As thousands of shopping center industry executives get ready for another year at the International Conference of Shopping Center's Spring Convention in Las Vegas, they should expect to have plenty of discussions about the growing trend toward mixed-use projects, increasing construction costs and the private capital that is on the prowl for development and acquisition deals.
“We saw this extraordinary focus on mixed-used projects last year, and I think we'll see more of that discussion this year on an ever larger scale,” says Terry Brown, CEO of Columbia, S.C.-based Edens & Avant. “The question is how the retailers are going to feel about taking risks on new types of projects and where retail fits in a mixed-use project.”
Brown also anticipates plenty of dialogue about the challenges related to mixed-use projects — specifically the amount of time it takes to deliver these types of projects and the financial support required from local municipalities. To that end, he expects to see a big showing of governmental agencies and mayors of both big and little cities who are trying to achieve their own economic development plans by pushing their agendas in revitalizing their downtowns with mixed-use projects that include retail. “I think everybody feels great about them coming because anything that signals that local government understands real estate and is behind the project is desirable,” he says.
David Kass, president of Columbus, Ohio-based Continental Retail Development, says that many economic development representatives will attend ICSC to support developers who have committed to projects in their cities. “A lot of them see the show as an opportunity to help the developers sell their projects by talking with retailers and introducing them to their cities,” he notes. For example, officials from Brentwood, Calif. will be attending the show to talk with retailers about the lifestyle center Continental is building in the city.
Inflation, privatization
Beyond mixed-use projects, the rising cost of construction and its impact on rental rates will take center stage at ICSC, says Brett Hutchens, president of Sarasota, Fla.-based Casto Lifestyle Properties. “The rebuilding from [Hurricane] Katrina hasn't started yet, and I think that it will create a further increase in material costs,” he explains. “Also, since so many construction materials are petroleum sensitive, that's going to affect the cost of construction.”
Construction costs are putting pressure on developers and impacting whether or not projects can get done, Kass notes. “Retailers that have received very aggressive deals in the past are going to have to help absorb some of the increased costs. The question is: will they step up and make a deal that makes sense for them and the developer?”
In addition to developers and retailers, Joseph Padanilam, senior vice president of acquisitions and dispositions for Developers Diversified Realty Corp.,, expects to see a lot of investment bankers and private capital players at ICSC ready to make deals. “The private money is very aggressive so we're not going to see many mergers between two REITs,” he says. “There's going to be a lot of speculation about which REITs will be taken private, especially Heritage Property and Mills. Everyone is wondering who's next.”
In addition to questions about the privatization of public REITs, Padanilam expects a number of companies at ICSC will be trying to figure out how to take advantage of the private money. “People will use this time to put together joint venture deals to acquire or develop using private money,” he predicts, adding that the presence of private money at the show will also have people talking about cap rates and shopping center valuation.
Overall, industry players are planning on a lot of dealmaking, Brown says. “I expect record attendance this year,” he contends.