This “Strolling the Agora” column is from the December 21, 2009 issue of Shopping Center Digest, the last issue being printed in “hard copy” as it goes completely Online

We’ve been stressing the importance of timely, detailed, accurate information since  before  we first started publishing Shopping Center Digest. And the need for an organized, simple format so you can react immediately to start that deal..

So, before any other publication in the shopping center/retail industry, in 1973 we began providing contact names, mail addresses and telephone and fax numbers for each item where available; the twice-monthly newsletter format compressed production and shortened delivery time to days compared with the weeks then required by magazines.

The whole concept, design and presentation came from experienced landlords, retailers, consultants, brokers—friends and acquaintances we deal with on a daily basis. Get rid of unnecessary verbiage; present the bare facts in a simple order and abbreviated form; size of project, alphabetized by  state and town; retailers by category; existing centers with space available.

An example of early input: At first, we  were not considering accepting advertising. Shortly after the first twice-monthly issues, while at the then 2-day Christmas Party run annually by Melvin Simon & Associates (now Simon Property Group), it was Ken McGuire, then president of Bresler’s 33 Flavors, who suggested: “Ya know, you should take advertising.” Bresler’s then held that cover position for each of our special issues for years until the company  was sold some 20 years later.

Most important in providing information, however, you told us, “Get rid of the fluff and puff, and then get out of the way so a dealmaker could begin to deal.” This we continue to do.

And we constantly tweaked the Digest. As projects were being developed that couldn’t be categorized only on the basis of size of GLA, we added another column: Upscale Specialty, Lifestyle,  Mixed-Use, Entertainment. Then we added another column dealing with Financials and Sales Reports from retailers and the many owner-developers who became public companies.

We refined the process even more and began adding email addresses and websites to the listings, both for new and existing shopping centers, and for the retailers who were looking to expand into new markets and nationally. Again, making it even easier to begin working that deal.

Best of all, to get this to you even faster, a few years ago we started delivering it to you online, sending you an email with your username and password so when the issue was posted, you could access it immediately from your computer: while out of the office, on the road or at home. This, you told us, gave you a jump on your competitors since the information was delivered a week, 10 days, earlier than the “hard copy” being delivered through post office.

Even better, this means you can link in seconds and email someone about a deal from the Digest directly from your computer even though you’re away from the office.

What are we doing now? Bluntly, this is the last hard copy of Shopping Center Digest we will be mailing to you.

Beginning with the first issue in January, our twice-monthly newsletter will be emailed online directly to you and your computer. No username, no password.

The advantages: We email it ourselves without the delay required by sending to a middleman to post online; it cuts another couple of days off important leadtime–and eliminates the problems a few subscribers reported when they were unable to access the issue after inputting the username and password. We will continue, however, with both online presentations until we’re certain the kinks have been worked out.

Especially for our subscribers in foreign countries, you will now receive the issue at the same time as our domestic readers—though I have to admit the need for speed there may not be as vital.

Emailing the issue directly to you eliminates having to deal with the numerous individual post offices around the country, and their varying levels of efficiency. The one in Bellingham, WA, for example, at first refused to mail our last ICSC New York Issue because it contended we had an “incorrect” ISSN number—though it’s the same one  we’ve been using since FOREVER!—but relented “just this once” after the pleading from our local printer.

And, where it hits you, the reader, with great, personal impact, it means that we can avoid a subscription increase . maintaining the same rates we’ve  had for the last three years.

For those readers whose companies have very strict requirements regarding size of emails, spam blockers may prevent the issues from getting through,  you must inform whoever is responsible to accept  Shopping Center Digest as an approved sender, perhaps adding us to your address book.

Now a  major warning to you few readers who have not yet  given us your email address. Please, please, please, I beg you, send it to me so I can update your record so you don’t miss a single issue. Email it to me directly at mshor@shoppingcenters.com .

And another request: Let’s hear some feedback, pro and con, on the new format and approach. If you want to comment,  suggest ways we can improve the Digest, and make it a better tool for you—that wouldn’t hurt either. We need your input.

Further information on Shopping Center Digest, our weekly Eflash, Expanding Retailers, and the annual Directory of Major Malls may be obtained from our website, www.shoppingcenters.com .

