Former location of Herald-Tribune to become Publix
GROCERY: Lakeland-based supermarket chain plans to open new site in 2010
Staff Report
Published: Tuesday, September 1, 2009 at 1:00 a.m.
Publix Super Markets has closed a $6.3 million deal for the Herald-Tribune's former offices on South Tamiami Trail.
The Lakeland-based supermarket chain plans to open a new 52,000-square-foot store at the site toward the end of 2010.
Publix will tear down the existing building and build a store with parking underneath. Customers and their shopping carts will ride on escalators up into the store.
Once the new store is complete, Publix will close its older site at the Ringling Shopping Center, transfer employees to the new larger store and hire additional employees.
Publix closed the deal with the New York Times Co., the Herald-Tribune's parent, on Monday, according to George H. Mazzarantani, the Sarasota lawyer representing Publix. The special warranty deed that Mazzarantani supplied showed $44,100 in document stamps, which equates to the $6.3 million sales price.
The building had been for sale since 2003, when the Herald-Tribune announced plans to build its downtown Sarasota office to house its multimedia operations. The media company moved to its new headquarters in February 2006.
The city had considered buying the property for a new police station, but went with another site.
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Benderson Development Co. is buying back eight local shopping plazas, plus three more in other parts of New York, from Developers Diversified Realty Corp.
Charles Lewis/Buffalo News
Updated: 06/07/09 07:31 AM
Benderson buys back local plazas at a discount
Firm pays 30% lessfor properties it soldfive years ago
By Jonathan D. Epstein NEWS BUSINESS REPORTER
Benderson Development Co., Buffalo’s biggest homegrown retail landlord, is pulling off a major financial coup, buying back 11 shopping mall properties in upstate New York for significantly less than it sold them for just five years ago.
The commercial developer has signed contracts to buy eight malls or shopping plazas in Western New York, and three in other parts of the state, from Developers Diversified Realty Corp., a publicly traded real estate investment trust based outside Cleveland, according to sources familiar with the deal.
That will return more than 3 million square feet to Benderson’s local portfolio. Sources said the purchase price was between $160 and $175 million.
The plazas are among the same properties that Benderson had first sold to DDR in March 2004. That deal, worth $2.3 billion, involved a total of 110 properties, 52 of which were in the Buffalo Niagara region.
Since then, however, the real estate market has turned soft, slumping retail sales have driven up vacancy levels at shopping plazas as stores have closed, and the credit crunch that hit last fall has further squeezed property owners.
“It’s good that the ownership is going in the direction that it is,” said Michael C. Clark, director of retail tenant services at CB Richard Ellis in Buffalo. “There’s going to be a lot of markets in other parts of the country where they have portfolios for sale by different REITs and they don’t have someone like Benderson to step up.
“We’re pretty fortunate in terms of the market, in regard to that. How much better can you get than the folks that developed them and are intimately familiar with them and live and breathe here? They certainly know what they’re doing,” Clark said.
The average price five years ago was $21 million, versus an average of about $15 million for the current deal — a discount of almost 30 percent.
“They’re buying them back for something like 70 cents on the dollar from what they sold it,” said Greg Klauk, president of Buffalo appraisal firm KLW Group.
“Nobody ever expects the prices to drop that quickly,” said William J. Kimball, managing director and principal in the Syracuse office of Integra Realty Resources, the nation’s No. 1 commercial real estate property valuation and consulting firm.
Benderson must still complete its “due diligence” on the properties, but that’s likely to be pretty short, since Benderson is familiar with the properties.
“It’s a very positive thing that they want to continue with these assets,” Kimball said. “They’re going to be the ones to make them work.”
Benderson and DDR officials declined to comment, citing confidentiality. However, DDR spokeswoman Betsy Keck noted that the company has already announced that “we are in active negotiations to sell shopping centers.” DDR has already sold more than $67 million in assets through the first quarter, she added, and has $175 million in assets under contract.
“It is our policy not to comment on potential asset sales before they close,” Keck said in an emailed statement.
The eight Western New York properties being acquired are:
• Boulevard Consumer Square in Amherst, with 700,810 square feet.
• Eastgate Plaza in Clarence, with 520,876 square feet.
• Marshall’s Plaza in Buffalo, with 82,196 square feet.
• Sheridan/Delaware Plaza in Tonawanda, with 188,200 square feet.
• Sheridan-Harlem Plaza in Amherst, with 58,413 square feet.
• Tops Market in Hamburg, with 84,000 square feet.
• Transit Commons in Amherst, with 114,177 square feet.
• Transit Wehrle Retail Center in Lancaster, with 112,949 square feet.
“Benderson is very savvy,” Kimball said. “They’ve done similar type deals where they’ve purchased properties that have been underperforming and done wonderful things for them.”
