Pre ICSC Retail Forecast and Predictions II

Posted: April 26, 2017  by Eli Randel, Director of Business Development


ICSC TREND PREDICTION II

Urbanization Will Dominate Suburbia In Population Movement Next Cycle

In preparation for ICSC, we are putting together several prediction pieces starting with last week’s opener Pre ICSC Retail Forecast – Part I.

 

Based on anecdotal data, interviews with institutional capital investors, and my personal belief, I predict next cycle will be one in which urbanization pulls many from the suburbs inward. This does not mean suburban real estate will drastically suffer, in fact, the result will create new opportunities and like many trends, when activity flows disproportionately in one direction, space becomes crowded eventually pulling the pendulum back to the less crowded market.

 

Here’s are some reasons why urbanization will occur:

    • Population-growth and tired infrastructure have lengthened commutes. In a survey of thousands of renters, “Proximity to Work” was their #1 locational decision (more than “School Zone” the expected #1). People will need to move closer to job-centers to maintain their proximity to work preferences.

    • Automation will hit suburban markets first forcing job-seekers inward. Corporations don’t intend to pay CBD rents for automated work. Those pseudo-outsourcing activities will be outside of cities forcing skilled workers and job-seekers inward to CBDs.

    • Oversupply in some city-centers will create strong buy and rent opportunities. Thousands of condos and apartments need to be bought or rented and many of those opportunities will emerge in overbuilt downtowns while many suburban markets are still unaffordable for most.

    • At first glance, baby-boomer retirees (of which there will be many) appear to favor more urban lifestyles than traditionally. Life expectancy is longer than ever and retirees – many of whom spent much of their lives in suburbs – like amenity rich cities with stuff to do. Suburban markets will still see retiree inflow, but cities may see unprecedented migration bringing ancillary jobs with them.

    • Generation Y, like their recent predecessor generations, gravitates toward cities. Our nation’s Walden values of the past have faded and the tech generation likes the activity and buzz of the city. It’s also likely Ys will wait as long or longer than millennials to marry and have children. When they do, raising kids in cities will become increasingly common (at least during infancy).

    • Living in cities is easier than ever before: ride-sharing platforms and (slowly) improving public transportation have somewhat eliminated the need for a car; delivery and e-commerce have lightened the need for proximity to grocers and other retailers; work-live-play developments have emerged across the nation keeping people’s lives within a tight radius; and many cities once considered to have “daytime-population-only” downtowns, now have vibrant city centers with social scenes and increased options for living.

WHAT IT MEANS FOR CRE

Pent up institutional and foreign capital, more familiar and comfortable with the stability of major markets, will continue to flow to cities pricing out most entrepreneurial capital investors. Following a corrective period, infill land will trade at astronomical prices and bite sizes exceeding friends-and-family equity buckets. Given overall demographic growth and limited supply resulting from moderate development last cycle, most suburbs will remain healthy from a real estate standpoint with some softening in occupancy and rate growth during a corrective period. If the economy hits a road-bump, suburban office vacancies may spike, as small independent businesses rising with the tide sometimes go back to working from home-offices when their business softens. Cities will eventually sprawl and begin to bleed into nearby suburbs offering buy opportunities for those who can predict and shape the path of movement. Suburban yields may increase as a result of less competition and tough underwriting translating to higher costs of capital, offering premiums for financeable entrepreneurial investors willing to stomach some volatility and actively manage assets.

 

Next week we’ll discuss which cities stand to gain the most, and which may suffer.

 

Comments and feedback are always welcome. Email Eli

 

Schedule a CREXi Demo at ICSC RECon 2017


Eli Randel

Eli Randel, ICSC Forecast

Eli Randel is Director of Business Development based in CREXi’s Miami office. Eli spearheads CREXi’s growth and sales throughout the east coast as well as overseeing the national sales team. Prior to joining CREXi, Eli was director of dispositions for Blackstone’s Invitation Homes. Eli has also held management positions and production roles with Cohen Financial, Auction.com, LNR and CBRE where he began his career spending three years in Investment Sales before leaving to obtain his Master in Business Administration from the University of Florida.

