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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 --don't believe 'em, they've made too much
and There's a Lot of That to Comemoney off of it). The Chicago show, more
The second largest gathering of retailthan most dealmaking events, attracts
real estate professionals of the year issmall developers (other shows that
coming together in New York and there'sattract these entrepreneurs are Atlanta
a lot to celebrate. With 2006 ending upand Charlotte), in addition to the
as being a great year (We can debateSimons and Kimcos. I'm more at home with
which was better, 2005 or 2006, but whatthe "little guy" than the "Simons" of
difference does it make?), the bigthe world. They move quickly, know what
question is, "What will 2007 be like?"they want and understand that if they
and that's a question that no one reallydon't produce they die. And above all,
knows the answer to. If they claim theysince most are self made millionaire$
do, they're either lying or insane, butthey're not too conceited or arrogant.
that won't stop "the experts" fromThe large companies have one major
making predictions anyway. My answer? Iadvantage over 'em, MONEY, lots of it,
have no clue. Right now, my money is onwhich usually covers their butt on some
2007 being decent but not as good asof their dumber moves. Because the
2006. But, there are too many outsidelarger companies have been doing so well
factors that can make 2007 a disasterlately, they can afford numerous
(more can go wrong than right), so allblunders before they're in real trouble.
we can do at the show is meet and greetThe little guy doesn't have that luxury.
old and new friends, go out and party inNow I'm not saying the big guys are
one of the greatest cities in the worlddumb, I just believe their size prevents
and do a lot of dealmaking and praying.them from making the most logical and
(Oh, before I forget, Alyson went to theefficient decisions (bureaucracies are a
ICSC show in Sacramento. It was a smallbummer). For example, larger companies
show, with 350 in attendance (last yearadd to their layers of leasing personnel
was 295), but she said the size made itby having individuals that specialize in
"intimate" and very entrepreneurial."Big Box," medium box and small shop
Right now, the show is marginal, butleasing. I'm waiting for them to add a
give it three or four years and it couldspecialist for Chinese buffets. Makes no
be another winner.)sense to me; can't their people handle
For good or bad, the change in Congressthe whole gamut of retailers wanting to
after the last election will have anlease space in a particular center? It
impact on our industry and my "gut" saysreally isn't that hard. Anyway, rambling
the Fed will raise interest rates inon, I read an article in SCT Xtra that
January or February. (Hopefully, I'mlifestyle centers will represent 65% of
wrong) So, be prepared to live inall new developments over the next three
"interesting times" for the next year.years. If that's true, a lot of "poor"
There's no doubt in my mind -- short ofperforming centers will be built, as
a blizzard (God forbid) hitting the showlifestyle centers, by their nature, are
the day before or the day it starts --not meant to be located at every street
New York will set another attendancecorner (it's not the concept I have
record and, candidly, the Hilton can'tproblems with; it's the execution). The
handle the crowd, but somehow we'll alleconomics of these centers don't work
make it through the event and be betterfor Middle America and the "upscale"
off because of it. What makes me feelconsumer represents only 15% to 20% of
old and sometimes not as successful as Ithe population, so there's limited
thought I might be is when I speak tomarkets they make sense in. Plus, a lot
some friends of 20 or 30 years and I askof these "lifestyle" centers are really
where they're staying in New York. Manypower centers in disguise, using
of 'em reply, "I'm not going, I'mlifestyle as a name because it
getting too old and tired for it; I'mrepresents today's "vanilla."
sending 'my people' instead." I guessEvery mall developer is converting their
I'm not important, because I still have"C, D and F" centers to mixed-use and
to attend, along with "my people." Butlifestyle centers, and I contend that in
then, I'll be in good company.60% of the cases these redeveloped
Talking about ICSC shows, several of theprojects will fail. It's a little like
dealmaking conferences in other towns25 years ago when all the failed malls
are being relocated because "we've"were being converted to outlet centers.
outgrown the old facilities.The developers believed they found the
Unfortunately, the Hilton (short of themagic cure, but five years later the
Javits Center) is the largest conferencefailed center was still a bummer. Then
facility in the city and I personallythey believe their "salvation" was
don't want to go to the Javits Center orentertainment centers and that also
move outside of New York, so we're stuckfailed. To prove I'm old, I remember my
with the problem, a great problem, but agrandmother living over retail stores in
problem.Newark, NJ in the 1940s and saving up
Changing subjects, we're an industrymoney so she could move into an
where you don't have to be a rocketapartment, which was considered more
scientist to succeed and make a goodprestigious. Today, the condo over the
buck, BUT I sometimes wonder if someretail is considered upscale, proving my
(not all) of those in the business havegrandmother was a smart lady.
any idea what they're doing. I got aRambling on...Ann, Alyson, Terry, Rich,
call last week on a building we'reJosh and myself attended the Philly show
leasing from another broker who inquiredthe following week after Chicago and
about the lease rates. I told 'em we hadanother winner in attendance was posted;
a lease out on the property, but leavePhilly was smaller than Chicago (the
me your number and if the deal dies,East Coast considers the Philly and the
I'll call. He then asked what it wouldNew York shows as "theirs," so many wait
take to get his client the deal over thefor December to attend a show instead of
current prospective tenant and I saidattending both. I disagree, but that's
$13.50 psf, net. He then explained I waswhat makes horse racing. Attendance was
nuts, the market rent is only $10 to $11up about 400 to 2,300 this year over
psf and I agreed and said that's what1,900 last year. The cocktail party the
the current tenant is willing to pay BUTnight before was jammed with everyone
if the owner is going to be a whore,upbeat. After the cocktail party, most
they want to be a well-paid one. We gotattended private parties such as
into a major debate and I ended theFameco's event at the Hard Rock (which
conversation saying, "Why don't I callwas the busiest). Legend Properties'
you if this one doesn't work out. I'd beparty was packed also and they announced
a lot more cooperative." He then calledMaria Aristone was appointed president
me a thief and hung up. Now don't get meof the company; they bumped Jim Depetris
wrong, I have no pride. If my currentto chairman. Smart move on their behalf.
