Booming Industrial Market Heightens Demand for Third-Party Management

The industrial real estate market in New Jersey continues to thrive due in no small part to the rapid growth and evolution of e-commerce retailing. Last-mile distribution facilities – from which goods are stored and delivered directly to the consumer and local retail outlets – are becoming more reliant on well-located and well-operated warehouse space. This is particularly evident in core Garden State submarkets, where demand for space proximate to transportation networks, the Port of New York/New Jersey and New York City is stronger than ever before.
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Investors in Retail Real Estate Are Seeking Expert Advice

By Joseph Lowry, SVP-Leasing and Acquisitions

Levin Expands Its Third-Party Services to Meet Growing Demand
A paradigm shift is underway in retail and in the retail real estate industry. One result is a surge in the demand for third-party services. In the last 28 months, our investment advisory practice took on over 21 new retail leasing and management assignments. We’re cheered by the strong economic momentum both nationally and regionally, but the flip side is that negotiations are getting tougher as investors look for that illusive ironclad deal. It’s a climate in which investors need guidance from leaders in commercial retail real estate. Here are some of our observations on the current state of this dynamic market, plus a quick look at how we’re assisting our investor clients.

Game Changers for Tenants: Online, Mergers and New Competitors
First, let’s look at the tenant side of retail real estate today. The evolution of online shopping undeniably has spurred changes for bricks-and-mortar stores. Merger activity is creating growth in scale for some retailers, but at the same time, consolidation is closing many locations. Preferred anchor categories, like supermarkets, are feeling the heat as discount and high-end grocers challenge their mid-level counterparts and drug, dollar and big-box department stores incorporate food into their inventory. Investors looking for shopping centers need to focus on the quality of every property they consider.

Top-Quality Retail Investment Property is a Scarce Commodity Today
Flight to quality is the hallmark of today’s commercial real estate market. Hundreds of millions of dollars in capital are chasing a limited supply of core institutional-grade properties. As a result, we’re working on more and more deals involving value-add or core-plus properties. And we’re finding that more buyers are willing to look at these asset classes than previously.

Six Factors That Must Be Analyzed Before Investing in a Commercial Property
Whether a property is institutional grade, value-add or core-plus, whether it’s broker-listed or an off-market deal, certain key factors need expert evaluation. These include an analysis of capital requirements, operating statements, rent rolls, debt levels, the condition of the property, and the state of the local market. Savvy investors are relying more and more on third-party providers who can bring a granular level of knowledge to the assessment process.

Retail real estate companies, like Levin, that maintain full in-house capabilities in leasing, accounting, property management, construction management and marketing are best positioned to assist investors in evaluating properties. Our years of hands-on experience in construction management is especially valuable in identifying physical conditions that represent future risk. Our regional focus is also of significant worth, providing strong brokerage connections and up-to-the-minute awareness of both listed – and unlisted – retail real estate investment opportunities.

Levin’s Support Extends Beyond Closing
After closing, many of our clients turn to us to develop and execute a successful operational strategy, assuring maximized property value throughout the entire investment cycle. In fact, a number of the assignments we’ve won in the past two years involve recently traded properties – for both new and repeat clients. These organizations look to us to establish, maintain and improve competitive positioning for their assets.

Today’s commercial retail real estate market holds tremendous opportunities for well-informed investors. Levin’s decades-long experience, encompassing every facet of the industry, makes us a valuable partner throughout the transaction phase and beyond.

Retail Property Managers Stress Corporate Citizenship

By Bob Carson, EVP, Levin Management

Green Products Help Both Business and the Environment
This month, more than a billion people in 192 countries are expected to take action to protect the environment in observation of Earth Day (April 22). Sustainability is always top-of-mind in the retail real estate industry, with property owners, managers and tenants all involved in the effort. At Levin Management, our property management services team is committed to using the best in planet-friendly products and processes.

Energy Efficiency is the Goal of Our Property Management Services
Energy efficiency has always been our top priority. Years ago, the emphasis was on controlling the expenses of heating, cooling and lighting the buildings in the properties we managed. Today, we’ve got a dual goal: cost-control and environmental sustainability, with a special focus on solar power, LED lighting and high-efficiency roofing.

Levin is in the final stages of our first solar project, at Capitol Plaza in Ewing, N.J. With Vanguard Energy Partners of Branchburg, N.J., a national solar construction firm, we’re installing rooftop panels at 1001 Spruce Office Center, the property’s office component.

We anticipate a significant drop in annual utility costs by supplementing electric power with this clean, alternative energy source. Besides lower bills, N.J. property owners, who install solar, benefit from tax rebates and sustainable renewable energy credits, which are market-traded certificates.

