Side Street vs Main Street

Posted: May 17, 2017  by Eli Randel, Director of Business Development and Paul Cohen, Regional Director of Business Development


SIDE STREET vs MAIN STREET

Who will win the battle for retailers?

 

Traditionally in retail, traffic counts and signalized corners are the most coveted locations for retailers and therefore generally the most expensive. While I don’t expect this to change for some uses like gas stations which are dependent on ingress and egress, the theory has been posed by my Colleague, Paul Cohen, that with the advent of mobile apps such as Yelp and virtual signage via-digital word of mouth, retailers will shift from Main Street to the Side-street to incur lower occupancy costs and increase their margins?

 

The argument for “yes” (by Paul Cohen): Of course they will! Most people under the age of forty (and me) use apps like Yelp to determine where to find many “retail tenants.” No longer is it a function of simply driving down the street and looking for a “name yo know” but rather a selection based upon peer review in search of that special experience. For example, I was in a small town called Sylva in Western North Carolina last month and wanted to get a coffee and check my emails. I found this great bookstore in a converted house two blocks off the main drag. I would have ended up at a Waffle House otherwise. People instinctively know that the best restaurants, coffee shops, barbers, and massage parlors (don’t judge me) are not on Main Street anymore. The reason why brand stores exist is primarily so that the customer knows they are getting a good quality of service wherever they happen to be. Especially when traveling; you are more likely to visit the Panera Bread off the Interstate rather than risk Big AL’s BBQ. It could be great or it could be a short cut to the urgent care (which doesn’t need to be on main street either). Now armed with a mobile phone, the weary traveler can quickly find that awesome BBQ joint (or food truck) that was previously hidden down some side alley only know to a few locals.

 

The argument for “no” (by Eli Randel): Yes, the basic concept makes sense and will apply for some retailers, but not in a significant way. Retail remains dependent on foot and vehicle traffic counts and even though word of mouth can be spread more efficiently with the internet, LOCATION, LOCATION, LOCATION is still a driving force in retail and real estate in general. Perhaps naively, I assume the smartest retailers have contemplated this strategy yet they still are choosing main corridors for their brick-and-mortar locations. The reason? Visibility, convenience, and access. The side street has become more viable for certain uses, but those are limited. Retailers which brand on main corridors and provide the best customer access will outperform less visible outlets and will continue to outsell sell-side street locations and while net profits might be slightly lower given higher occupancy costs, revenue will remain higher at main locations and any difference can be absorbed as a pseudo-marketing and branding expense. As online sales continue to erode brick-and-mortar sales, retailers may reduce store footprints, but will increasingly view stores as branding and marketing vehicles maintaining the need for visibility. Stores will change by becoming exchange centers and showrooms for online inventory and brands, but will still want to be in the best and most visible locations. In terms of digital signage, nothing replicates the real thing and a hungry driver on a main road is still a valuable entity that is harder to capture in an off-the-beaten-path location.       

 

Paul Cohen: Ahh, I can see where you went wrong. You’re looking at this from the point of view of the national retailer who needs visibility because they are selling brand as a way to suggest consistent experience. Walgreens and Starbucks and fast food franchises will always be on Main. I conceded that point already. I am coming at this from the local tenant perspective. These “Mum & Pop” retailers who have built a strong customer base will happily move to the side street for a fifty percent reduction in rent and will still outperform the main street counterparts as long as they have a high customer rating. Yelp is free while Main Street is expensive. Anyway, there doesn’t have to be a significant shift to the side street to have an impact. There is approximately 5 Billion square feet of traditional retail (excluding regional mall and power centers) in the US and if 20% of the tenants are local and if 20% of them moved to the side street that’s 200 Million SF of new retail. The opportunity is for the developer who can find lower cost real estate on the side street and repurpose it for these local retail tenants. For example, a warehouse or an office building a block or two off main could be redesigned and marketed to attract the local retailers. I’ll agree that they lose visibility but in many cases the location can be more convenient and accessible. There is a significant arbitrage between main street and side street and, in many of the top MSA’s across the country, it’s being overlooked.

