Shopping Center Business

MAY 2015

Shopping Center Business is the leading monthly business magazine for the retail real estate industry.

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230 • SHOPPING CENTER BUSINESS • MAY 2015 Steve Jaffe The demand for retail space remains strong, despite fewer developments. As an owner, positioning your assets is key to surviving and thriving. Today's Retail Market: Still Under Construction R etail demand may be increasing, but the retail market itself is still under construction. As brick-and- mortar stores continue to battle the Inter- net for shopping dollars, many continue to scale back traditional shopping venues, choosing instead to focus on showcasing products — thus providing the touch and feel shoppers need to make purchase de- cisions — then turning to the Internet to actually place, ship and deliver the prod- uct, saving on expensive real estate costs. However, all is not lost. Overall, retailers across the spectrum, from luxury to af- fordable goods and services, are remain- ing strong and continue to shake up the market, making retail properties a good investment. The key is in understanding where the next hot spot is and moving to capitalize on the investment opportunities. Taking advanTage Of SecOndary MarkeTS The challenge in today's market is the high cost of properties. With an influx of capital chasing deals, competition for properties has extremely inflated pricing. As a result, one of the best markets to find value-add opportunities is in the B- and C-Class retail properties located in bur- geoning secondary, or even tertiary, mar- kets — Phoenix, Houston and Las Vegas, for example. Rents in these markets, and other secondary locations, still justify the lower pricing but it's our view that rents will improve over the long term. Our firm focuses on this strategy, seek- ing out properties at a low per square foot basis, then investing in a carefully crafted renovation strategy aimed at controlling costs on capital improvements. The end result? A buying strategy that evolves a tired center and re-invigorates the shop- ping community. Buying strategies are not the only meth- ods that have had to evolve in today's market. To combat the overabundance of shopping options, landlords must al- ter their strategies in order to drive traffic. Since the majority of the U.S. has reached the beginning stages of recovery, it is easy to fall back to the same repositioning and re-tenanting strategies that worked prior to the recession. How- ever, in the new nor- mal market, these strategies will typically not bring the highest return on investment that they once did. Prior to the crash, many centers were driven by big box retail tenants. Dur- ing the recession, however, these same centers saw many of these retailers clos- ing their doors and consolidating their locations in order to survive. In today's market, there are not many new big box tenants to backfill the remaining vacant properties, and those tenants, who would have once sought out the former big box space, are looking to power centers and lifestyle centers to lease space. Within the B- and C-Class, the best value can now be found in the neighborhood strip centers. These centers have a local tenant base that has not been so impacted by the Internet as other centers with larger, national ten- ant bases. STraTegy One: capiTalize On deMOgraphic ShifTS Although these types of centers pose challenges as they are often anchorless, landlords can successfully reposition a center by researching what is missing from the community from a retail perspective. This may be a bank or neighborhood café. The key is to identify neighbor- hoods with strengthening demographics and invest before it becomes the next 'it' neighborhood, thus losing the opportuni- ty for a value-add strategy to gain a strong return-on-investment. One example is a shopping center locat- ed in Sparks, Nevada, located just outside Reno that we recently purchased. The BH Properties acquired the 160,000-square-foot Gilbert Town Square in Gilbert, Arizona, in 2014. The company is working to reposition the center. Steve Jaffe

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