estate should fare quite well. Those who have capital and are
selecting the right projects should enjoy good returns over a
three- to five-year horizon.
There is a lot of talk about green and sustainability
these days. Is this going to be the standard from here
on out for owners and retailers?
FIALA: I do think that this is something that is going to be long
lasting. How it began with us was we were attempting to develop
a project in Santa Barbara, CA, and in order to get it approved,
it had to be LEED Gold certified. Through that, we learned a
great deal about what it took to build green and now we have an
officer who heads that effort for us. Over the next three years,
60% of everything that we start will be LEED certified. We also
have a commitment on our operating portfolio that as we redevelop, it will be LEED certified.
What we have seen already, even though we are relatively
new at this, is that the cost to build a LEED-certified project is
anywhere from 1% to 3% greater, which is really modest in
terms of increases. If you go to city governments with LEED certification in your plans, they move much quicker in terms of entitlements. And we believe that over time, institutional investors
will pay a premium for a green-certified project, so we feel that
there are a number of benefits. But at the end of the day, this is
the right way to develop and we really feel good about it.
“Food and drug are really
very much coveted. You
bring a Publix-anchored
center to market and it is
going to get a lot of
BERNARD J. HADDIGAN
MARCUS & MILLICHAP
WHITNEY: I think the entire sector will come around. We’re a
long way behind the curve from a global perspective. However,
people are finally environmentally aware, and green has been
out in front of people enough lately that it’s becoming more of a
driving factor. We’re already seeing it in a lot of construction,
with more LEED-certified projects and green-type development.
I think it’s definitely shifting that way.
What is Fresh & Easy doing?
WHITNEY: Right now, we are in the process of working on a
LEED-certified prototype, where were can work toward sustainable growth and do our part to take better care of the environment. We also have a million-sf warehouse that we built in
California, and roughly 70% of the roof is covered in solar panels. The panels are producing three-fifths of the power required
to operate that facility. In addition, we spent three times more on
100% recycled plastic pallets in our warehouse. We didn’t go
with wood because you have to cut down trees, and a wood pallet doesn’t really have a long and useful life. But that plastic pal-
let can be recycled into another plastic pallet and it has a longer
life span. You spend a little more money on the front end, but
from an environmental perspective, you’re doing the right thing.
What is your overall outlook for retail in the near term?
FIALA: Necessity-driven retail is going to continue to perform
at a much better level over the next six to eight months.
Consumer confidence is going down because the wealth people thought they had, whether it is in their home or 401K, has
deteriorated. And with gas and grocery prices going up and the
presidential candidates pretty much telling you that everything
is bad, consumers are nervous. They have been spending a lot,
but now they are saving more. So I think you are going to see
discretionary purchases decline and anything that has to do
with housing will be tough for a while.
WHITNEY: As money becomes tight, the first thing we see is
people giving up their luxury-type expenditures. One of the
easiest and quickest ways to decrease your spending is to stop
eating out. You’ll find that consumers will prepare more of
their meals at home, bring lunch to work and those types of
things. That could have something to do with the grocery sector weathering downturns a little better than some other
HADDIGAN: I think the opportunity is really going to be on the
buy side and although we haven’t seen any steals yet, we are
seeing better real estate coming to market. There are a lot of
people in the business that make their money on short-term
bets, using other people’s money. If you are a long-term owner,
it is going to be a good market going into this summer and fall.
There are going to be some opportunities that wouldn’t ordinarily come up in terms of buying quality real estate for longer-term holds. But operationally, it is going to get worse before it
gets better. The less-than-quality properties are absolutely
going to see a softening of operations. At some point something has to break loose, and that’s pricing.
MOZER: I’m hoping things will pick up in the third quarter, but
there has to be more capital in the marketplace. I was reading
an article that said the panic stopped after Bear Stearns. We’re
beginning to see some support in the capital markets, not just
in CMBS, but across the board. Capital is very expensive, but
we’re starting to see some cautious optimism. Most people are
saying that the first quarter is a write off. Everyone’s stock got
hammered. All of the financial institutions have taken their
hits. In the second quarter, we’ll start seeing foreclosures and
loans being sold off. By the third quarter, people will pick that
stuff up, and the market will come back into equilibrium.
STOLPESTAD: Short term, there are a lot of headwinds in the
retail space and things will be difficult, especially for lesser-quality properties in smaller markets and in greenfield locations. I think the 70% of our GDP that is driven by consumption will stay very strong over the long term and we just have
to go through this adjustment. It is going to be difficult for
some people, but if you can take the long-term view, focus on
quality and look for the right opportunities at the right returns,
you are going to do just fine.
For more from this roundtable and other retail coverage, including
articles about RECon, ICSC’s spring convention, go to
Reprint orders: www.remreprints.com
Enter code F05087