REAL ESTATE

Hospitality checks in to mixed-use

BY Mike Troy

Hotels have become a vital component of successful mixed use retail properties, something Robert Habeeb knows a lot about given his role as president and CEO of First Hospitality Group.

Rosemont, Ill.-based First Hospitality Group (FHG), has been involved in the development, ownership, and management of hotels since 1985. FHG’s portfolio of more than 43 hotels consists primarily of Hilton and Marriott affiliated assets, but the company maintains ownership interests and manages hotels affiliated with InterContinental, Hyatt, and Carlson. Robert Habeeb has 25 years of management experience with high profile, multi-unit hotel, resort and food and beverage properties.

He spoke with Chain Store Age about effective strategies and mutually beneficial advantages for successfully integrating hospitality into mixed-use projects.

CSA: So talk a little bit about what FHG sees as the positives about locating hotels in mixed-use projects?

RH: We love opportunities to include hotels in multi-use destinations–especially in today’s environment where people are prioritizing experiences. A hotel that anchors a multi function area–especially retail driven – is not only a demand generator, but a guest satisfier, too. Hotel guests really love the ability to simply walk out the front door of the hotel and go to a fun restaurant or spend some time in a dynamic and engaging retail and entertainment venue.

CSA:
In situations where guests have access to a range of dining options, do you feel less pressure to have a robust food and beverage program in the hotel?

RH: I wouldn’t necessarily go that far, but I will say that–in select service hotels in particular–proximity to restaurant options is a big plus. And that’s arguably the best way to neutralize the disadvantage or limitations of select service properties. So while there might not be an in-house hotel restaurant for dinner, guests can find a popular restaurant option just a few steps from the hotel, which they actually tend to like that a lot more.

CSA:
Are there a specific range of brands that work better than others in a mixed-use environment?

RH: I do think the select service brands work best, simply because they have the most crossover with retail. And we do really work hard to promote that synergy. In Ann Arbor, for example, we have a Hampton Inn with an enclosed walkway connector to an adjacent Applebee’s restaurant, and another Hampton property in downtown Chicago is directly attached to two restaurants through internal doors.

CSA: So if I’m a commercial developer working on a mixed-use project contemplating a hospitality component, how would you pitch me?

RH: The benefits of having a hotel as a user are significant. Your tenants really like it because it’s very convenient for them, especially when they have people from corporate visiting, or suppliers in from out of town. It also adds a new dimension to a shopping center by elevating its profile in the minds of visitors: people generally tend to view shopping centers with hotels as higher quality venues. The fact that a hotel can be built on an out-lot is also a selling point. Sometimes this is land that, but for the hotel, might not be used for anything–and would certainly be difficult to maximize value from. A hotel property is a great way to make out-lots and distant parts of the parcel more valuable. And, of course, a hotel is also a natural feeder for shopping and restaurants. It’s a built-in customer base that yields some significant commercial and experiential synergies.

CSA: Operationally speaking, what do you do take advantage of that synergy? Does the hotel offer any partnerships with retailers, specifically discounts or special promotions?

RH: We absolutely take advantage of that everywhere we can. In Kenosha, Wisconsin, for example, we operate a Radisson that is contiguous to an outlet center. We cross-promote with the outlets, and that dynamic is what drives our December business. They allow us to distribute some marketing materials in common areas, and conversely they provide us a discount card that allows hotel guests to go over and receive a discount from many of the merchants in the outlet center. That crossover, especially around the holidays, is huge for us.

CSA: So it’s safe to assume that mixed-use environments are going to continue to be a popular destination for new FHG properties going forward?

RH: No question. In fact, we have a 200+ room hotel in the works in Chicago’s Navy Pier redevelopment. It’s an exciting opportunity for us: positioning a hotel as part of a major tourist destination. And we expect that environment to be a huge demand generator, with a wide range of leisure activities, restaurants and active nightlife. Similarly, at McCormick Place, we’re locating a hotel on the site of the world’s largest convention center. Mixed-use is something that we’re going to continue to value–and it’s something I expect to see a lot more of across the industry in the years ahead.