 

Eli Randel: Well what are we talking about here? We’re talking about ICSC RECON; a destination event that usually attracts more national tenants. You raise a valid point that in small towns across the nation, Al’s BBQ might represent half the restaurant landscape, but as that town eventually grows and traffic counts and/or incomes increase, the nationals will penetrate the market and will roll out their Main Street strategies. Anecdotally you can name a couple concepts that work on the side street but for every great hidden gem in town, there seem to be dozens struggling to get by because no one knows they exist. Perhaps they aren’t utilizing digital signage properly, but maybe that is part of the argument. Can digital signage replicate the real thing? Perhaps I’m mistaking the familiar for the universal (one of my father’s favorite sayings: “don’t mistake the familiar with the universal”), but I personally don’t see it (yet?). Do I go to some side street stores and restaurants? Yes and I enjoy it. But do I see many of them or their neighbors go out of business? It sure feels that way. The extraordinary can become a destination and thrive on the side street, but the extraordinary are just that: outside of the ordinary. Last, I would argue that the different between main roads and side-streets in rural markets can be minor and parking, traffic, and access are not major issues.  

 

Paul Cohen: The reason why these stores go out of business is that they do not provide excellence.  We all know that the off the beaten path store is the gem and it’s what people want.  Particularly in “Hipster” districts which tend to be all side street and no main street.  I don’t think that anyone is saying that all retailers will move to the side street. That would be very Yogi Berra (“nobody rents on main street anymore because it too expensive”).  ICSC attracts National Tenants because they benefit from the efficiency of meeting hundreds of owners and operators over a couple of days. I agree that most Nationals will stick to Main Street but some will develop side street strategies.  I don’t think this will happen in rural markets where the town has one strip and vacancy but as towns grow and rents increase on Main Street then, obviously, tenants start looking for options. Investors should snap up those secondary locations with a view to reposition them as Main Street booms.  A percentage of local tenants have and will continue to move to the side street so retail developers should look to take advantage of this trend. In years past it was suicide to move your business away from foot traffic. Now it could almost be a positive.  Not only are you paying less rent with improved access but you’re sending the message that you’re a hidden gem. Will it move the needle drastically on the traditional retail market? Maybe only five percent but locally an enterprising developer could relocate 30K SF of tenants from the main strip into a side street center by offering lower rents and free parking. I would not be surprised if national retailers have not already developed a strategy to take advantage of this trend.  Maybe they already have, we just can’t seen them! 


My Top 10 Tips For Surviving ICSC RECon 2017

Posted: May 10, 2017 by Paul Cohen, Regional Director


MY TOP TEN TIPS FOR SURVIVING ICSC RECON 2017 FROM MY 25 YEARS IN BROKERAGE

I attended my first ICSC in Vegas when I was 22 years old representing a shopping center management and leasing firm. Boy, did I make some rookie mistakes. Here are ten tips that I’ve learned the hard way over the last 25 years of attending ICSC and other Real Estate conferences in Las Vegas.

 

1. If you fail to plan you plan to fail. If your plan is to stand in your booth and wait for customers to stroll on in (and you are not an attractive woman or giving out iPhones) then you’ve just wasted a whole heap of time and money. Figure out who you want to meet and reach out to them now! Your booth is just to show presence but most folks you want to meet with won’t just stroll up to your booth. Use the ICSC mobile app. It’s a great free app that you can use to see who you want to meet with, what sessions you want to attend, and it has a floor plan of the entire event.

 

2. You can’t hit a target you can’t see. Remember it’s quality not quantity. One of the first years I went, I just hung out with two guys who were also starting out in the business. One an architect and the other a banker. We are still good friends to this day and have done a fair amount of business over the years.