Based on our positive experience in Ewing, we’re exploring additional solar opportunities. A number of clients and larger big-box tenants have expressed interest in undertaking similar projects.

More Powerful LED Lighting is a Practical Energy Solution
LED bulbs are both energy efficient and long lasting. Their typical lifespan is four to nine years, depending on the specific use, which curbs the costs of both materials and operation.

We’ve been using LED lighting at shopping centers for years but were limited by their low illumination levels. Recent technological advances have corrected that problem. Now we’re transitioning all the parking lot lighting at Warren Plaza in Washington, N.J. to LED – with great results. We’ll be bringing LED lighting to other sites under our management soon.

New Roofing Products Provide Improved Insulation
Our property management services team likes the good news in roofing. The newest products on the market have a higher R-value, meaning they do a better job of limiting heat loss. That improved insulation equals less energy usage and lower heating costs.

New code regulations require that commercial owners use these energy-saving materials in both new construction and re-roofing. In other words, this sustainability measure is a mandate – not a choice. The catch? The cost of R-value materials is between $1.25 and $1.50 per square foot more than traditional products. Owners can expect to recoup that outlay over time with lower heating bills.

Roofs with a high R-value definitely make a property more marketable. More and more, prospective tenants – particularly national retailers – are looking for this type of roofing. They realize that, in addition to promoting sustainability, higher R-value roofs reduce operating costs. Many prospective tenants, in fact, will choose a property with an energy-efficient roof over one with traditional roofing.

Going Green Makes Good Business Sense
Earth Day reminds us of our responsibility for the environment. At Levin, our property management services team is always on the lookout for new ways to boost the value of the shopping centers we manage. We’re glad that many of the best measures for protecting the bottom line also protect our planet. Owners and operators who embrace these opportunities get a double win: enhanced property values and reduced carbon footprints. And those are both good things!

A&P Bankruptcy Opens a New Era in Retail Real Estate

New Opportunities Ahead for Shopping Centers in Northeast U.S.

We recently saw the end of a long chapter in American retailing when the parent of the iconic A&P brand filed for Chapter 11. This is the second time in five years that the quaintly named Great Atlantic & Pacific Tea Company (now a division of Montvale-Para Holdings) has entered bankruptcy proceedings and it looks as though this is the end of the line. Once the Wal-Mart of its day, A&P created the supermarket concept in 1936, bringing a diverse inventory at low prices to a mass market and becoming the world’s largest retailer. There are many reasons for its demise, including a string of strategic blunders, and we can count on the media to deliver a full autopsy soon. But from my perspective, the primary failure of the 156-year old retailer was remaining static while the world was changing. A&P tried to retain its classic retailing model in the midst of a dynamic and robust competitive landscape of supercenters, dollar stores, convenience stores, and discounters. At the high-end, Whole Foods, Fresh Direct, and new concepts like Amazon Fresh and Blue Apron were staking their claims. In the middle, retailers such as ShopRite and Stop & Shop reinvented and modernized their stores. In an industry with razor-thin margins, the competitive squeeze was too much.

Whats Next for Grocery-Anchored Shopping Centers Post-A&P?

In a recent article, USA Today said “A&P’s biggest asset may be its real estate,” which includes A&P, Pathmark, Waldbaums, SuperFresh, Food Emporium, A&P Liquors, and Best Cellars stores. This puts the spotlight on the shopping centers of the Northeast region of the country, where most of these stores are located and where our portfolio is concentrated. It appears that Stop & Shop, Acme and Key Foods have struck deals on 120 of the locations. A&P has said it will close 25 stores, which leaves 176 on the block. Lots of retail real estate trends are in the making.

As leading retail leasing advisors, our Levin team sees the A&P bankruptcy as signaling a new paradigm. We’ve found that retaining competitive advantage following a change in a retail anchor tenant requires both strategic rethinking and capital infusion. Retenanting and repositioning is a constant factor in effective asset management. It’s part of the game plan for success in our dynamic retail real estate industry. Sometimes a bankruptcy is the driver, sometimes other factors are at play. Whatever the impetus, these are situations that present opportunities for reinvention and growth. And in a market that’s got plenty of post-recession momentum going, there’s cause for optimism in the face of anchor changes. It’s much too early to get specific about the effects of A&P’s passing, but the takeaway here is that one of the few things we can count on is change.

Hot Retail Real Estate Market Spawns Construction Boom

Flight to Quality is Seen in Major Retail Corridors in the Northeast
Heading into the heart of 2015, the Northeast retail real estate market looks robust. Tenants wanting to establish or expand their footprint here have turned aggressive in leasing, absorbing much of the prime retail space. What remains is commanding higher prices.

