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

It's All Over With, But the Shouting -- andjammed and what was really surprising was
There's  a  Lot  of  That  to  Comethat the food was decent (no, I don't have a
food fetish). Everyone was upbeat but
The second largest gathering of retail realconcerned that the good times can't last much
estate professionals of the year is cominglonger (I am not alone). Once again, I heard
together in New York and there's a lot tocomplaints about the price of acquiring
celebrate. With 2006 ending up as being acenters and how they're getting a 10% return
great year (We can debate which was better,when they purchase industrial, which a lot
2005 or 2006, but what difference does itare now doing since they "say" they've given
make?), the big question is, "What will 2007up on retail (I don't believe 'em, they've
be like?" and that's a question that no onemade too much money off of it). The Chicago
really knows the answer to. If they claimshow, more than most dealmaking events,
they do, they're either lying or insane, butattracts small developers (other shows that
that won't stop "the experts" from makingattract these entrepreneurs are Atlanta and
predictions anyway. My answer? I have noCharlotte), in addition to the Simons and
clue. Right now, my money is on 2007 beingKimcos. I'm more at home with the "little
decent but not as good as 2006. But, thereguy" than the "Simons" of the world. They
are too many outside factors that can makemove quickly, know what they want and
2007 a disaster (more can go wrong thanunderstand that if they don't produce they
right), so all we can do at the show is meetdie. And above all, since most are self made
and greet old and new friends, go out andmillionaire$ they're not too conceited or
party in one of the greatest cities in thearrogant. The large companies have one major
world and do a lot of dealmaking and praying.advantage over 'em, MONEY, lots of it, which
(Oh, before I forget, Alyson went to the ICSCusually covers their butt on some of their
show in Sacramento. It was a small show, withdumber moves. Because the larger companies
350 in attendance (last year was 295), buthave been doing so well lately, they can
she said the size made it "intimate" and veryafford numerous blunders before they're in
entrepreneurial. Right now, the show isreal trouble. The little guy doesn't have
marginal, but give it three or four years andthat luxury. Now I'm not saying the big guys
it  could  be  another  winner.)are dumb, I just believe their size prevents
them from making the most logical and
For good or bad, the change in Congress afterefficient decisions (bureaucracies are a
the last election will have an impact on ourbummer). For example, larger companies add to
industry and my "gut" says the Fed will raisetheir layers of leasing personnel by having
interest rates in January or February.individuals that specialize in "Big Box,"
(Hopefully, I'm wrong) So, be prepared tomedium box and small shop leasing. I'm
live in "interesting times" for the nextwaiting for them to add a specialist for
year.Chinese buffets. Makes no sense to me; can't
their people handle the whole gamut of
There's no doubt in my mind -- short of aretailers wanting to lease space in a
blizzard (God forbid) hitting the show theparticular center? It really isn't that hard.
day before or the day it starts -- New YorkAnyway, rambling on, I read an article in SCT
will set another attendance record and,Xtra that lifestyle centers will represent
candidly, the Hilton can't handle the crowd,65% of all new developments over the next
but somehow we'll all make it through thethree years. If that's true, a lot of "poor"
event and be better off because of it. Whatperforming centers will be built, as
makes me feel old and sometimes not aslifestyle centers, by their nature, are not
successful as I thought I might be is when Imeant to be located at every street corner
speak to some friends of 20 or 30 years and I(it's not the concept I have problems with;
ask where they're staying in New York. Manyit's the execution). The economics of these
of 'em reply, "I'm not going, I'm getting toocenters don't work for Middle America and the
old and tired for it; I'm sending 'my people'"upscale" consumer represents only 15% to 20%
instead." I guess I'm not important, becauseof the population, so there's limited markets
I still have to attend, along with "mythey make sense in. Plus, a lot of these
people."  But  then, I'll be in good company."lifestyle" centers are really power centers
in disguise, using lifestyle as a name
Talking about ICSC shows, several of thebecause  it  represents  today's  "vanilla."
dealmaking conferences in other towns are
being relocated because "we've" outgrown theEvery mall developer is converting their "C,
old facilities. Unfortunately, the HiltonD and F" centers to mixed-use and lifestyle
(short of the Javits Center) is the largestcenters, and I contend that in 60% of the
conference facility in the city and Icases these redeveloped projects will fail.
personally don't want to go to the JavitsIt's a little like 25 years ago when all the
Center or move outside of New York, so we'refailed malls were being converted to outlet
stuck with the problem, a great problem, butcenters. The developers believed they found
a  problem.the magic cure, but five years later the
failed center was still a bummer. Then they
Changing subjects, we're an industry wherebelieve their "salvation" was entertainment
you don't have to be a rocket scientist tocenters and that also failed. To prove I'm
succeed and make a good buck, BUT I sometimesold, I remember my grandmother living over
wonder if some (not all) of those in theretail stores in Newark, NJ in the 1940s and
business have any idea what they're doing. Isaving up money so she could move into an
got a call last week on a building we'reapartment, which was considered more
leasing from another broker who inquiredprestigious. Today, the condo over the retail
about the lease rates. I told 'em we had ais considered upscale, proving my grandmother
lease out on the property, but leave me yourwas  a  smart  lady.
number and if the deal dies, I'll call. He
then asked what it would take to get hisRambling on...Ann, Alyson, Terry, Rich, Josh
client the deal over the current prospectiveand myself attended the Philly show the
tenant and I said $13.50 psf, net. He thenfollowing week after Chicago and another
explained I was nuts, the market rent is onlywinner in attendance was posted; Philly was
$10 to $11 psf and I agreed and said that'ssmaller than Chicago (the East Coast
what the current tenant is willing to pay BUTconsiders the Philly and the New York shows
if the owner is going to be a whore, theyas "theirs," so many wait for December to
want to be a well-paid one. We got into aattend a show instead of attending both. I
major debate and I ended the conversationdisagree, but that's what makes horse racing.
saying, "Why don't I call you if this oneAttendance was up about 400 to 2,300 this
doesn't work out. I'd be a lot moreyear over 1,900 last year. The cocktail party
cooperative." He then called me a thief andthe night before was jammed with everyone
hung up. Now don't get me wrong, I have noupbeat. After the cocktail party, most
pride. If my current deals dies, I'll callattended private parties such as Fameco's
him BUT I would have been less offended withevent at the Hard Rock (which was the
being called a whore than a thief. I triedbusiest). Legend Properties' party was packed
explaining that with a tenant "in-hand," whyalso and they announced Maria Aristone was
would I even try to be "fair?" (Oh, bothappointed president of the company; they
tenants have similar financial statements.)bumped Jim Depetris to chairman. Smart move
He wanted to me to do a deal with him for 25on their behalf. Also, Marcus and Millichap
cents-per-foot more; fortunately my clientand Metro Commercial had parties, which were
works  5th  Avenue,  not  42nd  Street.packed. One thing our industry does well is
eat,  drink  and  party.