The sale of the shopping plazas has been the subject of speculation during the past two weeks, including at an International Council of Shopping Centers conference in Las Vegas last month. Local brokers reported hearing discounts of as much as 40 percent or more on the price Benderson was paying, versus what DDR paid in 2004.
That reflects the significantly changed circumstances confronting real estate developers and owners, especially those with shopping centers, like both DDR and Benderson.
Retailers have been struggling to maintain sales and post profits, as consumers pulled back sharply on spending in the last year. Many stores have filed for bankruptcy protection, and big names like Circuit City have even gone out of business.
As a result, landlords like DDR have struggled to maintain their rental income and the values of their own properties have fallen along with the broader commercial real estate market. “There’s a lot of REITs that aren’t in the position they were 12 or even 24 months ago,” Clark said.
DDR owns and manages 720 properties with 153 million square feet of space in 45 states, Puerto Rico, Brazil, Russia and Canada, including what it got from Benderson.
The company has already been whittling down the original Benderson portfolio, selling an 85 percent interest in 14 properties in April 2004 to a joint-venture trust with Australia’s Macquarie Bank, a major real estate investor worldwide.
It also sold a 90 percent interest in 13 shopping centers — including four Tops Market plazas in Western New York — in October 2004 to Prudential Real Estate Investors. And it sold another four Western New York shopping centers anchored by Tops to New York investors in January 2007.
Finally, as the market started to turn down last year, it sought to sell two bundles of properties with 1.5 million square feet of space, including Office Depot Plaza in Tonawanda, Sheridan- Harlem Plaza in Amherst and Regal Cinemas in Niagara Falls.
But the company was hampered last fall and early this year by the freezing of the capital markets, which constrained its cash flow and ability to make payments on its debt. It lost $179.6 million in the fourth quarter before rebounding for an $87.4 million profit in the first quarter of 2009. And its cash fell by $20 million last year, raising questions about its ability to pay its debts.
In February, it agreed to sell 30 million common shares and issue warrants to buy another 10 million shares to Germany’s Otto family, which owns or controls major European and North American shopping center firms, plus the Crate & Barrel chain. That makes the family DDR’s largest shareholder.
The company also got a commitment from the family for a $60 million, five-year fixed-rate secured mortgage, and got $125 million in new debt financing.
“All of these transactions are important steps in lowering our leverage and improving our liquidity, and we continue to work diligently on additional initiatives,” DDR CEO Scott Wolstein said.
Still, its stock has been hammered in the past two years, falling 98 percent from a height of $67.07 in February 2007 to a low of $1.34 on March 3, 2009. The shares closed at $5.60 on Friday.
Hence the need for property sales, even at big discounts. “They need some liquidity and in order to sell something in today’s market, this is the price,” Kimball said. “There really is a dearth of activity. This isn’t a time when you’d want to sell.”
For its part, Benderson, founded in 1950 by Nathan Benderson, is one of the nation’s top retail developers with more than 250 properties and 25 million square feet of commercial space in 35 states, and another 4.5 million square feet under development. It also owns and develops office buildings, industrial parks, residential communities, and self-storage facilities, and owns the Delta Sonic car wash company and its Buffalo Lodging Associates hotel division.
Originally based in Buffalo, the privately owned company moved its headquarters to University Park, Fla., in early 2004, but is still a major player in Western New York, with a regional office and 52 properties.
But it also has properties throughout New England, New Jersey, Pennsylvania and Ohio, as well as one in St. Louis. And it has 21 properties in 13 cities in Florida, especially in Bradenton and University Park — areas that have seen significant drops in property values.
U.S. 41: DOWNTURN DRIVE
Tough times for Tamiami Trail businesses
By Lauren Mayk
Published: Sunday, March 29, 2009 at 1:00 a.m.
This is the first of four stories about how the recession is changing the way local businesses buy, sell and survive.
The economy has changed the Trail.
There are fewer dinners out, smaller staffs and weakened sales. At one beauty salon in North Port, there is even a post office.
When customers started stretching out the time between haircuts and color appointments, Stella Derby went after a contract with the U.S. Postal Service. She now takes mail and sells stamps in the front of her Modern Beauty salon on Tamiami Trail. Signs point patrons to separate entrances for the salon and post office. The idea was to increase exposure for the 30-year-old salon, and nine months later, it seems to be working.
"Every week I get a couple, two, three new clients," Derby said.
Her strategy is one among many that business owners along Tamiami Trail are cobbling together in the midst of a painful downturn that has given some of them the choice between creativity or closure. Traffic along the Trail drives the pulse of commerce and consumerism in Southwest Florida, and it has slowed to a crawl.
There are the obvious indicators: shuttered restaurants, liquidating big boxes and "out of business" signs, but there is also pain inside the businesses still open -- even some that have cars in the parking lot and sales on their books.
Owners are discounting heavily, taking double-digit sales hits and worrying about what comes after the tourist season.