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DEVELOPMENT/REDEVELOPMENT

The five fastest growing property managers

BY Debra Hazel

Each year, Chain Store Age compiles a ranking of the fastest growing property managers based on the square footage added. See who topped this year’s list.

The 27th annual survey of Fastest-Growing Managers tallies new domestic and international third-party management and leasing contracts obtained during the 2015 calendar year and ranks the top performers. As always, the measuring stick is square footage. This year’s fastest-growing third-party managers are taking many roads to growth, from acquisition to a multidisciplinary focus.

For top-ranked CBRE, acquiring entire companies (and thus their contracts) contributed to a nearly 60 million-sq.-ft. increase in new contracts. Second-ranked JLL continues its surging growth by expanding its personnel around the country. List mainstay Mid-America Real Estate Group cites training and a strong team for its consistent portfolio expansion, which earned it third place this year. Fourth-place Woodmont Company works in multiple property types, from traditional malls to outlets, helping it to grow. Divaris Real Estate’s strong relationships with institutions are bringing it to new territories, and fifth place on this year’s list. Regardless of their specific path, all the leaders stress the importance of relationships, both internal and external, for last year’s growth and the opportunities to come.

No. 1 CBRE
A global reach might be the first reason CBRE would top the 3P Managers list this year with 58.75 million sq. ft. of new property management and leasing contracts signed worldwide. But at least in 2015, the United States dominated the gains.

Some of that growth came from acquiring entire companies, including kicking off 2015 by acquiring Dallas-based United Commercial Realty and closing the year with purchasing Indianapolis-based Sitehawk Retail Real Estate. That trend likely will continue throughout the industry, said Scott Weaver, senior managing director of retail asset services for CBRE.

“We’ll continue to see more consolidation, not just on the ownership side but on the services side,” Weaver said.

And more business is likely to be found in coming years as international investors seek U.S. real estate, especially retail, but need local management, he added.

“With the amount of investment coming from Europe and Asia, I expect to see strong gains in 2016,” Weaver said. “A lot of people are now in leadership positions, and I see them pushing hard for new business.”

And that should stand CBRE well as the real estate cycle turns again.

“Most of the research tells us that 2017 is the beginning of another change in the cycle,” Weaver said. “But on the management side, we’re counter-cyclical. When we have a downturn, owners are saying that maybe we need a professional manager.”

No. 2 JLL
While other companies pulled back on staffing during the most recent downturn and ongoing slow recovery, JLL continued to add staff — and the result has been more projects under management. The company placed second this year, with 30.5 million sq. ft. of new contracts signed.

“We’ve increased our production by having local professionals — that has gotten us a lot more properties,” said Greg Maloney, CEO, Retail, Americas. “The difference for us is our local experts. We can deliver to clients what they need — information on who’s who, and who’s strong in a market. We know who’s going where, and where they’re trying to expand in each city.”

From just 30 projects and 150 people in 2002, JLL has grown its retail practice three-fold since 2011, increasing its brokerage staff alone from one broker to 145, Maloney said. In the last year, it acquired Wilson Retail; Shelter Bay Retail Group; Martin Potts & Associates, Inc.; and Big Red Rooster.

This year has already seen the company acquire national retail lease and debt restructuring firm Huntley, Mullaney, Spargo & Sullivan, Roseville, California, and most recently bring aboard senior VP Houman Mahboubi and his team to expand its group in Los Angeles.

“Our 2020 goal is to have 200-plus brokers in the top 15 markets around the country,” Maloney said. “It’s always about the team approach.”

No. 3 Mid-America Real Estate Group
Consistently ranked among the top-growing managers in Chain Store Age’s annual list, Mid-America Real Estate Group signed nearly 12.5 million sq. ft. in new contracts in 2015 to place third in this year’s list.

“We believe the key to consistency is that we have a great team of employees who are very experienced, and we have a great training program,” said Michelle Panovich, principal-management services. “Clients clearly are able to count on us for management and leasing, and we get a lot of referrals to other institutional owners. We do exactly what we tell the clients we’ll do.”

