Centers Business Management (CBM) Valley Division Director, Dave O’Connell, recently completed a lease transaction representing the landlord and tenant, Warehouse Shoe Sale, on a 7,217 SQFT retail property. The freestanding building as at the intersection of York Boulevard and Avenue 63 in prime Highland Park. The property, situated in the quickly gentrifying and in-demand NELA area, is positioned between a busy Rite Aid drug store and a 99 Cents Only Store, and across from drive-thru Jack-the-Box and Starbucks locations.
Centers Business Management (CBM) property manager, Tina Flor, recently completed a lease transaction representing the landlord and tenant, Little Caesar’s Pizza, on a 1,140 SQFT retail space. The property is on Saviers Road, just south of Bryce Canyon Avenue, in prime Oxnard. The newer, well-maintained neighborhood center features a diverse tenant mix, including Fred Loya Insurance, mini market, nail salon, and more.
Western Real Estate Business, a leading CRE trade publication, tapped CBM’s West LA leasing manager, Geoff Grossman, to share his insights on what the future holds for Net Lease investments.
In response, Mr. Grossman penned the article…
ALL HAIL THE RISE OF THE STRIP CENTER!
Download the complete article here.
Last fall, international toy merchandising giant, Toys ‘R Us, filed for bankruptcy under Chapter 11 protection. The move was intended to give the struggling business “greater flexibility” in dealing with it’s $5 billion in long-term debt.
Then last month, the company announced the intention to close 184 stores, paring down its 700+ locations across the United States. This step was a further effort to clear the financially ailing retailer’s balance sheet in hopes of attracting a would-be investor to bail out the company.
Unfortunately, the bid failed. As a result, Toys ‘R Us has announced plans to close all US-based stores.
The company’s faltering sales are largely attributed to increased competition from eCommerce outlets, chiefly, Amazon. In addition to a strong push among discount retailers, such as Target and Walmart, to capture a larger portion of the toys sales market. An effort that has proven successful, much to the chagrin of Toys ‘R Us.
Toys ‘R Us has offered no immediate timeline for store closures. And no outline for where the process will begin or how it will progress regionally.
The silver lining…
In CoStar’s recent State of The Retail Market presentation, the firm’s economists noted the majority of Toys ‘R Us stores boasts a strong “location score.”
This is a proprietary scoring metric that factors income demographics, the financial health of adjacent retailers, and overall commercial property values to determine a location’s “investment quality.”
And according to CoStar’s data, Toys ‘R Us anchored or occupied shopping centers demonstrate consistently high investment quality.
This indicates that despite the fact that Toys ‘R Us happens to be vacating a center, the property is none-the-less an ideal site for replacement credit tenant.
In other words, a bevy of prime real estate ripe for willing takers is about to open up!
And this is good for…
Yes, many an aggrieved landlord is about to lose a major credit tenant currently occupying a LOT of space in their center. That said, however, there is a sizable pool of strong replacement tenants waiting in the wings.
The shortage of A+ space has been one of the biggest roadblocks to many expanding tenants. Meanwhile, the locations the majority of Toys ‘R Us stores currently occupy are exactly the type of sites most credit tenants salivate over. And more than a few of these locations are about to become available.
There many big deals looming on the horizon ; —)
Thus, despite Toys ‘R Us’ clear misfortune, the situation is by no means a net loss.
Grocery Stores Slow Expansions, but Prepare Big Changes
By Globe St | February 28, 2018
CHICAGO—Grocery-anchored centers continued to be an attractive property type for investors in 2017, with sales volumes increasing by 5.3%, according to JLL’s Grocery Tracker 2018 report. The asset class remained stable even though investors kept most other retail types at arm’s length.
But regardless of the overall stability, many grocers continue to experiment with new strategies like healthier food options, more advanced technology, and the possibility of alliances with non-grocery companies, leading Chicago-based JLL to conclude that this retail sector will have an eventful 2018.
Last year, the industry took a breather in some ways. Builders slowed the pace of new construction in 2017, opening 13.4 million square feet of space, which represents a decrease of 28.8% year-over-year, JLL finds.