The result? An emerging supply/demand imbalance for Class A space that is beginning to create some barriers to entry for retailers, while spurring expansion of existing shopping center properties. For these new projects, flight-to-quality is a common theme, with developers focused on opportunities in established retail corridors, especially those offering the strength and stability of a grocery anchor.

Levin’s Construction Management Services See Strong Demand 

Examples of this retail real estate trend can be found in Levin’s own leasing and management portfolio. Our construction management team recently began an expansion of St. Georges Crossing, a fully leased, 317,000-square-foot property in Woodbridge, N.J. After arranging a long-term lease with T.J.Maxx, we broke ground on a 23,000-square-foot building for the fashion retailer, which will occupy a newly acquired parcel of adjacent land. Similarly, at Mid-Town Plaza in Middletown, Pa., we orchestrated the purchase of an adjacent parcel to accommodate the construction of a 7,380-square-foot AutoZone.

Additionally, at the 80,000-square-foot Clifton Plaza in Clifton, N.J., we leased and delivered a 15,000-square-foot, newly constructed building for Blink Fitness. And in Flemington, N.J., we orchestrated a lease with HomeGoods at The Shoppes at Flemington and then oversaw approvals, contractor sourcing and construction of a 22,000-square-foot, free-standing addition.

Flight to Quality Drives Expansion Projects in Key New Jersey Retail Areas

Reflecting the flight-to-quality play, Stafford Park, a thriving, 650,000-square-foot shopping center in Manahawkin, N.J., has been approved for an additional 195,000 square feet – including several prime pad sites. The retail portion of Stafford Park includes anchor tenants Costco and Target, plus PetSmart, Dick’s Sporting Goods, Best Buy, Ulta and Olive Garden.

In Southern New Jersey’s Burlington County, the ShopRite-anchored Bordentown Plaza provides a great example of shopping center redevelopment driven by the need for competitive positioning in an established retail corridor. ShopRite is slated for a complete renovation and expansion, and the entire, 179,000-square-foot center itself will be updated and repositioned. As the property’s retail leasing advisors, Levin is marketing more than 100,000 square feet of existing space, plus proposed pad sites.

Outlook for Retail Real Estate in the Northeast: Increased Stability

The success of recently completed ground-up and renovation projects are bright spots in our region. And while we will continue to see quality inventory added to meet growing demand, the maturity of the market, combined with lengthy approval and building processes, will keep expansion in check. In other words, oversupply should not be a concern anytime in the near future. We expect the market’s stability to build steadily over the next couple of years. A continued low interest rate environment bodes well for the positive construction and investment activity we are seeing.

As always, well-located shopping centers with a strong tenant mix and curb appeal continue to draw retailers, consumers and investors. At the same time, we see some strengthening in the demand for properties in secondary positions. Landlords are becoming more creative in their approach to leasing in these spaces and are working hard to establish their properties as attractive alternatives to the scarce Class A’s.

The outlook for Northeast retail real estate remains nothing but positive through the balance of 2015 and beyond. Demand from national, local and franchise companies in active categories – including grocers, affordable fitness chains, off-price retailers and fast-casual restaurants, among others – will continue to drive vacancies down and rental rates up. And the level of development activity – both for new projects and expansions/renovations – speaks to growing confidence in the future of the retail sector in our area.

Will Falling Gas Prices Pump New Life Into Retail Sales?

Retail Trend Watchers Predict Upcoming Surge in Consumer Spending

Across the U.S., drivers are doing the happy dance at the gas pump. And they’ve got cause for celebration. Between September 25, 2014 and January 5, 2015, the average price of gas fell every single day, dropping nearly a full dollar from July levels and delivering a reported total savings of $50 billion to consumers in the fourth quarter of last year. But where will all those dollars go? Retailers have high hopes for a first-quarter surge and the retail real estate industry is optimistic about what’s next.

Retail sales for November, just four months into the gas price decline, saw a gain of 0.4 percent. December brought some good news with non-store holiday sales (indicator of online purchases) growing 6.8 percent according to the National Retail Federation. Restaurants and bars enjoyed a gain of 0.8 percent over their November performance, while food and beverage stores, pharmacies and other health and personal care stores reaped higher sales. Full year figures for consumer spending show retail sales rising 4 percent for the year. Considering the massive savings in energy, some wonder if the numbers could have been higher.