This “Strolling the Agora” Column Is From The November 24, 2009 Issue Of Shopping Center Digest Being Distributed At The ICSC Conference In New York

Though there are universals present in each ICSC regional conference around the country focusing on leasing and development, there are also distinct differences in themes and outlooks expressed by these real estate professionals. So it was in Chicago last month and–I expect– it will be in New York at the National Conference and Deal Making in the next few weeks; the ultimate connector being a resilience and positive attitude:“We’re working harder than ever for a lot less, but we’re still vertical and will get through this (the recession).”

A side issue, but strongly expressed by a number of landlords and tenants was anger at ICSC for “losing touch with the needs of its members” and “operating as a business rather than a trade association.” More on this later.

Even before the beginning of brisk, official dealmaking, many were already expressing optimism on the rising economy, basing much of it on rising retail figures just released by a number of leading chains. However, these should be taken with a touch of reality, stressed one top department store executive.

“In retailing,” he pointed out, “we’re zooming down the highway at 100 miles per hour looking backward through our rearview mirror and competing against last year’s figures. It’s great if our same store sales are up 3 or 4%—but last year they were down 15, 16 or 17%. You must consider what we’re competing against.”

Said another retailer: “In that context, we’re still behind where we were two years ago.”

            More Time For Recovery

Though some of the national sales figures being released indicate the recession is over, industry observers contend that it hasn’t convinced the average consumers who are still being very cautious on spending for non-essential goods. “Unemployment is still rising around the country and the average shoppers are still fearful of losing their jobs,” said another chain VP. “It’s going to take a lot more time for a full recovery.”

For landlords with troubled properties difficult to rent, it may be worthwhile to “give the space away,” said one strip operator.  “We’ve made deals with free rent for some Mom and Pops, with the tenant paying only operating costs for a couple of months,” he said. “It keeps the center active, stops the domino effect of other stores leaving. But,” he stressed, “the jury is still out as to whether it is effective. It depends on whether he can start paying the rent after the free period expires.”

One retail consultant was exuberant about the number of deals he had made recently. “Last year was awful and I really thought we could go belly-up. I was forced to lay off some people; then we increased our marketing, worked harder and longer than I ever have before, and it’s beginning to pay off. It’s re-vitalized me and our entire operation.”

Another agreed, and pointed out that with computers and the internet, “it’s a lot easier to operate and connect. It doesn’t completely replace face-to-face, but it does enable us to cut travel expenses and still negotiate with major landlords, get answers, and satisfy the needs of our retail clients.”

One broker pointed out that she and others “were re-tooling their business plan and dumping the unproductive stuff.”

“Part of the problem of poor retail locations that exist today,” said one veteran dealmaker, “is that many national chains had all these real estate people at the home office signing store leases who never even looked at the site. There are too many coffee or pizza shops  on the wrong side of the street, or restaurants in odd-shaped parcels with inadequate parking that are difficult or unable to provide for drive-up windows.”

            Wandering In The Exhibit Area

Wandering through the exhibit area, I see it’s crowded with rushing, intense dealmakers networking or heading for appointments, and was struck by several rented but unoccupied booths. On the upper level, where historically six much larger dealmaking rooms were occupied previously by some heavy-hitters, only three were occupied: CBL, Developers Diversified, Jones Lang LaSalle. And these landlords brought a substantially fewer number of leasing professionals than last year, 6 compared with 13 in 2008, said one owner-developer.

Another aspect setting this Midwest meeting apart from other recent ICSC regional meetings was the heavy concentration of booths operated by small cities, villages and counties that were actively seeking retail tenants to help revitalize downtown business districts. Represented by local economic development officials, they highlighted the marketing potential of these communities, and stressed how public moneys, stimulus funds and special tax incentives were earmarked to restore once vital centers that had been deteriorating for years; they pointed to improved lighting, roads, signage, public utilities, transportation, parking, and the like.

“If,” said one planning director, “we can attract a few solid retailers, it would add substantially to our tax base and help us to stop a slide caused by such factors as the admitted local neglect, poor management of past administrations, and the national economic crisis.”

            Second Day A Disaster

Though the level of dealmaking opening day in Chicago was impressive and ongoing until the reception that evening, the second day was a disaster. A substantial number of dealmaking booths were left unmanned that morning as many budget-conscious real estate professionals flew or drove home the night before to avoid the extra cost of high hotel rates; many of these neglected booths did not have even token amounts of company literature. Company representatives who were at their booths outnumbered those dealmakers wandering around still trying to connect.