 

 

Pre ICSC Retail Forecast and Predictions

Posted: April 20, 2017 by Eli Randel, Director of Business Development


PRE ICSC RETAIL FORECAST – PART I

It’s nearing May signifying that retail analysis on the eve of ISCS is fast approaching. In the wake of recent store closure announcements from once iconic retail flags, the discussion has already begun. At the risk of being bold and possibly wrong, we are going to publish a series of ICSC/retail trends and predictions based on surveys, interviews, and anecdotal data. Topics to look for in the upcoming weeks:

 

  • Urbanization vs. Suburbia
  • Rise of the Second & Third Cities – Which Cities Will Prosper Next Cycle?
  • Smaller Footprints – Not a Baby Announcement
  • Retailertainment – Shop & Play (and Eat)
  • Survival of the Clickest – (a term coined by Paul Cohen)
  • Side Street – With Virtual Signage and E-Visibility, Do I Need to be on Main St?

 

PREDICTION I – ICSC 2017

We Will Discuss The Same Themes Often

We’re all guilty of it. There’s no risk in discussing something that already happened, and while the analysis might help investors, brokers, and stakeholders react, the opportunity to proactively strategize may have mostly passed. Some themes we possibly should have seen coming that we’ll discuss often:

 

    • STORE CLOSURES: Antiquated brands, static real estate models, and the impact of e-commerce should have probably been a focus of ICSC yesteryear. Stagnant store sales (resulting from e-commerce or tired brands) coupled with increasing occupancy costs have eroded profitability for some. Relevant, high-margin brands can partially write their (smaller) footprints off as advertising expense and showrooms for e-sales.

 

    • BIG BOX CHALLENGES: Occupancy costs are an expense, as are the employees and inventory large-space houses. Department-like stores selling other brands allow customers to try a shoe on, only to watch them buy it from the source (nike.com) resulting in the store-related expense without the revenue. Grocers and mega-stores might also eventually shrink their footprints (many have). If inventory can be stacked in a warehouse for say $4/SF vs. $15/SF and transportation costs remain low, others could follow suit.

 

    • (SUBURBAN) MALLS ARE STRUGGLING: Likely a result of overbuilding from another era, many suburban malls are struggling as foot-traffic declines and vacancy increases. Co-tenancy clauses allowing retailers to terminate their lease or pay less when an anchor goes dark, can create a domino effect. There is a rally-cry that malls will adapt and find new use for vacant space. I’m skeptical that current owners will be the ones to revive them. When the cost-basis resets following disposition, new landlords can get creative, but it can be hard for current owners to pencil-out. On the other hand, many urban malls are thriving. Seven of the top-ten malls (sales/sf) are in urban markets.

 

    • POLITICAL RISK OR REWARD: Few forecasted Trump’s populist win so I won’t pretend this should have been easily predictable. I hope for politically neutral discussion surrounding the presidency and resulting economy – politics will be discussed often. Hopefully before the parties start while heads are still cool.

 

Comments and feedback are always welcome.  Email Eli


Eli Randel

Eli Randel, CREXi Director of Business Development

Eli Randel is Director of Business Development based in CREXi’s Miami office. Eli spearheads CREXi’s growth and sales throughout the east coast as well as overseeing the national sales team. Prior to joining CREXi, Eli was director of dispositions for Blackstone’s Invitation Homes. Eli has also held management positions and production roles with Cohen Financial, Auction.com, LNR and CBRE where he began his career spending three years in Investment Sales before leaving to obtain his Master in Business Administration from the University of Florida.

SRS Continues Momentum – Closes Two Zero-Cash-Flow Deals Totaling Close to $150MM

Posted: April 18, 2017


SRS REAL ESTATE PARTNERS CITES DEAL STRUCTURE AND USE OF CREXi AS DRIVERS

In two large deals illustrating the benefits of Zero-Cash-Flow net-lease properties, SRS Real Estate Partners has closed a 921K SF single tenant AT&T (NYSE: T) corporate facility in Morristown, New Jersey for $101,500,000, and a 27-property net-leased Flower Foods (MYSE: FLO) portfolio for $47,500,000.

 

Both net-lease deals are unique in that the lease and loan structure result in zero-cash-flow (“ZCF”) to the owner with equity rapidly growing as the loan is paid down and the property appreciates. “ZCF deals don’t meet every investor’s criteria, but are becoming more popular as they should,” notes SRS Vice President John Redfield. “Given the tenant’s investment-grade credit and favorable lease-terms, lenders are willing to lend up to 1.0 debt-service coverage resulting in a highly-leveraged loan requiring less than typical sponsor equity. Investors grow equity as the loan is paid down and achieve their accrued returns at an eventual capital event. Future lease-extensions or re-tenanting at lease expiration can propel these low-risk deals into home-run returns,” Redfield adds.