Steve Barr, retail and consumer sector leader at PricewaterhouseCoopers, suggests that the picture might have been even better except for the “the conflicted consumer” factor. These are the cautious shoppers who may still have been struggling to balance cost of living expenses with recent gas savings. But with the added factor of the strengthening national economy and continued low energy costs, this conflicted consumer may soon feel much less conflict.

Consumer Confidence Is Gaining Traction Fueling Retailers Optimism

“It’s a no-brainer. It’s going to be a better year for the consumer in 2015,” predicts Paula Campbell Roberts, consumer analyst at Morgan Stanley, citing the $80 billion dollars in savings from lower gas prices projected for Q1 of 2015. Terry Lundgren, Macy’s CEO and Chairman, agrees. Addressing the National Retail Federation earlier this month, he said, “I think we’re in a place right now where consumption can return back to what we’ve seen in the past.” So with an additional $550 to $750 in their wallets during the coming year, Americans may be about to go on a long-delayed shopping spree.

Younger Demographic and Lower-to- Middle Income Households To Benefit Most

Households with lower-to-middle disposable incomes will feel the biggest economic boost from cheaper gasoline. This includes members of the large 18-34 demographic, who are inclined to spend even when their budgets are tight. This group may lead the anticipated retail spending surge. In a recent National Association of Convenience Stores Survey, a third of the 18-34 year old respondents said they would use their gas savings to make more discretionary purchases beginning in January.

Rising Wages and Employment Help Brighten the Retail Outlook

The American Automobile Association, whose Daily Fuel Gauge recently reported gasoline at $2.08 per gallon, predicts that low prices will remain stable for the first half of this year, with a moderate rise post-summer. The price-per-gallon is expected to remain under $3.00. That mid-year uptick in gas prices should be offset by rising wages and declining unemployment in a recovering national economy.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, sums it up. “Consumers real disposable cash flows are surging, confidence is high and rising and the labor market is recovering at an astonishing rate.” That’s good news all around, especially for retail real estate.

 

Retail Real Estate Trends: In-Store Restaurants and Hip Hybrids are On the Rise

High-End Cuisine and Artisanal Coffee Draw Customers, Boost Sales

The grand department stores of yesteryear – Marshall Field’s, Hudson’s, Wanamaker’s and others – always featured a “tea room” where elegant ladies could enjoy refreshments during shopping sprees. Over the decades, in-store food service has changed, along with shopping styles, but it’s never gone away. Today, Starbucks keeps Target shoppers caffeinated, McDonalds fortifies bargain-hunters at Wal-Mart and Ikea continues to serve up Swedish meatballs and other Nordic favorites. At the higher end of the shopping spectrum, Nordstrom operates multiple restaurants throughout its chain, boasting a total of seven different food service concepts and 200 eateries and coffee bars in its properties. Still, new food-related retail real estate trends keep emerging –and they’re definitely not your grandmother’s tea room.

Department Stores, Branded Shops Build Traffic with Quality Food and Drink

When Fodor’s, the venerable publisher of travel information, starts listing the 10 best in-store restaurants, it’s a sign that store-based dining has reached both a critical mass and a quality high-point. On the retail real estate NYC scene, big name chefs like David Burke preside at Bloomingdale’s. Hip restaurant brand Momofoku Milk Bar operates out of Soho’s Band of Outsiders boutique – right in the front window. Lord & Taylor shoppers can take a break at branches of Sarabeth’s. Ralph Lauren recently joined in with a main level coffee bar (featuring Lauren’s own brand of beans) and a full-service restaurant upstairs at its Fifth Avenue flagship. Among the latest to join the in-store food trend is Urban Outfitters, who opened a three-floor venue on Herald Square in June –the largest in their 400-store chain. A main floor feature is an outpost of Intelligentsia Coffee of Chicago, “designed to serve an ocean of coffee to thousands of passers-by each day.”

At Tommy Bahama’s “Lifestyle” Stores Food and Drink Reinforce the Brand

A brand-oriented take on the in-store food service trend in retail real estate is Tommy Bahama’s Island concept. The resort-themed menswear company has launched 13 “Island” stores, where shoppers find an immersive environment that includes tropical cocktails and menus, a perfect backdrop to the brand’s beach-y fashions and accessories. Tommy Bahama reports that its “Island” stores, located in such venues as The Woodlands Mall in Dallas, Corona del Mar Plaza in Newport Beach, and Scottsdale’s Kierlands Commons, generate two and a half times the sales per square foot as their other 97 locations.

