Observations & Conversations
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ICSC Vegas isn’t a show for wimps.
Preparations start a year in advance. The few months right before the show begin to
consume us with last minute de-tails and then voila, in the blink of an eye, the charging
of the bulls takes place on the Leasing Mall floor. This year should be interesting, with
so little vacancy, a booming economy, and retailers being the desperate ones, for a
change, to find new locations. I think a lot of developers will be exhibiting, even though
they have just a few spaces for lease. With unprecedented activity, retailers will be
scurrying from developer booth to booth trying to churn up new sites. The only segments of
retail real estate that appear to need a dose of momentum are downtowns and malls. |
I’m seeing a lot of downtowns sweet-talk big department stores and destination
concepts with free money and then not getting much in the way of operating covenants in
return. Downtown Philly has gotten a lot of press lately because on one day they have the
money to lure Disney Quest, a riverfront project and a major department store, then the
next day they’re asking for more handouts to cover the enormous capital expense
required by these wonder drugs. (Considering the precariousness of Disney, I’m not so
sure that it’s wise to drop a few million on that concept.) It always amazes me that
an overnight cure is expected for a problem that’s been manifesting for decades. I
hate to be the bearer of bad news, but Nordstrom can’t carry the weight of reviving
every downtown in decline. If I had a dollar for every study that showed Nordstrom as the
most ideal catalyst for jump-starting a downtown, I’d be blowing my money at the $100
blackjack tables instead of the five-dollar ones. History usually repeats itself, so my
bet is on the mom-and-pop merchants being the backbone to making any downtown healthy. The
problem with that is it’s not as glitzy or glamourous to do this kind of deal, and
it’s a shame that too many downtowns have gotten caught up in perception rather than
substance and reality.
This issue also takes a look at ethnic markets - Hispanic and Asian population densities.
Now here’s a safe bet, if you’re willing to be hands-on and entrepreneurial.
Some of my funniest lease negotiations have been with the 14-year-old son of a merchant as
he translated between me and his parents. A two-way dialogue in hammering out a deal is
hard enough, but throw in communication problems and a teenager’s vocabulary and then
two-hour meetings easily drone out to four and afterwards you’re still not sure if
you got all your points across. I’ve even gone as far as to have a lease drawn up in
the merchant’s native language as well as in English so we could get the deal
expedited. Plus you’ve got to be ready to renegotiate till the last penny has been
discussed, because it’s their life savings, not a line in the corporate budget. Being
one of the few publishers in the retail real estate industry that has really leased and
sold shopping centers, I can see why a lot of developers aren’t willing to work that
hard, even if they do understand the potential of investing in ethnic neighborhoods.
Also, we’ve got a few leads on mall tenants looking for sites in this issue. The
biggest complaint I hear from mall developers these days is that there aren’t any
small shop tenants any more. Every time I hear that bellyache, the song about looking for
love in all the wrong places comes to mind. I always think this is a cop-out excuse,
especially since they rely too much on national chains to lease their mall space. When you
break it down, most malls are leasing second-generation space, so leasehold improvements
are negligible, the first mortgage is usually 20 years old, therefore almost everything
over debt service is profit. So why is there mall vacancy, when the economy is at
historical heights and retailers are hard up for new locations? The only conclusion I can
draw is that the developers are unwilling to lower the rent and save the mall, but I guess
this equation requires coming to the realization that being a mall developer doesn’t
mean that you always get what you want.
Don’t forget to drop by our booth at #667 Sixth Avenue and join us for
W.I.R.R.E.’s (Women In Retail Real Estate) annual beer bash on Tuesday, May 23,
4:30-6:30 p.m. The beer bash is an extremely informal and lots of fun, so definitely put
it on your calendar, even if you only have 20 minutes to spare. Good luck in Vegas and
until next month...
Ann O’Neal
Publisher