One retail consultant from Atlanta who operates only in the Southeast said he was in Chicago due to a new client of his interested also in expanding into the Midwest market. “I can connect him to a few good sources and contacts and be a hero.”

A number of tenants, landlords, and brokers were outspoken in criticizing ICSC for maintaining high prices and “gouging” its members.

“In these hard times, ICSC should lower its ridiculously high registration fees to only cover the costs,” said one retailer. “They have $90 million sitting in a slush fund for a rainy day. Don’t they know it’s raining out there?”

Another said he hadn’t registered because of budgetary cutbacks forced by national headquarters, and visited the landlords upstairs—where a badge was not required for admission—and did meet with a few others in the lobby to look at leasing plans and talk deals. “In New York [the upcoming conference Dec 7-9] Simon told me to call them when I’m at the Sheraton and they’ll send someone out with a badge to bring me in.”

            Arbitrary Decisions

It was understood, one dealmaker confided, that several major owner-developers have already cancelled plans for exhibit space “at the Hilton and Sheraton hotels, and others may be wavering.”

One landlord accused the trade association of arbitrarily making decisions on schedule changes without consulting its membership. “In Las Vegas next year,” he said, “they’ve already changed the convention dates so we have to come in on the weekend. Don’t they know that’s when hotel and travel costs are at the highest, and how short of cash many companies are?”

One VP of real estate and construction with a national chain told me he normally did not attend these regional meetings but sent area leasing reps. “I’m here only because of a retail committee meeting, but ICSC seems to have lost touch with reality and is functioning with no regard to the needs or wants of its members,” he said.

Overall, registrants felt attendance and the number of  exhibitors were down from that experienced over  previous years. But the overall sentiment was still a strong, positive outlook throughout the conference.

Especially for the seasoned brokers and consultants, who have been through past market downturns and are using the lessons learned from their past experiences to help weather the current storms and control the existing crisis. “Look,” said one, “I’ve cut back before and operated out of my home when necessary. I did it before, I can do it again. We’re survivors. It’s the younger people who have never faced such rough times before who are the most terrified.”

Further information on Shopping Center Digest, our weekly Eflash, Expanding Retailers, and the Directory of Major Malls may be obtained from our website, www.shoppingcenters.com .

Strolling the Agora column from the October 26, 2009 Issue of Shopping Center Digest.

So I’m in the Atlanta Convention Center heading for the ICSC Southeast Conference and I hear this steady hum– that increases in volume, like a rushing rapids, and then a louder waterfall, and bounces and echoes off the concrete pillars and massive halls until it becomes almost deafening. It’s the roar of dealmaking.

And it’s such a contrast to last year’s “Retailers Meet and Greet” (See SCD, Agora, J227) when a large number of the tables were empty and we graded the entire conference as a D.

Not the case this time, as all the tables were occupied and landlords and brokers eagerly lined up to chat with prospective tenants, trade business cards, and try to schedule appointments for more in-depth discussions and negotiations.

This is not to say that the 2-day event set any records for attendance and overflowing optimism.  Far from it. However, the majority of the 2,200 or so dealmakers conceded the fact that due to the economy they had to work harder and longer to make the deal—here and back at the office—and they were not going to get everything they wanted or needed.

But, as one veteran cheerfully said, “It’s something, which is always better than nothing. And this is what we do: ‘Smile and dial’ and a few of those leases will get signed.”

The most common complaint from owners was that “too many retailers were insisting on straight percentage deals. Ask about $1 or $2 added to the gross, and they don’t want to hear from it; straight percentage or forget it, there’s another landlord willing to fill the vacancy.”

One retailer I spoke to admitted his company was taking advantage of the fact that there weren’t that many chains aggressively expanding.  “We’re looking for straight percentage leases for three years, if we can get it, and will agree to using the higher payments as the basis for a rent renewal.. If we’re really serious on the location, we’ll drop it to a year or two-year deal.”

Owner-developers generally came in two categories. Either it was “I understand their (the tenant) position and I don’t blame them. I’d do the same thing if I  were in their shoes.”

