Real Estate Re-energized
The consensus was clear at this year’s International Council of Shopping Centers RECon show, held in Las Vegas May 23-25: Let’s all forget last year and enjoy this bit of long-awaited cheer.
The difference on the show floor this year, as compared with last, was palpable. In May 2009, moods were sour and dealmakers weren’t transacting. RECon 2010, however, was the site of lifted spirits and deals getting done.
“There is no question that we are getting closer to a return to normalcy than anyone thought before this show,” said Joseph Coradino, president, Philadelphia-based PREIT Services and PREIT-Rubin Inc. “And what better laboratory can you get than having an opportunity here at RECon to poll retailers across all categories and get a real sense of what they think and where we are all headed?”
“Retailers were definitely ready to do business this year,” said Joe Cosenza, vice chairman, Oak Brook, Ill.-based The Inland Real Estate Group Inc., and president of Inland Real Estate Acquisitions Inc. “We were focused on strengthening relationships with current tenants, and developing relationships with new ones. There was a tremendous amount of leasing activity in the Inland booth.”
According to Cosenza, one showgoer said the Inland booth looked like “an ant hill that had been disturbed.”
“The reason was because of the amount of leasing that was accomplished at this show,” he explained. “ I think we did more leasing at this show than any I remember in the last 18 to 20 years. We found it extremely valuable.”
“I heard a lot of buzz that some of the 20,000-sq.-ft. nationals were negotiating leases,” added Howard Paster, president of St. Paul, Minn.-based Paster Enterprises. “So, in addition to the uptick in small mom-and-pop leasing, the junior-box market might be picking up as well. I also heard from a servicer who was inundated with CMBS properties coming back. Though we’re not back to the RECon of 2006, we certainly seem to be on the upswing.”
William Taubman, COO of Taubman Centers and the 2010 ICSC chairman, said that while first-quarter sales were very good, there was still a sense of caution. He noted the uplift in the luxury market.
“The luxury customer has clearly come back, but not to the level they were at before,” Taubman said. “But the emphasis now is on craftsmanship, style and wearability, and a little less on bling.”
Similar to many other mall operators, Taubman Centers stepped up during the recession by offering rent relief.
“We anticipate during the next two to three years the excess free rent will burn off,” he said, “with one of two things happening. Either tenant sales volume will increase…and they will be willing to extend leases on more normalized terms. Or, we will replace them.”
Unlike some operators, Taubman Centers is not an advocate of alternative tenanting.
“It is a strategy of the weak, not a strategy of the strong,” Taubman said. “It does nothing to create synergy in the mall.”
At the well-attended “Retail Trends 2010” presentation by Marcus & Millichap, a panel of industry experts and executives discussed the retail market forecast and national market overview.
“We’re finding more listings and more sales. We are moving in the right direction,” said Bernard Haddigan, managing director, Marcus & Millichap.
But while things are improving, the industry still has a way to go.
“We don’t see vacancies tipping out until 2011,” said Hessam Nadji, managing director, national retail group, Marcus & Millichap Real Estate Investment Services. “By 2011, a moderate recovery will take form.”
Nadji said there has been a significant slowdown in store closures during the last two quarters. He also noted there is “a lot of cash [in the hands of both corporate America and consumers] on the sidelines, waiting for confidence to come back. As for new concepts, “there is always a concept somewhere that is expanding and worth investing in,” Nadji said.
Another note of caution was sounded by Andy Graiser, co-president of Melville, N.Y.-based DJM Realty, who offered this insight: “We are still not seeing much growth in small spaces in B and C malls. That’s still a problem,” he said. However, he added, some of the bigger space users, such as Big Lots, are growing their store counts and also looking to bigger markets for expansion opportunities. “So there is growth to talk about,” Graiser said.