Retail's Resurgence, Continued
Development is back and debt is plentiful as the retail market chases yield, Pine Tree Commercial Realty principal Peter Borzak (above) said during the investor/developer panel at Bisnow’s Retail Real Estate Summit earlier this week. (Pircher, Nichols & Meeks partner Dave Pezza moderated.) Pine Tree is paving the way with nine shopping centers under development nationwide. It would have been impossible a few years ago, but today the firm is able to find a value-add project, lock down retailers during due diligence, and have a solid plan before closing, Peter says. He’s seeing a sizable cap rate spread: way below 6% for grocery-anchored centers in core markets and mid-7% for decent power centers with some lease expirations or distress.
Kimco Realty central region president Rob Nadler (right) says same-store NOI has been growing for 15 straight quarters across the firm’s 125M SF portfolio. His region is 96% leased, with the highest demand in the 10k SF to 25k SF range, and mom and pops have returned. In a climate where no supply has been added, operating metrics are quite strong, Rob says. Kimco is looking to get back into smaller development projects (ex. a 100k SF center with an organic grocery store). The REIT can get 9% to 11% returns on redevelopments and 8.5% to 9% on ground-up, versus purchasing at sub-6% cap rates.
Cities like Dallas are seeing retail growth at a much higher velocity, and Chicago’s not generally on the first tier when retailers talk to JLL about gateway cities (except for high street retail), JLL Midwest retail market lead Larry Kilduff (right) says. He wonders if Internet retailers like Amazon are losing competitive advantage (besides the current sales tax environment) now that they’ve gotten so big. They’re spending more on distribution facilities (Amazon is building a big one right now in Kenosha) and technology (drones, anyone?) to reach consumers faster, he points out. While malls remain at JLL’s core, it's amping up retail tenant rep and agency leasing in “NFL cities” like Chicago, Larry says.
Walton Street Capital VP Josh Zemon (just back from an Argentina trip with his wife) oversees the firm’s mainly value-add retail acquisitions. In the past 12 to 18 months, they’ve shifted focus from regional malls and lifestyle centers to grocery-anchored community centers and power centers with "daily needs" tenants, he says. Cap rates and interest rates should stay low for the next few years for high-quality retail properties. The firm is focused on redevelopment and repositioning of its mall portfolio, and the addition of alternative uses like multifamily and medical offices can be a great traffic generator for large redevelopment projects, Josh tells us.
Over at the artist formerly known as RREEF (now Deutsche Asset & Wealth Management), managing director Mike Nigro heads up value-add and development activity nationally. He’s busy with a huge mixed-use project called Domain in Austin (a former IBM complex), which includes value-increasing retail, multifamily, and state-of-the-art office space. DAWM’s relationships with JV development partners are similar to a movie production, Mike says. They’re the producer, while the folks on the ground have the bullhorn and are handling the day-to-day (municipal approvals, shepherding design, etc.). Retail’s performed better than NCREIF holdings in office, multifamily, and industrial for four of the past six years. It's harder work managing retail income and operations, but the benefits are there, Mike tells us. More pics from the event here.