Anyway, changing topics again, retail seems
to be dividing our industry like politics,The Philly show got off to a slow start on
but instead of blue and red states, we haveThursday morning, but by 10 a.m. it was
high and low end retailers with the ones inhectic and stayed busy until the end at 3
the middle struggling. The Nordstroms of thep.m., which is good. It used to be this show
world are doing great (department stores areended right after lunch, so its value over
"back in" with the consumer) but it seemstime is improving. The best comment I heard
that even the almighty Wal*Mart is havingat the show was from Rene Daniels, who said:
some problems. The middle class in America"Lot's of people present, but few decision
finds their purchasing power diminishing andmakers." Cute, but unfortunately true. As our
they're having difficulty surviving and whenindustry expands we gain membership, but the
they  hurt,  so  will  our  industry.ability for these dealmakers to make
decisions is lacking, which is why every deal
I've heard a dozen reports on what type oftakes forever to be finalized. Oh, I read an
Christmas we'll have this year, anything frominteresting article last week; the author
setting records to down 3%. So, it's acontends that if we don't have a good
wait-and-see to find out how 2007 will startChristmas (guesses are between 2.5% to 5% in
off. But what really confuses me is Wallsales increases) then Sears will start
Street. I'm the first to admit that financeselling off underperforming Kmart and Sears
is not my strong point but as I write this,stores, just what our industry needs, more
the Dow is climbing because the Fed hasavailable real estate.posted by tedkraus at
indicated they won't be raising rates in6:10  AM  0  comments  links  to  this  post
December. That in itself I understand but the
other news that Wall Street seems to beFriday,  September  01,  2006
ignoring is that sales and, for many
companies, profits, are dropping. To my wayMickey  Hits  Another  Home  Run
of thinking, I rather have higher interest
rates along with good profits than lowerAnn, Alyson, Terry and myself attended the
rates and lower profits. I think there'sOrlando ICSC dealmaking convention, which
trouble  brewing  in  Dodge.proved to be another home run. Lots of busy
and happy dealmakers gathering for three days
When it comes to stupidity, right now, I feelto wheel and deal, a task they were all
like the king. A couple of months ago, we gotequipped  to  do  and  do  well.
a shopping center to sell and through a MAJOR
miscommunication on my behalf, weThe cocktail party on Sunday, while active,
underestimated the income by $150,000. Duringseemed (but I'm not sure) to have a little
this period we received several offers forless in attendance than in the past, and I
about $1 million less than the owner wantedhave two theories why (the third is I'm
and I, by pure luck, convinced the seller towrong) 1) Airfare and hotel costs have gone
lower his price substantially. Long storyup, so some elected to come for one day less
short, we finally got an interested partyto save some expenses; 2) There was confusion
that, before going into a LOI, wanted moreon which day the cocktail party was, many
information than what we had. So, I requestedthinking it was on Monday, not Sunday night.
it from the seller and after reviewing theEither way, the show itself ended up with
numbers, realized my screw-up and beforenearly 5,000 attending over last year's 4,300
sending the info out to the potential buyer,and the cocktail party was a success with all
I called the owner and confessed to myattendees being in an upbeat mood. We can't
stupidity. He asked how long it would take toask  for  more  than  that.
"repackage" and get new offers and I said 60
to 90 days, whereby he responded, "No, closeThe reoccurring complaint I heard was on the
faster at the lower price." (Thank you, thankincreasing costs of construction and
you,  thank  you.)insurance in the Florida market since last
year's hurricanes. The details have been
I then sent the info to the buyer and toldreported everywhere, but I'm told some
him of my screw-up. To say the least, he wasinsurance costs have gotten close to the $3
a happy camper but wanted to know if he waspsf mark and construction costs are up 25% to
competing with anyone else. I said, "Yes and30%. Some claimed that it marks the beginning
no." No one else had received the updatedof the end of Florida's great retail market,
information BUT I will be resending the newbut I doubt that. It will make dealmaking
numbers to companies that made unacceptablemore difficult, as more secondary sites are
offers in the past, explaining my screw-uprejected and greater "discussions" on
and seeing if there was new interest. It wasacceptable rents than in the past occur. The
then that the conversation got nasty; hegreat curse of life. May you live in
contended I was being unfair (at least heinteresting  times.
wasn't calling me a thief) and should not
provide  the income statement to anyone else.Ann and Alyson attended the Ladies in the Biz
cocktail party on Sunday and they seemed
I asked if he was prepared to go intohappy with the networking opportunity and the
contract and he replied, "Not for anotherexcellent turnout. From what I could see, the
week." I said that I therefore HAD TO keepbooths at the actual dealmaking show were
marketing the property. We're still talkingsold out with just a few no-shows, so by
and I do believe he'll make an offer, butevery definition, Orlando was a winner, as
we're not as friendly as we were in the past.has become tradition with this event. Every
No  deal  ever  seems  to  go  smoothly.exhibitor I spoke to expressed satisfaction
with the show, so even with some problems on
Speaking of whores, I was talking to the VPthe economic horizon, the Florida market is
of acquisitions for a decent-sized companystill hot. Of course, trying to figure out
and he was explaining how he "beats" thethe economy is impossible; One day inflation
competition out on deals. Say the selleris down, the next up. One day consumer
wants $12 million and they only want to payspending is up, the next down. One week,
$11.2 million. They enter into a contract forunemployment figures are up, the next down.