With offices in Chicago, Detroit, Minneapolis and Milwaukee as well as its headquarters in Oakbrook Terrace, Illinois, Mid-America continues to focus on opportunities throughout the Midwest, even as the skill sets of its team continue to evolve. Right now, Mid-America is looking to bring aboard more real estate finance professionals as owners look to outsource accounting and related tasks. Marketing is changing, too, with Mid-America being called upon to do more in terms of consumer interactions, including social media (such as maintaining center Facebook pages), direct couponing and more.

“I love the makeup of our group and how we can work on all sides of the equation,” Panovich said. “We want to have the best information, make the most deals, and fill space whether the client is the bank, a private owner or a new owner.”

No. 4 The Woodmont Co.
For The Woodmont Co., which ranked fourth this year with 6.2 million sq. ft. of new contracts, multiple disciplines and experience in varied property types allow the company to expand.

“We’re a little unique in that we have a big toolbox. We operate outlets, enclosed malls and open-air centers,” said Woodmont president Fred Meno. “[Our staff] are all aware of the opportunities that exist in each other’s portfolios. We try to create an environment conducive to that.”

As outlet centers locate in full-priced retail locations, the company’s possibilities expand, he added. Individual investors, too, are looking for value-add properties, and they bring in Woodmont to perform the needed functions of asset management, development, brokerage, leasing and investment sales so they can sell at a profit. A real boost came during the downturn, when special servicers needed someone to manage foreclosed properties.

“Lenders are in the lending business, not management,” Meno noted. “They’re going to look to sell it. And then you hope the buyer will look at the job you’ve done and retain you. We’ve had a lot of luck with that.”

More of those opportunities should be available as the last tranches of 10-year CMBS debt issued prior to the recession mature.

“Where property values have come down, some borrowers are under water,” Meno observed. “Because CMBS is non-recourse debt, they’re just going to give the keys back. Lenders are getting more involved in workout scenarios.”

No. 5 Divaris Real Estate
Relationships not only have grown the portfolio of Divaris Real Estate, which placed fifth with 3.38 million sq. ft. of new contracts in 2015, but they have also extended its geographic focus.

“It’s all the result of a lot of hard work,” said chairman and CEO Gerald S. Divaris.

While Divaris primarily works on the East Coast, the company’s portfolio has expanded to Texas and Arizona over the last two years when the firm began working with a number of institutions, as well as companies that have invested in federal government facilities, he explained. In addition, the company has forged a relationship with Armada Hoffler, which through its acquisition of several projects from DDR has brought Divaris into Indiana, Tennessee and Chicago.

The vast majority of the services are still provided in-house with a rapidly expanding staff, but Divaris also works with Realty Resources network for more distant projects.

“We have access to a variety of folks, selecting the best available in the markets,” Divaris said.

This year has already seen more activity, with Divaris adding more than 1 million sq. ft. to its leasing and management portfolio through Armada Hoffler, as well as assignments to lease, manage, or sell retail and other commercial projects in North Carolina, Virginia and Alabama.

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FINANCE

Expenses hit Kirkland’s Q1 profit as sales miss

BY CSA STAFF

Increases in cost of sales, operating expenses and depreciation resulted in net income dropping at Kirkland’s Inc. during a generally disappointing first quarter of fiscal 2016.

The specialty home décor chain’s net income totaled $916 million, down 64% from $2.53 billion in the first quarter of the previous fiscal year. Net sales rose 10% to $129.91 million from $118.31 million, below expectations. Same-store sales edged up 0.5%.

"The first quarter was in line with our expectations as we executed on our strategic priorities in a challenging traffic environment," said Mike Madden, president and CEO. "E-commerce revenues increased 28%, store conversion was positive, and our seasonal categories performed well. As expected, gross margin was impacted by a planned increase in promotional activity and startup costs for our new e-commerce fulfillment center. Operating expenses were tightly managed during the quarter and will remain a focus throughout the year."

Kirkland's maintained its fiscal 2016 outlook of diluted earnings per share in the range of $0.98 to $1.11. The retailer opened 14 stores and closed eight during the first quarter of fiscal 2016, bringing the total number of stores to 382 at quarter end.

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