Real Estate Forum - April 2010

RITTER: Does landlords’ willingness to give concessions have an impact on the recent slowdown in store closings? JAFFE: The landlord-tenant relationship is more important than ever. The word that comes up is transparency. When we’ve done short-term aggressive deals to remain in a space, it’s because I don’t want to close a store if I can help it. It’s not appropriate based on the conomy and the current state of affairs. I’d put it off six months or a year, and landlords are cooperating. CARROLL: There’s a differentiation between somebody who may be a bankruptcy candidate and a viable retailer who has an issue at a specific site. Maybe they’re coming up on renewal, maybe not. But you have confidence in that retailer and what it adds to the center, and you want to keep it. Rent reduction isn’t going to help save a retailer if there’s not vendor support there.

ULLMAN: Similar to what’s happening with lenders and loans, we as landlords would rather extend a lease than write it off. We will generally be in a position to have to deal with renewal options where you’re not going to get the full five years.

We look very much to health ratios. It’s not as transparent as we’d like because you don’t really get sales figures from most tenants anymore. But we do look at the comparison of their sales figures, which we ask for, to their occupancy costs. If that’s within proportions, then we’ll risk it for a while because re-tenanting a space takes a lot of time. It’s not like they’re all lined up, waiting to go into your center.

Strategic insight.

Value driven.

RITTER: When do you see transactions coming back on the market? HADDIGAN: In terms of transaction velocity, 2007 was the peak of the market and by last year, depending on price points, the market was probably off somewhere between 80% and 90%. A big part of that is financing; I don’t see reliable financing coming back to retail for quite a while. Unless it’s investment grade and/or a low price point, and a borrower with recourse, that’s all you’re getting done today.

CARROLL: I agree, it is the smaller deals. With the CMBS market not functioning well, it’s really throwing it to the life companies and institutional players, or regional banks, and that’s for deals $20 million or under. So you’re able to get a grocery-an-chored center financed, but it’s likely to be by a regional local bank that’s doing it with conservative terms.

ULLMAN: We’re seeing some green shoots in the financing area. We have been approached by at least four major banks and investment banks offering a CMBS product. Not the traditional CMBS product, but the $100-million plus product that they’re willing to take on their own balance sheet and sell off over a period of time. Developers Diversified and Goldman Sachs did it. There are now several groups that are looking to do these, where the A tranche may be 90% or 95% of the whole offering. So it’s coming back, to that extent.

HADDIGAN: It all goes to risk assessment. On the DDR deal that went out, that loan-to-value was approximately 50% on eight properties. So there’s a lot of money out there, but it was a very safe bet. That was an important event in the markets over the past year because it’s moving other things along and it will slowly go out. There are a lot of people watching the markets carefully, believing there’s got to be some extraordinary buying opportunities. It seems a little early. Where we are seeing some of the better values so far have been note sales.

Longer term, you’re going to see a return to urban core in many markets. People are going to be more cautious about going to the outlying areas for new development. ◆

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