Or “I concede the leverage is overwhelmingly on their side but I don’t like the attitude of their putting a gun to my head. We’ll make the hard deals because we have to, and each party should not be completely satisfied. That’s fair. But we should be left with our dignity.”

Another landlord appraised the current economy which has dampened—to say the least—

dealmaking in the industry and said “Don’t quote me now, but in the long run, it’s probably better for the industry. There’ll be a shakeup and we’ll get rid of a lot of the deadwood and poor projects that should never have been built in the first place.” He added that there may still be some vacant W.T. Grant sites around the country. [Those too young to recall recessions of years past should look it up.]

One strip developer I spoke to said he was getting no action at several vacant stores, except from a Mom and Pop restaurant, who was underfunded. “So, I thought, isn’t it better to put in an operator who will provide good food, and enhance the center? If he makes it, I’ve incubated a good tenant who may remain as a long-time tenant or even expand in the future. And if he doesn’t make it, what have I lost? I couldn’t rent the space to anyway.” 

Regarding mergers and acquisitions, one leading owner of smaller centers remarked that “last year we were getting offers of available vacant land. This year, it’s existing shopping centers. But we can’t do anything about these projects because the banks are still overly cautious about lending money.”

Though some private investors and REITs have said they have money in place to acquire centers, many others complained about the lack, at this time, of the availability of adequate financing, which they say is impacting on expansion and new development in areas that may be under-stored.

The consensus: Tenants and landlords both said they had productive meetings, pointed to positive signs in the economy, but warned that a full recovery is still “quite a ways down the road” and much of what happens in 2010 “will depend on how successful the coming

holiday season will be.”

More information on the twice-monthly SHOPPING CENTER DIGEST and our associate publications, the weekly Eflash, EXPANDING RETAILERS and DIRECTORY OF MAJOR MALLS, may be obtained from our website, www.shoppingcenters.com .

Strolling the Agora column from the October 12, 2009 issue of Shopping Center Digest “The Locations Newsletter”

What has been causing agita among landlords in this industry over the last year or so is the pandemic of retailers rushing for rent concessions as an inducement to remain in a shopping center, renew a lease, or to make a new deal. As we’ve said several times before, the balance of power—due to the increasing number of vacant stores and the decreasing number of chains that are aggressively expanding—has for the first time surged to the tenant side.

It’s a basic rule in the ledger of investors and accountants that supply and demand determines what is the “true value” of a retail project, whether a strip, mall, lifestyle center or what have you. Some landlords have used this for years, establishing the “market rent” on what other tenants would be willing to pay for that specific location in a center; some tenants have  grudgingly “overpaid” for these locations as a way to keep out a competitor and avoid a loss of market share.

It is certainly not the replacement cost of the brick and mortar and numerous other variables that went into building the development in the first place. Value has been based on ROI, Return On Investment, and been used to establish various “cap rates” for years.

And when a retailer, as Rite Aid did recently, boasts that it obtained rent concessions of 20% on its worst-performing units, or when Finish Line states it is seeking serious reductions from landlords for the nearly 300 units coming up for renewal next year, the value of the centers housing those stores is substantially diminished.

It is why Taubman Centers has said it will write down the value of The Pier Shops at Caesars by $106-$111 million, and Regency Square by $55-$58 million to about $30 million, and now is turning over the Atlantic City project to the lender, Centerline Capital Group.

It is also why a number of landlords are actively seeking tax reductions on the value of their projects, such as Inland Western, owner of Maple Tree Place in Williston, VT; it is in superior court in Chittenden County seeking a $15 million cut in the $80.9 million assessment.

It is also why Standard & Poor’s Rating Services cut its ratings a notch on Regency Centers Corp, a major landlord of supermarket-anchored shopping centers.

It is also why the new owners of Highland Park Village in Dallas, Steve Summers and Ray Washburne, paid $170 million for 200,000 sq. ft. of retail and 50,000 sq. ft. of offices. Annual sales at the National Historic Landmark are over $1,000 per sq. ft., well above national averages and pretty good even for a luxury-oriented complex, that is going to get even more luxury-oriented.

And it’s also why countless, well-funded investment companies are patiently circling overhead waiting for cash-strapped owners “to get real” on the value of their assets and take them to market. When this finally happens, there will be a flood of shopping centers changing hands and the entire landscape of this industry is expected to change, with some landlords getting even larger.