 

3. Stay healthy my friend. First time I went to ICSC, my roommate picked up 6 large bottles of Evian in the hotel lobby store. I asked him if there was a hurricane coming. Twenty-Four hours later with my lips chapped, throat dry and head aching, I realized the value of hydration. In a related topic, getting drunk will ruin your productivity the next day (if it doesn’t get you fired). As a former boss at CBRE would tell us at conferences, “Don’t go deep the first night.”

 

4. Always be prepared. I was a boy scout for 3 weeks but the motto stuck. Here are some things I take with me on any long weekend and keep in a pouch: a power pack and cord for all cellphones, band aids, Advil, Emergen-C, breath mints, stain remover, cough drops, needle and thread, Tums, wipes, hand sanitizer, Blistex, hair ties, scissors, and more. CREXi will be giving away these ICSC Survival Kits at Booth C2413 so if you find yourself unprepared, stop by and stock up.

 

5. Your Elevator pitch. It’s going to happen. You are going to be at a cocktail reception and a great potential client will be standing in front of you. It’s your big moment. It’s the entire reason to be at ICSC. Don’t blow it. I was at a cocktail reception with a colleague one year and we were standing with another guy. My colleague wanted to break the ice so he said to the gent “Hey Bucko, I’m Greg and this is Paul and we lease shopping centers.” The gent responded that he was the Head of Blockbuster retail and his name was not Bucko. Have a better elevator pitch than that! Here’s mine: “We run a dating site for brokers and investors to find the perfect property.” This is more immediately engaging than “we have an online Commercial Real Estate marketplace” Spoiler alert: turns out it didn’t matter about the Blockbuster guy.

 

6. Get one to have one. Let’s face it, it can be hard getting meetings unless you have a brand-new power center in Manhattan. So, a useful tip to meet retailers or developers is to partner with an existing client and set meetings with other retailers or developers. For example, if one of your clients is the head of retail for Coffee Co, a fictitious coffee company that is opening stores across the US, partnering with Coffee Co incentivizes landlords and developers to meet with you and vice versa.

 

7. Choose your roommates wisely. This one is obvious but it’s worth mentioning as it has ruined a few conferences for me. The colleague who is a bit of a character at home will turn into a complete nut in Vegas. If you don’t want to be woken by random ladies at 2am and/or your roommate knocking on the door drunk because they lost their key and/or your roommate getting into bed with you and saying, “I love you Cheryl” then either spring for your own room or room with the dullest guy in your company (in this scenario, you become the problem). Oh, and don’t check-in first because they’ll take your card for incidentals. I’ve paid for bath robes, a hefty mini bar bill and a movie called “Surf Girls of Malibu 3” all of which I did not partake in or watch. Honest.

 

8. Leave in comfort. I personally like to leave on a late-night flight out of Vegas and arrive home in the morning. I’m a good sleeper; don’t hate me! I learned early on from a former colleague who, upon arriving at our gate, disappeared into the men’s room and emerged wearing a sweat pants suit. I recall telling him that there wasn’t a boxing gym on the flight. However, when I looked over twenty minutes in, he was fast asleep in his window seat wearing his Bose headset. I was stuck in the aisle seat wearing the same suit I’d been wearing all day.

 

9. Collect cool swag. There are usually some great giveaways at the booths but mostly junk. Why do firms insist on giving away stress balls with their logo on it? Do they really want people symbolically crushing and throwing their company around? The best giveaways I ever received were a utility tool and a backpack that I won. As a guy who has manned many booths, there’s nothing worse than the guy who pretends to be interested just to get your free stuff. Just take it and do everyone a favor. If you need a break come by our Booth C2413 and we’ll have a place for you to chill, practice your golf skills on our putting green, and grab an energy drink. We’ll also give you a Survival Kit like mine (only available to the first 250).  We are also giving away a Yeti cooler and you can only enter if you visit the booth.  (We will be shipping this to the winner so no worries about lugging it on a plane.)

 

10. Follow Up is Key at ICSC. You (or your company) just spent a few thousand dollars sending you to Vegas. Within twenty-four hours of leaving make sure you send a personalized email summarizing the meeting and stating any follow up items. Some folks like to send handwritten notes. Personally, I prefer an email because it’s easier to respond, track and set reminders etc. Either way, follow up!

