IAN RITTER: How is capital best invested now? And are you looking at any distressed opportunities? LEO S. ULLMAN: We haven’t seen much distress. What we see is an occasional developer who is unable to come up with the equity needed to do a deal because these days, they have to put up at least 30% of the costs upfront and many developers are stretched. Development is an opportunity, where we can come in after most of the entitlements and some preleasing is in place, and jump in with 90% to 95% of the monies required and get a very nice return. MICHAEL A. CARROLL: For us, capital is best invested in the exist- ing asset base. We’ve had 2. 5 million square feet of big-box vacancy come back in our portfolio alone. Our most compelling investment of capital dollars is to drive occupancy, fill those boxes and cure co- tenancies that we could have had as a result.
BERNARD J. HADDIGAN: On the distress side, there’s a tremendous amount of struggle going on, but it’s not converting to REO.
There’s $1.3 trillion of CMBS debt coming due between now and the
end of 2013. There’s several hundred billion this year alone. Most of
this is just being worked out.
On the retail transaction side, the safe, best-of-class, infill in major
markets is very popular, and they’re still getting premium pricing
relative to what’s going on in the marketplace. Net lease deals are still
very active. They’re very low-risk, low-yield deals where it’s very easy
to understand the income stream and underwrite the rents.
RITTER: How does the lack of new development affect your
ELISE JAFFE: For most of our stores, we would do new deals. We
love those big power strips, with the right
anchors and the right deal and right location,
of course. It was a great formula and it worked
for a long time. We are now aggressively pursu-
ing second and third generation space—
empty boxes that are finally being split up.
By the same token, we’ve got developers
who are looking to their existing portfolios
and improving their centers. A lot of those
locations are viable, and with the retenanting
that’s happening, even more viable.
ULLMAN: There is development going on.
The problem is it’s limited to certain types of
properties—freestanding drugstores, conve-
nience-type properties with a service station
and some food, supermarkets—they’re all
looking to expand and doing relatively well.
CARROLL: It’s very small in comparison to
what it was though. Certainly all of the big
anchors have cut their store counts back.
Supermarkets are the one area where there’s
been expansion; this is the kind of market that
defensive anchors do well in.
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RITTER: Is anyone surprised that some chains
are ramping up now?
JAFFE: The value segment of retail is expanding, whether it’s TJX Cos. and any of their
concepts, or us, or Walmart and Target. We
still believe what we do is good and effective,
so we’re actually trying to position ourselves.
There’s no capital issue. I can finance as much
as I can find. I just can’t find enough to do.
CARROLL: The value segment went through
a period where it was very difficult to forecast
sales. Now things are more stable and there
are great deals out there on space. That’s led
to more national players coming back into the
market. Nine or 10 months ago, it was mostly
ULLMAN: It’s a tenants’ world out there. A
decent tenant with a 50,000-square-foot
store—TJ Maxx, Marshalls, Bed Bath &
Beyond—is going to tell you how much
they’re going to pay. In many of these areas,
the depth has disappeared so the number
one and two retailers in a particular big-box
category will survive, but numbers three and
four may not.