In some cases we’re achieving or beating rent projections. Overall it’s much more positive than it was at the bottom of the market.”
RITTER: Overall, how is consumer confidence
McKESKA: It’s a little touch-and-go and one
important point is that it’s bifurcated. There’s a
certain portion of the country, mainly upper-mid-dle and upper-class consumers, which obviously
hit some bumps along the road relative to what
happened economically over the past five years.
But now that things have stabilized and we have
some level of consistent, albeit low growth, and
people have reduced their fear factor a little bit
relative to their decision making, that strata of our
society continues to do well and, frankly, spends
very well. When you get into the middle, particularly lower-middle-class, and those that are on the
lower rungs from a socioeconomic standpoint, they continue
to struggle on a day-to-day basis. There is a lot of fear and
uncertainty with regard to job loss and the like. That’s the
arena in the country that continues to be tough from a con-sumer-spending standpoint.
Cole Real Estate Investments
plined when negotiating and renting space. It seemed that
prior to the Great Recession, cheap small business financing
and expansion plans made it possible for tenants to pay the
huge rents the landlord demanded. Now we are seeing tenants
being much more disciplined with their business plans and
expectations for occupancy costs and gross sales.
RITTER: We have seen more investment transactions this
year. What kinds of deals are out there and what’s the buyer
ROSE: Retail investments flow in three segments. The first is
net lease, the largest segment of retail investments in the country, not only by dollar volume but also by the number of properties traded every year, period. The second is moderate-sized
shopping centers, priced sub-$10 million is the sweet spot,
roughly $21 billion in trades last year. The last segment is the
larger, say over $10 million, but in certain markets it’s really
over $20 million. There were 655 deals that traded last year,
with about $22 billion worth of volume.
ROBERTS: So far, the activity is greater than the prior few years.
We completed $3 billion of acquisitions last year and we are
already approaching $2 billion either closed or in the pipeline
in mid-April, so the activity has been very strong. Cap rates have
been pretty stable over the past couple of years, so we’re not seeing a lot of compression, but deal volume is very strong.
RITTER: Whom are you facing competition-wise when you
go out to look for an acquisition now?
DYKSTRA: Our focus is to invest in $10-million to $20-million
necessity-based retail shopping centers in the top 50 markets in
the country. Our preference is grocery-anchored retail; however,
we work very hard at identifying the best B-quality properties in
the marketplace that we can improve into A quality.
ROBERTS: In our world we have different competitors and different spaces. The single-tenant Walgreens and smaller transactions have a lot of competition from the 1031-exchange buyers.
In the big sale-leaseback arena, we compete with others looking
at $100-million-plus portfolios. On the larger opportunities
we’re seeing competition from institutional investors, publicly
traded REITs, non-traded REITS, and pension-fund advisors.
DYKSTRA: It’s the best and worst of times. There continues to
be a growing investor confidence for those with access to
equity and debt financing. For those without access to capital,
it’s been very difficult. For those that have access to equity and
debt, we believe there needs to be caution in the marketplace
to not overpay for properties because of the historically low
ROBERTS: Consumer confidence has improved during the past
few years, but is probably still at relatively low levels. Clearly the
uncertainty in the economy and the government causes people
to be a little more cautious, but I think generally the outlook is
better today than it was in 2009 and 2010. We’re going in the
right direction; probably slow growth, and it’s going to take time
to get back to a strong, confident consumer.
ROSE: Corporate balance sheets in this country are exceptional.
There’s an enormous amount of cash sitting on the sidelines waiting to invest. Blackstone is one example. Retailer balance sheets
and inventory levels are healthy too. That, coupled with virtually
no new development since 2009, and 2013 projecting something
like 40 million square feet of new deliveries, suggests a really
healthy future for the industry. However, we’ve got to be very
smart and learn from the past. The liquidity trap that caught
some investors in 2006 and 2007 happened because of taking full
loans at that point in time and not underwriting and budgeting
for a potential vacancy; what then happens to my ratios?
Everyone in the market today who sees these opportunities,
be very mindful of the liquidity trap and know that in 2023
you’ve got a maturity coming, and manage it. If you do that,
you’re going to be pretty successful in this business. ◆
Look for video interviews with these panelists from the ICSC Conference