Sunday Summary: Retail of the Tape

There was a time when you could say that if you’d seen one ICSC conference, you’d seen ’em mall…

But retail is a different animal now than it was 10 years ago, or even two years ago. And there was a lot to discuss as the brokers, owners and retailers all descended on Las Vegas for this year’s ICSC conference to discuss, to meet, and to party.

In a profound reversal, we even heard words on the ground at the Las Vegas Convention Center that we had been yearning for since 2015…. Space is finally starting to tighten up!

“The velocity is really high, but deals are taking longer because it’s taking tenants longer to find quality space,” said Avison Young’s Meghann Martindale. “In some cases, that high demand and lack of supply has driven rents way up, so they’re having to stomach higher costs than over maybe a year or two ago.”

Attendees like Lincoln Property Company’s Jim Dillavou talked about his company’s expansion plans.

“I firmly believe we’ll be seeing a lot more construction in the next couple of years than people are talking about, in specific markets too,” said Dillavou. “There’s ground-up construction in Texas right now. In California, it’s much tougher to make pencil.”

Which doesn’t mean that retail’s problems weren’t discussed at ICSC, such as retail theft — but some attendees indicated that the perception of the problem is as bad as the lost merchandise and other hits to the bottom line.

“It’s pissing me off,” said Sandy Sigal, chairman and CEO of owner NewMark Merrill. “It really negatively impacts the perception of retail shopping centers when gangs and people are running in, breaking windows, and doing all kinds of crazy stuff. We spend a lot of money and a lot of community time on it.”

“I think we have to look at it and take the sensationalism away,” said Daniel Taub, national director of Marcus & Millichap’s retail division. “As it relates to what we see and given the significance of how much we transact — and we transact more retail products than anybody else — I don’t think it’s ever come up as a challenge, an issue or a reason why something won’t trade or sell.”

Another problem that came up: potentially weak consumer spending.

“There’s a real sense that we’re not necessarily having a consumer recession, but there’s all these headwinds that they’re really starting to feel,” said JLL (JLL)’s Naveen Jaggi during one of the ICSC breakfasts. “Inflation has cooled except for housing, food and fuel. … If the cost of labor goes up 10 or 20 percent, there’s a direct pass to the consumer.”

Adding to the problem for retailers, said JLL’s Chris Angelone, is the fact that a lot of landlord concessions that were granted during COVID have largely dried up.

In anticipation of the big event, CO spent the last few weeks talking to retail players like Retail by MONA’s Brandon Singer, who acknowledged the pain of the last two years — specifically, the twin blows of COVID and the rise of e-commerce — but also described how retailers are coming out of their funk thanks to “smarter and better real estate decisions. Smaller footprints, a better understanding of who their customer is, where deliveries are, things of that nature.”

One can see this at play in restaurants.

While the fast casual concepts of yore have struggled, a new generation has emerged. And they’re picking up the real estate from obsolete or ossified brands that have failed (did you see that Red Lobster filed for bankruptcy last week?!) or are cutting down the square footage that was previously thought necessary.

And, while e-commerce is certainly not going away, there has been some resurgence in open-air retail, with an emphasis on convenience and service.

“Service-oriented neighborhood strip is hot right now,” said Don Tepman, also known as “Strip Mall Guy” on Twitter — eh, sorry, we mean X. “When you go to a restaurant, or go to the dentist, or go to a studio, those service-oriented businesses don’t really care about Amazon.”

And the numbers have borne this out. “When you look at the data for the last few years, you see very strong leasing velocity in open-air retail centers,” said Martha Kelley, a managing director at Bain Capital. “About 100 million square feet of leasing has been done. These centers are in some ways more experiential.”

It’s starting to make sense why shopping centers are again becoming attractive buying opportunities. Just last week, Publix plunked down $58.5 million for the 157,914-square-foot Ramblewood Square in Coral Springs, Fla.

It also explains why MRP Realty would jump at an incredible bargain like Washington, D.C.’s Gallery Place, which it picked up for only $39 million. (The Chinatown-area shopping center and office property was assessed at $225.7 million earlier this year!)

If you lived here, you’d be home by now

Of course, last week wasn’t all about shopping, people. Unless you mean shopping for an apartment or a multifamily complex — because there was a lot of that.

Ares Management (ARES) put down $139.7 million for Ceru, a 373,856-square-foot, 284-unit complex in Boca Raton, making it the biggest multifamily deal of the year in South Florida thus far.

Blackstone (BX) paid an even grander $171.4 million for a stake in the Gotham Organization’s 378-unit The Suffolk on the Lower East Side of Manhattan.

Also in Manhattan (in this case Murray Hill) Four Winds Real Estate picked up a 36-story apartment building called The Knox for $68 million from Morgenstern Capital and HIG Capital.

And L+M filed an ambitious plan for a 17-story, 328-unit affordable housing project on a former parking lot in the Bronx’s Morrisania.

Likewise, data centers had a good week, in that Amazon plunked down $218 million in Manassas, Va., for a planned 91-acre data center.

It’s office that had a bit of an iffy week. Boston-based MassMutual, filed a $315 million pre-foreclosure action against RXR and partners for a loan secured by the 22-story office 340 Madison Avenue in Midtown Manhattan.

Store your troubles in a sack

Of course, that’s not the way to go out on a Sunday. Especially not on Memorial Day Weekend.

Rather, better to read about Brian Cohen, the “Storage King of the USA” (his company is the $2.8 billion Andover Properties) who announced the launch of Andover Storage Lending, to put out nonrecourse bridge loans and construction loans in self-storage. 

“We know what it’s like to be a borrower, we know the heartaches, especially with some of the local and regional banks and the red tape you have to go through,” Cohen told CO. “We know how to take away that friction. We see ourselves as easy to work with, and we don’t want to make this complicated.”

Speaking of storage, get the grill out of the shed, enjoy some hot dogs, and happy Memorial Day to one and all.

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