal is done. Of course, to make
again, I heard complaints about the price of acquiringthis work, you have to have a reserve, and with a
centers and how they're getting a 10% return whenreserve many potential buyers won't bid. No system is
they purchase industrial, which a lot are now doingperfect, but it's worth a try. Personally, I'm not an
since they "say" they've given up on retail (I don'tauction believer.