$12 million, do their due diligence and then,It's totally confusing, and anyone claiming
about 10 days before closing, call the sellerto understand what's happening is a fool or a
and say they can't close at $12 million butliar.
can at $11. Take it or leave it. Ninety
percent of the time, the seller gets upsetI'm writing this during the last week of
and calls off the deal but calls back in aAugust and, to say the least, business is
day or two and after much negotiation, agreesslow, at least from the brokerage end;
to $11.2 or $11.3 million. There was nothingpublishing is busy preparing for all the
found in the due diligence period that couldupcoming ICSC dealmaking events. Phone calls
justify the lower price, the buyer just playshave slowed to a trickle, most people I call
the  game.are on vacation or getting ready to go on one
and 99% of the deals scheduled to open for
In a conversation with another director ofthis coming Xmas season are finalized, so no
acquisitions, we were talking about theirone is under pressure to do a deal; they want
latest purchase and I asked how they couldto enjoy what's left of the summer.
justify a 6.5% CAP on a 360,000 sq.ft. centerHopefully, as has been true in the past, this
and he said part of it is that they jack upchanges after Labor Day and business becomes
CAM and make it into a profit center, whichhectic  once  again.
makes the numbers work -- what a business.
Overall, we're a great industry, but we doThe hunt to find centers for sale is as
have  our  share  of  a-holes.strong as ever, with most of the brokers and
buyers confused and frustrated on why CAP
Anyway, here's wishing you a great show andrates aren't going up as interest rates have
holiday.posted by tedkraus at 7:33 AM 0(In theory, they have; in realty, they
comments  links  to  this  posthaven't). I guess the only logical answer is
"If they can get their asking price, whether
Monday,  October  30,  2006it makes sense or not, why not." The single
largest complaint I constantly heard was
The South Not Only Rise Again, It Won, Oh andwhere/how to acquire property that makes
More  About  Josh..Almosteconomic sense, and there is no answer. Where
I'm really confused is all the reports that
Ann and I attended the Texas Dealmaking showI've read contend there's a slowdown in
and over 3,000 "Tall hats"showed up to wheelleasing and retail sales, but in the majority
and deal, nearly a 20% increase compared withof markets, rents are still increasing and a
last year'sshow. You can't ask for more thanretailer has to be a real fool to pay higher
that, especially considering it was onlyfiverents on declining sales. I must be the
or six years ago that the show attracted onlyexception to the rule because every property
750  or  so  dealmakers.we're leasing I'm finding it harder to get
decent rents and tenants are fighting harder
High energy is the only way to describe thison renewals. Of course, some of it is sticker
event. Texans love dealmakingand socializing,shock, when after 10 years a tenant's rent
and they do it well. Here's another market ingoes from $7.50 psf gross to $18.25 psf net,
which smalldevelopers excel. The South seemsit can be difficult to accept. Of course, the
to be an area that smaller developerslove;retailer's gross has increased substantially
they've found a niche that the REITs can'tover the years and that they have no problem
touch.  They  may  never  beaccepting higher sales volumes and the
incoming  profits.
Kimco or DDR, but they live the good life and
have fun -- a great way tomake a living. TheAnother change in the sale of properties is
only real complaint we heard at the show wasthat, while CAP rates have not risen, it is
the  lack  oftaking longer to make a deal and I've noticed
more deals are coming back onto the market
"real" retailers, and that seems to be theafter a LOI was signed. Deals seem to be
rule at most events, so get overit. Thedying more often; it now often takes several
broker has become the mainstay of dealmakingacceptable offers from different buyers
for many, if not most,retailers and you'rebefore an actual deal is finalized. If the
going to pay that commission, like it or not.due diligence doesn't come through perfectly
the  buyer  wants  to  renegotiate.
Another change I noticed at this and most
shows is that the actualdealmaking is lastingSwitching subjects, Josh, as I mentioned
longer. In the "old days," if the dealmakingattended the ICSC's University in Lansing, MI
startedat 8 a.m., for all practical purposes,and they appear to have done a decent job of
it was over by 1 p.m., even if theofficialteaching him the basics and providing lots of
closing time was 3 p.m. or 4 p.m. Now, thenetworking opportunities, many of which will
activity goes on 'til 2p.m. or 3 p.m. So,probably last him a lifetime. The reason I
people are staying longer and hopefullythink they did a decent job is that he came
making moredeals. I had one interestingback with lots of buzz words and sat down
conversation with a developer who hadwith Ann and myself and explained all the
justfinished building a Starbucks. He wantedthings we've done wrong over the last 30
to know what I thought the CAP ratecould be.years. God, I never realized how ignorant
I responded with a 6.2% to 6.5% rate. He saidI've been. I guess that's what children are
that's what hisfriends are telling him, hefor, to point out all your mistakes.
just didn't think anyone was that dumb. IForgetting the sarcasm for a moment, the
agreedwith his outlook but said there's a lotUniversity was well worth the time and money
of dumb buyers out there. Anyway,moving on,involved. Josh said the "teachers" were great
Josh and I went to the Atlanta show, whichand over the five days he had 10 or 11
was larger than Texaswith about 4,000teachers covering all aspects of leasing and
dealmakers compared to last year's count ofmanagement. It reminds me a little of talking
3,500. (It'salmost getting boring to announceto him after his first day of kindergarten; I
all these increases in attendance. I'mwarningwas  more  excited  than  him.
