Marcus & Millichap's annual Retail Trends event is on.
Here's a blow-by-blow of the event.
5:35 PM: Bill Rose, M&M's new national director of retail, and Hessam Nadji, M&M's managing director of research and advisory services, are tonight's moderators.
5:36 PM: The panel includes Roddy O'Neal, CEO of Goldman Sachs Commercial Mortgage Capital; Jeffrey Berkes, EVP and CIO of Federal Realty Investment Trust; Donald Wright, SVP Real Estate and Engineering of Safeway Inc. and Robert Roscoe, divisional vice president, asset development with Walgreen Co.
5:38 PM: Nadji kicking things off with a run-down of recent history. Recounting how far we've come just from 2008 to get where we are today.... Economy today is tug-of-war between headwinds and recovery.
5:40 PM: Nadji: Housing remains a drag and is in a double-dip. Household debt is also still too high. And some of momentum of recovery will be robbed by deleveraging and paying down debt that needs to occur.
5:42 PM: Nadji:High energy prices are another drag. Higher gas prices sapping GDP growth.
5:43 PM: Nadji: Positives: Consumer spending has rebounded much faster than expected and is exceeding pre-recession levels. Corporate profits have recovered.
5:44 PM: Nadji: On pace to add 2.3M jobs in 2011--less than 10 percent temporary. Last year 30 percent of 900,000 jobs added were temporary. ... But sentiment remains fragile. More than 500,000 professional and business jobs added. More than 400,000 education and health services. Even 200,000 manufacturing jobs. Means the recovery is broad based. Big loser is government, which at all levels has shed 400,000 jobs.
5:46 PM: On to panel discussion.
Berkes: Wright: Lot of deflation is out of grocery sector. Modest inflation taking place and consumers are tolerating. The best-run with strongest balance sheets are gaining traction and gaining share. Kroger was first in on price side and now they have very good comps. ... As economy improves, price will still be important, but people look for value. That bodes well for Whole Foods. They are running 7 percent comps and talking about how they want to have 1,000 stores. You see that happening. ... I think there are have and have-nots and haves will continue to strengthen.
5:50 PM: Roscoe: Walgreens sales performance has been fine. Most recent monthly comps were up 5 percent. Transactions up, basket sizes up and trips are up. So things are measuring well across the board. Some pressure on pharmacy side with reimbursements. There is a continued drive by insurance companies to lower reimbursement rates to drugstores. ... Overall, think things are on the rise.
5:52 PM: Berkes: There is much less water leaking out of the bucket today, which makes it easier to keep occupancies up and rents growing.
5:54 PM: O'Neal: Consumer confidence is stronger. We finance centers across the country and we are seeing an uptick in sales and we have enoughpoints to see the recovery is playing out.
5:55 PM: Nadji asks about whether the panelists are expecting a double-dip recession. Wright, Berkes, Roscoe and O'Neal all say no. But Roscoe says "But we are preparing for one," which elicits some laughter from the crowd.
5:57 PM: Nadji is drilling into some more numbers. Finds that the fastest growing part of retail sales is etailing. Online sales still account for just about 10 percent of retail sales. ... But online sales not just about people buying online. It's now a mix of bricks-and-clicks--an integration of online and physical retailing. Apps, social networking, etc., all enhance the retail experience.... Store-based retail sales is also growing, which is driving positive net absorption too.
5:59 PM: Nadji: By segment, furniture stores took a big hit and have not recovered much. Luxury, on flipside, took a big hit, but has a very rapid bounceback.
6:00 PM: Nadji:pipeline is at an all-time data in data that goes back to 1980. ... Vacancy by age of center shows highest vacancies in newest centers (less than 3 years old). Centers 7 to 11 years old have lowest vacancy rates.
6:02 PM: Nadji: Variation by metro shows that San Francisco has lowest retail vacancy rate at 3.9 percent. Cincinnati has highest at 13.4 percent. But dynamics are changing rapidly with product mix and job growth. The pace of recovery is very different in many markets.
6:07 PM: Berkes: (On development) If you step back and look at the country, we are completely overstored and overretailed. There is too much space. There are not as many retailers. Those that are healthy don't need square footage they needed. It is also difficult to finance new retail businesses. So development will be slow, except in high-barrier to entry markets where there is a proven demand for more space or more retail sales. Those types of locations are always going to be active. It's difficult to develop in those environments. But that's a good thing, because it's kept a lid on supply. ... You need to really look in infill trade areas and find places with lots of people and not lots of space. But don't know when we'll see the kind of development we saw in the last cycle.
6:10 PM: Roscoe: Growing store base at about a 3 percent annual clip (down from 8 percent during boom years). That translates into opening about 225 stores per year. Company is looking at the high-barrier to entry markets where the playing field is known. There's no more expansion based on housing growth.
6:12 PM: Nadji: Lending picture has improved. CMBS 2.0 is not accurate. More like CMBS 1.1. Not much has changed except for underwriting. ... In terms of investment sales volume peaked at $102.3B in 2007 and fell to $33.9B in 2009. Rebounded to $51.1B in 2010. But probably 30 percent to 40 percent off what Nadji would consider a normal marketplace. ... Looking at first quarters, seeing a continued upcycle--up from $7.0B in 2009 to $8.5B in 2010 to $12.6B in 2011. But a lot of theare in $20M+ deal size--where institutions play. Still waiting to see broader recovery up-and-down the entire price train.
6:15 PM: Nadji (cont): Cap rate by type of market, you see large gap between primary markets and secondary and tertiary markets that is only now just beginning to close. ... [Improving capital markets, confidence and other factors] will lead to improvement in secondary markets, but not yet tertiary markets. ... Looking at gaps between interest rates and cap rates--when gap has gotten large, those have been good buying opportunities. Today the gap between single-tenant and multi-tenant cap rates and interest rates is near historic highs.
6:19 PM: O'Neal: (Talking about restarting) In 2009, there was no securitization market. It was virtually 0. We had client--DDR--took 23 of their centers, pulled them into securitization pool, took it to market and it was a $554M transaction. All of the bonds got treated as investment grade and it was substantially oversubscribed. Got from that there was demand. ... Are now in middle of fourth multi-borrower, multi-property issuance since then. ... We knew that would drive competition to marketplace. Now people saying $50B to $60B number for the year. If we get to $35B, it will be good year. Challenge is finding the properties that fit. B-piece buyer pool is a bit shallow right now. Can't get the returns they need.
6:28 PM: Wright: As a shameless pitch, a lot of time people don't look at us as buyers. But if you have center--particularly if we happen to be in it--give us a call. Right now 42 percent of our real estate is owned by us. We prefer to own. ... If you see opportunities for redevelopment, keep us in mind.
6:29 PM: Roscoe: Will be continued consolidation in drugstore business. Lines will get blurry in terms of who is in what business. As health care changes, it is a good category to be in.
6:30 PM: Rose: You've got four of most active participants saying shoe will drop, interest rates at absolute low and saying now is best time to invest in retail real estate.
That concludes the program!