"The whole idea of season is to build up a little bit of cash, and that's not going to happen," said Simon Mendez of Simon's Quality Used Furniture. "You think it's bad right now with people closing down? Wait for summer."
Last year, consumers spent $2 billion less in Southwest Florida than they did in 2007, data from the Florida Department of Revenue shows, with gross sales down 10 percent in Sarasota County, 10.2 percent in Charlotte County and 4.1 percent in Manatee.
For December, the most recent month available in detail, regional sales were down 9.9 percent. The drop-off was about 10.2 percent in Sarasota and Manatee and 7.7 percent in Charlotte County.
Figures for more recent months are not out, but Trail business owners will tell you that despite the tourist season, the (non)spending trend has continued. "This was the worst January I ever had," said Craig Cook, who has owned Amber's Jewel Box in North Port for 11 years. His January sales were off 60 percent.
The Herald-Tribune interviewed more than 50 business owners, employees, real estate professionals and business experts about life along the Trail these days.
There are bright spots and there is determination to evolve with the economy, but there is also an overwhelming feeling of tough times along Southwest Florida's commercial heart.
Vanishing customers
Kamlesh Kadiwar saw sales at his combination gas station, convenience store and deli at Tamiami Trail and River Road in south Venice start to nosedive in April 2007.
Countywide, the decline took a few more months to show up at gas stations, state data show, happening about the time gas was topping $3 in spring and summer 2007.
Sales at Myakka River Trading Co. dropped 25 percent from 2006 to 2007, then sank another 50 percent from 2007 to now.
Kadiwar's business also lost another bigger transaction. "We were under contract for sale for a while and when the recession hit, they backed out," he said.
The station and store, advertising a "1/2 lb. of our famous chicken wings" for $3.79, used to see a steady stream of construction workers, but Kadiwar figures traffic is down from 700 people a day to 300.
The staff has been halved. Kadiwar employs just three others, taking evening shifts himself.
Another challenge is looming, a requirement that stations change their tanks from stainless steel to double-walled fiberglass this year. Kadiwar says the switch would cost $275,000. "We're not going to be doing it. We're going to stop selling gas unless the situation changes," he said.
Stations like Kadiwar's in Sarasota County saw a 41.5 percent drop in sales in November compared with a year ago.
More broadly, the trend was negative that month in about 70 percent of the roughly 80 categories used by the state to break out sales for the county. Many dropped more than 20 percent, including automotive dealers at 32 percent and boat dealers at 52.8 percent.
Sales of household appliances took a 51.7 percent dive, while home furniture, furnishings and equipment -- tied closely to movement in real estate -- were down 20.15 percent. The bright spot was that some furniture retailers report a boost from customers who have just bought homes in the area. With home prices down, buyers have extra money to decorate.
On the other hand, some custom furnishings are ending up back on the sales floor after customers (who only paid for part of the total cost as a downpayment) fail to pick them up.
Traditional retail categories that depend on discretionary income continued to fall, with restaurants and bars showing pullbacks of 3.8 percent and 15.6 percent, respectively, and apparel and accessory stores down by 12.5 percent.
The numbers did spike for some areas in December, including spending on used merchandise (up 3 percent), transportation (up 42.1 percent) and utilities (up 14.8 percent).
While the state can paint a pretty vivid picture of how different industries and retail segments are faring, there are some surprises and some unknowns about what is behind the numbers.
They do not, for example, take into consideration what sales are doing to profit margins, nor do they reflect the evolution of businesses that have downsized by cutting jobs and expenses to stay healthy even while taking in less revenue.
Beauty salons, barber shops and personal appearance services come off looking quite popular in December, with a 31.7 percent year-over-year leap.
But anecdotal evidence suggests consumers are letting their hair grow a little longer, trying home perms and limiting their beauty budgets.
For Audrey's Towne Stylists salon in North Port, some customers just did not make it at all this year. "A lot of people haven't come down from the North," owner Audrey Fred said. "I've gotten a lot of calls and letters saying they can't afford it."
On a February day, Fred and an employee sat in the shop alone, no customers in the rose-colored salon chairs along the wall. Fred, who had run the operation since 1983, said that day that she would like to find a buyer who would let her stay on part-time.
Soon after, the shop closed and a "For Rent" sign showed up on the window.
Empty spaces
At Rico's, a pizza place on the North Trail near the Ringling Museum, business is down at least 20 percent and the staff has shrunk by more than half -- but those are not the only business hits Salvatore Dentici is taking these days.
In addition to a small string of Rico's restaurants, Dentici and his brothers own commercial space, with 11 units around the Rico's spot on North Trail.
"We were fully rented two years ago," Dentici said, peering out. "Now we have ... five."
That real estate once housed a mortgage company, a real estate agency and a Mexican store. "A lot of people just walked," Dentici said.