you in advance: The New York show in December
will be a nightmare;there will be way tooOn a different note, we're marketing a center
many  people.)for sale that, to say the least, is problemed
and we're having trouble generating any
The energy level of the Texas show was higherinterest. I called a few brokers I know who
than Atlanta's, but theattendees still didspecialize in sales and said we should
their share of "dealmaking." Like Texas,co-broker and then sent out a complete
Atlanta has alot of smaller developers and,package. A week or two later one of the
like Texas, their biggest complaint wasbrokers called, saying very apologetically
thelack of real retailers. Atlanta has theirthat one of his clients made an offer but he
"Retailers" show the day beforethe actualwas ashamed to make the offer. I used a line
dealmaking and I'd guess they had 40 to 50from Lee Cherney of Kin Properties; "As long
retailers exhibitingat this busy event. But,as you don't insult my kids or wife, I won't
my gut tells me that the amount oftake it personally. So give me the offer." He
retailersexhibiting was less this year thanwas right, it was low ($10 psf to buy) and I
last. BUT, that didn't stop the wavepromptly turned it down, BUT I did call the
ofdevelopers/brokers stopping by each boothseller and tell him of the offer. The good
hoping to do a deal. The cocktailparty innews is that, even though he didn't accept
Atlanta was jammed and most people inthe offer, he didn't get uptight and came
attendance had dinnerinvitations for variousback with a counter offer, which the buyer
gatherings right after the show. So, thereturned down, but at least I got him an offer.
were alot of tired people the next day, whichThe other brokers reluctant to present a
explains why the show got off to aslow startlow-ball offer reminded me of a trend I've
on Wednesday. BUT, by 10:30 that morning, thenoticed over the last few years. The amount
trade floor washopping and stayed that wayof real "horse traders" in our industry is
until  30  minutes  before  closing.declining. I'm not talking the typical deal
between a landlord and tenant where the rent
I did hear one interesting tidbit: It seemsstarts out at an asking price of $25 psf and
that  the  government  of  Puertoends up at $19 psf, but on marginal
properties for lease or sale. It used to be
Rico has sent letters to the major retailerthat companies and individuals would make an
developers on the island sayingthey are aboutoffer on marginal centers IF the deal could
to start an investigation into thebe bought "right" (and there are still
possibility that theselandlords are gougingcompanies that only want marginal properties
the tenants on CAM and electrical charges.where they can get in cheap), but I guess
Talk abouta disaster looking for a place tothat secondary centers are either too much of
happen. Now, I'm totally opposed toa risk or too much work for most of the "next
ownersmaking more than nominal amounts ofgeneration" to be bothered with. Nickel and
money on CAM, taxes, etc.; their profitcenterdime negotiations aren't popular anymore to
should be the rents. BUT, I'm also a greatmany (not all) companies and too many people
believer in, "Thegovernment that governsseem ashamed to make a low ball offer; a big
least, governs best." Let's hope themistake in my opinion.posted by tedkraus at
developers dosomething before the government8:19  AM  0  comments  links  to  this  post
does. Otherwise, it might give some ideas
tostates  in  the U.S., and then we all lose.Thursday,  August  24,  2006
Changing subjects, as you are aware, I'veAnother  Josh  Story...well  almost
been chronicling the "Adventuresof Josh"
since he joined the company going on 5 monthsI was speaking to a friend of mine who's VP
ago, and I have toadmit, it's becoming LESSof leasing for a decent sized shopping center
frustrating (but still frustrating) whilecompany. As many people do (since I first
tryingto teach him the business. Well, Imentioned that Josh started working for us)
guess my remarks struck home to a lothe asked how Josh was doing and I responded
ofpeople, since we received LOTS of e-mail onwith my typical line: "Great on Monday,
those MyWay's. Here's two, whichare typicalWednesday and Friday but I'm thinking of
of  the  rest:firing him on Tuesday and Thursday (three out
of five ain't bad). He replied: "No really, I
Ted,want to know for personal reasons since we're
having trouble finding decent people at a
I just started in the real estate business asalary we can justify and our Chairman wants
few months ago and enjoyreading yourme to hire young, aggressive, recent college
articles. I am in the same boat as Josh andgraduates  to  train  how  to  lease."
can understand whathe is going through. (Cold
calling, asking what seem to be logical"Don't do it, quit first," I replied, "it's a
questionsto a higher authority.) I, however,full time job that requires the patience of a
disagree with the statement that we haveto besaint. You'll accomplish none of your other
taught EVERYTHING. It's not that we don'twork if you have to deal every day with the
know how to fax or pick upbusiness cards,untrained and some days the untrainable. Your
it's that we understand that our superiorsjob  will  go  downhill."
are succeeding atwhat they do and we want to
learn their style to emulate them. I thinkNow don't get me wrong, young people are the
it'sa good thing that you have new workersfuture of our industry and they can add a lot
craving to learn more and more eachand everyto what we've already accomplished, BUT man
day. You should see that and be excited toare they a pain to deal with. Their
teach them. This isyour passion, isn't it? Asinexperience in retail real estate and life
for me, I guess I am getting the best ofin general requires a commitment of
bothworlds. I am starting out like everyonesubstantial time and the ability to deal with
else does, however, I think mybosses have atheir mishigosh which too many of us "old
different view, one tailored more to gettingtimers" (Ann asked me not to call people old
me to their leveland watching me succeed. Ifarts)  don't  have.
think their reply to your friend would be,
"Doit, and find new possibilities." We areThey have to be taught EVERYTHING, from how
not embarrassed. If we were, wewould sit atto fax, to picking up business cards from
our desk waiting for you to come to us. Weevery retailer they canvass, to NOT to
are seekers, readyand willing to combat newcanvass a regional square foot mall for
things each day. I for sure know that if Itenants for a 100,000 sq.ft.
don'task questions, I won't succeed. For yousupermarket-anchored strip, to "forcing 'em
it's  "Location,  Location,  Location."to call 60 to 80 retailers a day so as to
start to get a "feel" on how to talk to
For me, it's "Questions, Questions,retailers, and to making 'em canvass two or
Questions." Shouldn't you always askquestionsthree times a week even if they're tired.
before you worry about a location? InThey KNOW NOTHING and they're always worried
closing, I think we are anasset and need toabout  embarrassing  themselves.
be accepted. All those VPs who are training
shouldunderstand and be willing to teachNow they can be an asset also, as they often
because I am sure, back in the day, thosewereare, since most of the time they think
the  guys  bugging  their bosses up the wall.outside the box. They come up with unusual
ideas and some are good. Because they're new
Tom  DiCiccoto the industry, they have no preconceived
ideas and that's great, so I'm not opposed to
Database  Managerhiring the uninformed, I just realize it
requires a structure and commitment of time
Ted,to do it right. Otherwise, the newbie quits
out of frustration or is fired because the
I read your articles in every issue ofsupervisor becomes too frustrated. It's a
Dealmakers and, typically, they'reperfectly"lose-lose"  for  everyone.
