Which types of retail properties are most in demand? Which assets have fallen out of favor? Those were a few of the key questions that touched on during a recent capital markets panel here at ICSC RECon. Industry veterans including moderator Patrick Nutt, managing partner of Calkain Cos., Larry Brown, president of Starwood Mortgage Capital, and Michael Phillips, managing principal of Lubert Adler, agreed that retail deals are getting done.
Nutt said that while valuations are peak”ish” the expansion in the retail capital markets sector has really been led by “responsible buying and borrowing.”
Panelist Brown explained that “retail is getting done, but big box can be scary. You have to pick and choose.” When talking about debt yields, he said that “we are doing single-digit now.”
In terms of debt service coverage, Brown said “we wouldn’t want to see much lower than a 1.3.” And when discussing basic fundamentals in the industry, he said that “things seem fine. There are lots of malls in the country that don’t need to exist, sure, but there are lots that should.”
Panelist Phillips looks at the headlines in retail as both real and exaggerated. “You have plenty disruptors in the market and many retailers that are failing, but you have many that are dominated right now. When we look at a center, and put the real estate quality aside, we focus on if it is one of those winners, or if there is vacancy and a void in that center that we can re-tenant to a winner.”
Most of the problems in retail right now, according to Phillips, are secular and cyclical. “In some ways, retail valuations dropped between 5% and 20% last year, so we are already in a downcycle in retail.”
Outside of the panel, GlobeSt.com also caught up with Nick Garzia, director of retail leasing for the Hines Southeast portfolio, who said that more and more apparel retailers are putting capital into e-commerce, which will only continue to grow.
Garzia also tells GlobeSt.com that “Premier tenants are concerned about too many merchant builders and want to know that the developer they start a relationship with and sign with is going to be around. Mixed-use continues to dominate development and re-development scenarios. And live entertainment venues will become more prevalent as an anchor draw.”
On the department stores front, Garzia says that they are and will continue to experiment with more creative approaches to accommodate customer needs, such as Nordstrom’s new men’s only store in NYC and engagement center in LA, and Macy’s purchase of STORY.
But food, collectively, he adds, continues to be an anchor. “We are in a golden age of restaurant development. Though many food halls will continue to be proposed, not all of them will be built. There’s not a consensus yet on the best operational structure for them.”
Read full article here on GlobeSt.