BILL ROSE: It’s solid. In the wake of the great recession, many retailers
have cut back on new store openings and have really firmed up their
inventories. That, in turn, is generating very healthy balance sheets
across all retail categories.
According to our research, the retail sector has outperformed all other
commercial property types, posting the largest comparative yearly gain in
transaction volume, which was up 32% in 2011 over 2010. Certainly the
Blackstone center transaction, known today as Brixmor, was a big boost to
those metrics. And for all 44 of the major MSAs that we track, we’re forecasting employment growth, vacancy declines and effective rent growth in
2012. We see very positive fundamentals in the retail space.
RITTER: How is the retail sector viewed by lenders as opposed to
other assets in the industry?
WAYNE BRANDT: The sector is very segmented in terms of
credit risk. Grocery-anchored centers are viewed very well and
certain malls with strong operators in strong metro areas are
viewed positively. Everything else is very episodic depending
on its fundamentals. It comes down to the credit of the tenant,
the location of the center and the demographics of the market. You really have to get into the details of the credit work to
understand it. There are a lot of shopping centers that are over-leveraged in tertiary markets.
RITTER: Mark, how are your expansion plans going? Are
you seeing a lot of competition out there for good sites?
MARK MILLER: Obviously, there is competition. And if we could
secure every site, we would be on every A-plus corner in America.
It’s always difficult to find the right locations. However, we have a
pretty steady growth pattern. We haven’t gone out and said we’re
going to open 600 new stores a year. Nor have we gone down and
said that we’re going to open 50 stores per year. We’ve been pretty
steady in the 250-to-300-store range for a long time. That’s our plan and
I don’t see anything that would get in the way of it. Our pipeline is large
enough where we can support that type of growth. It gets increasingly difficult every year, and we hope that we’re able to come up with enough of
a pipeline to fulfill our goals for years to come.
RITTER: George, are you seeing the same thing as far as development rebounding?
GEORGE TOMLIN: We are seeing good growth in the net-lease end of
our business, with a significant amount of volume annually by some of
the retail categories that are continuing to expand. Obviously, the dollar
stores are one of the strong contenders in this sector.
On the shopping center side of the business, we are experiencing
slow, steady growth due simply to the activity among anchor tenants.
Take Target stores as an example. They’re spending most of their time
in the Canadian market right now. But they’re still active domestically,
opening about 20 to 25 stores a year in the US. When you have a situation in which you’re seeing a trend toward smaller developments instead
of the larger power centers out there, it means that things are
still just steady, if you will, on the shopping center side.
RITTER: Do you see any problems ahead with large tenants
closing doors, such as Best Buy?
PAUL FREDDO: That is something we obviously watch very
closely. With Best Buy, we were impacted by only one closure out
of the recently announced 50. It’s an interesting story today; the
state of the retailer in general is strong. It improved its balance
sheets and inventory positions. It’s continued to gain market
share, increase inventory turn, drive profitability and consistently
achieve positive comp same-store sales. We’re seeing stronger
retailers out there. There are some categories we watch, electronics clearly being one of them. The office-supply chains are
another, and books, with the Borders liquidation and Barnes &
Noble losing business. Three or four years ago, with the Linens
‘N Things, Circuit City and Mervyn’s bankruptcies and liquidations, there was just a tremendous rush of space at one time.
We’ve all gotten much smarter. The retailers, developers, landlords,
lenders—we anticipated this. We work with these specific businesses
and tenants, and we’re out in front of it. There’s much more cooperation because the retailer and landlord know what’s going on. If we have
25,000-square-foot office supply stores, we both know they are oversized.
The good news is that there’s a tremendous amount of demand among
retailers in that 5,000- to- 10,000-foot category today. We’re ready to capitalize on that demand and in doing so, right-size existing tenants.
RITTER: Bill, what areas of the country are doing well and what
regions need improvement?
ROSE: When we look at retail trades in the first quarter, it suggests
that we’re off to a very good start compared to the prior year. So
far in 2012, the number of individual properties sold nationwide is
up 18% over 2011, driven mostly by smaller shopping center sales
predominantly on the East and West coasts. Institutional and REIT
investors have a very strong appetite for large anchored shopping
centers. This is causing a bit of a divide in terms of pricing between
the larger and smaller properties. Grocery-anchored centers are at
the top of the list, and they really have recorded the sharpest cap-rate compression.