 

Redfield also cites the benefit of working with CREXi, an online CRE marketplace, in marketing and assisting with the transactions. “Given the structured nature of ZCF deals, having a platform to help manage the marketing process is a huge value-add. Additionally, the reach CREXi provided ensured that we exposed the opportunity to every possible buyer,” added Redfield. “Our clients hire us to maximize value, in a quick timeframe, with surety of sale and there is no doubt that CREXi assisted on all those fronts.”

 

Redfield, Tramontano and the rest of the team have already sold this year 62 properties at over $278MM with over $324MM currently under contract. The SRS National Net Lease Group & Investment Properties is comprised of seasoned brokers located and transacting nationally, operating under a single, open platform with all underwriting and marketing efforts strategically located in Southern California.


ABOUT SRS REAL ESTATE PARTNERS

Founded in 1986, SRS is the largest commercial real estate firm in North America exclusively dedicated to retail services. With more than 20 offices across North America and in select global markets, a track record of over 5,400 transactions and current tenant and landlord representation in excess of 20 million square feet, our promise is to deliver true value to our clients. As one of the nation’s most respected retail services brokerage firms, we are guided by our principles of integrity, respect, teamwork and leadership in every real estate transaction.


ABOUT CREXi

Founded in 2015 with significant VC backing, CREXi is a commercial real estate marketplace that simplifies transactions for brokers with a suite of easy-to-use tools to manage their sale process. Bringing the traditional CRE sales process online, CREXi leverages the latest advances in technology to optimize pricing and make transactions faster and more efficient.

Profile of a Legend – Stephen Ross – The Empire Builder

Posted: April 14, 2017 by Eli Randel, Director of Business Development


PROFILE OF A LEGEND – STEPHEN ROSS – THE EMPIRE BUILDER

Stephen Ross, with an estimated net worth of approximately $8B, is one of the wealthiest real estate developers in the world. Additionally, Ross is a generous philanthropist and team owner of the Miami Dolphins. How did the Detroit native build his NYC and beyond empire?

 

Stephen Ross was born in 1940 in Detroit, Michigan. In high-school Ross relocated to Miami-Beach before eventually attending the University of Florida. Ross would relocate closer to his childhood home by transferring to the University of Michigan and following graduation would obtain his JD from Wayne St. School of Law. With a loan from his uncle Max Fisher – who Ross would call “the important role model and inspiration for me in my life” – Ross would get his LLM in Tax Law at NYU in 1966.

 

Ross began his career as a tax attorney at Coopers and Lybrand in Detroit before moving back to New York City to accept a job in the real estate department at Laird Inc. Ross would then work for Bear Stearns before leaving with a $10,000 loan from his mom to employ his tax knowledge and construct federally subsidized affordable housing with a syndicate of investors. The venture was successful and would propel Ross to take his earnings and experience and develop more traditional deals on his own. His new projects would have an emphasis on high-quality architecture and engineering and were the basis for which the Related Companies was founded in 1972 under Ross’s control.

 

The Related Companies has grown into a global diversified real estate developer and investor which employs approximately 2,000 people. Among other projects, Related is currently developing Hudson Yards on 28 acres on the West-Side of Manhattan which will eventually deliver 12.7MM SF of space. At $15B, the project is the largest private real estate development in America. In Florida, where Ross also has a residence, he and his long-time business partner Jorge Perez have helped shape the Miami and Ft. Lauderdale skylines delivering thousands of condo and rental apartments. Ross is also majority owner of the Miami Dolphins and their stadium which has propelled him into a more national spotlight. Stephen Ross is also a generous philanthropist with donations to the University of Michigan of approximately $300MM in addition to several other worthy causes. 

 

Through familial support, education, knowledge gained from previous jobs, hard-work, natural smarts, and likely some good old-fashioned luck, Ross built a real estate empire which has helped shape the NYC skyline and beyond.

 


Sell Properties Like Stephen Gostkowski

Posted: April 12, 2017 by Paul Cohen, Regional Director


SELL PROPERTIES LIKE STEPHEN GOSTKOWSKI

CREXi BlogI know what you’re thinking. Have I lost my mind? Why is the kicker for the New England Patriots selling real estate? Did he just get fired by Belichick and get picked up by the local Remax affiliate on the waiver wire? Not even close. Stephen Gostkowski is still alive and kicking (punt intended (that was intended too)) and getting ready for another 87.1% season.

 

One challenge with sellers is they want to believe the broker who forecasts the highest price not the broker who tells them the most realistic outcome. It’s all too easy to start a bidding war with other brokers and before you know it you have just landed a listing for 20% above your original valuation.

