Net-Lease Rides Wave of Retail’s True Fundamentals

By Globe St. May 31, 2018

”Retail sales will continue to grow this year as discretionary income ascends.” So Marcus & Millichap kicks off its First Half 2018 Net-Leased Retail Research Report.

Recently named national director of retail Scott Holmes points to a two-fold driver of this good news. First, “The tax law changes and the general health of the economy are creating more discretionary income for many purposes, including investments,” he tells GlobeSt.com.

Holmes also points to a release of last-year’s pent-up demand on the part of investors waiting to see where the then-proposed tax reform would lead. “There was a lot of fence-sitting last year,” he says, “which has turned into increased volume.”

Interestingly, much of that volume is coming from apartment investors, seeking higher returns and lower management responsibilities. “We’re seeing some apartment investors selling that product type at historically low cap rates and moving that money into less management-intensive products, such as single tenant, net-lease retail,” he observes, “and they’re doing so generally at a higher cap rates than apartments.” (Cap rate spreads remain at such historically high levels, the report notes, that they may temper any adverse impact from Federal Reserve rate increases.)

The result of these myriad tailwinds are evident. “This year,” the report states, “retail spending is forecast to post a 4.5% advance, buoyed by the continued acceleration of e-commerce growth. Although online stores consistently expand their footprint, the e-commerce sector is just a small part of a much larger retail setting.”

Among the net-lease retail sectors, “Dollar stores continue to perform well due to their inexpensive convenience items crafted to serve low-income households,” according to the report. “Grocery stores remain a highly sought-after asset as well, which can be largely attributed to the continued improvement of the overall experience. Dine-in options, wine and cheese bars, and more quality products keep foot traffic high and occupancy strong for owners of these assets. Necessity-based stores, like grocers, have proved to be relatively resistant to the rise of e-commerce.”

Tracking the development side of the net lease picture, Marcus & Millichap reports a contracting pipeline. “As the retail marketplace has improved throughout the cycle,” says the report, “builders have largely responded by supplying build-to-suit product for net-leased tenants. As a result, single-tenant structures have routinely made up more than two-thirds of annual deliveries since the recovery began in 2009.

“Despite rising inventory availability due to several high-profile closings,” the report continues, “net absorption has remained positive, generating robust growth in the average asking rent, which rose above 2008 levels for the first time in 2017. Elevated development costs that could be bolstered by the new metal tariffs may trigger further upside in asking rents as tenants vie for the limited space coming online.”

Even interest rates, for the time being at least, are fueling volume. The interest-rate question was the biggest issue after the wait-and-see Holmes indicated previously. “We had a pretty rapid rise in the 10-year Treasury last year,” he says. “It seems to have settled down to the new normal, and for that reason as well more people are transacting. There has been a modest rise, but it always depends on the market and the product type, especially in retail.”

In fact, he adds, high-credit, long-term net lease transactions have in general been less impacted than other types of retail, such as power centers. But it’s really “a case-by-case question,” he says.

As both the report and Holmes point out, the fundamentals of the market–and the resultant investor interest–belie the headlines of doom-and-gloom. In fact, despite said headlines, there were more store openings (4,000 in all, according to Marcus & Millichap) than closings last year.

In all, Holmes sees a strong market for the foreseeable future, with only one bit of advice. “Certainly, the refrain for quite a while now has been cautious optimism,” he says. “There have been some headlines, but as you go through the fundamentals on a broad national basis, conditions, especially earnings, still very much lean to the positive. Despite the headlines, vacancies are near all-time lows, there’s rental rate growth and supply is constrained.”

Which leads us to the advice, directly tied to the essentially local nature of the retail market: “Do your homework on the market,” he concludes.


Well, in the protected waters of Marina Del Ray’s harbor anyway ;—)

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Gorgeous Marina (Del Rey) Views Aboard Dream On

But the harbor scene was no less exciting or enjoyable than open waters. And the setting couldn’t have been more perfect if we’d scripted it… Bright and sunny cloudless blue skies and ideal temps (not too hot, not too cold), trimmed by a gentle, airy breeze that trailed our vessel, Dream On, as we cruised the gorgeous Marina inlet.

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A Grand Time Was Had By One-And-All!

Meanwhile, the entire team was on-hand partaking in a delectable lunch, luscious libations, and engaging conversation as we sailed through the vivaciously glowing midday rays.