At Hip Hybrids, Store and Restaurant Merge for a Single Customer Experience

Saturday’s Surf may have launched the hybrid trend in NYC retail real estate. The five-year-old Soho-based boutique (now with three additional locations) offers surfboards, accessories and a full line of surf-inspired menswear. Its artisanal coffee bar is integrated into the selling floor. Co-founder Josh Rosen, who is expanding into new markets, insists that coffee is so essential to his business that any new leases must permit beverage service. Management at Shinola, a Detroit-based merchandiser of watches, bikes and accessories with shops in NOHO and Tribeca, second Rosen’s sentiment. “Sights, sounds, and smells of a café bring a no-fuss feeling to a luxury goods store,” they said in a recent statement.

Custom-brewed coffee, along with craft beers, is fueling the success of lifestyle retailers on the West Coast, who, like Saturday’s Surf and Shinola, merge merchandise and refreshments in a single space. In Portland, Velo Cult, which purveys bikes and all things bike-related, relies on the “nerdiest black coffee around” and a menu of local beers, along with live music and film screenings, to pack their “man cave” venue. Seattle-based Chrome Industries, designer and manufacturer of bike-related clothing, footwear, bags and accessories, has six “HUBS” or stores in San Francisco, Seattle, Portland, Chicago and recently New York City. San Francisco’s famed Blue Bottle Coffee is the go-to beverage and like Velo Cult, music and screenings are key parts of the mix.

What’s this latest in-store eating and drinking trend all about? Beyond attracting and satisfying the customer, there’s doubtlessly the recognition that in-store amenities like high-quality coffee and unique menu options enhance the shopping experience beyond just browsing and buying. Shopping centers with a rich tenant mix have picked up on this retail real estate trend, just as urban stores and boutiques have. Here’s a powerful competitive edge that online can’t match.

Levin Property Managers Name Their Favorite Tech Tools

Tablets, Numbers App and Paperless Invoicing Lead the List for Efficient Real Estate Property Management

Recently Levin asked the Property Managers of our 95 retail real estate sites how technology has made them more efficient. Which tools are indispensable in delivering top quality property management services? How has tech helped them cut costs and save time? We’d like to share the responses with you. First, we’ll look at the four tech products that make our managers’ jobs easier and second, we’ll see what tech innovations are making Levin’s retail properties operate more efficiently.

iPads, Tablets are Indispensable to Real Estate Property Management Today
It’s not always the latest piece of tech innovation that makes the list of favorites. Our Property Managers named iPads and other brands of tablets as the must-have, on-the-job product. First released to the market four years ago (with several updates), these portable computers mean in-the-field reporting can happen quickly and easily. No more taking notes, returning to the office to write them up, and then circulating them. Tablets cut steps and save time.

File Sharing is a Favorite of Levin Property Managers
Dropbox and iCloud, tech tools that allow access to files by multiple parties, are also clear winners among our managers in the field. A recent fire at one of Levin’s properties demonstrated the value of Dropbox. The Property Manager took pictures of the damaged areas with his iPad, then loaded the pictures directly into Dropbox for review by the property owners, their insurance company and any other relevant parties. File storage in iCloud serves a similar purpose, especially among our internal Levin staff.

Spreadsheets Straight from the Field with the Numbers App
Apple’s Numbers app, which works on both iOS and Android platforms, helps our managers create spreadsheets and charts right on their tablets. Easier to use than Excel in a field situation, Numbers has become an essential part of every manager’s tech toolkit.

Paperless Invoicing Means More Efficient Real Estate Property Management
AvidXchange, web-based software for end-to-end invoicing, has streamlined our managers’ accounts payable processing. Everything from the original vendor statement up to its payment is paper free. Processing time, including review and approval, is cut drastically, and the status can be checked on the computer from anywhere. And AvidXchange is fully integrated with Levin’s accounting system. What’s not to like?

Technology is not only making our Property Managers’ lives easier, it’s also helping them run our Levin-managed sites with greater efficiency and lower operating costs. What tech trends are you seeing in Retail Property Management? Please share your comments with us here on Retail Property InSites.

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About Robert Carson:
Executive VP Robert Carson, CSM, oversees coordination for Levin’s client properties and is instrumental in transitioning new management assignments to the Levin team. He plays a key role in the firm’s day-to-day operations, and, as an environmental issues expert, he oversees management of issues such as asbestos in older buildings and specialized tenant uses, like dry cleaning. Carson joined Levin in 1992 as Director of Property Management after serving as General Manager for retail properties owned by Hartz Mountain Industries. Prior to that, he managed an enclosed mall for the DeBartolo Corporation. Carson began his career as a buyer for Gimbels Department Stores. He received a bachelor’s degree in Economics from Indiana University of Pennsylvania and is an ICSC-Certified Shopping Center Manager (CSM).