The dismal state of the economy is blamed for just about everything under the sun right now. And numerous state, counties and towns are passing on to their citizens their need for more dollars, either by directly raising taxes, passing new taxes or establishing numerous new kinds of fees,  and/or increasing audits on businesses in effort to collect on unpaid back taxes.

And then, there are other methods, related to the above—but not as numerous—that some communities are using as a reaction to these challenges.

In East Alton, IL, village officials have established tax-increment financing and special sales tax districts to improve business areas that include three small shopping centers: Eastgate Plaza, East Alton Plaza, and Wilshire Village. The action is designed to counter the spread of vacant storefronts in parts of the districts, and to retain existing businesses  in a currently viable area from going into decline. Tax collections will begin in January, and then it will be determined how much would be spent on revitalizing the areas with better lighting, sidewalks, streets, utilities, and general cosmetic upgrades.

What this is all leading up to, I guess, is that just about everything is inter-connected—a giant, intricate arrangement of dominoes—and when the first one topples it causes numerous others to follow. 

More information on the twice-monthly SHOPPING CENTER DIGEST and our associate publications, EXPANDING RETAILERS and DIRECTORY OF MAJOR MALLS, may be obtained from our website, www.shoppingcenters.com .

Strolling the Agora column from the September 28, 2009 issue of Shopping Center Digest “The Locations Newsletter”

To many dealmakers on the Eastern Seaboard, the ICSC Philadelphia meeting serves as a landmark, the first official session after Labor Day and a formal statement that summer is over and with fall comes the full-court press to get some leases signed.

So it was that some 1,200 landlords, tenants and brokers involved in New Jersey, Pennsylvania, and Delaware—with quite a bit of leakage into Ohio, New York and Maryland– converged on the City of Brotherly Love for two days of meeting, greeting, and the drive to fill vacant space.

Many tried to maintain a cheerful, optimistic outlook. But…….

“We’re working a lot harder for a lot less.”

“It’s what we do—keep plugging away with the anticipation that a few of the deals we’re working on will come through. I used to have pending deals up to here [signaling up to his brow] and now they’re only up to here [signaling knee high].”

“There are a lot of hungry people out there looking for jobs, but very few openings available.”

“We’re treading water and hope we don’t sink.”

And, “It’s getting nasty and a little more vicious, especially amongst brokers in the same office. Though it has always been a problem, there is a lot more poaching of clients, trying to steal deals, attempting to horn in and share commissions that are undeserved.”

Said one veteran dealmaker, “This is not unique for just this market. I’ve been hearing similar stories over the last few months from friends around the country.”

Higher Concentration Of Brokers

As far as the quality of those in attendance, a substantial majority of mostly local brokers—which is always the case for these ICSC events covering a localized region—representing landlords and tenants involved in small, strip centers. However, there was almost no representation from large mall operators or national tenants, even those who have a substantial presence in the market.

As for national chains, it was pointed out that many of them are farming out a lot of the drudge work to willing brokers in the immediate area.

Beyond just the areas involved in leasing, there was also a lot of speculation about the increasing number of new funds being created daily for potential acquisition of distressed shopping centers that may soon be going into default. However, there are few large portfolios or sales taking place. The sellers are holding on for a better price, and the potential buyers are in no hurry to buy at current values, which they expect to drop even more.

“The owner still has a price in mind that conflicts with reality,” said one veteran who acknowledged he has several large investors, a good number of them with financing coming in from Israel, China, and various European countries, and is waiting for a better deal.

“We’re eye to eye, waiting to see who blinks first, and there’s no pressure on us to blink at all.”

Growing Numbers Of Vacancies

One owner: “We have a good center and have been paying our monthly mortgage all along. But we lost a couple of key tenants and technically, therefore, we’re in default. We look at the situation, are leasing a lot of available to offices, and see we can pay it off in four years.

“Mortgage lender sees this, too, and tells us he’s going to foreclose. Luckily, we can come up with the cash and pay off the loan. Now, we’re looking for similar landlords who are being foreclosed on who cannot come up with the cash.”

The problems of growing vacancies has made many landlords eager to negotiate and strike deals to fill space they never would have considered before. We’ve remarked on this in numerous columns over the past year. And it’s the reason why medical and dental offices are becoming a greater presence in major malls. They always wanted the visibility and the access to the affluent customers, but could never meet the rental demands; now they can as rents have dropped many dollars below last year’s asking price.

