Investors in Retail Real Estate Are Seeking Expert Advice

Levin Expands Its Third-Party Services to Meet Growing Demand

By Joseph Lowry, SVP-Leasing and Acquisitions

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.

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.

RECon 2015 Takeaway: Retail Real Estate is on the Rise Again

Keen Appetites for Value-Added Investment Set the Tone for Annual Las Vegas Gathering

With 35,000-plus attendees thronging last months ICSC RECon event in Las Vegas, it seems safe to say that commercial retail real estate is roaring back from the Great Recession in a big way. Its not just the number of attendees that impressed us but the amount of new blood among them and the intense deal-making mood that pervaded the convention center.

Solid Retail Fundamentals Are Driving the Market on Multiple Levels

Yes, weve seen more attendees at past RECons (the record is 50,000), but weve never seen one of these shows with more capital aggressively chasing deals. Frothy would be a good word to describe the acquisition-oriented activity. The big institutional investors, many of whom we advise, were in a bullish state of mind and on the hunt for high quality, core retail assets as well as core plus and value-added retail properties. In addition to dominant grocery anchored centers, power centers and properties that feature category leading brands and credit tenants are in strong demand.

Ground up development was also drawing its own healthy slice of investor attention. For the first time since the slump began, there is a pipeline of significant development money, which is good news for the construction management team at Levin. Behind all this investor interest is the growing strength of retail fundamentals, particularly in the top-tier markets, which are typically the under retailed, high barrier to entry markets as well as the growth markets.

RECon, As Usual, Reveals Retail Real Estate Trends: Mixed Use, Hot Markets, New Retail restaurant and Entertainment Concepts and Smaller Footprints for Big Box Tenants

Trend watchers always like to keep a sharp eye on gatherings like RECon, scanning the scene for the next big thing. The 2015 event yielded some hints about new industry directions, most of which have been evolving for some time. The biggest driver of change in retail; online shopping, is now a firmly entrenched consumer habit and retailers and retail real estate owners and managers continue to struggle to pry people away from their screens and back into bricks-and-mortar venues. So we see both new retail development and renovations to existing shopping centers that include new restaurant and entertainment concepts, cinemas, and event spaces joining the line-up of traditional retail stores. Mixed-use development is also a focus. Experimentation is the name of the game here, as developers search for the right mix of retail, restaurants, entertainment, residential and/or office uses, and tackle the subtle nuances of pedestrian traffic patterns and tenant positioning. Success in mix use, many are finding, depends on the dynamics of the individual market and thats not something that lends itself to a template or formula.

The retail real estate sector is nothing if not dynamic, and change tends to involve responses to new trends. Wal-Mart and Target, for example, are adjusting to unique environments, particularly the dense urban markets as well as to continued competition from the extreme discount grocers and dollar stores with smaller footprints and new concepts. Expect to see the continued rollout of The Wal-Mart Express convenience stores and The Neighborhood Markets, with emphasis on groceries.

All in all, RECon 2015 was a testament to the resiliency of our industry and a cause for optimism. We are on a roll!

A New Generation of Tenants Revives Retail Leasing

Todays Movers and Shakers Succeed with New Approaches

With demand for retail leasing from national, local and franchise companies heating up in the Northeast, it’s a good time to take a look at the movers and shakers defining the next generation of tenancy. Though these companies span a range of categories, they all share a bold new vision that combines technology with creative approaches for reaching consumers. We’ll be covering their tech side in a later blog. For now, let’s focus on who’s coming on strong in mid-2015 and what they’re doing.

Meet the Up-and-Comers in Retail Leasing 2015: Fast-Casual Eateries, Affordable Gyms, Small Grocers and Off-Price Retailers

We’re seeing a surge in leasing activity from a number of retailers looking to establish or expand a footprint in our market area. Here’s what’s been coming our way this year:

  • Only a limited number of big supermarket chains  are adding locations at present (with some exceptions, such as ShopRite, Stop & Shop and Whole Foods in New Jersey). However, we’re seeing leasing activity from an assortment of smaller stores like Save-A-Lot, Trader Joe’s and Fresh Market.
  • No-frills fitness concepts like Blink, Retro Fitness and others continue to expand rapidly in our marketplace.
  • Off-price retailers enjoy a wide demographic appeal, making them extremely popular and driving expansion into new locations. Chains such as Dollar Tree, Five Below, T.J. Maxx and HomeGoods continue to gain traction.
  • Fast-casual eateries like Chipotle Mexican Grill and Noodles & Company are on the move, too. And Starbucks is enjoying a growth spurt, thanks to their free-standing stores with drive-thrus.

A Few Trouble Spots Continue to Cloud the Retail Leasing Picture

While the retail picture looks bright, a few sectors continue to feel pressure from consolidations and bankruptcies. Chapter 11 announcements by Radio Shack, Wet Seal and Cache were among the most newsworthy so far this year.

Some attribute Radio Shack’s decline to the impact of e-commerce on the entire electronics sector. Yet, some retailers in other “easily poachable” areas, like office supplies, have met the online challenge by right-sizing their bricks-and-mortar presence with smaller footprints and fewer in-store SKUs. A good example is Staples, which is thriving, having successfully trimmed its stores to the 15,000-square-foot range. Adaptation like this is essential, as we saw in one of our recent Retail Sentiment Surveys.

The Outlook for Retail Leasing Companies Is Good

As demand strengthens, vacancies are declining, boosting rents at quality properties. Spaces left by retailers that didn’t survive the downturn are backfilling quickly with tenants in the active categories mentioned above. A diverse range of service businesses are also signing leases. That means much of the prime space has been absorbed – and what remains commands higher prices. In spite of rising rents, well-located shopping centers with strong tenant mixes and curb appeal continue to draw retailers.

At the same time, demand is building for retail real estate in secondary positions (either because of location or other fundamentals). Landlords are becoming more creative in their approach to leasing these shopping centers, considering a variety of potential uses for their space.

Entering the heart of 2015, we are optimistic about what we’re seeing. While we will likely hear of additional bankruptcies and consolidations within categories – facts of life for our industry – those retailers that are adapting will continue to do so with success. We look forward to seeing the creative ways they’ll leverage opportunities within today’s dynamic retail leasing landscape.