Vacancies along the Trail are striking, with clusters of leasing signs and closed-up shops punctuating large stretches of commercial space.
The Glengarry Shoppes, home to Barnes & Noble and a Best Buy, used to be flanked by two restaurants: Village Inn and Steak & Ale. Both have closed; one has been knocked down.
On a stretch of the Trail just north of Clark Road, an empty restaurant building is sandwiched between two vacant structures. Others only recently emptied, including a doomed Circuit City.
"There's probably more vacancies than I've ever seen, and it's going to take a long time to fill them," said Barry Seidel, whose name is a common sight on real estate signs along the road.
But Seidel is seeing some hope for the simple reason that his phone is ringing. It started with calls from outside the 941 area code, then from locals.
The glut of office and warehouse space tends to be the most difficult to move.
Tough as it is to lease, Seidel says sales are a bigger challenge.
Bill Clampitt has gotten a lot of interest in buying a property originally built as a Wendy's on the Trail, though a deal recently fell through. He is offering "owner financing" as an appeal to potential buyers concerned about the credit market.
Knights Inn owner Arvind Patel hoped to sell his hotel on the North Trail, but let a listing expire, figuring the market is too soft. Though he is no longer actively seeking a buyer, the listing can still be found online.
"If somebody brings in $4.4 million, they can have it," he said.
Holiday Sales Drop to Force Bankruptcies, Closings
By Heather Burke
Dec. 29 (Bloomberg) -- U.S. retailers face a wave of store closings, bankruptcies and takeovers starting next month as holiday sales are shaping up to be the worst in 40 years.
Retailers may close 73,000 stores in the first half of 2009, according to the International Council of Shopping Centers. Talbots Inc. and Sears Holdings Corp. are among chains shuttering underperforming locations.
More than a dozen retailers, including Circuit City Stores Inc., Linens ‘n Things Inc., Sharper Image Corp. and Steve & Barry’s LLC, have sought bankruptcy protection this year as the credit squeeze and recession drained sales. Investors will start seeing a wide variety of chains seeking bankruptcy protection in February when they file financial reports, said Burt Flickinger.
“You’ll see department stores, specialty stores, discount stores, grocery stores, drugstores, major chains either multi- regionally or nationally go out,” Flickinger, managing director of Strategic Resource Group, a retail-industry consulting firm in New York, said today in a Bloomberg Radio interview. “There are a number that are real causes for concern.”
Sales at stores open at least a year probably dropped as much as 2 percent in November and December, the ICSC said last week, more than the previously projected 1 percent decline. That would be the largest drop since at least 1969, when the New York-based trade group started tracking data. Gap Inc. and Macy’s Inc. are among retailers that will report December results on Jan. 8.
Women’s Clothing, Electronics
Consumers spent at least 20 percent less on women’s clothing, electronics and jewelry during November and December, according to data from SpendingPulse.
Retail Metrics Inc.’s December comparable-store sales index will drop an estimated 1.2 percent, or 5 percent excluding Wal- Mart Stores Inc. Retailers’ fourth-quarter earnings may fall 19 percent on average, the seventh consecutive quarterly decline, according to Ken Perkins, president of Retail Metrics, a Swampscott, Massachusetts-based consulting firm.
Probably 50,000 stores could close without any effect on consumer choice, Gregory Segall, a managing partner at buyout firm Versa Capital Management Inc., said this month during a panel discussion held at Bloomberg LP’s New York offices. Only retailers with healthy balance sheets will survive the recession, according to Matthew Katz, a managing director at consulting firm AlixPartners LLP.
Store Closings
The ICSC predicts, using U.S. Bureau of Labor Statistics data, that 148,000 stores will shut down in 2008. That would be the largest number since 151,000 closings in 2001, during the last recession, according to ICSC Chief Economist Michael Niemira. The total number of retail establishments will decline by about 3 percent this year, also taking into account locations that were opened, he said. The U.S. had 1.11 million retail locations in 2002.
Another 73,000 locations may shut their doors in the first part of 2009, Niemira said.
The U.S. economy shrank in the third quarter at a 0.5 percent annual pace, the worst since 2001, according to the Commerce Department. Economists surveyed by Bloomberg in the first week of December forecast the world’s largest economy will contract through the first half of 2009.
The Standard & Poor’s 500 Retailing Index has shed 34 percent this year, with only two of its 27 companies rising.
The index doesn’t include Wal-Mart, the world’s largest retailer, which fell 24 cents to $55.11 at 4:02 p.m. in New York Stock Exchange composite trading. Wal-Mart shares have gained 18 percent this year.
Discount Advantage
“If you’re going to be in retail right now, the discount space is where you want to be,” Patrick McKeever, a senior equity analyst at MKM Partners LLC, said today in a Bloomberg Television interview.
