REAL ESTATE

Five Takeaways from RECon 2016

BY Katherine Boccaccio

Over the last 12 annual trips I’ve made to Las Vegas for ICSC’s RECon real estate convention (which officially makes me a rookie in this industry of 20-, 30- and 40+-year veterans), I have always been able to detect some distinct trends.

That doesn’t as much make me a trend-watcher as it does a good listener. The retailers and shopping center operators and brokers who attend RECon each year tend to talk avidly in the aisles about the current events shaping the retail real estate industry.

However, after lots of aisle-walking and 30-odd meetings on May 23 and 24, 2016, in the Las Vegas Convention Center, I picked up on only one overriding theme this year: This is an industry in suspense. I’m not talking about total inaction, because stuff is most definitely happening, but it’s more about a watch-and-wait attitude, a wondering about what tomorrow, or next month, or next quarter will bring.

Understandable, considering that it is an election year, retail sales are soft, particularly in apparel, and some notable bankruptcies have been announced of late.

Still, I didn’t detect doom-and-gloom – it was merely cautious optimism, with an emphasis on caution.

Here is what I see as the key takeaways from RECon 2016:

1. To repeat, the industry is somewhat holding its breath, waiting to see how events continue to unfold over the coming months. With that, there will be challenges, but also opportunity for some.

2. Not a lot is coming out of the ground, but what IS is transformative. Lake Nona Town Center (a Steiner project within Tavistock’s Lake Nona master-planned community in Orlando, Florida) will create a social and commercial center for the Lake Nona community – and it will be done in typical Steiner style. Immersive, thoughtful, consumer-centric, special. ONE DAYTONA will bring first-to-market concepts, high entertainment and a strategic mix of uses as an adjunct to the popular NASCAR destination in Daytona Beach, Florida. Swire Properties’ Miami mixed-use project Brickell City Centre (developed in conjunction with Simon and Whitman Family Development) is in a leasing frenzy, adding top-tier retailers to the 500,000-sq.-ft. development. Butler Town Center – in Gainesville, by Butler Enterprises – could potentially transform the north central Florida market.

3. Florida is HOT. See #2.

4. Experience isn’t optional. “Everyone is driving experience,” said Spencer Bomar, principal, Avison Young. “And how do we deliver the experience? That’s the question with many different answers.”

5. Mixed-use rules. “Last year’s theme at RECon was outlet centers,” said Jeff Green, president/CEO of Jeff Green Partners. “This year it’s mixed-use.” Green teams with Jerry Hoffman, president/CEO of Hoffman Strategy Group, to densify sites, layering additional components over retail to create mixed-use destinations. “It’s about the highest and best use of real estate,” said Hoffman.

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The current state of retail market trends in the Midwest

BY Ron Goldstone

For anyone looking at the current state of retail in the Midwest, one of the most fascinating things to track is how some of the macro trends we see in the marketplace today are the end result of years (sometimes decades) of evolutionary change.

The good news is that the general state of retail in the Midwest remains relatively positive. Quality retail is always a good value, and that hasn’t changed (at least it hasn’t in the last 30 years I’ve been in the business). If you have a well-designed, well-located retail development, the odds are good that it’s healthy and there are unlikely to be any major challenges involved.

The compelling convenience of the internet, the growth of powerful online brands like Amazon, and the subsequent necessity of brick-and-mortar retailers establishing their own online component have all shaped the retail marketplace in ways both subtle and significant. But while online and mobile sales have certainly had some impact on brick-and-mortar, the overall percentage of sales remains fairly modest – and it’s certainly not something that prevents well-located neighborhood retail (such as grocery stores, carry-out restaurants, and service retail, like dry cleaners) from competing and thriving. That type of product is extremely healthy in the Midwest.

Taking a step out to look at regional retail, and the story changes somewhat. While quality product in prime locations remains quite positive, overbuilding remains somewhat of a threat in some Midwest markets. Wherever we have more square footage of big box retail available than retailers to fill it, the market can cross over a tipping point. Some of that excess space has been backfilled by value-driven retailers who see opportunities in A markets as prices drop.

Another factor contributing to the overabundance of supply in some markets is the fact that category killers that were historically focused on getting bigger are now working to become leaner and more efficient. With more retailers downsizing their operating platforms and focusing more on sales per square foot, bigger boxes have been more challenging to fill. Far and away the most challenged segment is B product in B or C locations. Many of those spaces will likely be forced to convert to alternative uses.