It has even affected retailers whose customers are blue collar, low-income ethnics, and whose main locations are small strips and storefronts in the inner cores.

Said one leasing director for a major apparel chain, “We now have so much more to choose from. No way, are we going into malls; but because there are so many more opportunities coming to us out there, and the rents are so low, we’re able to expand at a much greater rate than we anticipated. We’re locking in those low rents now, and will be in a much better position in one or two years when the industry gets back to normal.”

Speed Dating

The main purpose of the two-day session was dealmaking, with several hundred booths set up mainly by landlords, brokers, and tenants for the Thursday session. The day before, though, there were a number of workshops and panels on various topics of interest to early arrivals. The best attended and popular was the called Speed Dating, where some 19 retailers held court at individual tables, explained who they were, the demographics of their markets, size of stores, and what they were looking for in new locations, handed out fact sheets and exchanged business cards. Among those were Chipotle, Great Clips, Ikea, Subway, Panda Express, and a number of local supermarkets.

After a few minutes, the presenters stayed in place and the landlords went on to another table and took some more notes.

It was something, said owner-developers and brokers who participated, and certainly “better than nothing. But it was still,” said one hungry landlord, “like having a nibble at a banquet. Still it gives us something to work with. And, we’re dealmakers, which means we have to always look on the positive.”

P.S.—One sad note, which brought back so many memories to us old farts in Philly: the passing of Mel Simon, one of the stalwarts in the industry, a hard-driving, fun guy, and with Herb and Fred built a great company. Here’s to ya!

More information on the twice-monthly SHOPPING CENTER DIGEST and our associate publications, EXPANDING RETAILERS and DIRECTORY OF MAJOR MALLS, may be obtained from our website, www.shoppingcenters.com

Strolling the Agora column from the September 14 special issue of  SHOPPING CENTER DIGEST

As long as this shopping center/retail chain industry has been around—at least for the last 40-some years—the leverage at the negotiating table has been overwhelmingly with the owner-developers.  That is until this massive recession hit, new development came almost to a standstill, and vacancies from the smallest strip to the biggest mall began to go through the roof (pun intended).

Tenants, and it’s not just the discount/dollar stores, the fast food and restaurant chains, the sporting goods operators or electronics retailers still in business, or the teen-oriented specialty chains that are taking advantage of this new-found power.  It has spilled over to regional operators, Mom and Pops, temporary retailers, innovative merchants wanting to test new concepts and markets, and even those not normally interested in locating in a shopping center but lured by rock-bottom rents, central location, and numerous other reasons and concessions. Franchising is a big source of potential retailers as numerous operators eye entrepreneurs as likely partners due to their access to off-shore financial markets.

Oh sure, some may contend the landlords never had overwhelming muscle when it came to striking a deal, because they “really needed that anchor, or that dominant retailer, or that high-prestige fashion plate” to make the project happen. And there’s a lot to be said for the need by high-profile merchants to have some say in how the center or mall is marketed, or what other retailers would be permitted in, and what prime locations they would have.

Heavyweights Of The Past

This is behind the retail heavyweights of the past, such as Sears or May Stores or Dayton-Hudson for malls, or Giant Foods, Acme Stores, Safeway Stores or Gamble-Skogmo for grocery-anchored strips, establishing their own development divisions. Or why discounters like Wal-Mart or Kmart designated operators in key markets to be their prime developers.It was all done to protect their substantial financial investment and to be able to control their destiny within the shopping center.

These were the exceptions. In most instances, the landlord set the rules and Triple-A or national tenants got the best deals, the earlier they signed the better; they were necessary to hit that 70% of signed leases to obtain financing, but they still had little, real bargaining power. And the other retailers provided most of the profit for the project. With the surge to the formation of REITs and the creation of behemoth landlords, the balance was tipped even more to the side of the owner-developers.

Now, pointing to the depressed economy and declining retail sales and profits that have caused many competitors to close up, the remaining merchants still in business and looking for locations are relishing this change of fortune. A cliché: “In the country of the blind, the one-eyed man is king.” A viable tenant who used to open 50 stores annually and is now looking only for 20 when others aren’t ‘open to buy’ has a lot of muscle.