Discounts of 70 percent or more by Macy’s, AnnTaylor Stores Inc. and other retailers failed to prevent a spending drop of as much as 4 percent during the final two months of the year, according to data from SpendingPulse. Retailers’ pricing models are being challenged by consumers, according to Richard Hastings, consumer strategist at Global Hunter Securities LLC of Newport Beach, California.
“The whole pricing system is becoming an old-fashioned bazaar,” Hastings said today in a telephone interview. “They’re going into the stores and they’re looking at the stuff and they’re saying ‘You know what? I know that that price is way too high,’ and they have figured out that the signage doesn’t mean that much.”
Retail bankruptcies may help the industry in the long run, according to Flickinger.
“We’ll be going from a Dickens-esque worst of times this December to the best of times in future Decembers because we’ll rationalize out all the redundant retailers and retail space in shopping centers,” Flickinger said.
To contact the reporter on this story: Heather Burke in New York at hburke2@bloomberg.net.
Last Updated: December 29, 2008 16:17 EST
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Upscale mall will be late
Published: Sunday, December 7, 2008 at 1:00 a.m.
Last Modified: Sunday, December 7, 2008 at 12:11 a.m.SARASOTA - Construction of the new University Town Center Mall featuring Neiman Marcus, Nordstrom and Macy's has been put on hold until the economy turns around.
The move is not surprising given that all of the anchor retailers are suffering from the downturn. Neiman Marcus saw same-store sales drop 14.5 percent in the last quarter. The retailer saw another 11.9 percent decline for the month of November.
Neiman Marcus, which is set to webcast its quarterly report on Wednesday, may have urged the developers to stall the mall project until the economy gets better.
"We're hoping it's a short delay," said Mark Chait, director of Florida leasing for Benderson Development Co., LLC, one of the three partners in the project. He said construction will begin as soon as "economic and retail conditions improve."
It will take two years to build the mall once construction begins, he said.
That means the mall probably will not open before 2012, because most analysts do not believe the economy will turn around before the end of next year.
Nathan Forbes, managing partner of The Forbes Co., would not comment on the retailers on Saturday, but said he plans to issue a formal statement on the construction delay and mall leases later this week.
The other two announced anchors for the mall have also been suffering under the country's economic crisis, with housing prices down, the jobless rate soaring and the credit market contracting. Nordstrom, Inc. saw a 12.1 percent decrease in same store sales in November. Year-to-date same-store sales have decreased 8.6 percent compared with the same period last year.
Macy's, Inc., the third anchor, saw a 13.3 percent decrease in November same-store sales and year-to-date same-store sales were down 4.8 percent. It has also experienced a precipitous drop in its stock price in the past year. It had been selling at around $30 a share a year ago and has since dropped to $8.61 as of last week.
The climate for malls is not good as retailers close stores, face bankruptcy and even shut down.
In a July report, the International Council of Shopping Centers predicted nearly 144,000 stores would close this year.
Mall developments are now facing foreclosure as occupancy rates decline and the delinquency rate on commercial-backed mortgage securities markets rise.
General Growth Properties, Inc., the country's second largest regional mall real estate investment trust, may have to sell the company under the weight of its debt.
"We're probably in the first inning of the commercial mortgage problem," said Scott Tross, a real estate lawyer with Herrick Feinstein in New Jersey.
The timing is terrible for the University Town Center project, which had finally cleared the last of several hurdles last month, when the state gave the developers permission to pull permits and begin building.
In an October conference call with investors, the chief executive of Taubman Centers Inc., whose company holds a 25 percent interest in the project, said that if the partners did not find favorable financing for the project, the development group planned to "self-fund" construction of the 900,000-square-foot luxury mall, which he promised would be complete by November 2010.
But in the ensuing weeks, the economy has declined even further and sales the day after Thanksgiving -- known as Black Friday -- did not bring in the sales retailers had been hoping for.
The Associated Press contributed to this report.
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Facing Slower Lease-ups, Commercial Real Estate Brokers Envision Free Rent and Other Perks From Builders to Lure Office and Industrial Tenants
Call it the "deer in the headlights" effect. Caught in the glare of bad economic news, mixed-signals about the direction of the economy and an imminent change in administrations, many business tenants are opting to stay in a holding pattern and renew leases in their current locations rather than incur the expense and risk of moving. While that’s helping keep rents and occupancies fairly stable in most markets, brokers and analysts warn that developers may take a hit to their bottom lines in the next two years as absorption continues to flatten or decline in many U.S. markets.
At most risk are developers delivering new projects. With tenants now opting to renew their leases rather than expand or move, developers may need to cut rents, beef up concession packages and generally accept lower yields to fill buildings that started construction a year or two ago during better times, several commercial brokers told CoStar Advisor.