written and have humor to them. This is
something I appreciate andlike, sinceThere are many development and brokerage
sometimes I feel this industry lacks somecompanies that have a formal training program
comic relief and tendsto be too serious toowith supervision from full time trainers, and
often. Having said all that, your articlethat can work great. These companies are
about Josh,while well taken and a pointeducating our future leaders. But to tell a
probably shared by many seasonedbrokersVP of a company to be the trainer is a
retailers, has some "holes" to it. I startedproblem looking for a place to happen. The
in this business justover six years ago, whengood news when it comes to these newbies is
I was 22. Now, my story is somewhat differentthat they are perfect for telemarketing to
inthat my father has been in this industryretailers and canvassing, something that is
since 1981. Because of that, I hada veryhard to justify when you're paying a leasing
small and limited knowledge of this businessguy  $100,000  to  $150,000.
when I started. I, too,however, needed that
training to get the necessary knowledge toJosh's trials and tribulations must be common
besuccessful. Here was the key that helped mefor most young folks, as I recently received
become  successful:this e-mail: "Hi, I am 24 and new in Retail
after just finishing school in Southern
Our company is a very small company in termsCalifornia. I was reading your Real Estate
of  number  of  employees.101 article today about your son Josh and I
couldn't help to chuckle at the similarities
However, we compete on a larger scale withbetween him and I when it comes to being
the likes of the Mid America'sand CB Richardoptimistic about deals that will never get
Ellis's of the world. Our inventory isdone. I am currently cold calling like crazy
massive compared tothe amount of people weto fill my listings in Northern Utah. Anyway,
have that work the brokerage end of thisI wanted to further my education as a new
business."optimist" in the industry and wanted to
speak to Josh about his experience at the
Currently, we only have three brokers here,ICSC University in Michigan. Would you be
including myself. When I startedhere, thereable to give me his contact info when he gets
were only four: The three principals of theback?"
company and oneother broker. Since my father
is the President and principal ofI give him credit, he knows he doesn't know
thiscompany, he certainly had no time toand wants to talk to another newbie to
train me each and every day. Hispartner wasreassure himself that he's not alone. And he
and still is equally as busy as my father.not. Josh just left for the University and
The third principal,too, was busy doing herI'm extremely anxious to hear his thoughts
own  thing.and  see  what  he  learned.
My job was simple. I began as DatabaseChanging subjects, I recently came across an
Manager  here.  I  took  an  "old  school"article saying: "Wal*Mart Builds, Waits for
Communities to Catch Up." In essence, it says
3-ring binder crammed full of years and yearsWal*Mart started out in mostly rural areas
of contacts (both locally andnationally) andwhere other large retailers chose not to
computerized them. Now I didn't just typebuild and now is saturating urban and
them in acomputer, I called each and everysuburban areas. Now, the retailer is looking
one of them. Some were long gone and nolongerto add stores in communities "in the making."
in business, but most were still active.In other words, they're store "banking."
Throughout my life, myfather has alwaysopening up in areas that are not quite ready
preached to me about work ethic and strivingfor a Wal*Mart but will be in the near
to be "moresuccessful than he is." Obviously,future. They buy and build now, banking on
that is a typical statement and wish fromafuture growth to make the store profitable,
father to his child. So, for as busy as mywhich it isn't now but will be in the near
father was, he always took thetime to tutorfuture. I give Wal*Mart credit for being
me because, not only was I an investment toforward thinking but it's nothing new, since
him personally ashis child, I was and stillSears, Kmart and JCPenney were doing that 30
am an investment to his company.to 40 years ago. But as the costs of
Additionally,this was his way of training me.acquiring land and then operating these
He put me on the phones making calls,gettingnon-profitable stores grew, they stopped
to know who people were, learning terms ofexpanding based on future growth. Wal*Mart
the business and gettingmy own name outhas the money to wait and they are. Smart and
there.long-term thinking, something most retailers
don't  do.
See, that is what the "elders" of this
industry need to realize: Youngnewcomers inRanting on...I recently had a meeting to try
this business are not a pain in the neck.and get the leasing for a decent sized,
We're an investmentto the companies we workwell-anchored center in an affluent market
for. We're not just around to bug busythat has about a 5% vacancy rate. The owner
brokers toask questions. We're here to soakhad called me to set up a meeting saying they
in  the  knowledge  from  them. The one thingdesperately needed help. I hadn't been to the
center for several years, so I arrived early
I will always do is, when someone youngto walk the property and see what was
enters into this business, whetherit be ahappening. Except for being a little tired,
friend or just someone coming to work at ourthe center was in good shape, well leased
company, I will alwaystake the time to talkwith a mixture of regional, national and
to them and give them as much help andlocal tenants. Candidly, I couldn't see what
information asthey need. I needed it when Ithe problem was and I'm used to seeing
started,  so  will  they.problems. My first question when the meeting
began was: "What's the problem. You have a 5%
Remember this, at some point or another, wevacancy and the center looks decent, just
(meaning all of us in the realestateneeds  a  facelift."
business) were all in the same boat. I'm sure
you were when youstarted in real estate, andThe owner explained that they will be
I'm sure there was someone there to tutorundergoing a major rehab shortly and will be
andmentor you along the road. That's why CBreplacing most of the facade, so they knew
Richard Ellis is as successful asit is today.that problem without my help His concern is
It seems as though the majority of seasonedthat the center's traffic has been off over
brokers  from  thethe last few years (FYI: over 500,000 sq.ft.
of new developments have opened within five
Baby Boomer era all started at CB (formerly,miles in the last three years and, while the
just Coldwell Banker). They hadit downmarket is good, it's not that good) and about
perfectly. Each new entrant into the business10% of the tenants are complaining and asking
"ran" for someone whowas seasoned. My fatherfor a rent reduction. I asked what they
happened to get his first real estate jobcurrently do to market the center to tenants
with CB,and the man he "ran" for taught himand was told they wait for brokers to call.