So rent reductions, and fixture allowances, and “finished stores” and dozens of other demands that a few years ago would cause a landlord to ask for a sanity hearing, are now part of the opening gambit in negotiations.

How The Landlords React

So, how is the landlord, more used to a “take it or leave it” approach reacting to this? How is he and his leasing representatives working to turn the tide and make those deals that will keep the tenant list filled and the shopping center viable?

Among the first steps is getting existing tenants to renew, which both sides are agreeable to, with rent reductions, tenant improvements, reducing operating hours, co-tenancy clauses, and numerous other concessions and details being hammered out.

With many empty big-box stores and prime locations going dark, landlords are eager to fill the gaps with almost any tenant offering a basic rent. This is why many of these locations are going to “pop up” stores, temporary and specialty  tenants, salvage grocers,  kiosk-oriented tenants, retailers looking to test new concepts and new markets, deals with permanent chains offering very short-term leases of two or three years, permitting “kickouts,” percentage rents,  finished stores, etc., etc.

An interesting trend is that many discounters, home improvement chains, ethnic-oriented merchants, even dollar stores, are willing to take a risk on major downtown locations in large cities they usually ignored, cities like New York, Chicago, Miami, Los Angeles, Portland, Dallas.  

In essence, on the table are any concessions a viable tenant is willing to ask for. And many times, to their surprise, they are being accepted by landlords.

They are eager add medical and dental offices, schools, libraries, municipal agencies, to try new concepts, such as water slides or indoor go kart tracks in place of empty “canyons,” nearly-new shops, pawn shops, and they may even look the other way when merchandise edges out into the common area—unless there’s a strong complaint from a retail neighbor.

Hoping For A Turnaround

Many in the shopping center/retail community are optimistic that there will be a turnaround next year, with the most cautious not expecting it until the second half of 2010. As reasons for their optimism, they point to more positive financial results from key retailers, polls showing a rise in consumer confidence, improvements in numbers from Wall Street, drops in the increases of jobs lost, rising home prices in some areas around the country, and the like.

Though back-to-school was not a great success for the majority of  tenants, some were gratified with better-than-expected sales. However, all mavens are holding their breath awaiting sales figures for the most important selling season of all, November-December holiday sales.

No matter what their expectations and plans are now, all can change if those few weeks produce dismal results. However, if sales improve and are better than expected, the optimism may  spill and result in more leasing and development deals from early 2010 and beyond.

It may take years though, many contend, before all the current empty stores are filled and a big push for new development and shopping center expansion swings leverage back to the side of the landlord.

More information on the twice-monthly SHOPPING CENTER DIGEST and our associate publications, EXPANDING RETAILERS and DIRECTORY OF MAJOR, may be obtained from our website, www.shoppingcenters.com .

Strolling the Agora column for  August 17, 2009 issue of  SHOPPING CENTER DIGEST

In broad strokes, I can understand only some of the financial workings that have been driving this industry for so long—certainly not the fine points–and I’m somewhat comfortable with that. Though there are times I wish I had the expertise and understanding of  Milt Cooper, who led Kimco and the landlords of this industry into the REIT market in ’91, rescuing it from the lack of funding that was crippling development and growth.

There’s no doubt that we may be heading into a similar situation dealing with money now –though slightly different. According to First American CoreLogic, “almost $165 billion in U.S. commercial real estate loans will mature this year and need to be sold or refinanced as rents and occupancies fall…”

Also, according to the index developed by MIT’s Institute of Technology Center for Real Estate, there has been an increase in commercial sales, but also a record drop of 22% on the price sold by institutional investors.

We’ve been writing for months now about the larger landlords reducing their debt and positioning themselves to acquire new properties and mortgages from strapped owners forced to sell or liquidate their holdings. So far, few “large” acquisitions have been made. There have been numerous new companies or divisions formed by savvy investors and private equity companies to acquire distressed properties, but with few actual large deals being made, and there are many confusing signposts  out there.

Extend Rather Than Sell

One financial maven said “we’re seeing lenders generally extending their loans when possible to avoid having to sell properties at current low prices and into a market where potential buyers are having difficulty arranging new financing.”