"Tenants don’t know what’s going on [in the economy]; they’re saying, ‘we don’t want to bite off a 10-year lease deal, let’s wait until things turn around,'" said John Dettleff, senior vice president with Grubb & Ellis in Vienna, VA. "They’re signing short-term leases because they don’t know if it’s the bottom of the cycle or still going down. And that’s too bad for developers, because [their pro formas] only make sense if they’re doing 7- to 10-year deals."
Developers with new buildings in many markets have already repriced rental rates and offered healthy tenant improvement allowances, free rent, construction management and other inducements to compel reluctant tenants to move, Dettleff said. But many are finding it difficult to overcome the inertia induced by the uncertain business climate.
"It’s very costly for industrial tenants to move equipment. And for a technology company or a mid-size government contractor, a 10-year lease may cramp their ability to sell the company, which eliminates a big exit strategy."
Developers are experiencing longer lease-up times than they expected when they launched projects two years ago, agreed Tom Capocefalo, managing director for tenant representation firm Studley’s South Florida office market. With three buildings totaling about 1.8 million square feet slated for delivery in Miami's CBD in mid-2010, owners and landlords are trying to generate some leasing momentum by providing very attractive leasing terms to initial tenants.
"I would suspect that the overall concessions they’re offering to induce tenants are probably greater than they envisioned in their pro formas," Capocefalo said. "As their leases expire, tenants will at least entertain the idea of a move. But at the end of the day over the next 18 to 24 months, they’ll remain a bit more conservative in their growth expectations; they'll stay put and attempt to secure more favorable renewals by measuring and leveraging against other office developments."
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Mall Glut to Clog Market for Years
Scarce Shoppers,
Lack of Tenants
Ding Developers
By KRIS HUDSON and ANN ZIMMERMAN
Shopping-mall owners have struggled this year with a darkening economy, slowing consumer spending and store closings by retailers. But they face another problem that may persist long after the economy bounces back: a decade of overbuilding.
Developers have built one billion square feet of retail space in the 54 largest U.S. markets since the start of 2000, 25% more than what they built during the same period of the 1990s, according to Property & Portfolio Research Inc. of Boston. U.S. retail space now amounts to 38 square feet for every person in those 54 markets, up from 29 square feet in 1983, the firm says.
Consider a six-mile stretch of highway north of Dallas, where three developers are racing to finish four huge shopping centers with a combined three million square feet of space. Not only will they compete with each other, but there are three existing malls within a 10-mile radius.
"There just aren't enough tenants to go around for three projects," concedes Gar Herring, president of shopping center developer MGHerring Group of Dallas, which is building the largest of the centers.
Similar scenes are playing out across the country. DeBartolo Development indefinitely postponed construction of 700,000 square feet of retail space in Mesa, Ariz., due to weak demand. Green Street Advisors, a real-estate research firm, says 13 strip shopping centers under development have been canceled this year and 90 others have been delayed by the seven shopping-center developers it monitors.
[Mall Glut]
Of course, retail landlords struggle and store vacancies rise in every economic downturn. But this time, experts say, the overbuilding means that high occupancy rates at malls and strip centers may not return for years.
For retailers, the glut can have an upside: cheaper rents, shorter lease terms and fatter allowances from landlords for outfitting stores. This year, the rents in new lease signings are 10.4% lower on average than the asking price, down from the 9.3% discount of two years ago, says market researcher Reis Inc. of New York.
Shopping-center owners with a hefty focus on development, including Regency Centers Corp. of Jacksonville, Fla., and Weingarten Realty Investors of Houston, are compensating for the construction slowdown by trying to raise rents and sell older centers. Others, such as Kimco Realty Corp. of New Hyde Park, N.Y., have shifted much of their development abroad. Brian Smith, Regency's chief investment officer, said the real-estate investment trust has canceled some development projects, continued more cautiously with others and turned partly to upgrading existing centers. Regency's second-quarter profit was off 25%.
David Simon, chairman and chief executive of Simon Property Group Inc., the largest U.S. mall owner with 323 malls, sees "a decade of little new development" and a shakeout. "There were a lot of projects that shouldn't have been built" in recent years, he said.
Some big retailers are curtailing expansion and closing stores. For the first time since the 1990-91 recession, occupied retail space in major U.S. markets is expected to decline this year, falling by 1.2 million square feet, projects Property & Portfolio Research. Last year, occupied space grew nearly 61 million square feet, the firm says. Retailers that helped drive the building boom -- Wal-Mart Stores Inc., Home Depot Inc. and Starbucks Corp. among them -- have nearly saturated the U.S. Earlier this year, Home Depot said it would close 15 unprofitable stores and cancel 50 proposed ones, throttling back its store-growth ambitions to a meager 1.5% a year.
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The index fell 3.3 percent from May, and was down 9.6 percent from the year-ago level.
June was the fourth consecutive month that the index declined, Moody's (nyse: MCO - news - people ) said. The CPPI now stands 11.8 percent below its peak in October 2007.
