Are We Beyond Big Boxes?
|Is the big box boom over? Is there a downside to low interest rates? Is it true that Nordstrom is going to start carrying vintage Chanel? (Does anybody really know what time it is? Does anybody really care?) We gathered five Seattle retail real estate all stars at the Renaissance Seattle last week in search of the answers to those questions and more.|
|The panel let the 200 in attendance in on what they're experiencing in the marketplace. Interest rates may be sub-4% in some areas, says PMF Investments CEO Nat Franklin, but he doesn't expect them to stay that way. (George Harrison was singing about interest rates in "All Things Must Pass," and the original title of "My Sweet Lord" was "My Sweet Street-Level Retail.") It may not be a bad thing to see them rise, either: "If interest rates go up, it presents an opportunity. Because what's happening now is interest rates have dropped so much that it's lowering the cap rates and inflating the property's value... I don't know if these interest rates will last, but either way I'm going to get the return I'm looking for."|
|Turns out the minds behind retail real estate enjoy a good sale as much as the rest of us. Maggie Georgilas, VP of retail at Harsch Investment Properties, says that though some of the traditional big boxes like Office Depot have been downsizing, discounters like Target (which just opened a location on 2nd Avenue downtown),Nordstrom Rack (which is booming in Westlake and planning to expand to Northgate) and TJ Maxx, Marshalls, and Ross are stepping up. Harsch has completed 20 deals year to date. "Surprisingly, it's been a very good year for us," Maggie says.|
|Above, panelist Powell Development founder and CEO Peter Powell with First Western Properties' Justin Holmes and CBRE's Gary Weber. "The growth of discount retailers has taken a lot of spaces off the market," Justin tells us. The result: Rental rates have ticked up, and now there's pentup demand. Justin can remember a time not so long ago when there was a vacant Borders and Petco at one of Tacoma's prime intersections near his office. (Think of all the cats unable to get nip or books about nip.) Not anymore: "It just makes us feel optimistic about the market," he says.|
|Meanwhile, Peter says many of the larger grocers think the present is the ultimate time to relocate—before prices go up again. However, the moves are strategic, not exploratory: "The idea of you build it and they will come is not here," he says. Personalization isn't just for mochas anymore, either. "You can't just transport what you built here to the next market."|
|New and interesting in dealmaking? The get-up-and-go of retailers, who are bursting to get started, says Maggie, above with First Western Properties-Tacoma's Woody Harris and CSSI's Jonathan Frizzell. "In so many cases these retailers are saying, 'give me my store, let's me just go in and rack it, merchandise it,'" she says.|
|What has retail real estate learned from the recession? Co-tenancy can be dangerous, says Regency Centers SVP Craig Ramey, above with Nat. "You really have to look at the co-tenancy provisions. What you hate to see is a co-tenant pay reduced rates while their volumes are continuing to boom." Open tenancy is the new co-tenancy, he says: "We're going to build what we say we're going to build, but after that it's a head's up deal." Last things: Maggie notes that the recession has increased vigilance of a would-be tenant's finances. Don't be afraid to ask for at least two years of financials and tax returns up front, Nat adds. After all, as Craig notes, "We're only as successful as our tenants."|