deals dies, I'll call him BUT I wouldAlso, Marcus and Millichap and Metro
have been less offended with beingCommercial had parties, which were
called a whore than a thief. I triedpacked. One thing our industry does well
explaining that with a tenant "in-hand,"is eat, drink and party.
why would I even try to be "fair?" (Oh,The Philly show got off to a slow start
both tenants have similar financialon Thursday morning, but by 10 a.m. it
statements.) He wanted to me to do awas hectic and stayed busy until the end
deal with him for 25 cents-per-footat 3 p.m., which is good. It used to be
more; fortunately my client works 5ththis show ended right after lunch, so
Avenue, not 42nd Street.its value over time is improving. The
Anyway, changing topics again, retailbest comment I heard at the show was
seems to be dividing our industry likefrom Rene Daniels, who said: "Lot's of
politics, but instead of blue and redpeople present, but few decision
states, we have high and low endmakers." Cute, but unfortunately true.
retailers with the ones in the middleAs our industry expands we gain
struggling. The Nordstroms of the worldmembership, but the ability for these
are doing great (department stores aredealmakers to make decisions is lacking,
"back in" with the consumer) but itwhich is why every deal takes forever to
seems that even the almighty Wal*Mart isbe finalized. Oh, I read an interesting
having some problems. The middle classarticle last week; the author contends
in America finds their purchasing powerthat if we don't have a good Christmas
diminishing and they're having(guesses are between 2.5% to 5% in sales
difficulty surviving and when they hurt,increases) then Sears will start selling
so will our industry.off underperforming Kmart and Sears
I've heard a dozen reports on what typestores, just what our industry needs,
of Christmas we'll have this year,more available real estate.posted by
anything from setting records to downtedkraus at 6:10 AM 0 comments links to
3%. So, it's a wait-and-see to find outthis post
how 2007 will start off. But what reallyFriday, September 01, 2006
confuses me is Wall Street. I'm theMickey Hits Another Home Run
first to admit that finance is not myAnn, Alyson, Terry and myself attended
strong point but as I write this, thethe Orlando ICSC dealmaking convention,
Dow is climbing because the Fed haswhich proved to be another home run.
indicated they won't be raising rates inLots of busy and happy dealmakers
December. That in itself I understandgathering for three days to wheel and
but the other news that Wall Streetdeal, a task they were all equipped to
seems to be ignoring is that sales and,do and do well.
for many companies, profits, areThe cocktail party on Sunday, while
dropping. To my way of thinking, Iactive, seemed (but I'm not sure) to
rather have higher interest rates alonghave a little less in attendance than in
with good profits than lower rates andthe past, and I have two theories why
lower profits. I think there's trouble(the third is I'm wrong) 1) Airfare and
brewing in Dodge.hotel costs have gone up, so some
When it comes to stupidity, right now, Ielected to come for one day less to save
feel like the king. A couple of monthssome expenses; 2) There was confusion on
ago, we got a shopping center to sellwhich day the cocktail party was, many
and through a MAJOR miscommunication onthinking it was on Monday, not Sunday
my behalf, we underestimated the incomenight. Either way, the show itself ended
by $150,000. During this period weup with nearly 5,000 attending over last
received several offers for about $1year's 4,300 and the cocktail party was
million less than the owner wanted anda success with all attendees being in an
I, by pure luck, convinced the seller toupbeat mood. We can't ask for more than
lower his price substantially. Longthat.
story short, we finally got anThe reoccurring complaint I heard was on
interested party that, before going intothe increasing costs of construction and
a LOI, wanted more information than whatinsurance in the Florida market since
we had. So, I requested it from thelast year's hurricanes. The details have
seller and after reviewing the numbers,been reported everywhere, but I'm told
realized my screw-up and before sendingsome insurance costs have gotten close
the info out to the potential buyer, Ito the $3 psf mark and construction
called the owner and confessed to mycosts are up 25% to 30%. Some claimed
stupidity. He asked how long it wouldthat it marks the beginning of the end
take to "repackage" and get new offersof Florida's great retail market, but I
and I said 60 to 90 days, whereby hedoubt that. It will make dealmaking more
responded, "No, close faster at thedifficult, as more secondary sites are
lower price." (Thank you, thank you,rejected and greater "discussions" on
thank you.)acceptable rents than in the past occur.
I then sent the info to the buyer andThe great curse of life. May you live in
told him of my screw-up. To say theinteresting times.
least, he was a happy camper but wantedAnn and Alyson attended the Ladies in
to know if he was competing with anyonethe Biz cocktail party on Sunday and
else. I said, "Yes and no." No one elsethey seemed happy with the networking
had received the updated information BUTopportunity and the excellent turnout.
I will be resending the new numbers toFrom what I could see, the booths at the
companies that made unacceptable offersactual dealmaking show were sold out
in the past, explaining my screw-up andwith just a few no-shows, so by every
seeing if there was new interest. It wasdefinition, Orlando was a winner, as has
then that the conversation got nasty; hebecome tradition with this event. Every
contended I was being unfair (at leastexhibitor I spoke to expressed
he wasn't calling me a thief) and shouldsatisfaction with the show, so even with
not provide the income statement tosome problems on the economic horizon,
anyone else.the Florida market is still hot. Of
I asked if he was prepared to go intocourse, trying to figure out the economy
contract and he replied, "Not foris impossible; One day inflation is
another week." I said that I thereforedown, the next up. One day consumer
HAD TO keep marketing the property.spending is up, the next down. One week,
We're still talking and I do believeunemployment figures are up, the next
he'll make an offer, but we're not asdown. It's totally confusing, and anyone
friendly as we were in the past. No dealclaiming to understand what's happening
ever seems to go smoothly.is a fool or a liar.
