Observations & Conversations
 |
It appears our industry is pretty healthy, especially considering all the closings recently announced ... |
I wish I was a big shot developer. I mean
the kind of developer that has been working on the same three pieces of land for
over two years and has yet to move an ounce of dirt, doesn't have a single
tenant with an executed lease and not a single existing center in their
portfolio to preoccupy their time with. These guys aren't really developers,
they live off of stipends from very patient investors or have family money (or
Arthur Andersen as their accountants, so the banks will loan ‘em money). If I
can't be a big shot developer, I wish I knew some investors that are infinitely
patient. Everyone I've ever dealt with spent most of the day asking what did I
do for them in the past five minutes. I can't believe some of the conversations
I've had lately with several companies that have been twiddling their thumbs for
years waiting to break ground. What they're waiting for is beyond me, since they
claim all approvals and financing are in place (I guess the only minor thing
they’re missing is tenants). I asked them what are you doing to market the site
to retailers and brokers? The response over and over again is "we have a group
of tenants that follow us from center to center." I didn't have the heart to
say, hey wake up - you don't even have any centers, all you've got is the story
you've been telling about your glory days and experience from the developer you
worked for ten years ago. One cute scenario, I talked to a developer and heard
his big plans for a Wal*Mart center and in my next phone conversation I talked
to a broker that was trying to sell the same piece of dirt that the developer
claimed Wal*Mart had already committed to - I guess the developer's option was
about to expire or maybe denial is their survival tactic.
Mind you there are lots of real developments in the pipeline, but half of
proposed centers that I hear about will never happen. If I counted up all of the
new centers proposed in just the Carolinas, I bet the number is well over 10
million sq.ft. and about 75% of the projects supposedly have Wal*Mart or Lowe's
as their anchor. I talked to a small developer that only has a few centers in
his portfolio and he also does management and brokerage work. I asked him if he
had any plans to build any new centers in the next year or so and he
emphatically replied "no way!" He thinks that there is too much proposed in the
Carolinas and that land prices are being driven up because there's so much talk.
This guy plans to wait it out and try to buy cheap when some of the new projects
don't show the return the investors imagined or when they find that pre-leasing
is harder than they had thought. Another trend I hear over and over is how these
new centers, with traditional tenants, are having residential components above
the stores. I'm not sure how many people want to live on top of stores if
they’re not residing in New York, Boston, San Francisco or the like, but it
appears creating a working/living atmosphere is the only way some towns are
approving the plans.
Another interesting phone call I had was with a very small, low profile
brokerage company that has a decent portfolio of surplus property from a
supermarket chain. I originally spoke to the chain directly about their closed
stores, since I noticed that they had been available for several years - yes
several years! They really didn't want to talk to me and passed the buck onto
the exclusive broker, maybe that's part of the reason why they've been paying
rent on dark stores for so long. I spoke with the brokerage company and since I
had never heard of their company, I wasn't surprised that they hadn't heard of
The Dealmakers either. They directed me to their Web site for a list of the
sites and I tried to educate them on who The Dealmakers is and what we do, but
was told they do quarterly mailings and have a Web site, therefore they have no
need for any leads through a subscription, advertising, a tenant directory or
free publicity on our Web site and in the publication. What was even more
pathetic, I went to their Web site and got a greeting message that it's under
construction. Talk about a stupid retailer for giving this company the exclusive
and a really dumb broker for not taking advantage of getting free exposure from
at least posting the property on our Web site. Thank goodness I'm not the
retailer paying rent on a closed store, a broker not making any commission or a
landlord with an empty anchor.
Most of the companies I talk to with a portfolio exceeding three million sq.ft.
are 97% leased and they don't expect any major fall out in the next year. It
appears our industry is pretty healthy, especially considering all the closings
recently announced by Houlihan's, Albertson's, Laura Ashley, OfficeMax, Staples,
Fashion Bug, Toys “R” Us, 7-Eleven, Gateway, Payless Shoe, Britches of
Georgetown, CVS, Factory 2-U, Sam & Libby, Mars Music, Service Merchandise, The
Museum Company and Kmart, just to name a few. The saving grace to most landlords
is that not all of these companies have filed 11 and are still on the hook to
pay rent for the closed stores. The landlords of Kmart aren't panicking yet,
since they think they'll get more rent from the next tenant. I heard an analyst
that has the ear of the mortgage banking industry predict that Kmart will close
up to 750 stores and lenders will be leery of shopping centers because of the
Kmart situation. Within minutes after Kmart filed, I sent an email alert to
about 20,000 of my closest friends. The replies back were interesting, here are
few:
"Kinda makes me glad Enron wasn't a retailer!"
"I knew they were next...Walmart and Target ate their lunch and the crust of
bread that was remaining was not enough to sustain them. Medium low price for
medium low quality is a paradigm that just won't play in today's world.....
unless you dip it down to the 99 cent store or Pik n Save..... Ford already
proved there's no room for an Edsel.
Kmart is an Edsel."
"K-Marts decision to take this step underscores the importance of real estate
and the consequences of poor site selection. Do you and Ted see any companies
beginning to make the connection between sink- ing stock values and the problems
caused by abdicating real estate decisions to brokers, and consul- tants? It is
a crime and a perver- sion of the original intent of the Bankruptcy Code that
companies now use a filing as an exit strategy to dump leases that should never
have been signed in the first place!"
On a more optimistic note, we’ll be in Charlotte and Long Beach at next month’s
ICSC shows, so be sure to stop by our booth and say hello. Until next month,