Fortunately, retail units are relatively easy to convert to other uses such as light industrial or office. Cities that are smart and adaptive will study their zoning ordinances and move in the direction of demand. The more forward thinking and flexible a community is, the better off they will be. In municipalities that are more set in their ways and resistant to exploring different uses, the outcome is rarely positive.

One particular bright spot for converting large space is in the storage sector, where storage operators are converting big-box retail into storage/rental businesses. This is a relatively new phenomenon, but it has intriguing potential. In my own market here in Southeast Michigan, a former Super K-Mart on Telegraph Road just south of 8 Mile recently traded to Storage USA. That’s a 150,000-sq.-ft. space state-of-the-art retail box traded to a Fortune 500 storage company that’s going to convert it to storage, a retail moving store and truck rental facility. The reality is that you simply aren’t going to find a 150,000-sq.-ft. retailer who wants to be in a B or C location – they don’t exist.

Another area where some of these large-format challenges are creating opportunities for others comes from the growth of outlots in areas where large office buildings and sizable retail projects are over-parked. We are seeing a movement, especially here in Michigan, where cities and planning departments are recognizing that and capitalizing on it. Out lots along the Big Beaver corridor and Telegraph Road are being filled with restaurant tenants like Five Guys, Potbelly, Jersey Mike’s and Qdoba and other smaller retailers.

While every Midwestern market is different and has its own unique characteristics, the same general trends are evident across the region. While supply exceeds demand in down-market communities and in some bigger formats, those mid-box and big-box retailers out there today are reasonably healthy – and most urban markets have done a reasonably good job-absorbing surplus.

A clear regional bright spot is Detroit, which is a very exciting development for someone that has watched the city closely for decades. The climate in Detroit right now is ripe for opportunity, and the development cycle has been logical and well-orchestrated. The greatest activity currently is in the core of the city’s central business district and is and spreading outward – exactly what you like to see. What’s happening the Foxtown area and along Woodward, with the new Red Wings arena, joining the existing downtown Lions and Tigers stadiums is generating huge demand drivers. Retail will follow, and there is little reason to think this will slow down anytime soon.

One wild card to keep an eye on as we move through 2016 is what seems to be an undercurrent of caution and uncertainty in the industry regarding the upcoming presidential election. It is tough to say how much political elections like this actually impact the retail marketplace, but it’s something to monitor going forward. Retail is obviously exquisitely sensitive to consumer sentiment, and it’s not unusual for consumers to be impacted by big events like this – particularly as the media coverage builds in the months leading up to the election.



Ron Goldstone is senior VP of the Farbman Group, a full-service real estate firm handling all facets of real estate transactions, from property management and leasing to acquisition and disposition. The firm manages more than 25 million square feet of office, retail, multi-family and industrial space throughout the Midwest.

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Tiffany doesn’t sparkle with Q1 misses; will open 11 stores

BY CSA STAFF

Tiffany & Co. missed Wall Street expectations for profit and revenue in a lackluster start to fiscal 2016, but still plans to open 11 new stores worldwide.

The retailer reported net earnings of $87 million during the first quarter, down 17% from $105 million the same period a year earlier. Lower gross profit and higher selling, general and administrative (SG&A) expenses drove the reduction in profit.

Worldwide net sales declined 7% to $891.3 million, from $962.4 million and same-store sales declined 9%. In the Americas, total sales of $403 million were 9% below the prior year and same-store sales declined 10%.

In the U.S., softness in spending by both consumers and tourists contributed to dropping sales, while lower spending by tourists negatively impacted European sales. A significant decline in Hong Kong drove an overall sales decline in Asia-Pacific, while local customers actually drove a sales increase in Japan.

Looking ahead, during fiscal 2016 Tiffany expects to open 11 stores, relocate 10 stores and close six stores worldwide. The retailer also expects worldwide net sales to decline by a low-single-digit percentage from the prior year.

“As expected, this was a difficult quarter in terms of both sales and earnings growth,” said Frederic Cumenal, CEO Tiffany & Co. “We faced numerous challenges, including continued pressure from foreign tourist spending in Europe, the U.S. and Asia, particularly in Hong Kong. However, we are continuing to take actions that are intended to strengthen sales growth with local customers in the U.S. and around the world. From a strategic perspective, we believe that our initiatives will enhance our ability to provide our customers with extraordinary products and experiences and ultimately contribute to improved financial results. We remain focused on generating sustainable long-term sales and earnings growth.”

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