Speaking of whores, I was talking to theI'm writing this during the last week of
VP of acquisitions for a decent-sizedAugust and, to say the least, business
company and he was explaining how heis slow, at least from the brokerage
"beats" the competition out on deals.end; publishing is busy preparing for
Say the seller wants $12 million andall the upcoming ICSC dealmaking events.
they only want to pay $11.2 million.Phone calls have slowed to a trickle,
They enter into a contract for $12most people I call are on vacation or
million, do their due diligence andgetting ready to go on one and 99% of
then, about 10 days before closing, callthe deals scheduled to open for this
the seller and say they can't close atcoming Xmas season are finalized, so no
$12 million but can at $11. Take it orone is under pressure to do a deal; they
leave it. Ninety percent of the time,want to enjoy what's left of the summer.
the seller gets upset and calls off theHopefully, as has been true in the past,
deal but calls back in a day or two andthis changes after Labor Day and
after much negotiation, agrees to $11.2business becomes hectic once again.
or $11.3 million. There was nothingThe hunt to find centers for sale is as
found in the due diligence period thatstrong as ever, with most of the brokers
could justify the lower price, the buyerand buyers confused and frustrated on
just plays the game.why CAP rates aren't going up as
In a conversation with another directorinterest rates have (In theory, they
of acquisitions, we were talking abouthave; in realty, they haven't). I guess
their latest purchase and I asked howthe only logical answer is "If they can
they could justify a 6.5% CAP on aget their asking price, whether it makes
360,000 sq.ft. center and he said partsense or not, why not." The single
of it is that they jack up CAM and makelargest complaint I constantly heard was
it into a profit center, which makes thewhere/how to acquire property that makes
numbers work -- what a business.economic sense, and there is no answer.
Overall, we're a great industry, but weWhere I'm really confused is all the
do have our share of a-holes.reports that I've read contend there's a
Anyway, here's wishing you a great showslowdown in leasing and retail sales,
and holiday.posted by tedkraus at 7:33but in the majority of markets, rents
AM 0 comments links to this postare still increasing and a retailer has
Monday, October 30, 2006to be a real fool to pay higher rents on
The South Not Only Rise Again, It Won,declining sales. I must be the exception
Oh and More About Josh..Almostto the rule because every property we're
Ann and I attended the Texas Dealmakingleasing I'm finding it harder to get
show and over 3,000 "Tall hats"showed updecent rents and tenants are fighting
to wheel and deal, nearly a 20% increaseharder on renewals. Of course, some of
compared with last year'sshow. You can'tit is sticker shock, when after 10 years
ask for more than that, especiallya tenant's rent goes from $7.50 psf
considering it was onlyfive or six yearsgross to $18.25 psf net, it can be
ago that the show attracted only 750 ordifficult to accept. Of course, the
so dealmakers.retailer's gross has increased
High energy is the only way to describesubstantially over the years and that
this event. Texans love dealmakingandthey have no problem accepting higher
socializing, and they do it well. Here'ssales volumes and the incoming profits.
another market in which smalldevelopersAnother change in the sale of properties
excel. The South seems to be an areais that, while CAP rates have not risen,
that smaller developerslove; they'veit is taking longer to make a deal and
found a niche that the REITs can'tI've noticed more deals are coming back
touch. They may never beonto the market after a LOI was signed.
Kimco or DDR, but they live the goodDeals seem to be dying more often; it
life and have fun -- a great way tomakenow often takes several acceptable
a living. The only real complaint weoffers from different buyers before an
heard at the show was the lack ofactual deal is finalized. If the due
"real" retailers, and that seems to bediligence doesn't come through perfectly
the rule at most events, so get overit.the buyer wants to renegotiate.
The broker has become the mainstay ofSwitching subjects, Josh, as I mentioned
dealmaking for many, if notattended the ICSC's University in
most,retailers and you're going to payLansing, MI and they appear to have done
that commission, like it or not.a decent job of teaching him the basics
Another change I noticed at this andand providing lots of networking
most shows is that the actualdealmakingopportunities, many of which will
is lasting longer. In the "old days," ifprobably last him a lifetime. The reason
the dealmaking startedat 8 a.m., for allI think they did a decent job is that he
practical purposes, it was over by 1came back with lots of buzz words and
p.m., even if theofficial closing timesat down with Ann and myself and
was 3 p.m. or 4 p.m. Now, the activityexplained all the things we've done
goes on 'til 2p.m. or 3 p.m. So, peoplewrong over the last 30 years. God, I
are staying longer and hopefully makingnever realized how ignorant I've been. I
moredeals. I had one interestingguess that's what children are for, to
conversation with a developer who hadpoint out all your mistakes. Forgetting
justfinished building a Starbucks. Hethe sarcasm for a moment, the University
wanted to know what I thought the CAPwas well worth the time and money
ratecould be. I responded with a 6.2% toinvolved. Josh said the "teachers" were
6.5% rate. He said that's whatgreat and over the five days he had 10
hisfriends are telling him, he justor 11 teachers covering all aspects of
didn't think anyone was that dumb. Ileasing and management. It reminds me a
agreedwith his outlook but said there'slittle of talking to him after his first
a lot of dumb buyers out there.day of kindergarten; I was more excited
Anyway,moving on, Josh and I went to thethan him.