The index is based on repeat sales of the same properties across the U.S
All four property types measured by the index went negative during the second quarter, Moody's said. The national industrial market saw the largest price drop, down 9.3 percent during the quarter. National apartment market prices fell 7.1 percent, while office prices slipped 5.9 percent and retail declined 4.6 percent.
Through the first half of the year, transaction volume dropped more than 25 percent compared to the first half of 2007, Moody's said. There was a slight increase in both number and dollar value in June from the previous month, the company said.
The June uptick may be the first sign of stabilizing transaction volumes, which could point to future price stabilization, said Moody's Managing Director Nick Levidy. However, "it may also be a transient or seasonal effect, and future data will need to be examined in order to identify any trends." From Forbes.com
Copyright 2008 Associated Press. All rights reserved.
much healthier than much of the nation and that the state is poised for very aggressive, positive growth once the broader economy gets healthier. Good to know, but the ICSC panel noted foreclosures will be spiking as loans reset.Owners of distressed retail properties will need to do some fancy footwork to stay afloat in the coming year as many of their loans come due, speakers said at ICSC's Florida Conference in Orlando, Fla., today. Without enough cash flow to maintain mortgage payments, these owners will need to try and re-negotiate loan terms with lenders and rethink CAM and other operating costs to help troubled tenants keep up with their rent payments.
More than $1 trillion worth of U.S. commercial properties will undergo foreclosure in the coming year as owners default on their loans, predicted Stanley Tate, president of North Miami, Fla.–based Tate Enterprises and an advisor to the Federal Reserve. "It's just beginning to start. Those who are heavily leveraged are going to have a very difficult time," Tate said. He pointed out that the FDIC has hired 500 new regulators to help shut down 85 banks within the next 30 days. As more and more subprime borrowers default on loans, "there are very serious problems in the banking industry," he said.
Not all of that foreclosed commercial property will be retail, but Tate expects a significant portion to be small open-air centers tenanted by mom-and-pop shops. Such tenants have been hit hard by inflation and are having trouble keeping up with rent payments, he said. And landlords can no longer count on securing new debt to stay afloat. "In the past few years, every deal was bailed out by more easy money," said John Kozyak, a commercial bankruptcy lawyer with the Coral Gables, Fla.–based firm of Kozyak, Tropin, Throckmorton. "Now, with a lot of loans coming due next year, the easy money has run out."
Troubled owners should not put off trying to renegotiate loans until the last minute, Kozyak said. "The main thing is to get to your lender early and with accurate information," he said. "Lenders are demanding more information in the current economy and they're not tolerating the sneaking around that's been going on in the past 18 months."
To avoid write-offs, lenders are willing to be flexible and work with distressed borrowers, particularly insurance companies and publicly traded lenders who might be more willing to play ball as their quarter is drawing to its close, said Raul Valdez-Fauli, president and CEO of Coral Gables, Fla.–based CNL Bank. "Banks are dusting off forebearance agreements, which include the extension of amortization periods and even reduction of mortgage payments for several months if a borrower can prove that an impending increase in cash flow is on the horizon,"
Valdez-Fauli said.
Landlords should do their part to help troubled tenants make rent and keep cash flow up, said Craig Sher, executive chairman of St. Petersburg, Fla.–based The Sembler Co. "Developers will have to reduce CAM expenses penny by penny, and try to save money on insurance. We've attacked every appraiser," he said. "Save tenants money on the expense side so they can afford to pay rent."
Tate recommended that landlords approach troubled mom-and-pop tenants now to renegotiate rents and lease terms. "An occupied store is better than an unoccupied one," he said. "Even if it is at half the rent."