Sure, it was just announced that Cadillac Fairview Corp (owned by Ontario Teachers’ Pension Plan, is paying Macerich Co $150 million for 49% of its very successful Queens Center, and its $342 million mortgage; this is the first of three joint ventures by Macerich to cut its $7.9 billion debt by $1 or $2 billion within two or three years. And earlier this year Simon Property Group sold $1.7 billion in stock, and numerous others–Forest City, CBL, Kimco, etc., etc.—have put themselves into a more comfortable financial position by reducing their debt. Thus far, General Growth Properties is the only major developer that was forced into bankruptcy when it couldn’t re-finance and control its debt.

It’s interesting how GGP’s troubles have impacted on statistics for our industry. Delinquency rates for securitized mortgages on shopping malls fell in July to 4% from 5.9% a month earlier.  Mainly, according to debt-rating firm Realpoint LLC, because the landlord resumed paying interest on several of its delinquent mortgages after filing for bankruptcy in April. In June, GGP accounted for 43% of delinquent mortgages in retail; in July, that shrank to 18%.

Not Looking To Wall Street

Now, if you listen to the pronouncements, some shopping center developers won’t be looking any longer to Wall Street for funding, at least for the time being. Kimco, said CFO Michael Pappagallo, will not “look to the equity market to bail us out. I don’t think our investors are going to keep buying into massively dilutive equity issuances solely to pay down debt.”

He continued: “Down the road, there will be circumstances where value-creating shopping center opportunities will be available. Issuing equity at that point would make sense if our price and” returns supported such a transaction.

Then there’s Equity One, stating that there weren’t too many bargain real estate deals out there, saying it’s shifting its focus from property purchases to manage existing properties and paying down debt. And Regency Centers also says it will avoid debt and will be cautious on acquisitions.

Financial advisor Ernst & Young released a recent survey finding that though 53% of its respondents had acquired non-performing properties or loans in the last 18 months, 45% of those who have not believe it’s too early to even attempt to purchase distressed properties or loans.

So, essentially, large acquisitions and mergers may not be happening for a while, at least regarding shopping centers and real estate. As for residential, PennyMac Mortgage Investment Trust—founded by former execs at infamous Countrywide Financial Corp—was able to raise only $335 million from the hoped-for $700 million IPO it announced in May.

Then, The Tenants

But then, on the other side of the negotiating table, are the tenants.

Among its annual list of Hot 100 Retailers, said STORES magazine, 7 of the top 10 earned that position through acquisition, rather than growing “organically” through opening new stores; to be eligible, the chains had to have at least $300 million in annual sales.

Those that had impressive boosts through opening stores and increasing its revenue from its units were American Apparel,  ranked No. 2, with a sales jump of 57.6% through organic growth; Apple Stores, ranked No. 5, increased its sales by 46%; and the third retailer was jeweler Finlay Enterprises, No. 8 (Bailey Banks & Biddle, Carlyle, and Congress jewelry stores). [Interesting commentary on this last: Finley  has just filed for Chapter 11 and plans an auction to sell its business and assets].

Leading this Hot list is DineEquity, formed by the merger of Applebee’s and IHOP. And the supermarket mergers, Susser Holdings (Town & Country and Village Market) No. 3, A&P (acquisition of Pathmark) No. 4; Wendy’s/Arby’s (No. 6).

Granted, there have been many instances over the last year of household names disappearing from the list of tenants in our shopping centers. Some of these brands may live again as internet retailers, or as a division of another mainstream retailer: Goody’s and Sharper Image, for example.

And then, there may be more acquisitions and mergers and investors on the horizon for successful retailers. Several financial mavens have said that Kohlberg Kravis Roberts, a leading private equity company, is considering an IPO to take Dollar General public. Also, Irving Place Capital Management, parent of, Vitamin Shoppe said it plans to raise $143.8 million from an IPO to double the number of its stores, now at 425.

And jvs are still being considered by owners of malls and other shopping centers. Macerich, for example, expects to announce one or two more agreements with institutional investors within a month or two, and says it will receive more than $500 million from investors for the year.

So even if many dealmakers say there’s isn’t that much leasing and developing taking place, never let it be said that there isn’t any activity going on in this industry.

More information on the twice-monthly SHOPPING CENTER DIGEST and our associate publications, EXPANDING RETAILERS and DIRECTORY OF MAJOR, may be obtained from our website, www.shoppingcenters.com