 

As a former broker, I liked to use the field goal analogy when speaking with sellers about their properties. I would put the price that even the most conservative investor would pay at the 1 yd line – about the equivalent of an extra point – and the highest price imaginable at the 45 yd. line (meaning a 62 yard field goal which has an approximate success rate of say 10%) and explain to the seller that the higher the price, the lower the success probability, but also explain that I was the best field goal kicker in town.

 

CREXi BlogIn fact, commercial real estate has different values depending upon who’s buying it. Take a suburban office property for example. To an investor, it will have a value based upon a cap rate range. An owner/occupier may be willing to pay slightly more if they view it as their office and have different economics, emotions, and maybe even different financing. A developer may value the property even higher if there are potential zoning changes and increased time to get said rezoning.

 

Selling to an investor at a market or slightly above market cap rate is like an extra point. Most brokers should be able to kick that. Only a bad snap or hold will stop you making a sale.

 

Selling at a premium cap rate or to an owner-user is a little tougher and requires wider reach. Most competent brokers can get the equivalent of a 25 yard field goal utilizing their broker and investor network but you need to have a more targeted approach if you want to hit from further out.  The success rate dramatically drops off unless you have Gostkowski accuracy.

 

Getting maximum pricing relies not only on accuracy but range. Only the top brokers have this.

 

A top Broker has deep relationships in the market, knows how to approach investors, owner users, and developers to structure a deal that makes sense and then strike at the right moment. They will use the best tools to help them reach the right buyer and then run a tight process to get the deal closed.  Many of them have made CREXi part of their team for it’s ability to enhance their range and accuracy!

 

Are you the Gostkowski in your market?  How do you drive pricing and help get that extra point or three?


Paul Cohen

Paul Cohen, CREXi Convenient TechnologyPaul Cohen is a Regional Director with CREXi based in the firm’s Miami office and focused on business development in the southeast. Prior to joining CREXi, Cohen was a Managing Director specializing in investment sales and equity raises at Cohen Financial, a national debt and equity advisor. Prior to Cohen Financial, Paul owned and operated his own independent real estate firm following a 12-year tenure at CBRE where Cohen was a Senior Vice President and led the Private Client Group in Miami-Dade County with a specialty in office and industrial investment sales.  Email Paul

Why CREXi Reminds Me of Uber

Posted: March 30, 2017 by Paul Cohen, Regional Director 


WHY CREXi REMINDS ME OF UBER

 

This just happened on my way to the airport. I am leaving on a trip to visit clients in the Carolinas so I order an Uber and then head to the lobby of my building. As I enter, a woman is screaming into her phone that she ordered a cab over half-an-hour ago and was going to miss her flight. “Who’s your manager!?”, she screamed into her phone. In my experience the desired effect is seldom achieved when attempting to pull rank and ask for the manager, especially in Miami where indifference is an art-form. The desk clerk and I made eye contact and both quickly rolled our eyes away to break contact while also sharing an “oh-boy” moment. I was reminded of the scene in Casino where Joe Pesci says to the security guard searching his upset wife “don’t look at me, pal. I’ve got to live with her.” I looked for a little dog to peek out of her probably $10,000 purse, but didn’t see one.  

 

At that point, my phone notified me that Jesus (his real name. Jesus take the wheel) was arriving in a Toyota Corolla. I asked the lady if she wanted to share my ride. “No!  I have a cab coming,” she screeched. While I usually disagree with the cliché, a voice saying, “no good deed goes unpunished” ran through my head. I jumped in my Uber and headed to Miami International. 

 

At the airport, I noticed the line of people waiting for a yellow cab. It was a bad day for taxis. Who still waits for a Cab? Who are these people? Most were holding smart phones, why didn’t they download one of the two easy to use apps that could help them? Does this group get home and put a VCR tape in? Waiting is one thing – some people have more patience than others – but a cab is more expensive (my $13 ride would have probably cost $30 in a yellow cab), the interiors are usually trashed, sometimes the driver will claim they only accept cash despite Visa symbols everywhere, and I occasionally don’t have cash on me. Why are so many people still using yellow cabs?

 

I often wonder the same thing in commercial real estate. We’ve created a service where you can list your properties, run e-mail campaigns, generate reporting with one-click of the mouse, run analytics, and much more. It’s clean, efficient, and effective. Our product replaces several old, clunky, and sometimes expensive tools being used (legal pads and post-it notes) and it’s free. The site I’m referring to is CREXi,. Try it. We can’t promise you Jesus but it’s free.


