Following a highly productive 2007 installment of the International Council of Shopping Centers (ICSC) Spring Convention in May, the retail real estate sector appears to be on track for sustained growth. This year's conference, which featured numerous new exhibitors and enjoyed strong attendance from investors, has historically served asÂ "a good barometer of the health of the industry," says Malachy Kavanagh, staff vice president of communications and external relations at ICSC.
Â Â Â The continued slowing of the housing market and other threatening signs from the broader economy do not necessarily indicate an imminent weakening of retail real estate. Despite several stressors to the economy in the U.S. – including the aftereffects of hurricanes and persistent oil price increases – "consumers continue to spend, and continue to spend at a good pace," Kavanagh notes.
Â Â Â At the same time, geographical and socioeconomic considerations play a role in determining where and to what degree consumer spending in a retail property's target market – and, therefore, the continued success of retail – can endure. Locations with high concentrations of factories and blue-collar workers may face "a greater impact than other economies or other communities that can weather the downturns," he explains.
Â Â Â In contrast, "The luxury market has performed well the last few years, and that consumer is not really affected by a blip in the economy," Kavanagh says.
Â Â Â Furthermore, because the average consumer – regardless of economic status – tends be "pretty resilient," he adds, the effects of even the worst of the housing slump have been primarily limited to specific areas of retail whose subsistence depends on housing construction and related activities. Once those troubles resolve, additional retail real estate growth will follow, he predicts.
Â Â Â The flow of capital into retail real estate development is currently abundant and likely to continue, according to Kavanagh. Real estate investments "have outperformed other investment vehicles in the past few years," he says, also remarking that overseas investment in U.S. firms – as well as U.S. investment in overseas firms – constitutes a sizeable part of the industry's investment pools.
Â Â Â As evidenced by the high turnout of foreign investors at the May convention, he observes, "people are moving beyond their borders, and it really is becoming a true global industry" – although the traditionally long timetables of retail real estate transactions may delay noticeable results of this trend for several years.
Â Â Â Among current property trends, Kavanagh questions the long-term prospects of the lifestyle center. "There's a buzz about lifestyle centers now, but that happens every few years: A development type catches the attention of the developers," he explains, recalling power centers and outlet centers as previously fashionable developments over the past several years. The mass developer appeal of these properties eventually dwindled.
Â Â Â Forecasting that the popularity of the lifestyle center will also run its course, Kavanagh cautions that in the meantime, "You need to have a pretty good demographic to build a lifestyle center, and some will get built that probably shouldn't be built."
Â Â Â Instead, he emphasizes, strip centers, which remain the most prevalent retail configuration in the U.S. by far, should retain their position as the most commonly developed retail structure. Contrary to widespread consumer – and industry – perception, large shopping malls number only about 1,200 in the U.S., Kavanagh points out.
Â Â Â "The neighborhood shopping center that is grocery-anchored, eight to 10 stores, is really the backbone of the industry," he says. When a new community is planned and built, a strip center selling basic, immediately essential commodities for daily consumption will usually be developed first.
Â Â Â While today's climate may favor development of retail properties, acquisition continues to hold certain appeal. "It's through acquisitions that you can build your portfolio and enlarge it to the point where you can become a national player quickly," says Kavanagh.
Â Â Â Such activity may eventually prove to be self-limiting, however. "We've gone through a number of major acquisitions in the last few years. There's not a lot of big companies that are in play anymore," he explains. A series of major mergers and acquisitions since the 1980s has restricted current acquisition availability.
Â Â Â In addition, while the retail real estate market continues to feature a certain amount of acquisition, the required financial capabilities for making a substantial portfolio purchase in this sector may be out of reach for many potential market participants. "To buy a portfolio of existing shopping centers can be very expensive – billions of dollars," Kavanagh remarks.
Â Â Â Under any market conditions, both development and acquisition must occur "only at a pace you can absorb financially," he warns.
Cushman & Wakefield,
PPR Form Alliance
Boston-based Property & Portfolio Research Inc. (PPR), an independent provider of commercial real estate research, portfolio strategy and risk management services, and Cushman & Wakefield, a privately held commercial real estate services firm, have formed a research alliance to enhance their respective services.
Â Â Â Through the partnership, the firms will share market information, jointly publish white papers on topics of interest to the global real estate community, and pursue opportunities to develop new research products and analytical tools.
Â Â Â "Integrating Cushman & Wakefield's comprehensive market knowledge with PPR's real estate analytics will significantly improve our ability to help our clients with decisions at the asset level," says Bret Wilkerson, PPR's CEO.
ARA Enters Merger
Apartment Realty Advisors (ARA), a multi-housing brokerage and investment advisory firm, has merged with Salt Lake City-based EquiMark Properties Inc.
Â Â Â According to ARA, the merger allows the company to expand into the Utah market. During the past 20 years, EquiMark has enjoyed an average market share of 70% in the Salt Lake City metropolitan statistical area, ARA adds.
Â Â Â "Mark Millburn has built EquiMark into the dominant multifamily brokerage in Salt Lake City," comments Jeff Hawks, ARA's principal. "This is a win-win-win business decision – ARA steps into a market-leading position in Utah, EquiMark taps into the strength of ARA's national platform and, most importantly, ARA's and EquiMark's clients benefit because we're bringing more resources to bear on their behalf."
ME: WOODLAND SOUTH, CAPE ELIZABETH
WHAT: Woodland South Apartments is a 54-unit, garden-style complex housed in six three-story buildings. The property, which was built in 1970, offers one- and two-bedroom modernized units.
Â Â Â Â WHO: Rockville, Md.-based Suburban Capital Markets Inc. provided the refinance loan to Cape Venture LLC, a wholly owned entity of Portland, Maine-based Commercial Properties Inc.
Â Â Â Â $$$: $3.3 million.
Â Â Â Â TERMS: The loan is a fixed-rate nonrecourse mortgage with a 10-year maturity and a 30-year amortization schedule.
Â Â Â Â Suburban Capital Markets: (301) 340-2266.
TX: VILLAGE CENTER PLAZA, WEST HOUSTON
WHAT: Completed in 2006, Village Center Plaza is a 34,324 square-foot retail center. It is 100% occupied by such tenants as Star Tex Title Co. and Tahiti Tan.
Â Â Â Â WHO: The Houston office of Holliday Fenoglio Fowler LP (HFF) secured the loan on behalf of Boone Properties LLC, a real estate private equity firm specializing in retail and office properties.
Â Â Â Â $$$: $8.25 million.
Â Â Â Â TERMS: The 10-year loan carries a fixed rate of 5.48%.
Â Â Â Â HFF: (713) 852-3500.