Atlanta show, which was larger thanOn a different note, we're marketing a
Texaswith about 4,000 dealmakerscenter for sale that, to say the least,
compared to last year's count of 3,500.is problemed and we're having trouble
(It'salmost getting boring to announcegenerating any interest. I called a few
all these increases in attendance.brokers I know who specialize in sales
I'mwarning you in advance: The New Yorkand said we should co-broker and then
show in December will be asent out a complete package. A week or
nightmare;there will be way too manytwo later one of the brokers called,
people.)saying very apologetically that one of
The energy level of the Texas show washis clients made an offer but he was
higher than Atlanta's, but theattendeesashamed to make the offer. I used a line
still did their share of "dealmaking."from Lee Cherney of Kin Properties; "As
Like Texas, Atlanta has alot of smallerlong as you don't insult my kids or
developers and, like Texas, theirwife, I won't take it personally. So
biggest complaint was thelack of realgive me the offer." He was right, it was
retailers. Atlanta has their "Retailers"low ($10 psf to buy) and I promptly
show the day beforethe actual dealmakingturned it down, BUT I did call the
and I'd guess they had 40 to 50seller and tell him of the offer. The
retailers exhibitingat this busy event.good news is that, even though he didn't
But, my gut tells me that the amount ofaccept the offer, he didn't get uptight
retailersexhibiting was less this yearand came back with a counter offer,
than last. BUT, that didn't stop thewhich the buyer turned down, but at
wave ofdevelopers/brokers stopping byleast I got him an offer. The other
each booth hoping to do a deal. Thebrokers reluctant to present a low-ball
cocktailparty in Atlanta was jammed andoffer reminded me of a trend I've
most people in attendance hadnoticed over the last few years. The
dinnerinvitations for various gatheringsamount of real "horse traders" in our
right after the show. So, there wereindustry is declining. I'm not talking
alot of tired people the next day, whichthe typical deal between a landlord and
explains why the show got off to aslowtenant where the rent starts out at an
start on Wednesday. BUT, by 10:30 thatasking price of $25 psf and ends up at
morning, the trade floor washopping and$19 psf, but on marginal properties for
stayed that way until 30 minutes beforelease or sale. It used to be that
closing.companies and individuals would make an
I did hear one interesting tidbit: Itoffer on marginal centers IF the deal
seems that the government of Puertocould be bought "right" (and there are
Rico has sent letters to the majorstill companies that only want marginal
retailer developers on the islandproperties where they can get in cheap),
sayingthey are about to start anbut I guess that secondary centers are
investigation into the possibility thateither too much of a risk or too much
theselandlords are gouging the tenantswork for most of the "next generation"
on CAM and electrical charges. Talkto be bothered with. Nickel and dime
abouta disaster looking for a place tonegotiations aren't popular anymore to
happen. Now, I'm totally opposed tomany (not all) companies and too many
ownersmaking more than nominal amountspeople seem ashamed to make a low ball
of money on CAM, taxes, etc.; theiroffer; a big mistake in my
profitcenter should be the rents. BUT,opinion.posted by tedkraus at 8:19 AM 0
I'm also a great believer in,comments links to this post
"Thegovernment that governs least,Thursday, August 24, 2006
governs best." Let's hope the developersAnother Josh Story...well almost
dosomething before the government does.I was speaking to a friend of mine who's
Otherwise, it might give some ideasVP of leasing for a decent sized
tostates in the U.S., and then we allshopping center company. As many people
lose.do (since I first mentioned that Josh
Changing subjects, as you are aware,started working for us) he asked how
I've been chronicling the "AdventuresofJosh was doing and I responded with my
Josh" since he joined the company goingtypical line: "Great on Monday,
on 5 months ago, and I have toadmit,Wednesday and Friday but I'm thinking of
it's becoming LESS frustrating (butfiring him on Tuesday and Thursday
still frustrating) while tryingto teach(three out of five ain't bad). He
him the business. Well, I guess myreplied: "No really, I want to know for
remarks struck home to a lot ofpeople,personal reasons since we're having
since we received LOTS of e-mail ontrouble finding decent people at a
those MyWay's. Here's two, whicharesalary we can justify and our Chairman
typical of the rest:wants me to hire young, aggressive,
Ted,recent college graduates to train how to
I just started in the real estatelease."
business a few months ago and"Don't do it, quit first," I replied,
enjoyreading your articles. I am in the"it's a full time job that requires the
same boat as Josh and can understandpatience of a saint. You'll accomplish
whathe is going through. (Cold calling,none of your other work if you have to
asking what seem to be logicaldeal every day with the untrained and
questionsto a higher authority.) I,some days the untrainable. Your job will
however, disagree with the statementgo downhill."
that we haveto be taught EVERYTHING.Now don't get me wrong, young people are
It's not that we don't know how to faxthe future of our industry and they can
or pick upbusiness cards, it's that weadd a lot to what we've already
understand that our superiors areaccomplished, BUT man are they a pain to
succeeding atwhat they do and we want todeal with. Their inexperience in retail
learn their style to emulate them. Ireal estate and life in general requires
think it'sa good thing that you have newa commitment of substantial time and the
workers craving to learn more and moreability to deal with their mishigosh
eachand every day. You should see thatwhich too many of us "old timers" (Ann
and be excited to teach them. Thisasked me not to call people old farts)
isyour passion, isn't it? As for me, Idon't have.
guess I am getting the best ofThey have to be taught EVERYTHING, from
bothworlds. I am starting out likehow to fax, to picking up business cards
everyone else does, however, I thinkfrom every retailer they canvass, to NOT
mybosses have a different view, oneto canvass a regional square foot mall
tailored more to getting me to theirfor tenants for a 100,000 sq.ft.
leveland watching me succeed. I thinksupermarket-anchored strip, to "forcing
their reply to your friend would be,'em to call 60 to 80 retailers a day so
"Doit, and find new possibilities." Weas to start to get a "feel" on how to
are not embarrassed. If we were, wewouldtalk to retailers, and to making 'em
sit at our desk waiting for you to comecanvass two or three times a week even
to us. We are seekers, readyand willingif they're tired. They KNOW NOTHING and
to combat new things each day. I forthey're always worried about
sure know that if I don'task questions,embarrassing themselves.
I won't succeed. For you it's "Location,Now they can be an asset also, as they
Location, Location."often are, since most of the time they
For me, it's "Questions, Questions,think outside the box. They come up with
Questions." Shouldn't you alwaysunusual ideas and some are good. Because
askquestions before you worry about athey're new to the industry, they have
location? In closing, I think we areno preconceived ideas and that's great,
anasset and need to be accepted. Allso I'm not opposed to hiring the
those VPs who are traininguninformed, I just realize it requires a
shouldunderstand and be willing to teachstructure and commitment of time to do
because I am sure, back in the day,it right. Otherwise, the newbie quits
thosewere the guys bugging their bossesout of frustration or is fired because
up the wall.the supervisor becomes too frustrated.
Tom DiCiccoIt's a "lose-lose" for everyone.
