Observations & Conversations
That old adage the more things change, the more they stay the same still rings true in retail real estate.
The Vegas Convention will be here in a blink. All indicators point to another extremely good show. I’ve talked to a number of retailers that plan to attend, in hopes of finalizing a few deals and opening the channel to future expansion. The retail tenant reps that I’ve spoken to lately are also cranked up and plan to work the show hard to find new sites for their clients. I expect this year’s annual convention to be as fast paced as last year, since most retailers are holding their own or growing and few will be spending their time in Vegas trying to renegotiate rents for operating stores. On the development side, I think we’ll see a lot of proposed retail projects at the convention, but my hunch is that this year there will be more mixed-use projects presented to retailers than in my 25 years of attending the show in Vegas. Whew, 25 years is a long time especially in an industry that has evolved so dramatically in a matter of a few decades. Ted and I were talking the other day about how the dynamics of dealmaking has changed in the retail real estate arena. We were trying to imagine what the industry would look like two decades from now. (I can imagine myself working the Vegas Convention twenty years from now I’ll be the old lady with purple hair wearing her bra on the outside of my blouse mumbling.) I remember one of my first big deals, about 20 years ago, was with a discounter out of the south. I was working for a New York-based owner of about 60 small strip centers throughout Alabama, Louisiana and Mississippi. I did about 30 deals SIMULTANEOUSLY with the tenant and the landlord. The whole process from the day I actually flew to the retailer’s headquarters, showed them the sites and negotiated the terms and opened 20 stores was less than 60 days. (Funny side story - Ted was so concerned that I would get lost driving to the company’s office in the middle of nowhere and then chauffeuring them around for days in the hot spots of Louisiana that he hired a limo to take us around, but the town that I flew into was so small the only limo they had was a cast-off gold stretch covered from the hood to the rear with logos from the Golden Nugget Casino, so the retailer’s real estate guys and me spent days tooling around looking at sites in the “pimp daddy mobile.”) Today, even if you used the same lease there’s no way a retailer or a developer could ever execute and open 20 stores in 60 days. Now it takes months to get the retailer to go look at a site and another 60 just to get the first draft of a lease out the door. I think the major contributor to making the time line between the start and finish of deals seem infinite is that today there are so many more layers to getting approval, it’s just a result of the industry evolving to a more sophisticated level of doing business. In the old days, we didn’t need maps showing all the competition overlayed with demos, sales figures, drive-time markets, traffic counts, future road expansion, residential permits, etc. Twenty years ago, you would just hire a private plane and take the real estate guy and his president for a fly-by of the potential sites. Still, we have to convince the retailer’s real estate rep to do the deal and give them the ammunition to take it to operations, but today the CFO’s of retail chains are more active in calling the shots on a retailer’s expansion. In the golden days, the president of the company also wore the CFO’s hat. In the past two decades more retailers became publicly-traded companies, which brought its own source of grief. Once retailers took Wall Street’s money, their rules changed. It wasn’t about doing quality deals, but more about lining up 200 store openings in less than a year so they could meet stockholder expectations for new store growth. On the development side, how we finance projects has changed dramatically over the years. In the beginning most developers made friends with their local banker or went to friends and family to invest. Then syndication came and went. Next came the REITs, then they started to go after public money on the exchange and that changed the face of retail real estate dramatically. Not only were major pension funds big players in funding projects, but grandma from Tupelo became an investor with her $50 share of stock. In the old days, I remember working on new developments and I would have to give the lender a run down on how leasing was going and how close we were to meeting the bank’s pre-leasing proforma. The lender usually sent a 25-year old to look at the dirt and go over the leasing status as funding went along. Today, you need reams of paperwork before the bank cuts a check. We didn’t have securitized loans and today, since most acquisitions or new development is so incredibly expensive, everyone has investors. The more investors you have, the more approvals you need to get anything done, all the way down to what color the toilet paper is in the men’s room. The actual development process has changed dramatically too. In the old days, developers could actually assemble parcels, get zoning approvals, line up tenants and break ground in less than a year. Now, you can usually bank on spending years just getting approvals from the town and most developers realize it’s a five-year gig when they put down option money on a site. Brokers have changed over the years too. When I first started in the business, retail tenant reps didn’t exist. Sure there have always been brokers repping tenants, but the brokerage company that strictly works for retailers didn’t exist and retailers didn’t outsource their real estate department. Networks such as Chainlinks, Site Source, Retail Broker’s Network and Realty Resources and NAI were created to give the local/regional broker a national presence and to give them access to tools like on-line demographics, aerials, etc. Most brokerage firms are no longer one-man shops and quite a few have evolved into becoming major development firms or owners of shopping centers along with offering their management services to third-parties. The management of shopping centers has changed the least over the years. It’s still about collecting rent and making sure everything is clean, but management companies today rely more on software to stay on top of arrearages, expiring leases, etc. They also use more outside vendors to do the daily scrub work for maintenance. So what’s the moral of this walk down memory lane? At the end of the day we’re all still glorified salesmen looking to make a deal whether it’s to buy land, get the city’s green light, find sources of financing, get the tenant to sign a lease or find somebody to sweep the parking lot for a cheaper price. We just do it with lots more hoops to jump and more paperwork to fill out... that old adage the more things change, the more they stay the same still rings true in retail real estate. Changing subjects, I know you like it when I tell you about new concepts that retailers are launching. I heard that Liz Claiborne is talking about opening more of its Lucky Brand jeans stores and there’s a buzz the Ann Klein New York is rolling out traditionally-priced stores (the company currently operates in outlet centers). Brooks’ Brothers is launching its newest concept, Brooks Brothers 346, with 6,500 sq.ft. opening this summer at Eastern Hills Mall in Buffalo, NY. Well, I’m out of room again, so last reminder to send us press releases/publicity info for the Vegas Convention, stop by and see us at the Dealmaking in Monterey
Until next month,
Ann O’Neal
Publisher