“It’s not surprising that overall grocery store expansions fell in 2017, when compared to the boom in 2016,” says James Cook, the company’s director of retail research. More than one-third of new store openings were in just three states: CA with 1.6 million-square-feet, and NC and VA with growth of 2.7 million-square-feet across both states. “Retail follows rooftops, so the states with strong population growth will continue to see an influx of grocers.”
Consumers have become partial to specialty grocers, discount grocers and wholesale clubs, he adds, putting pressure on the largest grocery chains. “But we are seeing strong local chains competing head to head, and winning. Locations within the trade area and in the right markets is key.”
Healthier food choices, especially at affordable prices, was one of the three main strategies which helped many grocers compete. Aldi, Lidl and Grocery Outlet have done well by embracing gluten free and vegan-only diets. Aldi, for example, launched LiveGFree, a gluten free product line, in 2014, while Lidl offers shoppers a vegan option.
Moves like this helped Aldi expand its market share, JLL finds. The discount grocer significantly grew its presence last year in CA, VA and TX. And it plans to invest $3.4 billion in store expansions over the next four years while also remodeling 400 existing properties.
Grocers that sell products under private labels also have a competitive advantage. Consumer tastes can change quickly, JLL points out, but private labels allow grocers to quickly respond to market changes. Furthermore, cutting out the middlemen can double profit margins. Albertsons, one of the nation’s top grocers, recently added hundreds of new USDA-certified organic products to its O Organics private label. The line just hit $1 billion in sales in the most recent year, a 15% increase, and the grocer plans to add hundreds of more new products in 2018.
Like most brick-and-mortar retailers, grocery stores have begun establishing online shopping options. Still, JLL finds that online penetration in the sector remains at a mere 0.8%.
But property owners can expect grocers to continue experimenting with online shopping, grocery delivery and click and collect. Kroger opened its 1000th ClickList store, where customers can have items brought to their car after ordering online. The service has been a hit with shoppers, and Kroger has seen digital sales more than double since the launch.
JLL advises investors to pay attention to the strategies adopted by grocers. “Owning a property anchored by one of the top grocery chains is no longer a guarantee of strong performance,” says Chris Angelone, the company’s retail investment sales leader. “Owning retail is like owning an operating business, and investors need to keep in mind changing consumer preferences.”
The biggest recent news in the grocery world was Amazon’s $14 billion acquisition of Whole Foods. The implications of that move are not yet clear, but JLL expects more partnerships between grocers and non-grocery companies “that focus on innovation and technology that can build upon digital networks, logistics, delivery, and customer engagement.”
Which Net Lease Assets Are Selling Like Hotcakes?
By Globe St | March 1, 2018
CORONA DEL MAR, CA—Single-tenant retail assets priced $5 million or less continue to sell with the most velocity due to having the largest audience of prospective investors and all-cash buyers that are less dependent upon financing, Hanley Investment Group EVP Bill Asher tells GlobeSt.com. In addition, he says grocery-anchored shopping centers with reported successful sales and a complementary mix of Internet-resistant retailers will continue to be in high demand and command top-of-the-market pricing.
“In 2017, we saw sellers continue to push the market with aggressive pricing on the marketing and sale of single-tenant retail, especially coming off peak market pricing in 2016 driven by record-low interest rates and investor demand,” says Asher.
He adds that overall activity and buyer interest decreased, with buyers proceeding with more caution in previous years. This created larger spreads between where a property was listed for sale, what range buyers submitted offers and final closing prices. “Watch for brokers to strategize with sellers in more depth in 2018 in properly adjusted pricing to better meet the transitioning market on all retail product types to more efficiently and effectively consummate sales this year.”
Another development that was pleasing to the net-lease sector was where 1031 exchanges wound up in the new tax plan. “We were pleased when the 1031 exchange was left alone in the tax bill, and that activity will continue to support our business as long as it remains intact,” says Adam Scherr, an advisor with Sands Investment Group. However, he tells us there is some concern with interest rates rising since the end of last year and a lag time between rise in cap rates and interest rate.