Database ManagerThere are many development and brokerage
Ted,companies that have a formal training
I read your articles in every issue ofprogram with supervision from full time
Dealmakers and, typically,trainers, and that can work great. These
they'reperfectly written and have humorcompanies are educating our future
to them. This is something I appreciateleaders. But to tell a VP of a company
andlike, since sometimes I feel thisto be the trainer is a problem looking
industry lacks some comic relief andfor a place to happen. The good news
tendsto be too serious too often. Havingwhen it comes to these newbies is that
said all that, your article aboutthey are perfect for telemarketing to
Josh,while well taken and a pointretailers and canvassing, something that
probably shared by many seasonedbrokersis hard to justify when you're paying a
retailers, has some "holes" to it. Ileasing guy $100,000 to $150,000.
started in this business justover sixJosh's trials and tribulations must be
years ago, when I was 22. Now, my storycommon for most young folks, as I
is somewhat different inthat my fatherrecently received this e-mail: "Hi, I am
has been in this industry since 1981.24 and new in Retail after just
Because of that, I hada very small andfinishing school in Southern California.
limited knowledge of this business whenI was reading your Real Estate 101
I started. I, too,however, needed thatarticle today about your son Josh and I
training to get the necessary knowledgecouldn't help to chuckle at the
to besuccessful. Here was the key thatsimilarities between him and I when it
helped me become successful:comes to being optimistic about deals
Our company is a very small company inthat will never get done. I am currently
terms of number of employees.cold calling like crazy to fill my
However, we compete on a larger scalelistings in Northern Utah. Anyway, I
with the likes of the Mid America'sandwanted to further my education as a new
CB Richard Ellis's of the world. Our"optimist" in the industry and wanted to
inventory is massive compared tothespeak to Josh about his experience at
amount of people we have that work thethe ICSC University in Michigan. Would
brokerage end of this business.you be able to give me his contact info
Currently, we only have three brokerswhen he gets back?"
here, including myself. When II give him credit, he knows he doesn't
startedhere, there were only four: Theknow and wants to talk to another newbie
three principals of the company andto reassure himself that he's not alone.
oneother broker. Since my father is theAnd he not. Josh just left for the
President and principal of thiscompany,University and I'm extremely anxious to
he certainly had no time to train mehear his thoughts and see what he
each and every day. Hispartner was andlearned.
still is equally as busy as my father.Changing subjects, I recently came
The third principal,too, was busy doingacross an article saying: "Wal*Mart
her own thing.Builds, Waits for Communities to Catch
My job was simple. I began as DatabaseUp." In essence, it says Wal*Mart
Manager here. I took an "old school"started out in mostly rural areas where
3-ring binder crammed full of years andother large retailers chose not to build
years of contacts (both locallyand now is saturating urban and suburban
andnationally) and computerized them.areas. Now, the retailer is looking to
Now I didn't just type them inadd stores in communities "in the
acomputer, I called each and every onemaking." In other words, they're store
of them. Some were long gone and"banking." opening up in areas that are
nolonger in business, but most werenot quite ready for a Wal*Mart but will
still active. Throughout my life,be in the near future. They buy and
myfather has always preached to me aboutbuild now, banking on future growth to
work ethic and striving to bemake the store profitable, which it
"moresuccessful than he is." Obviously,isn't now but will be in the near
that is a typical statement and wishfuture. I give Wal*Mart credit for being
froma father to his child. So, for asforward thinking but it's nothing new,
busy as my father was, he always tooksince Sears, Kmart and JCPenney were
thetime to tutor me because, not onlydoing that 30 to 40 years ago. But as
was I an investment to him personallythe costs of acquiring land and then
ashis child, I was and still am anoperating these non-profitable stores
investment to his company.grew, they stopped expanding based on
Additionally,this was his way offuture growth. Wal*Mart has the money to
training me. He put me on the phoneswait and they are. Smart and long-term
making calls,getting to know who peoplethinking, something most retailers don't
were, learning terms of the business anddo.
gettingmy own name out there.Ranting on...I recently had a meeting to
See, that is what the "elders" of thistry and get the leasing for a decent
industry need to realize: Youngnewcomerssized, well-anchored center in an
in this business are not a pain in theaffluent market that has about a 5%
neck. We're an investmentto thevacancy rate. The owner had called me to
companies we work for. We're not justset up a meeting saying they desperately
around to bug busy brokers toaskneeded help. I hadn't been to the center
questions. We're here to soak in thefor several years, so I arrived early to
knowledge from them. The one thingwalk the property and see what was
I will always do is, when someone younghappening. Except for being a little
enters into this business, whetherit betired, the center was in good shape,
a friend or just someone coming to workwell leased with a mixture of regional,
at our company, I will alwaystake thenational and local tenants. Candidly, I
time to talk to them and give them ascouldn't see what the problem was and
much help and information asthey need. II'm used to seeing problems. My first
needed it when I started, so will they.question when the meeting began was:
Remember this, at some point or another,"What's the problem. You have a 5%
we (meaning all of us in the realestatevacancy and the center looks decent,
business) were all in the same boat. I'mjust needs a facelift."
sure you were when youstarted in realThe owner explained that they will be
estate, and I'm sure there was someoneundergoing a major rehab shortly and
there to tutor andmentor you along thewill be replacing most of the facade, so
road. That's why CB Richard Ellis is asthey knew that problem without my help
successful asit is today. It seems asHis concern is that the center's traffic
though the majority of seasoned brokershas been off over the last few years
from the(FYI: over 500,000 sq.ft. of new
Baby Boomer era all started at CBdevelopments have opened within five
(formerly, just Coldwell Banker). Theymiles in the last three years and, while
hadit down perfectly. Each new entrantthe market is good, it's not that good)
into the business "ran" for someoneand about 10% of the tenants are
whowas seasoned. My father happened tocomplaining and asking for a rent
get his first real estate job withreduction. I asked what they currently
CB,and the man he "ran" for taught himdo to market the center to tenants and
some valuable lessons, which werewas told they wait for brokers to call.
passeddown to me.Not exactly a pro-active approach. I
All in all, let's take it easy on theasked why they were not doing more and
young newcomers because one day, wewillwas told they never had to, enough
be the generation that is the majoritypeople called in the past to keep the
within this industry. And again,center leased. I explained that they
I know for sure that when the next wavewere no longer that cute, little
of young sales people come throughwhen I18-year-old girl; they're now a mature
am old and have many years under mywoman who, before going out on a date
belt, I'll be sure to fill themup withhas to put on makeup, spend time on
as much knowledge as I can!their hair and dress right. Their body
Jason R. Lenhoffappeal ain't what it used to be, but
Horizon Realty Services, Inc.that doesn't mean no one wants to date
Nick D'Amoreposted by tedkraus at 12:21'em.