Copyright 2008, International Council of Shopping Centers
ousy news today as the Labor Department released figures stating the CPI grew 0.8% in July alone. Tenants with CPI escalations are definitely going to feel this at renewal time, possibly driving more to default or raise prices to their customers.WASHINGTON (MarketWatch) -- U.S. consumer prices jumped a greater-than-expected 0.8% in July, marked by big increases in energy, food, clothing and cigarettes, the Labor Department reported Thursday.The core consumer price index, which measures retail-level inflation after excluding volatile food and energy inputs, rose 0.3% for the second straight month. Read the full report.Coming in much worse than anticipated, the pair of red-hot inflation readings seem certain to swell the chorus of critics urging the Federal Reserve to raise interest rates to quell inflation.Economists had predicted that the seasonally adjusted CPI would rise 0.5% and that the core CPI would increase 0.2%, according to a survey by MarketWatch. See Economic Calendar.Consumer prices are up 5.6% in the past year, the biggest year-over-year increase since January 1991. The CPI has surged at a 10.6% annualized rate in the past three months.The core CPI has risen 2.5% in the past year, the biggest gain since January. The core rate's rising at a 3.5% annual rate in the past three months.The CPI rose 1.1% in June, with the core rate up 0.3%.So far, Fed officials, with a few vocal exceptions, have stuck to their forecast calling for inflationary pressures to moderate as the economy stagnates. Wages, a key linkage in any inflation spiral, have stagnant.CPI for August should be much cooler, as petroleum and gasoline prices have fallen significantly since mid-July.As far as July overall goes, the picture was undoubtedly ugly, with just a few bright spots on the inflation front.Owners' equivalent rent, which accounts for nearly a quarter of the CPI, rose just 0.1%.Medical-care prices nosed up 0.1%, including a 0.2% drop in medical commodities.New car prices increased 0.2%.But elsewhere, inflation raged.Energy prices rose 4% in July, led by increases of 4.1% for gasoline and 7.4% for natural gas.Food prices increased 0.9%, with the price of food at home jumping 1.2%. Prices rose by 1.8% for cereals and bakery goods, by 1.6% for dairy products, and by 1% for meat, poultry and eggs.Apparel prices rose 1.2%, the most in 10 years.Tobacco prices also increased at a 1.2% clip.Housing costs increased 0.6%, boosted by a 3.8% increase in energy costs. Rents rose 0.3%, while the price of lodging away from home was up 0.7%.With prices for urban wage earners up 0.9%, wages flat and hours worked falling, real weekly wages (adjusted for inflation) fell 0.8% in July. In the past year, real weekly earnings have fallen 3.1%.In a separate report, the Labor Department said the trend of new applications for unemployment benefits rose to a six-year high, while the number of continuing claims hit the highest mark since late 2003.
Click the photo for a full list (courtesy of CEO Economic Update). Here's the short roster:
Lane Bryant, Fashion Bug, Catherines closing 150 stores nationwide
Talbots will close all 78 of its kids and men’s stores plus another 22 underperforming stores.
Gap Inc. closing 85 stores
Foot Locker to close 140 stores
Wickes Furniture is going out of business and closing all of its stores. The 37-year-old retailer that targets middle-income customers, filed for bankruptcy protection last month.
Levitz - the furniture retailer, announced it was going out of business and closing all 76 of its stores in December. The retailer dates back to 1910.
Home Depot store closings 15 of them amid a slumping US economy and housing market. The move will affect 1,300 employees. It is the first time the world’s largest home improvement store chain has ever closed a flagship store.
Movie Gallery – video rental company plans to close 400 of 3,500 Movie Gallery and Hollywood Video stores in addition to the 520 locations the video rental chain closed last fall as part of bankruptcy.
Sprint Nextel - 125 retail locations to close with 4,000 employees following 5,000 layoffs last year.
Wilsons the Leather Experts – closing 158 stores
Bombay Company: to close all 384 U.S.-based Bombay Company stores.
KB Toys closing 356 stores around the United States as part of its bankruptcy reorganization.
CompUSA (CLOSED).
Info courtesy of CEO Economic Update.
Visit the CEO Economic Story Here.
Related Link, BUSINESSWEEK: Bankrupt Retailers: Pushed to the Brink. Changes in the law have sharply reduced retailers' ability to reorganize, driving many to liquidate quickly
e by Express Stores offering $30 off of any purchase of $75 or more. That's pretty significant and I was a bit skeptical, but lo and behold, I bought some slacks and a few other (heavily marked down) things from there for $76 and ended up with a $46 bill. On Monday I got yet another $30 off coupon mailed to me from Express. Although it got me in the store, I wonder how much this is all costing them. I wandered into my local Dillards last Friday and was amazed by the sheer number of markdowns everywhere. This is good if you're a bargain hunter, but not so good if you're a commercial real estate agent or landlord relying on retail leasing for your livelihood.Slowing Economy Nibbles Away at Retail Fundamentals
There are two economic storms brewing in the US now – one on Wall Street and one on Main Street. The retail real estate sector sits squarely in the middle of both -- a fact that was illustrated earlier this month when Starbucks announced it was closing 500 stores by mid-2009. But Starbucks is hardly the only retailer to confront slowing sales with a cutback in real estate. Build-A-Bear Workshop will dramatically cut back on store openings next year, it announced this month, it announced this month, as will Regis Corp., the parent of Supercuts and other salon chains, which plans to close about 160 stores, most of them in malls to name just a few examples.While all the commercial real estate sectors are suffering from the capital market freeze, retail developers must also contend with occupancy and rent projections that are looking more and more grim. “Right now retail is in the crosshairs of two trends: a slowdown in leasing due to slow retail sales, and a capital market that is reluctant to lend,” says Ray Cirz, CEO and managing director of Integra Realty Resources. He points to an iconic lifestyle center on the eastern seaboard that has been reluctant to issue a date for a grand opening. “Construction is complete and they have signed a number of major anchors but they are having trouble filling the inline space,” he tells GlobeSt.com. “Leasing has been that slow.”
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