Shopping Center Business is the leading monthly business magazine for the retail real estate industry.
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INSTITUTIONAL INVESTORS 94 • SHOPPING CENTER BUSINESS • December 2017 bought a shopping center in Chicago in April, over 500,000 people in three miles, 17 acres, a few miles from downtown Chi- cago and from our standpoint we have yielding land that at some point will be redeveloped in five, 10, 15 years and it's more of what we do in terms of creating value. A lot of what we're talking about today is how you evaluate real estate and what can you do to get a steady income stream and what you can get from recy- cling leases. SCB : Let's discuss what you're seeing pro- active happening from the retail side of the table. What are you surprised about with the retailers? HOLDEN : Several retailers are being pro- active by upgrading and refreshing their stores to stay current. As well as, modi- fying specific merchandise in the store to cater to the customer and market. We have a couple of new grocers and within a year of opening, they are already spending significant capital to make slight improve- ments to these locations. For example, increasing the number of self-checkout lanes and moving the organic section to the front of stores. FRYER : What I'm pleased to see is how retailers are responding with use of tech- nology, delivery services and targeted marketing. They sat on their laurels for many years, but this year has seen rapid growth in experimentation, at least by the well-capitalized stalwarts. We see grocers adding parcel pick-up lanes and entertain- ment-based retailers even activating their rooftops with bar service. When done right, it's fantastic. SENEMAN : We just bought a center on Long Island with a big, 65,000-square- foot Stop N Shop, and we had a call with them and they said they were going to take those larger format stores and con- vert part of the stores into a pick-up area. The customer would order their staples online and pick them up in this new sec- tion. They would then shop in the rest of the store for their produce, meats and pre- pared foods. Online grocers are starting to look at things in a more efficient way for the consumer and in order to compete with the likes of Amazon by having the pick up area. Many of these grocers had been sitting in the mud for a long time and not really changing their stripes. Now they seem to be starting to evolve to com- pete more effectively. COOPER : The caveat being those retailers that have the financial wherewithal to do it, and you've seen Best Buy, Walmart and Target as a few examples that are really adapting to this environment. Toys "R" Us had a strategy to do that but they were unable to, so hopefully they emerge with much stronger credit and the liquidity to re-invest in their business. CLARK : Some of what we are seeing, espe- cially with power center tenants, is the ma- turity of the business cycle. Retailers are focusing less on store openings and more on operating efficiency, which sometimes results in fewer stores and smaller foot- prints. Regarding the bankruptcies we are seeing, I don't think they are all retail related — many are capital related. RAGLAND : If you look at the projections that people make with store closures this year, with 7,500 something, of those only 55 percent of them are going to be bank- ruptcies; the rest of them are just retailers making smarter decisions to reduce their footprint and at the same time they're put- ting capital into IT, and some of them into their stores. At the end of the day, you're going to have a two to three year period where you're going to continue to see the rightsizing of the footprint of major retailers and the dedication of capital to IT and through natural selection the result will be fairly strong retailers which could lead to continued rent increases and and NOI growth. Today, there are pressures on both, but I think that once this current period of entrenchment occurs, you're going to emerge with a much stronger group of retailers. FRYER : We look at this period the same way; it's more of a resetting than some sort of maturing or declining of the in- dustry. While the press puts all blame on Amazon — it's really a catalyst more than a disruptor — for change in the retail indus- try as well as the shopping center industry, which we know is suffering from excess supply. The excess has to be undone and the catalyst has arrived. RAGLAND : We have a global practice and if you look at the GLA per capita in the United States versus any European coun- try we have five times the amount. FRYER : We spend a lot of time examining the fundamental issues that have caused our current malaise, and e-commerce is just a part of that. First and fundamental- ly is inequality of income and the squeez- (Left to right) Ed Senenman, Doron Valero and Whitney Knoll.