PM 0 comments links to this postI think this problem is too common
Friday, October 06, 2006today; we've all gotten a little fat and
2006, Not As Great As 2005 But Stilllazy after a decade of expanding
Greatretailers, tons of new developments and
Alyson just got back from the Palmeasy money. We, as an industry, don't
Springs show (next year it will be inpay attention to our existing centers.
San Diego, one of my favorite areas inWe're too busy planning the next center
the country. Actually it's La Jolla thatto be developed or acquired. Long term
I love, the town north. But either wayplanning is not part of the gameplan and
it's a great place to bum. The reasonthat's a problem. Back in "the good old
for the change is the hotel in Palmdays," it was a leasing agent's job to
Springs can't handle the increasing sizemarket a center even if it was 100%
of the ICSC show, a problem we mightleased; replacing weaker tenants with
have in New York). She said that themore aggressive ones and having a tenant
show was active, with a possibility ofin their "back pocket" if and when an
nearly 6,000 attending this yearexisting tenant defaults. It ties into a
compared to last year's 5,240, soconversation Ann had recently with one
California dealmakers are a happy lot.of the ICSC's people. They were talking
The cocktail party was active, withabout the ICSC's "University" and Ann
everyone upbeat, and meetings were beingasked why they didn't teach a course on
held at every available table. Lee"marketing" a property from a leasing
Cherney, a friend and VP of Kinaspect. She was told that business has
Properties, was there trying to findbeen so good for the last 10 years
property for sale. He contends thatthere's no need, and that's true
acquisitions have gotten so tough thatunfortunately.
one broker didn't want to deal with himParting thoughts: I'm trying to do a
because his company knows what they'redeal for a big box retailer I'm
doing and therefore makes the deal morerepresenting and, of course we're
difficult (a dumb buyer is the best kindfighting over rent. After I made my
of buyer). Another developer told Lee"final and best" offer, I was told it
he's currently building shopping centerswasn't enough and that they'd lose money
and then immediately flipping 'em at aon the deal. Now I don't claim to be
5.25% CAP in California. I'm getting 5%bright or an expert on redevelopment,
on my CDs. Something is wrong here.but "we" are taking a portion of a
Ann and I are going next week to theformer "superstore" and I know the cost
Texas dealmaking, and the following weekof TI for us, have an idea what the
Josh and I are attending the Atlantaproperty costs, brokerage commission,
show. And in two months, theetc. And my offer provides cash flow to
"mother-in-law of all mothers-in-law,"the owner above all these expenses. When
the New York show will be here (God, theI explained this to the owner I was
year is going fast). Every indication istold; "What about the vacancies?" I
that the next three shows will also bereplied "What do you mean?" and was told
good, and in all probability New Yorkthat there was a substantial amount of
will set another record, so 2006 appearsvacancies after doing the deal with us
to be ending with another banner yearand if we don't pay more rent, they have
for the retail real estate industry;a negative cash flow. Huh? You want me
maybe not as good as 2005, but what'sto guarantee the entire project is
the difference between an "A" andprofitable even if I'm only taking a
"A-minus"?portion of it? No way. I tried to
The great unknown is Christmas 2006 andexplain they had to add to their
how good or bad it will be. If it'sacquisition costs the cost of carrying
good, we're in for a great start inthe property for two or three years
2007. If not, lots of retailers will bewhile looking for additional retailers,
re-evaluating their expansion plans andbut they didn't seem to understand that
a couple of the weaker chains will goconcept. We have too many novices in the
bankrupt. Standard operating procedurebusiness. If, and when, the recession
for a weak Christmas. So far,"hits," we'll eliminate many of them and
indications are that while some of thethat's good.posted by tedkraus at 7:49
economy is slowing, retail is holdingAM 0 comments links to this post
its own; don't understand how or why,Tuesday, August 08, 2006
but it is. Of course, the ongoing wars,The Slowdown Is Here...Now What?
who wins the elections in November,Well, the slowdown in the economy
which way interest rates go and theappears to be taking hold, getting
price of oil will all have an impact onstronger or weaker every day depending
us, but right now we appear to be inon how you look at it. But the downturn
decent shape. But the smart money, Iis still having a minimal effect on
don't believe, is betting either way.retail real estate (thank God, I need
They're as confused as I am. Oh, and thethe money). Two observations I've
Federal Reserve is saying there will benoticed in the last month. First, as
more defaults on commercial real estatemany of you know, we manage eight forums
loans. We live in confusing times.on the sale, leasing and finance of
On a different note, I read that Kimcocommercial real estate (to join, go to
bought 19 centers from GE, which inThe amount of condos and conversions
itself is not significant (they'rebeing offered on the forum for sale have
buying all the time), but the articletripled in the last month, mostly for
goes on to say they're in the process ofFlorida and Vegas properties, and I have
flipping these centers to an investmentto assume the reason for the vast
group, which is now part of theirincrease in these offerings is that the
operating philosophy. Buy, Sell, Flip.speculators, who were developing or
If anyone did an analysis of Kimco'sbuying condos on the spec, are trying to
sales, I'd be willing to bet that from aget out now before they get massacred.
sales aspect, they are among the largestAlso, while not a scientific approach,
brokers of retail real estate in thewe recently ran a help wanted ad for an
country. I have to give Milton Cooperadministrative assistant and probably
credit, he's probably the smartest man25% of those applying were/are real
in our industry. He JVs, manages, buys,estate agents wanting the security of a
sells, loans and anything else that canweekly paycheck instead of counting on
make a buck. He not only sells the pig,commissions. Again, I have to assume the
but also the oink. No one does itresidential real estate market is
better. The only thing that scares me isbecoming weaker and the tertiary players
that one company controls nearly 5% ofare not making money. However, to really
all the centers in the country. Bigcomplicate matters, every report I read
always bothers me; That's why I hate thesays that leasing is up nationwide in
government.almost every segment except industrial.