some valuable lessons, which were passeddownNot exactly a pro-active approach. I asked
to  me.why they were not doing more and was told
they never had to, enough people called in
All in all, let's take it easy on the youngthe past to keep the center leased. I
newcomers because one day, wewill be theexplained that they were no longer that cute,
generation that is the majority within thislittle 18-year-old girl; they're now a mature
industry.  And  again,woman who, before going out on a date has to
put on makeup, spend time on their hair and
I know for sure that when the next wave ofdress right. Their body appeal ain't what it
young sales people come throughwhen I am oldused to be, but that doesn't mean no one
and have many years under my belt, I'll bewants  to  date  'em.
sure to fill themup with as much knowledge as
I  can!I think this problem is too common today;
we've all gotten a little fat and lazy after
Jason  R.  Lenhoffa decade of expanding retailers, tons of new
developments and easy money. We, as an
Horizon  Realty  Services,  Inc.industry, don't pay attention to our existing
centers. We're too busy planning the next
Nick D'Amoreposted by tedkraus at 12:21 PM 0center to be developed or acquired. Long term
comments  links  to  this  postplanning is not part of the gameplan and
that's a problem. Back in "the good old
Friday,  October  06,  2006days," it was a leasing agent's job to market
a center even if it was 100% leased;
2006,  Not  As  Great As 2005 But Still Greatreplacing weaker tenants with more aggressive
ones and having a tenant in their "back
Alyson just got back from the Palm Springspocket" if and when an existing tenant
show (next year it will be in San Diego, onedefaults. It ties into a conversation Ann had
of my favorite areas in the country. Actuallyrecently with one of the ICSC's people. They
it's La Jolla that I love, the town north.were talking about the ICSC's "University"
But either way it's a great place to bum. Theand Ann asked why they didn't teach a course
reason for the change is the hotel in Palmon "marketing" a property from a leasing
Springs can't handle the increasing size ofaspect. She was told that business has been
the ICSC show, a problem we might have in Newso good for the last 10 years there's no
York). She said that the show was active,need,  and  that's  true  unfortunately.
with a possibility of nearly 6,000 attending
this year compared to last year's 5,240, soParting thoughts: I'm trying to do a deal for
California dealmakers are a happy lot. Thea big box retailer I'm representing and, of
cocktail party was active, with everyonecourse we're fighting over rent. After I made
upbeat, and meetings were being held at everymy "final and best" offer, I was told it
available table. Lee Cherney, a friend and VPwasn't enough and that they'd lose money on
of Kin Properties, was there trying to findthe deal. Now I don't claim to be bright or
property for sale. He contends thatan expert on redevelopment, but "we" are
acquisitions have gotten so tough that onetaking a portion of a former "superstore" and
broker didn't want to deal with him becauseI know the cost of TI for us, have an idea
his company knows what they're doing andwhat the property costs, brokerage
therefore makes the deal more difficult (acommission, etc. And my offer provides cash
dumb buyer is the best kind of buyer).flow to the owner above all these expenses.
Another developer told Lee he's currentlyWhen I explained this to the owner I was
building shopping centers and thentold; "What about the vacancies?" I replied
immediately flipping 'em at a 5.25% CAP in"What do you mean?" and was told that there
California. I'm getting 5% on my CDs.was a substantial amount of vacancies after
Something  is  wrong  here.doing the deal with us and if we don't pay
more rent, they have a negative cash flow.
Ann and I are going next week to the TexasHuh? You want me to guarantee the entire
dealmaking, and the following week Josh and Iproject is profitable even if I'm only taking
are attending the Atlanta show. And in twoa portion of it? No way. I tried to explain
months, the "mother-in-law of allthey had to add to their acquisition costs
mothers-in-law," the New York show will bethe cost of carrying the property for two or
here (God, the year is going fast). Everythree years while looking for additional
indication is that the next three shows willretailers, but they didn't seem to understand
also be good, and in all probability New Yorkthat concept. We have too many novices in the
will set another record, so 2006 appears tobusiness. If, and when, the recession "hits,"
be ending with another banner year for thewe'll eliminate many of them and that's
retail real estate industry; maybe not asgood.posted by tedkraus at 7:49 AM 0 comments
good as 2005, but what's the differencelinks  to  this  post
between  an  "A"  and  "A-minus"?
Tuesday,  August  08,  2006
The great unknown is Christmas 2006 and how
good or bad it will be. If it's good, we'reThe  Slowdown  Is  Here...Now  What?
in for a great start in 2007. If not, lots of
retailers will be re-evaluating theirWell, the slowdown in the economy appears to
expansion plans and a couple of the weakerbe taking hold, getting stronger or weaker
chains will go bankrupt. Standard operatingevery day depending on how you look at it.
procedure for a weak Christmas. So far,But the downturn is still having a minimal
indications are that while some of theeffect on retail real estate (thank God, I
economy is slowing, retail is holding itsneed the money). Two observations I've
own; don't understand how or why, but it is.noticed in the last month. First, as many of
Of course, the ongoing wars, who wins theyou know, we manage eight forums on the sale,
elections in November, which way interestleasing and finance of commercial real estate
rates go and the price of oil will all have(to join, go to The amount of condos and
an impact on us, but right now we appear toconversions being offered on the forum for
be in decent shape. But the smart money, Isale have tripled in the last month, mostly
don't believe, is betting either way. They'refor Florida and Vegas properties, and I have
as confused as I am. Oh, and the Federalto assume the reason for the vast increase in
Reserve is saying there will be more defaultsthese offerings is that the speculators, who
on commercial real estate loans. We live inwere developing or buying condos on the spec,
confusing  times.are trying to get out now before they get
massacred. Also, while not a scientific
On a different note, I read that Kimco boughtapproach, we recently ran a help wanted ad
19 centers from GE, which in itself is notfor an administrative assistant and probably
significant (they're buying all the time),25% of those applying were/are real estate
but the article goes on to say they're in theagents wanting the security of a weekly
process of flipping these centers to anpaycheck instead of counting on commissions.