Paul Cohen

Paul Cohen, CREXi Convenient TechnologyPaul Cohen is a Regional Director with CREXi based in the firm’s Miami office and focused on business development in the southeast. Prior to joining CREXi, Cohen was a Managing Director specializing in investment sales and equity raises at Cohen Financial, a national debt and equity advisor. Prior to Cohen Financial, Paul owned and operated his own independent real estate firm following a 12-year tenure at CBRE where Cohen was a Senior Vice President and led the Private Client Group in Miami-Dade County with a specialty in office and industrial investment sales.  Email Paul

13 Questions on CRE & Work/Life Balance with Chris Sheldon

Posted:  April 3, 2017 by Christina Host, Regional Director, Northeast


13 QUESTIONS ON CRE & WORK/LIFE BALANCE with CHRIS SHELDON – MANAGING DIRECTOR, CAPITAL MARKETS/NET LEASE GROUP – CUSHMAN & WAKEFIELD, SAN FRANCISCO, CA

In 2012 Chris Sheldon was acknowledged as a “Rising Star” at Cassidy Turley (now Cushman & Wakefield) after emerging as a net-lease market expert. Specializing in the disposition and acquisition of single and multi-tenant net leased investment properties, Chris has since grown into one of the top NNN brokers in the nation.  He and his team have closed upwards of 115 properties, for $800 million in the last two years. Bright and grounded, Chris is a loyal advisor to his many clients.  I caught up with my former colleague to get his refreshing take on the market and where it is heading, in addition to discussing topics outside of CRE.  

 

CH: Who do you admire most in the real estate industry and why?

CS: Anyone working hard and having fun putting deals together.

 

CH: What do you like about the NNN market and where do you see it going in the next 18 months?

CS: I like that the NNN market is very steady and I think it will continue to be. It will be very interesting to see how the investor market reacts to the consolidation of retail, and how they choose to invest moving forward.

 

CH: What markets do you think are poised for a growth spurt?

CS: I like markets where young people want to live- typically dynamic urban markets around the country. I think these markets are poised for the most growth. Markets like Denver, Austin, Nashville, Seattle, Portland come to mind, to name a few, aside from the obvious major gateway markets like New York, Chicago, Dallas, SF and LA.

 

CH: What is the most memorable NNN deal you worked on?

CS: We sold an 8 property SF Bay Area Bank of America portfolio in 2011 just as we were emerging from the last recession. The properties were all very established locations in the Bay Area with massive deposits and significantly below market rents, even in 2012. We received 117 offers on the properties. It was the first time post-recession we had seen such frenzied interest in real estate, and we ended up selling the properties at a blended 3.50% cap rate- which at the time was unfathomable.

 

CH: What industry advice do you always carry with you (or first that comes to mind)?

CS: Always be nice to people, and be humble (more general life advice than industry, but always applicable).

 

CH: What deal situation makes your ears perk up?

CS: Anything where there is unrealized opportunity.

 

CH: What role do you see tech playing in the commercial real estate landscape over the next ten years?

CS: Tough to say as the question is so general. It will be everywhere in every facet of the business, even more so than it already is. I am hopeful that it continues to make the business better and more productive, from marketing to retail to networking.

 

CH: If you had all the money in the world, where in the real estate market would you invest?

CS: I think there will always be demand for CBD locations in major urban markets for all asset types.

 

CH: If you had all the money in the world what would you do with your time?

CS: I would still work, but I could be more balanced. I’d spend some more time outdoors, and travel more with my family.

 

CH: What would you tell your 20 year old self regarding a) work and b) life?

CS: Don’t stress too much. Just work hard and be confident in the fact that if you work hard, and are smart, respectful and honest, that good things will eventually come your way. And have fun!

 

CH: What is the biggest thing you learned in 2016?

CS: Be honest and provide good advice. We are starting to see a market in transition, and now is a time to provide good advice versus what you think people want to hear.

 

CH: If you had to live in a state outside of California, which would it be?

CS: Hawaii, Oregon, or Colorado.

 

CH: How many big waves have you surfed this year?

CS: Not enough.


Chris Sheldon Work/Life BalanceChris Sheldon – Managing Director – Net Lease Investment Services

Cushman & Wakefield – San Francisco Bay Area

Specializing in the disposition and acquisition of single tenant and multi-tenant net leased investment properties nationwide on behalf of institutional and private capital clients.  Email Chris