Oh well, ranting on. A trend I'veOf course, to further complicate the
noticed since Josh joined the companymatter, I was speaking to a friend of
(he has several freestanding buildingsmine who represents a big box tenant
for lease and has gotten involved inthat demands great deals. Long story
leasing smaller space than I'm usuallyshort, he contends that in the last five
involved in). Because of his canvassing,months, the number and quality of 70,000
he's dealing with the smaller chainssq.ft. to 100,000 sq.ft. boxes being
(under 20 stores) many who want to buyoffered to them has quadrupled and the
their real estate instead of leasing,asking rent has dropped, and if leasing
wanting the benefit of appreciation oris strong, why are so many properties
to take advantage of the full value theybeing offered to him? I'm confused.
bring to a location when they open andI also see a "little" more resistance to
bring additional traffic to a center.low CAP deals, especially if you can get
Besides his properties, I'm leasingCDs paying 5.5%. And, most importantly,
selling some vacant big box stores and Iconsumer spending was weak for a fourth
must get five to 10 calls a month fromstraight month in June as rising
brokers representing "big box" retailersgasoline prices left Americans with
(over 50,000 sq.ft., but small chains)little to spend on other items (but
wanting to buy distressed centers withJuly's sales numbers were good). A key
large vacancies that their client canmeasure of inflation rose at the fastest
open and operate in. (Oh, I also noticedpace in more than a decade, not a good
in the last few months an interest fromsign to keep the Fed from raising
some entrepreneurs to open flea marketsinterest rates. The good news is that
in closed big boxes. I haven't gottenretail sales are still decent, but
these types of calls in years). Half ofmiddle class and blue-collar oriented
the tenants Josh is canvassing for onretailers seem to be slowing down their
his freestanding buildings expressedexpansion plans. And to make matters
interest, but only want to buy and won'teven more interesting, is it's becoming
lease."in" for non-retailers to acquire
On the same note, we're marketing aretailers, such as Lord & Taylor being
200,000 sq.ft. center with a vacantacquired by NRDC Equity Partners and
100,000 sq.ft. store and I've beenNational Realty & Development Corp. The
approached by several retailers wantingtrend started 35 years ago when Arlen
to buy (which the owner is willing to doShopping Centers bought E.J. Korvettes,
and the asking price is low at $15 psf,which later went bankrupt and every
but the buyers want it even lower). Onedeveloper since who has acquired a
retailer offered our asking price, butretail chain has filed either "11" or
wanted "us" to take back paper for the"7" after the acquisition. It's one
entire amount, pay interest of 6% andthing to acquire a chain for it's real
provide no real guarantee. They couldn'testate and then sell it off piecemeal
understand why their offer was rejected.(that makes some sense) BUT developers
I also noticed that there's lots ofcan't retail and retailers can't
bottom fishers in the smaller chaindevelop; totally different skills are
market (the big boys aren't the onlyrequired.
ones), offering to move fast if we did aNow some good news: in conversations
deal 20% to 30% below market. I guesswith smaller retailers (we call 500 to
they're all hoping to find a desperate750 retailers a week because of
owner. Now, I understand lowballing ifTenantSearch). We're hearing that the
you're buying and intend to be thesmaller chains (under 25 stores) are
landlord, BUT if you're going to operatedoing well and want to expand, a
a store in the center, it should besubstantially higher percentage than we
location, location, location andhear when talking to the "big boys." I
demographics being the most importantguess the philosophy that smaller chains
part of the deal, not the cheapest dealcan respond to their customers quicker
that determines if they proceed. Theirand more efficiently than the larger
main business should be retailing, notchains is correct.
real estate (on the same philosophy, IAll that being said, I've also spoken
think it's crazy when a developer buys awith a dozen buyers of low CAP centers
retailer). If, and when, the recessionand, while the CAPS are slowly rising,
hits, we could be in deep trouble. Fewthey still don't make sense. What's
buyers or retailers seem to be concernedworse is that the only decent centers
about the fundamentals of retailing orthey're finding available are still
real estate anymore.being offered at a 6.5% CAP, about what
On a similar note, while we'rethey are paying for money, so they can't
encountering tough negotiations with thejustify the deal. Also, in conversations
smaller chains, I noticed some of thewith numerous developers and brokers,
larger developers, brokers and retailersthey say they're busier this summer than
are taking a totally different approach.usual, so all the news is mixed with
I know I spoke about this before, butgood news coming Monday, Wednesday and
we're an industry of horse traders (andFriday and bad news on Tuesday, Thursday
I'm proud of that fact) and I don'tand Saturday. If you understand the
understand this change, the reluctanceeconomy please let me know 'cause I'm
NOT to horse trade (there's nothingconfused.
wrong with tough negotiations, but beingOn a different topic, we're working on a
a tough negotiator and NOT making thecenter that, being polite, I could call
deal is NOT an attribute. Being a tough"problemed" but being honest it's a
negotiator AND making the deal is a markdisaster. Anyway, we got a "big box"
of success). I gave a proposal on antenant to make an offer, a rotten one
outparcel to a developer of "dollarbut an offer. The center is 80% vacant
stores," and they came back saying it'sand they're willing to anchor 60,000
too high and then I practically have tosq.ft. at terms extremely favorable to
beg to get 'em to make a counterthem. I made the offer to the owners and
proposal. When I asked why they can'thad my head handed to me (Oh, no cash
come back with a counter proposal, theyoutlay is required by the owner, just
claimed that the difference is too big.cheap, cheap, cheap rent).
