News
No Rain for Retail
March 31, 2011
| This morning’s dreary weather didn’t rain on our parade—nearly 400joined us at 1095 Sixth Avenue’s retail space to hear top panelists discuss one of the hottest sectors at Bisnow’s NY Retail Summit(held in tandem with a Bisnow Retail Summit in Atlanta with 300 in attendance and our Capital Markets event in Boston with 275.) |
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| DLC Management Corp president Adam Ifshin kicked off the national panel with good news on the sales side: his firm recently put three assets on the market and bids have exceeded expectations. There’s far more equity chasing Class-A and core assets relative to the supply, leading to 6 caps in major markets like DC and core buyers taking 4% to 5% cash yields in California. The “barbelled market” is seeing similar demand for distressed and REO assets. |
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| But why the barbell? It’s hard to find buyers for the middle-market assets right now, says Tom Simmons, Kimco’s president of Mid-Atlantic and Northeast shopping center regions (who came up from Baltimore for the event). There are plenty of institutional players, and we’re seeing sub-6 caps even in some non-primary markets. But Kimco’s not selling out of core assets, even though he believesinterest rates are rising—the sufficient capital in the market will keep cap rates down to overcome interest rates creeping up. |
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| Thor Equities CEO Joe Sitt called the sector “a tale of two cities.” The winners: tech (Austin, San Francisco), government (DC),energy (Houston), and zipper markets (agricultural belt from the Dakotas to Texas), as well as major metros like NYC. The market is like a roulette wheel, he says—Thor bought Burlington Arcade in London when it viewed it as under-priced, and did the same for NY’s693 Fifth Ave last year. He concedes he may have shelled out too much money for the asset. “But it’s OK to overpay,” he says. “Fundamentals will move so that you don’t look like a fool.” Thor is moving into exit mode for some NY assets, he says, but there’s still opportunity to buy. REITs, in particular, will be seeking to cleanse portfolios, so that window will be open in the next six months. |
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| With certain retailers in bankruptcy, the panelists (with Cole Schotz real estate chair Richard Abramson, who moderated) touched on the hot topic of big boxes. This round of bankruptcies was softer, Tom says, noting that he’s seen optimism from two or three retailers per vacated space. Discount stores, like Ross and TJMaxx, are king. We’re seeing a universal move from the big boxes to take advantage of smaller footprints, Adam adds, pointing out that an averageStaples lease used to be 25k SF, but now he’s seeing some as small as 14k to 18k SF. Target’s even playing around with a 100k SF urban concept store. “The retailers are working hard to keep occupancy costs down.” |
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| Attendees listen in rapt attention as Adam discusses the move offoreign capital into the US. “We’ve seen tremendous inquiries here,” he says, particularly with the economic turmoil in Europe andpolitical situation in the Middle East. They want to invest here, especially with dollar-denominated reserves, and “there areprecious few places they feel safe.” Another hot topic was theCentro portfolio: Adam says those sitting tight for The Blackstone Group to execute an EOP strategy are “going to be waiting a while.” He expects Blackstone to keep the lion’s share of assets together and treat it as a private equity play. |
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| Big box and discount retailers are also dominating the local scene, as those who were shut out of the rent- and space-constrained marketin ’06 and ’07 expand, says CBRE EVP of global retail services David LaPierre, who kicked off the NY discussion. We’re now seeing moretenant-friendly leases, and national retailers are looking to jump onto the uniqueness of certain submarkets and eventually gentrifythem. One of upcoming markets will be the peripherals of Times Square, which he predicts will growth to the south and west, and somewhat to the north. “It’s one of the few markets where pricesincreased aggressively in the downturn." |
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| Along with the expansion of off-price big box retailers like Century 21, Madison Capital founder Richard Wagman says that he’s seeing an uptick in convenience retailers and the food and beverageindustry. There’s plenty of opportunity in the market, he says, and the addition of JCPenney didn’t kill the market, nor will Walmart if it opens. He’s particularly bullish on the Financial District; Madison Capital owns 100 Broadway, one of the three Manhattan locations in which Borders is closing, and he says he’s never gotten so many calls for a retail space before. |
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| Robert K Futterman & Associates EVP Karen Bellantoni is another believer in Downtown, particularly retail at the World Trade Centerand the surrounding area. In addition to the offices, hotels, and cultural offerings, it has a strong residential component not there a decade ago, she says. Other hot submarkets: anything on Broadwaybetween Houston and Grand Streets and its side streets, and Fifth Avenue between 34th and 57th Streets. The market’s more competitive; tenants are now told, “you have to sign the lease because someone is behind you,” and it’s hard to make a deal under that kind of pressure. Retailers are starting to open more stores after seeing high sales in existing stores in Manhattan. |
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| One such tenant is Uniqlo, which signed a 92k SF lease at 666 Fifth Ave. People asked how it was going to pay such a rent, says Crown Acquisitions principal Haim Chera—but the retailer saw it as a smart bet, given the major sales numbers it's seen in its SoHo store. “Smart retail will double down in this market,” he says. And even though Manhattan gets the headlines, we can’t forget the outer boroughs, which are the “best frontiers for creativity” and have unmet demandand tremendous sales potential. It’s all about the transportation options, he says, pointing to the attractiveness of corridors like the Bronx’s Fordham Road. Pioneer The Gap doesn’t regret opening there years ago, he says, and now competing stores are clustering there. |
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| The panelists with FTI Schonbraun McCann Group senior managing director Jahn Brodwin, who moderated. We learned plenty about the submarkets that sizzled, but what about those that have fizzled? Karen was quick to point out one: the Upper East Side’s Third,Second, and First Avenues in the 60s and 70s. However, Richard (whose firm owns a retail condo at 1235 Second Ave) argued that even though the avenues don’t have growth upside right now, they have stability. The submarket “is a mature woman,” he quipped, to audience laughter. “I’m not into 22-year-olds.” |
