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Heard on the Floor

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Here's just a taste of some of the interesting commentary the Retail Traffic staff heard on the floor of ICSC's RECon show.

"With the way the economy is going right now, I've noticed retailers are more aggressive about negotiating their exit strategies," says an attorney with Cox Castle Nicholson, a Los Angeles-based commercial real estate law firm. "They don't want to get stuck if the economy continues to slide. In that case, something that's a good compromise situation for the landlord is if a retailer has sales below a specific amount for a given period of time, then the retailer can get out of the lease. They can't just leave their space without good cause."... "Most retailers are now looking at that bottom 5 percent to 7 percent of their real estate portfolio to see if they can [cut costs]," says Al Williams, of Excess Space Retail Services, Inc., a Lake Success, N.Y.-based consulting firm. "Wall Street is not going to look down on that right now, so they think it's a good time."... Retail developers in search of replacement tenants can now turn to Creme de la Creme, Inc., a Greenwood Village, Colo.-based developer and operator of early childhood development centers. The firm is currently looking for out parcel sites at high-end lifestyle centers in the suburbs of major cities. Most of its buildings measure approximately 21,000 square feet. "We are attracting 600 people to the center every day, twice a day," says Bruce T. Karpas, Creme de la Creme's president and CEO. "Plus, we are not looking to be right in the middle of the property, so we are not taking away the land a retailer would want." The company, which operates 20 centers at present, will open three additional properties in 2008, followed by eight to 10 centers in 2010....Glimcher Ventures Southwest, a Scottsdale, Ariz.-based developer, is rolling out a new concept called "The Boulevard," which will combine retail offerings with a wide mix of restaurants and entertainment venues in an open-air, pedestrian-friendly setting. The first of the projects, a 250,000 square foot center in Surprise Point, Ariz. scheduled for completion later this year, will be followed by three similar developments in the Phoenix area and, eventually, locations in California, Nevada and New Mexico. David J. Glimcher describes the concept as a "Disneyesque experience." "We believe we are creating affordable entertainment for all demographics," he adds.... Rich Walter, president of Faris Lee Investments based in Irvine, Calif., is still looking for what the finance side of the business will come up with to replace the commercial mortgage-backed securities loans that just aren't coming. "I think that's gone," Walter says. "I think it will be a factor in lending, a place to go, but it's not necessarily going to be the favorite place to go. There is so much capital, and it all seems to be waiting for the same thing. Everybody tells me value-add, value-add. Well, not every property in the world is value-add. How do you find that? Sellers aren't willing to sell those properties.”... Westfield continues to experiment with its "dining terrace" concepts. The firm has turned its food courts more upscale. The terraces include higher-quality finishes and designs. They also employ non-disposable cutlery and china, to make the dining terraces greener than typical food courts. However, the firm has learned some lessons. For one, it learned that using real china could be a bit expensive because of the breakage factor. Now, it's moving to hardier materials. Also, it found that its retailers were determining portion sizes based on the size of plates Westfield offered. So now it's working more closely with its tenants to figure out the exact best plate size so retailers don't feel forced to give portions larger than they would normally like. ...All the drama seems to be behind Meadowlands Xanadu. The project is almost fully leased up and will open next Spring. One interesting thing to watch will be the fate of the IZOD Arena. The arena used to house the New Jersey Devils, New Jersey Nets and the college basketball's Seton Hall Pirates. But the Devils and Pirates have moved to Newark and the Nets are still slated to move to Brooklyn. In that instance, the team behind Xanadu--Colony Capital, KanAm and Dune Real Estate Funds, could exercise an option to redevelop the arena site.... Beachwood, Ohio-based Developers Diversified Realty is expanding its foray into Canada. Originally the firm committed to build one project in Canada teamed with Rice Commercial Group. Now it's formed a second partnership with Holborn Property Investments and between the two ventures has a total of five projects in the works.... Jacksonville, Fla.-based Regency Centers continues to be one of the leading firms in the retail real estate industry in incorporating green strategies into its portfolio. Mark Peternell, the firm's vice president of sustainability, and Scott Wilson, vice president of construction, are also working closely with the U.S. Green Building Council (USGBC) to fine-tune the LEED certification process for shopping centers. In June, Regency, along with three other developers, will take part in a "developer summit" with USGBC officials to help push that process forward.... Hessam Nadji, managing director of research services for Marcus & Millichap Real Estate Investment Services, points out that looking at retail REIT valuations provides a fairly good proxy for where property valuations currently sit. Immediately following the breaking of the credit crunch in September REIT valuations plummeted by about 30 percent as many investors bought into the idea that commercial real estate would follow subprime mortgages down the tubes. However in recent months REITs have gained 50 to 60 percent of those losses back. As a result, REITs sit about 10 to 15 percent off their peak--which dovetails with how far retail property valuations have dropped.... Frank Kass, chairman of Continental Real Estate Cos., a retail developer based in Columbus, Ohio, believes that the CMBS vehicle embraced by so many borrowers in the heady days of 2005 and 2006 faces some obstacles in the foreseeable future. "People in our business went to conduits because they received more money, and many times slightly lower rates than they would have with conventional insurance companies," Kass says. "If you look at those phenomena to begin with, in a higher-risk market those are counter-intuitive. If the CMBS market comes back, it will not play into the developers' leverage desires as much as it has in the past. It will come back with a lower loan-to-value, the spreads will be higher because the risks are greater in today's real estate. Therefore, I think it will be hard for developers to deal with."

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Elaine Misonzhnik

Senior associate editor Elaine Misonzhnik has been writing for National Real Estate Investor since June 2006 and has covered commercial real estate for more than 12 years. She first became...
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