Still, the net-lease investment market is seeing increased velocity and deal flow on a national basis, Kyle Gulock, senior managing director of Charles Dunn Co. Inc., tells us. “The main drivers for this are a strong economy, job growth and overall consumer confidence. This has led to increased deal flow across all sectors of the real estate industry, which has created an expanding buyer pool of 1031-exchange buyers.” Gulock says that 82% of the net-lease transactions his group completed in 2017 involved a 1031-exchange buyer from California.
With a market that appears to be trending toward a more consistent, higher-interest-rate environment, net-lease investors should be paying more attention to their strategies with existing properties they own and properties that they are looking to acquire, says John Read, first VP with CBRE’s National Retail Partners—West team. “Interest rates and cap rates remain near historical lows, and it makes sense to sell, buy and/or refinance. If investors are not doing one or all of these in today’s market, they might be missing an opportunity.”
Centers Business Management (CBM) Valley Division Director, Dave O’Connell, and leasing agent, David Guardado, recently completed a lease transaction representing the landlord and tenant, a local beauty salon, on a 2,243 SQFT retail space. The unit is in a corner neighborhood center at the signalized intersection of Magnolia and Whitsett in prime Valley Village. The center is situated across the street from a Rite Aid drug store and on the corner opposite from a Pizza Hut + Wing Street drive-thru.
Centers Business Management (CBM) leasing agent, Jason Ehrenpreis, recently completed a lease transaction representing the landlord in a deal with a local Ramen restaurant, on a 2,000 SQFT retail space. The unit is in a well-maintained mid-block strip center on Devonshire, just east of Balboa in prime Northridge. Situated immediately next to an IHOP, the center’s co-tenants include Ring Wind (work clothing), Quiznos Subs, Pizza Hut, SuperCuts, Armed Forces Recruiting Center, and more!
Vibrant Retail Pockets Exist Everywhere
By Globe St. | February 26, 2018
The “demise” of brick and mortar retail, pop-up shops, new technologies, decreasing sales, increasing sales, destination retail—opinions on the future of retail are many and varied, causing a pause among traditional investors. That is according to a panel at the recent MBA’s CREF/Multifamily Housing Convention and Expo 2018. “As ecommerce continues to grow, the risks and opportunities for lenders remain difficult to forecast,” panelists said.
In the brick and mortar, e-commerce, demographics and technology session, panelists took time for a reset and provide their perspectives on retail real estate and the components necessary for success in an e-commerce environment. Victor Calanog, chief economist and SVP of REIS, said that the big boogie man in the room is how online sales are affecting brick and mortar. But he said the answer is that the number is really only 9%, which he says is “surprisingly low.”
But that number, he says, includes things like gasoline and car sales, and if you strip those out, the number is closer to 30%. “Sure, there is a lot of stress on brick and mortar, but those scary headlines don’t capture the full picture.”
Calanog explained that it is easy to really highlight stories of store closing, but there is a lot happening out there that don’t highlight that the action might just be shifting somewhere else. “What’s more important is to look at which brick and mortar are doing well and why.”
Ryan G. McCullough, senior real estate consultant at CoStar Portfolio Strategy, says that while there is some concern from retailer productivity, ultimately when we look at what public retailers are reporting today at in store sales, they are 19% less than they have done over a long term average. But what does that mean for the market, he asked? “It means closures in some cases, but it is for the worst performing stores.”
In some cases, he explained, e-commerce is complimentary to brick-and-mortar. “If we didn’t have online sales, we would have about 300 million square feet more space occupied for retailers. The question then is, if e-commerce is hurting some stores, but it is benefiting others, how can we tell the difference?”
He pointed out that vibrant retail pockets exist everywhere. “When you look at the assets you are lending on, you have to think about all that. Tenants also plan an important role in the success of a center long term and location quality is a strong predictor of loan performance.”
Centers Business Management (CBM) leasing agents, Geoff Grossman and Aaron Guido, recently completed a lease transaction representing the landlord and tenant, a local Brewery, on a 1,247 SQFT retail space. The unit is in a mid-block strip center situated on high-traffic Clark Avenue, just east of Spring Street, across from a massive office park that stretches several blocks along Clark Avenue.