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Watching Trends at the New York ICSC

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The New York National Conference and Deal Making kicked off this morning with a lively opening panel on trends impacting the industry. A big part of the discussion centered on the continuing wave of retailer privatizations and the effect they are having on the way shopping center owners and developers are doing business.—perhaps even more than many people had anticipated.

Owners involved in these deals say they aren't just about real estate and are insisting they are in it to operate retailers and help turn around ones that have been suffering. Meanwhile, some panelists expressed reservations about the number buyouts that has occurred and wondered if privatizations are always the answer. Taking stock of how some of the more notable brands have fared—retailers like Kmart, Sears, Lord & Taylor, Toys ‘R' Us and Mervyn's—was a major theme.

Panelists admitted that they continued to be vexed by Edward Lampert's strategy with Sears and Kmart, marveling at the fact that the combined entity has built up a huge store of cash despite sales at both chains have been weak. That mountain of cash has fed speculation that Lampert is on the verge of another retail takeover.

Two of the companies on the panel have been involved in retail takeovers themselves—National Realty Development Corp., which was part of buyouts of Lord & Taylor and Linens N' Things and Acadia Realty Corp., which was involved in the takeover of Mervyn's.

“Our intentions have been misunderstood,” said Richard A Baker, vice chairman for National Realty and chairman of Lord & Taylor, which National Realty acquired earlier this year. Most observers thought it was a pure real estate play on National Realty's part, especially in gaining control of Lord & Taylor's flagship on New York's Fifth Avenue. But Baker says the company is not just in it for the sites and is intent on operating Lord & Taylor locations.

Kenneth Bernstein, president and CEO of Acadia Realty, echoed that sentiment.

“This is not an either/or business,” he said. “First have to look at what a retailer owns or what they have full control over versus what the lease. You evaluate that. But you also have to have a strong operator. If you approach is just to liquidate the real estate, it's very difficult.”

In both cases, the companies are looking at weaker stores and deciding whether to redevelop the sites or to add in-line space or non-retail uses to try and boost sagging sales. Most prominently, Baker hinted that National Realty would likely shrink the amount of retail floor space at Lord & Taylor's flagship and convert some of the upper floors to office.

Meanwhile, Matt Fassler, managing director and hardlines retail analyst with Goldman Sachs, said that the buyouts have impacted the way he and his colleagues are evaluating retailers. In some cases deals make sense, he said, especially when retailers have borrowed against their real estate rather than against operations. The former usually means more attractive terms. But he didn't think privatizations always made sense.

For more on the retail privatizatin trend, check out our September cover story here.

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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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