All set to the dulcet tones of a solo guitarist, expertly strumming a bevy of classic tunes on his nylon string Spanish guitar.

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The Perfect Ending to Another Productive Year

All-in-all, our boat bash provided a perfect crescendo to another successful year!

Check out more pix from our dreamy cruise aboard Dream On at CBM’s Facebook page

P.S. Many thanks to Hornblower Cruises for making our party such a monumental hit!


Shake Shack Poised for Biggest Growth Year Ever

By QSR Magazine, November 2, 2017

Boosted by both revenue and overall sales increases of nearly 27 percent during its latest quarter, Shake Shack is planning to open more locations in new markets throughout 2018.

During a conference call Wednesday, CEO Randy Garutti said the company plans to open between 32 and 35 new company operated locations by the end of 2018, with about 20 percent of those units expected to open in new markets. 2018 will be the biggest year of unit openings for Shake Shack to date, and will result in year-over-year unit growth between 36 and 40 percent. Shake Shack has revised its forecast of opening 24 restaurants by the end of 2017 to potentially opening 26 units.

New units will include a Shake Shack at LAX Airport and at Hartsfield-Jackson Atlanta International Airport. During the third quarter, Shake Shack entered the San Antonio market and added its second Michigan location.

While sales and revenue increased during the third quarter thanks to year-over-year unit growth of 36 percent, Shake Shack’s same-store sales fell by 1.6 percent compared to a 2.9 percent increase last year. Traffic decreased 3.8 percent.

“We’re pleased with both our top and bottom line growth in the third quarter despite the negative impact of Shack closures caused by two major hurricanes,” Garutti said, adding that the company closed nine locations for a total loss of 33 operating days during the storms.

Earlier this month, Shake Shack launched its kiosk-only, cashless store and tested a split kitchen for greater throughput. Garutti says that the company will continue to invest in these types of innovations and expects an increasing proportion of ordering to be conducted through the Shack app and delivery channels.

“Our average check via the app remains higher than in Shack,” he said. “We’re seeing encouraging return rates from our app users and while [it’s] still in the early days for us, we believe the Shack app is a really important tool for us to deepen our connection with our guests with a strategic push towards more personalized marketing initiatives to drive greater frequency and spending.”

Shake Shack launched its Hot Chick’n LTO during the quarter, and will continue to test chicken as an expanded menu category.

Garutti says that the brand has been pleased with delivery pilots and there is high demand for Shake Shack delivery.

“In terms of where we ultimately go with delivery, anything we choose to build will be with long-term sustainable economics in order to create a strong healthy business,” Garutti said. “For now, you’ll continue to see us approach this area of our business thoughtfully and strategically.”

View original article here…


Center Centers Business Management (CBM) leasing agent, Brett Mero, recently completed a lease transaction representing the landlord and tenant, Wanderlust Creamery, a local ice cream parlor, on a 1,000 SQFT retail space. The unit is situated in a newer, corner shopping center at the intersection of Glendale Boulevard and Glenhurst Avenue in the steadily gentrifying Northeast Los Angeles enclave of Atwater Village. The well maintained, artfully designed shopping center features stunning curb appeal and a variety of successful co-tenants, including Subway, Dunkin Donuts, the UPS Store and more.


CBM’s Valley Division Director, Dave O’Connell, and long-time Encino office leasing agent, David Guardado, both celebrated birthdays last week.

CBM’s Encino office team joined together to honor these two fine gents at a big birthday bash lunch.

We can’t tell you how old Dave + David are, but we can tell you they’re old enough to have a good time ;–) Which, if the photo above is any indication, they clearly did!

Happy Birthday, boys!

 



The latest addition to the CBM team, Diana Romero, knows how to strut her stuff…

Just like any good peacock!

And in the pic above, Diana’s representing CBM with LOADS of Halloween spirit (at CBM’s West LA office front desk).

Check out that peacock custom… AMAZING, huh?


Retail leasing specialist, and all around amazing guy, David Levcovitch…

Just celebrated his 70th birthday!

In the birthday bash pictured above, David is accompanied by the CBM’s entire Encino office, two veteran West LA office property managers, and CBM President, Rick Rivera.

David joined CBM’s Encino office in mid-‘90s, and has been a retail leasing juggernaut, not to mention one of CBM’s most productive leasing agents, ever since.

The only question for David now, reflecting back upon his 20+ year career with CBM: We’ll the company be celebrating his 90th birthday in another 20 years?

I’d put my money on it!