Industry Settles in for Long Haul at ICSC New York Show (12/10)
Dec 10, 2008 12:01 PM
Retail consultant Jeff Green of Jeff Green Partners in Mill Valley, Calif., flew into New York early to spend part of last weekend observing shopping patterns at major stores and malls in the New York area, an annual ritual for the veteran shopping center expert. According to his gauge—looking at traffic counts and eyeing the shopping bags consumers carried—Green predicts that total U.S. retail sales this holiday season may be 2 percent lower than last year.
“If they are shopping, they’re shopping the deals. If you see what’s going on at Saks, it’s just value shopping,” Green says. “Their profit numbers are going to be horrible; the sales might be OK. There are fewer international customers, and the Americans aren’t buying much.”
Retailers are also feeling the effects of the credit crunch in various ways. Some retailers that have had trouble lining up financing are running into problems with suppliers who are refusing to send goods without assurances of payment. Some owners talked of being shocked when visiting tenants and seeing nearly bare shelves at times. That also affects retailers’ abilities to open stores and seek out new locations.
As a result of the weak consumer environment, retailers are being extremely aggressive in pushing for concessions on new leases and renewals. That is a common refrain from owners and managers.
“For this past year and the next year, landlords are doing everything they can to keep tenants including offering free rent and more build-out dollars,” says David Solomon, president of NAI ReStore, a Narbeth, Pa.-based retail real estate services firm. “I think you will see more of that. You’re seeing that tenants now, even if they are healthy, will try to make [better deals]—renew their leases early.”
On the investment sales side, there is a trickle of activity. The show itself was quiet on that front, according to Rich Walter, president of Faris Lee Investments, an Irvine, Calif.-based real estate investment firm.
“Historically, you make deals here,” Walter said. “We’re not seeing a lot of deals being made. The developers are kind of stuck in the middle. If their occupancy is not up now, it’s probably not going to be up for a while, and if their debt is not a long-term position, it’s a [problem].”
But the paralysis in the debt markets continues to affect the industry. As 2009 progresses, most experts expect that owners coming up on refinancing will be forced to sell since they will not be able to afford harsher terms from lenders. Lenders are demanding higher loan-to-value ratios and many lenders are also lowering their valuation estimates on properties. As a result, owners that today have a loan with an 85 percent loan-to-value ratio on a property appraised at $10 million may find that upon renewal the lender will only go 65 percent and lower the appraisal to $8 million. Those sorts of adjustments will require owners to pump in more equity or find mezzanine financing if they want to keep the property. Many will be forced to sell.
--Staff Reports