investment group, which is now part of theirAgain, I have to assume the residential real
operating philosophy. Buy, Sell, Flip. Ifestate market is becoming weaker and the
anyone did an analysis of Kimco's sales, I'dtertiary players are not making money.
be willing to bet that from a sales aspect,However, to really complicate matters, every
they are among the largest brokers of retailreport I read says that leasing is up
real estate in the country. I have to givenationwide in almost every segment except
Milton Cooper credit, he's probably theindustrial. Of course, to further complicate
smartest man in our industry. He JVs,the matter, I was speaking to a friend of
manages, buys, sells, loans and anything elsemine who represents a big box tenant that
that can make a buck. He not only sells thedemands great deals. Long story short, he
pig, but also the oink. No one does itcontends that in the last five months, the
better. The only thing that scares me is thatnumber and quality of 70,000 sq.ft. to
one company controls nearly 5% of all the100,000 sq.ft. boxes being offered to them
centers in the country. Big always bothershas quadrupled and the asking rent has
me;  That's  why  I  hate  the  government.dropped, and if leasing is strong, why are so
many properties being offered to him? I'm
Oh well, ranting on. A trend I've noticedconfused.
since Josh joined the company (he has several
freestanding buildings for lease and hasI also see a "little" more resistance to low
gotten involved in leasing smaller space thanCAP deals, especially if you can get CDs
I'm usually involved in). Because of hispaying 5.5%. And, most importantly, consumer
canvassing, he's dealing with the smallerspending was weak for a fourth straight month
chains (under 20 stores) many who want to buyin June as rising gasoline prices left
their real estate instead of leasing, wantingAmericans with little to spend on other items
the benefit of appreciation or to take(but July's sales numbers were good). A key
advantage of the full value they bring to ameasure of inflation rose at the fastest pace
location when they open and bring additionalin more than a decade, not a good sign to
traffic to a center. Besides his properties,keep the Fed from raising interest rates. The
I'm leasing/selling some vacant big boxgood news is that retail sales are still
stores and I must get five to 10 calls adecent, but middle class and blue-collar
month from brokers representing "big box"oriented retailers seem to be slowing down
retailers (over 50,000 sq.ft., but smalltheir expansion plans. And to make matters
chains) wanting to buy distressed centerseven more interesting, is it's becoming "in"
with large vacancies that their client canfor non-retailers to acquire retailers, such
open and operate in. (Oh, I also noticed inas Lord & Taylor being acquired by NRDC
the last few months an interest from someEquity Partners and National Realty &
entrepreneurs to open flea markets in closedDevelopment Corp. The trend started 35 years
big boxes. I haven't gotten these types ofago when Arlen Shopping Centers bought E.J.
calls in years). Half of the tenants Josh isKorvettes, which later went bankrupt and
canvassing for on his freestanding buildingsevery developer since who has acquired a
expressed interest, but only want to buy andretail chain has filed either "11" or "7"
won't  lease.after the acquisition. It's one thing to
acquire a chain for it's real estate and then
On the same note, we're marketing a 200,000sell it off piecemeal (that makes some sense)
sq.ft. center with a vacant 100,000 sq.ft.BUT developers can't retail and retailers
store and I've been approached by severalcan't develop; totally different skills are
retailers wanting to buy (which the owner isrequired.
willing to do and the asking price is low at
$15 psf, but the buyers want it even lower).Now some good news: in conversations with
One retailer offered our asking price, butsmaller retailers (we call 500 to 750
wanted "us" to take back paper for the entireretailers a week because of TenantSearch).
amount, pay interest of 6% and provide noWe're hearing that the smaller chains (under
real guarantee. They couldn't understand why25 stores) are doing well and want to expand,
their offer was rejected. I also noticed thata substantially higher percentage than we
there's lots of bottom fishers in the smallerhear when talking to the "big boys." I guess
chain market (the big boys aren't the onlythe philosophy that smaller chains can
ones), offering to move fast if we did a dealrespond to their customers quicker and more
20% to 30% below market. I guess they're allefficiently than the larger chains is
hoping to find a desperate owner. Now, Icorrect.
understand lowballing if you're buying and
intend to be the landlord, BUT if you'reAll that being said, I've also spoken with a
going to operate a store in the center, itdozen buyers of low CAP centers and, while
should be location, location, location andthe CAPS are slowly rising, they still don't
demographics being the most important part ofmake sense. What's worse is that the only
the deal, not the cheapest deal thatdecent centers they're finding available are
determines if they proceed. Their mainstill being offered at a 6.5% CAP, about what
business should be retailing, not real estatethey are paying for money, so they can't
(on the same philosophy, I think it's crazyjustify the deal. Also, in conversations with
when a developer buys a retailer). If, andnumerous developers and brokers, they say
when, the recession hits, we could be in deepthey're busier this summer than usual, so all
trouble. Few buyers or retailers seem to bethe news is mixed with good news coming
concerned about the fundamentals of retailingMonday, Wednesday and Friday and bad news on
or  real  estate  anymore.Tuesday, Thursday and Saturday. If you
understand the economy please let me know
On a similar note, while we're encountering'cause  I'm  confused.
tough negotiations with the smaller chains, I
noticed some of the larger developers,On a different topic, we're working on a
brokers and retailers are taking a totallycenter that, being polite, I could call
different approach. I know I spoke about this"problemed" but being honest it's a disaster.
before, but we're an industry of horseAnyway, we got a "big box" tenant to make an
traders (and I'm proud of that fact) and Ioffer, a rotten one but an offer. The center
don't understand this change, the reluctanceis 80% vacant and they're willing to anchor
NOT to horse trade (there's nothing wrong60,000 sq.ft. at terms extremely favorable to
with tough negotiations, but being a toughthem. I made the offer to the owners and had
negotiator and NOT making the deal is NOT anmy head handed to me (Oh, no cash outlay is
attribute. Being a tough negotiator ANDrequired by the owner, just cheap, cheap,
making the deal is a mark of success). I gavecheap  rent).