He contended that a million was tooYes, I understand that the deal stinks
much. It took me a month to get him toBUT the center is in a high-crime area,
counter offer at $500,000 and we finallylow income and the last deal made there
agreed, but why was it so difficult?was two years ago with a beauty salon of
Speaking of Josh (remember he's my only1,200 sq.ft. at $8 per sq.ft. and their
begotten child; that I know of). He'srent is always late. The owner's
proving what I've always knew, but haveargument is IF the tenant believes in
to be reminded of, canvassing pays, andthe property, they should make a
pays big. Thanks to several friends who"respectable" offer. Huh? Just because
gave him centers to work on, he's beenthe landlord owns a dog doesn't mean the
doing a decent job of canvassing and inretailer wants to be stuck (oh, besides
the last three weeks brought in seven orlow rent, they want kickouts) with their
eight proposals. Only one was acceptableproblems. They're willing to give it a
but seven or eight proposals ain't bad.try and if they succeed, the landlord
The ma&pas are still expanding, but theycan succeed by being able to lease the
need someone to call on 'em to get theirsatellite space (that's the philosophy
interest going.of the '80s but the economy has been so
Talking about deals, I also noticed mostgood for so long, the newbies don't know
of the big box users are beginning toand the old farts have forgotten the
become easier (not easy, just easier) tobasic rules. FYI, I'm one of the old
deal with than in the past. I have tofarts. Hell, I still use DOS software
assume the reason for this change is notoccasionally.
that I've become a better negotiator,When you have a "winner" center, charge
but it's getting harder for them to findhigh rents since retailers can and will
sites and the amount of vacant big boxespay for proven success. The retailer may
in decent locations is minuscule.bitch but you can justify the extra
However, Real Estate Research Corp. justmoney BUT when you're stuck with a dog
came out with a report saying thatthe risk is on you and NEVER, never kill
because of the low CAP rates, retail hasthe messenger (the broker) because you
the lowest interest of buyers ofdon't like the deal. At least an offer
commercial real estate. In addition,was made, which is better than no offer
second quarter vacancies rose from 7.6%at all.
to 8.5%. Maybe too much of a good thingGoing on with a personal rant for the
is bad.posted by tedkraus at 2:01 PM 0moment, I recently went to Best Buy to
comments links to this postget another computer and monitor for the
Monday, September 25, 2006office. I spent about 20 minutes looking
Chicago Was Hot and So Was Theat their selection and finally decided
Cheesesteakon what I wanted but there was no
Alyson and I attended the Chicago (oh,inventory for the two items in sight, so
congratulate her, she's now our viceI looked around for a salesperson, which
president) ICSC dealmaking event and,took another 10 minutes to find. He was
besides the beautiful weather, the showwaiting on another customer and, after a
was "hot," with some 3,400 dealmakers inmoment of me standing nearby, said there
attendance, setting another record,was another customer he'd have to help
which all the shows seem to be doing forafter this customer, so it would be
the last few years. And while I'mawhile. I asked if there were any other
hopeful, I doubt this trend cansalespeople around and he said no, so I
continue, especially with all the mixedleft and went to CompUSA and almost the
economic reports that have been comingidentical scenario occurred. I became
out for the last few months (I know Iextremely frustrated and left, went back
keep saying this but eventually I'll beto the office and spent 10 minutes
right).online with Dell Computers where I
There were two major complaints I heardplaced a $1,300 order for a monitor and
at the show: 1) the 45 minute to hourcomputer. Three days later it was
and a quarter wait to get your photo anddelivered to our office. I understand
badge IF you didn't pre-register andthat $1,300 won't make or break Best Buy
send in your photograph on time. Aboutor CompUSA, but I have to believe I'm
25% of the attendees had not mailed innot the only customer that storms out of
their photo, which caused the longtheir stores because of incompetency.
waits. I recommend to anyone planning onI'm willing to bet they lose million$
attending future shows that they e-mailevery year because of a lack of help. In
their photos to the ICSC NOW so they'rethe "pre-Internet" days, stores might be
not stuck in these lines, especially forable to get away with poor service, but
Vegas where the wait might be hours. Thewith such a convenient, easy to use
good news is that at the New York showcompetitor called the Internet, more
photos won't be required because theyretail store sales will be lost to the
don't have the space in which to takeNet because so few retailers believe in
'em. BUT most of the other shows andservice. They're more concerned about
Vegas will require it, so don't stall,keeping payroll costs low than keeping
just do it; 2) was the lack of "real"the consumer happy and therefore force
retailers. There were lots of brokersthe consumer to shop online. The
representing retailers but few actualInternet will not cause the demise of
ones. The only large group of retailersphysical retail locations, but it will
represented was fast food-oriented andcause the end of marginal stores for
some banks. While the Philly show didn'tretailers that can't get their act
have a problem with registration, thetogether.
complaint about the lack of retailersParting thoughts...In addition to the
was the same.troubled center I've described above,
Anyway, back to Chicago. I attended thewe're working on another problem
Harold Eisenberg Memorial Dinner theproperty that's for sale. We spent about
night before the show and it was aa month marketing it and couldn't
sellout with 550 in attendance. It paysgenerate any interest or offers, so I
to attend this event; not only are youcalled the owner and suggested he try
supporting a good cause, but you're alsoanother brokerage company. He asked what
getting a great networking opportunityI thought of auctions to get rid of the
at the same time; two for the price ofproperty. I said the good news is that
one (Oh, and the food at the dinner wasthey can generate high interest in a
fantastic).short time period (but you need a good
The ICSC cocktail party the followingauction company that knows how to
day was jammed and what was reallymarket), but it's my experience they
surprising was that the food was decentdon't generate a sale, but do generate
(no, I don't have a food fetish)."leads." After the auction is over, you
Everyone was upbeat but concerned thatcontact everyone that bids and see if
the good times can't last much longer (Ithere's a way to structure a deal, and
am not alone). Once again, I heardin 50% of the time, a deal is done. Of
complaints about the price of acquiringcourse, to make this work, you have to
centers and how they're getting a 10%have a reserve, and with a reserve many
return when they purchase industrial,potential buyers won't bid. No system is
which a lot are now doing since theyperfect, but it's worth a try.
"say" they've given up on retail (IPersonally, I'm not an auction believer.



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