 

Hope that was helpful. See you at RECon 2017?  Click Here and fill out the form so we can get in touch and arrange a time to meet! We’ll walk you through our CREXI Commercial Real Estate Marketplace, and show you how firms like CBRE, Cushman, JLL, Colliers, HFF are leveraging CREXi to sell their listings.


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

 

Pre ICSC Retail Forecast III – 8 Trending Markets

Posted: May 3, 2017  by Eli Randel, Director of Business Development


SECOND AND THIRD CITIES

Era of the Secondary and Tertiary City – Which Cities are Poised to Prosper This Cycle?

Last week I touched on why cities will see more activity than suburbs for a cycle in Pre ICSC Retail Forecast – Part II.  In preparation for ICSC, we are putting together several prediction pieces starting with last week’s opener. Driven by economic and societal trends and a quest for the next great market, I believe the next cycle will see several secondary cities emerge as major markets and several tertiary cities grow into thriving secondary cities. Based largely on my personal travels, some demographic trends, interviews with institutional investors, and a thumb in the wind, below are some markets I believe will prosper next cycle. What do these cities have in common? Most of them have access to young talent with neighboring universities, culinary and social scenes illustrating a larger societal desire for experiential living, good climates demonstrating a move away from iconic cold-weather markets, and they all possess what I’ll vaguely call “soul” posing the question: does growth create soul, or is soul discovered and then pursued?

SMALL CITIES POISED FOR A GROWTH-SPURT (MSA Rank In Population)

 

Orlando & Tampa (MSA #23 and MSA #18)

With warm weather, affordable housing, growing job-markets, access to universities, signs of a cultural soul beyond Mickey Mouse, and a likely flock of baby-boomer retirees, these two Florida cities are poised for a growth-spurt on top of the impressive growth they’ve already experienced (14.38% and 8.94% population growth from 2010 to 2016). No longer just the home of boy-bands and Mickey Mouse, Orlando and nearby Tampa are becoming places for young people to start their lives. Job creation, good weather, and reasonable housing costs have created a good quality of life and both cities are poised to emerge as more significant markets in the coming years. I also expect to see many baby boomers retire in the area (nearby Villages had the highest growth of any MSA) bringing service jobs and an economy with them.

 

Charleston (MSA #74)

If you haven’t been to Charleston: go! It’s a great city with a thriving culinary scene, two historic universities, lots of history, and emerging industry. The polite residents (including Bill Murray) will tell you the growth is scary but exciting and while downtown Charleston has become expensive, surrounding towns offer reasonable home prices and a good quality of life. Boeing continues to grow its operations with three Charleston campuses, and Volvo is building a $500MM manufacturing plant (their first in North America) bringing thousands of jobs to the area. Charleston has also increasingly become a retirement location bringing new residents and ancillary jobs with them. The small city with 14%+ population growth from 2010 to 2016, is home to nationally renowned chefs and is becoming more than just a vacation spot with landscape to grow.

 

Boulder (MSA #155)

Always a great college town, Boulder is watching as Google builds a 330,000 SF campus which will house approximately 1,600+ employees. It’s believed Google will expand even more and that other companies will follow them into the market. The result has been a scorching housing market and strong population growth. Likely never to become a major market, the small-city is growing in wealth, population, job opportunities, and culture. Green tourism has also brought the city newfound activity in recent years and while the football team isn’t as good as it was when I was young, UC is a great school which attracts talented young students from Colorado and beyond.

 

Austin (MSA #31)

No secret city here – Austin benefits from being the state’s capital and also home to the University of Texas and its approximate 40,000 students. Always a stable and likeable town, the last ten years have also brought a vibrant tech market bringing high paying jobs, a strong housing market, and improved income demographics with it. In addition to local headquarters like Dell and Whole Foods, Amazon, Google, Facebook, and others have turned to Austin to house many of their operations which has also sprouted a start-up scene of new companies. The result is an impressive 19.82% population growth from 2010 – 2016 – the second most of any MSA and most by an MSA with 1MM+ people. Add the culinary and music scenes (original home of Stevie Ray Vaughan, Janis Joplin, and Willie Nelson), attraction of no-state income tax, and a landscape which offers room for development, and you have a recipe for a city that will continue to grow and I predict will someday have a pro-sports team.

