Observations & Conversations
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The good thing about leasing to smaller chains is it doesn’t take nine months to finalize a lease and the commission check clears a lot sooner. |
It’s only a few weeks before we trek to Las Vegas
and all indicators point to a good show. Most companies expect to have someone
at the show, even if they don’t have a booth, and are hopeful the next big deal
will come from it. In years past, it seemed like people would book appointments
every twenty to thirty minutes and in reality a lot of the appointments were not
kept because it’s next to impossible to have twenty five meetings in one day and
make them productive. A lot of the time, I think the people who have 100
appointments at the show actually are trying to justify to their boss the
expense of sending them to Vegas, rather than actually make a deal (Yes, there
are people in our business collecting a salary that only make one or two deals a
year, but they usually change jobs frequently). This year, I hear most people
plan to make fewer appointments, but allocate more time to discuss the deal at
hand. Maybe this a logical approach or we’re all just getting older and working
smarter. The biggest problem with this year’s show will be the same problem that
haunts our industry day in and day out - the lack of new retail concepts. Some
of the larger chains are trying to address this problem with new concepts (they
realize the customer is bored too), but unfortunately by the very nature of a
large company, they move slowly and often the execution becomes just another
cookie cutter chain offering the same merchandise in a plain jane wrapper.
While on the topic of retailers, I recently moved to Pennsylvania and learning
where to shop in my new surroundings has been a chore. (We moved three weeks ago
and Ted is still driving back to Jersey every Sunday morning, since we don’t
know where to go yet for a decent bagel). The only easy part about establishing
a new shopping pattern is that all the same retailers are in the market, and
that’s the bad part too since I have yet to find more than one interesting new
store. We’ve been shopping a lot as we try to furnish a new house and it’s tough
finding unusual home decor items. Retailers are definitely scared to buy
anything that isn’t on display at every one of their competitors and it’s stupid
little items that they forget to stock. I went to Dick’s and Sports Authority
looking for red chalk and a cone of talc (standard items for a pool table), yet
neither had them in stock. Luckily, the Internet served its purpose and we
ordered them online, but if you’re selling pool tables, cues, etc. wouldn’t you
want to sell the accessories that take little shelf space and have a high mark
up? Same thing at places like Linens ‘n Things or Bed Bath & Beyond, go in and
try to buy a decorative light switch plate cover or even a trash can that isn’t
stainless steel or rubber at any home decor store ... trust me they don’t carry
it. Maybe these chains should invest in deepening their product mix at the
stores they already have, rather than spinning their wheels trying to come up
with a new concept.
Talking about spinning wheels, The Gap continues to be a major topic in
conversations with developers. A mall developer that I spoke with has about 20
Gap stores in his portfolio and he expects them to file “11” within the year.
The Old Navy concept doesn’t seem to be faring well at all. I’m not an Old Navy
shopper, but I do visit the stores just to see if they’re stocked and with what.
Lately, they have been under stocked and it appears the store managers have
decided that folding merchandise or sweeping the floors is no longer necessary.
The Gap’s problem is plain and simple, they grew too fast and the developers fed
the problem, because they wanted a “hot concept” in their project and were
willing to lay out a million bucks for the deal. The hot concepts quickly turned
into a me too deal at every street corner and now the goose that laid the golden
egg is being eyed by the butcher or maybe it’s the vulture. Another chain that’s
being touted as the next retailer to bite the dust is Kmart. I keep hearing from
developers that they don’t expect Kmart to be intact in any shape or form two
years from now. At the rate Kmart has been burning money lately, I don’t
disagree too heartily with their predicted demise.
On a high note, seems as though in the past month or two business has been
picking up for brokers and more deals are being made or at least started. I talk
to brokers all over the country, small to mega-size companies and they expect
this year not to be as good as the past, but no one is worried about making
their kid’s tuition payment. Most of the deals they talk about are with local
and regional chains, rather than the national retailers. The good thing about
leasing to smaller chains is it doesn’t take nine months to finalize a lease and
subsequently the commission check clears a lot sooner.
Brokers specializing in acquisitions and sales are still making a buck, but
there’s definitely more activity on the leasing side of brokerage than the sales
side. Why this is, I’m not sure, but a common statement I hear from brokers
selling sites is that buyers are looking for excellent deals and sellers are
looking for a windfall, so what’s new? I’ve been in this business for twenty
years and the acquisition criteria for most buyers really hasn’t changed much
since the fall of syndication. Yes, I remember the height of the syndication and
the horrible aftermath it caused to our industry. It took the retail real estate
industry years to recoup and institutional buyers took on a new label called
REITs. In the heyday of REITs, everyone complained that they drove up the prices
of centers and as a result the small investor was no longer a player. Today, the
small investor is active, but they want exceptional returns and a price
reflective of the risk. However, most asking prices are still on the high side
and leasing to credit tenants isn’t as easy as it was a year or two ago. Most of
the centers I see selling within a reasonable time are in secondary or rural
markets, where the landlord is quite happy to do a three-year deal with a local
mom and pop and can see a return with little aggravation. The institutional
grade properties are the ones being peddled for months before a buyer steps up
to the plate. Finding institutional type buyers is easy, but locating the guy
with $20 million that buys two or three centers a year isn’t a walk in the park,
it takes lots of marketing dollars to reach him. For brokers to bite the bullet
and lay out a few grand on advertising takes a lot of soul searching, but what
they fail to realize is that they don’t have a choice, since either they market
the site or eventually lose the exclusive.
On the topic of exclusives, we’ve been encountering problems lately with brokers
sending us press releases stating that they’re the exclusive for such and such
chain. Of course, we call the retailer to double check if the broker is indeed
repping them and for which markets. Usually everything is fine and dandy, but in
past month we’ve come across a few brokers that have really stretched the
envelope as to what markets they actually handle. In one case the broker faxed
us a note stating that they handled the entire nation for the chain’s site
selection needs and when we checked with the retailer, this broker was one of 20
plus brokerage companies repping them in specific markets. So landlords beware,
spend a dime and call the retailer to verify that the broker is their exclusive
before you get into the deal.
Make sure you stop by and see us in Vegas, we’re at 667 Sixth Avenue. Until next
month,
Ann O’Neal, Publisher