a proposal on an outparcel to a developer of
"dollar stores," and they came back sayingYes, I understand that the deal stinks BUT
it's too high and then I practically have tothe center is in a high-crime area, low
beg to get 'em to make a counter proposal.income and the last deal made there was two
When I asked why they can't come back with ayears ago with a beauty salon of 1,200 sq.ft.
counter proposal, they claimed that theat $8 per sq.ft. and their rent is always
difference is too big. He contended that alate. The owner's argument is IF the tenant
million was too much. It took me a month tobelieves in the property, they should make a
get him to counter offer at $500,000 and we"respectable" offer. Huh? Just because the
finally  agreed, but why was it so difficult?landlord owns a dog doesn't mean the retailer
wants to be stuck (oh, besides low rent, they
Speaking of Josh (remember he's my onlywant kickouts) with their problems. They're
begotten child; that I know of). He's provingwilling to give it a try and if they succeed,
what I've always knew, but have to bethe landlord can succeed by being able to
reminded of, canvassing pays, and pays big.lease the satellite space (that's the
Thanks to several friends who gave himphilosophy of the '80s but the economy has
centers to work on, he's been doing a decentbeen so good for so long, the newbies don't
job of canvassing and in the last three weeksknow and the old farts have forgotten the
brought in seven or eight proposals. Only onebasic rules. FYI, I'm one of the old farts.
was acceptable but seven or eight proposalsHell,  I still use DOS software occasionally.
ain't bad. The ma&pas are still expanding,
but they need someone to call on 'em to getWhen you have a "winner" center, charge high
their  interest  going.rents since retailers can and will pay for
proven success. The retailer may bitch but
Talking about deals, I also noticed most ofyou can justify the extra money BUT when
the big box users are beginning to becomeyou're stuck with a dog the risk is on you
easier (not easy, just easier) to deal withand NEVER, never kill the messenger (the
than in the past. I have to assume the reasonbroker) because you don't like the deal. At
for this change is not that I've become aleast an offer was made, which is better than
better negotiator, but it's getting harderno  offer  at  all.
for them to find sites and the amount of
vacant big boxes in decent locations isGoing on with a personal rant for the moment,
minuscule. However, Real Estate ResearchI recently went to Best Buy to get another
Corp. just came out with a report saying thatcomputer and monitor for the office. I spent
because of the low CAP rates, retail has theabout 20 minutes looking at their selection
lowest interest of buyers of commercial realand finally decided on what I wanted but
estate. In addition, second quarter vacanciesthere was no inventory for the two items in
rose from 7.6% to 8.5%. Maybe too much of asight, so I looked around for a salesperson,
good thing is bad.posted by tedkraus at 2:01which took another 10 minutes to find. He was
PM  0  comments  links  to  this  postwaiting on another customer and, after a
moment of me standing nearby, said there was
Monday,  September  25,  2006another customer he'd have to help after this
customer, so it would be awhile. I asked if
Chicago  Was  Hot  and So Was The Cheesesteakthere were any other salespeople around and
he said no, so I left and went to CompUSA and
Alyson and I attended the Chicago (oh,almost the identical scenario occurred. I
congratulate her, she's now our vicebecame extremely frustrated and left, went
president) ICSC dealmaking event and, besidesback to the office and spent 10 minutes
the beautiful weather, the show was "hot,"online with Dell Computers where I placed a
with some 3,400 dealmakers in attendance,$1,300 order for a monitor and computer.
setting another record, which all the showsThree days later it was delivered to our
seem to be doing for the last few years. Andoffice. I understand that $1,300 won't make
while I'm hopeful, I doubt this trend canor break Best Buy or CompUSA, but I have to
continue, especially with all the mixedbelieve I'm not the only customer that storms
economic reports that have been coming outout of their stores because of incompetency.
for the last few months (I know I keep sayingI'm willing to bet they lose million$ every
this  but  eventually  I'll  be  right).year because of a lack of help. In the
"pre-Internet" days, stores might be able to
There were two major complaints I heard atget away with poor service, but with such a
the show: 1) the 45 minute to hour and aconvenient, easy to use competitor called the
quarter wait to get your photo and badge IFInternet, more retail store sales will be
you didn't pre-register and send in yourlost to the Net because so few retailers
photograph on time. About 25% of thebelieve in service. They're more concerned
attendees had not mailed in their photo,about keeping payroll costs low than keeping
which caused the long waits. I recommend tothe consumer happy and therefore force the
anyone planning on attending future showsconsumer to shop online. The Internet will
that they e-mail their photos to the ICSC NOWnot cause the demise of physical retail
so they're not stuck in these lines,locations, but it will cause the end of
especially for Vegas where the wait might bemarginal stores for retailers that can't get
hours. The good news is that at the New Yorktheir  act  together.
show photos won't be required because they
don't have the space in which to take 'em.Parting thoughts...In addition to the
BUT most of the other shows and Vegas willtroubled center I've described above, we're
require it, so don't stall, just do it; 2)working on another problem property that's
was the lack of "real" retailers. There werefor sale. We spent about a month marketing it
lots of brokers representing retailers butand couldn't generate any interest or offers,
few actual ones. The only large group ofso I called the owner and suggested he try
retailers represented was fast food-orientedanother brokerage company. He asked what I
and some banks. While the Philly show didn'tthought of auctions to get rid of the
have a problem with registration, theproperty. I said the good news is that they
complaint about the lack of retailers was thecan generate high interest in a short time
same.period (but you need a good auction company
that knows how to market), but it's my
Anyway, back to Chicago. I attended theexperience they don't generate a sale, but do
Harold Eisenberg Memorial Dinner the nightgenerate "leads." After the auction is over,
before the show and it was a sellout with 550you contact everyone that bids and see if
in attendance. It pays to attend this event;there's a way to structure a deal, and in 50%
not only are you supporting a good cause, butof the time, a deal is done. Of course, to
you're also getting a great networkingmake this work, you have to have a reserve,
opportunity at the same time; two for theand with a reserve many potential buyers
price of one (Oh, and the food at the dinnerwon't bid. No system is perfect, but it's
was  fantastic).worth a try. Personally, I'm not an auction
believer.
The ICSC cocktail party the following day was



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