 

BIG CITIES POISED TO GET BIGGER

 

Denver (MSA #19)

By no means a new city, Denver has seen excellent population growth (12.17% from 2010 – 2016) and has gained national recognition in recent years. Most of us can name a friend or acquaintance who now lives in, and loves Denver. A strong real estate market, green tourism, and an emerging tech scene have benefited the city’s economy. Denver is considered a mecca for skilled job seekers searching for employment as the many growing businesses are finding a shortage of skilled labor. Nearby Universities and a thriving NFL team never hurt a city’s appeal and Denver has both.

 

Detroit (MSA #14)

I debated including Detroit. Many may not know how hot and active Detroit has been for the last five years and my instinct is to think that it can’t be sustained, but Detroit native Dan Gilbert and his Quicken Loans are committed to the city. Beautiful suburbs which didn’t suffer the way other parts of the city did during its decline, existing infrastructure, loyal residents committed to the city and oozing “heart”, a flock of young professionals from schools like the University of Michigan who used to have to move to Chicago to find post graduate work, and the dedication of some deep pocketed investors will help Detroit sustain its growth. If just one of Gilbert’s many portfolio companies “pops”, it could be a major growth creator for the city.

 

Dallas (MSA #4)

Already a great American city with the 4th largest population of all MSAs. Dallas isn’t a small town, but I believe Dallas is poised to continue its growth (2nd highest 2010 to 2016 population growth of the top 20 MSAs with 12.56%). Dallas has always had a stable economy which keeps housing costs from dropping too far or rising to high. Recently, the emergence of Deep Ellum – an arts and entertainment district near downtown – and the more polished Uptown, have brought great bars and restaurants enticing young professionals to the market. The many major construction sites you’ll find in the center of downtown signify vertical growth and new life to the once daytime-population-only Downtown. With no state income tax, several growing companies and industries, vertical growth vs. sprawl, food and social scenes, and relatively affordable housing, many are finding the American dream in Dallas and the city is poised to continue growing even if it may be stuck behind Chicago at #4 for a long time.

 

Miami (MSA #8)

It was very tempting to leave this often-frustrating city – my home for the last 12+ years – off the list. Miami is challenged in many ways: an odd cultural mix more comparable to a salad bowl then a melting pot, rising tides threatening its shores and beaches, dependence on foreign investment, condo oversupply, and a lack of new industries or job creators. However, long-time residents of the city know that following lulls the city always emerges stronger than ever. Warm weather, no state income tax, retirement popularity, proximity to Latin America, and tourism always seem to propel the city in times of need. Whether through retail or distressed sales, the many developments under construction will be filled. The Atlantic to the east and the everglades to the west prevent sprawl and force the city to grow vertically and stay centralized. Long-time famous northeasterners are slowly migrating to the city even if it’s only for 6 months at-a-time to exploit state income tax savings. An improving food scene and possibly the hottest arts and entertainment district in the nation (Wynwood) have brought life to the city. In many ways Miami reminds me of the New York of my youth: entrepreneurial, at times dangerous and cutthroat, colorful, diverse, and vertical. Institutional capital loves Miami and there is plenty of room for growth once the city pushes through some of the current challenges it faces. I would not be surprised to see Miami as a top 5 largest MSA within ten years (unless it’s underwater).

 

WHAT DOES IT MEAN?

While I did research and spoke with many people to come up with this list, it’s purely speculation, but if accurate, look for the real estate in these markets to appreciate significantly as demographic demand puts pressure on supply bring vacancies down and rates up and institutional money follows movement and trends and competes for assets in these towns.


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. Email Eli