Shopping Center Business is the leading monthly business magazine for the retail real estate industry.
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INSTITUTIONAL INVESTORS 128 • SHOPPING CENTER BUSINESS • December 2016 often comes into the store to make addi- tional purchases of meats, vegetables, and other perishables. Either way it's a sale in the store for that store and actually gives you an opportunity to extend your reach to new and younger customers. Harvey: Do any of you acquire mixed-use assets? Does mixed-use strengthen the de- sirability of the asset, or is it a negative? Vittorio: I wouldn't say it is a focus or a strategy, but we do acquire mixed-use. We bought Roosevelt Collection in Chicago. We think that has a lot more potential than has been realized. We like mixed-use if it is done well and constructed to allow all the complications of having multiple uses on one site. Holden: We have bought mixed-use as well. We recently bought The Lincoln, a mixed-use office and retail building just off Lincoln Road in South Beach. It has 118,000 square feet of office and 40,000 square feet of ground floor retail as well as a 700-space parking garage. Steve [Vit- torio] touched on a great point, which is that mixed-use has to be done well. We have looked at retail condos with residen- tial above; and some of these opportuni- ties it is clear the developer was focused solely on the residential, which will limit the long-term success of the retail. When mixed-use is developed, it has to be done in sync and done well. Fryer: We have done five lifestyle centers or power villages that have a significant of- fice component. We have found, in each and every case, that the office component can easily reach full occupancy and enjoy rising rents. The rents are higher than the surrounding market because the tenants view the retail as an amenity for their employees. Harvey: Our view is that those ancillary uses, if they are done right, can be big contributors to the overall success of the property. However, we have been told no by institutions who don't like mixed-use. Vittorio: Foreign capital, especially, seems to have trouble with that. SCB: Given the current market, is it diffi- cult not to change your strategy? Senenman: You have to stay disciplined. That is why our investors continue to trust us with their money. We have three to five years to place money. Real estate is a cycli- cal business; we think there will be more opportunities down the road if opportu- nities are not good at this point in time. Crossman: From our perspective, some retail owners think that if they can fix a property and make it completely bullet- proof, it will sell at a great price. But the problems that exist with the property can sometimes lead to bigger problems. There are two deals we are currently working on. One is a mixed-use project in a great location, but it has a number of complications. There is a mall deal we are looking at that has rents that are too low to garner interest. With malls, either they are Class A or they are valued at 20 per- cent cap rate. We have to help the owners try to fix their properties sometimes, even in the brokerage world, because the value add potential hasn't been communicated. We do a lot of work for special servicers. The buyer pool for that is generally more local. SCB: Are there any stumbling blocks in retail right now that you would like to see removed? Fryer: We need demand for apparel to rise. It is the 'A' in GAFO — it is one-fourth of the purpose of shopping centers. Right now, there is no expansion and apparel is in malaise. We need the Millennials to shop in stores and we need more store concepts to serve them as they enter prime consumption years. It is yet to be seen whether millennials are maturing be- yond fast fashion, represented by H&M;, Forever 21, Uniqlo and the like. Not even the millennials can be 'forever… twen- ty-one.' The question is whether they will have their own style of career wear. We need the up-and-coming players, like Liz- ard Thicket, to roll out and replace those large national apparel retailers who have stuck with their original age group and not evolved with the times. Murphy: I agree that it would be a great thing for apparel to come back, but I don't see it happening the way it used to be. I don't think that is about age and they will all come back when they are older. The average age of a millennial is now over 25. It is not how old they are, it is how they are. For them, it is about spending money on experiences. They are also con- cerned about school debt repayment and as a group, they are cautious with their discretionary income. Fryer: There are 80 million millennials in the U.S., and the nation's population overall is going to grow by 90 million by 2050. Though wardrobes may be mini- mal, there will be many more to fill. Vittorio: There has been a lack excite- ment in the fashion industry. The fash- ion industry has been on its heels since the Great Recession. There hasn't been a lot of new brands and lines. When one does come out, they sell. Look at Vineyard Vines and Warby Parker. Fryer: The barbell demographics ex- plain fewer new concepts. Baby boomers are not fashion conscious anymore and Gen-Xers do not have enough bodies to replace the lost demand. Ragland: Fashion has also shifted more to activewear: Lululemon, Lucy and Un- der Armour. A challenge for the shop- ping center industry is for landlords to have greater transparency into the level of ecommerce sales being done by re- tailers in the trade areas served by their stores. The retailers have 'big data' that allows them a good understanding of the relationships between e-commerce and physical store sales. They recognize that bricks-and-mortar is a critical component of an omni-channel strategy. Senenman: It is also true that retailers who close stores in markets also lose on- line sales in those markets. SCB