Developers + Tenants Collaboration Panel Recap
Nearly 150 attendees packed the Catalina Room at the Grand Events Center in Long Beach this past Tuesday, June 13th. The group, comprised of top Southern California commercial real estate professionals, was gathered for ACRE SoCal’s June Event. Entitled: “Developers + Tenants Working Together to Achieve a Common Goal,” the proceedings featured a panel discussion with several leading Southern California commercial real estate developers. The esteemed group shared both their struggles completing new development and redevelopment projects, in addition to the solutions they’ve cultivated to “get deals done!” in what proved a lively and highly informative conversation.
Moderated by Jeff Kreshek of Federal Realty, panelists included Jim Watson of J.R. Watson & Associates Development Co; Andy Natkerof The Haggen Company; Sandy Sigal of NewMark Merrill Companies; and Bart J. Hollander of Rich Development Company.
Taking his cue from a Tuesday Los Angeles Times headline: “Retail Flounders as Shoppers go Online,” Jeff Kreshek asked panelist for their reactions. “We’ve been through this cycle time and again” says NewMark’s Sandy Sigal, “First ‘Big Box’ was going to destroy retail. Then ‘mailer order’ was going to destroy retail. And so on… Yes, retail is changing. But there’s still space in the marketplace [for retail]. It’s just different,” Sigal adds.
With seemingly no physical land available in many of Southern California’s “over-built” and “over-retailed” urban areas, Kreshek wonders if there’s more space for retail in secondary markets? “Depends on the market,” says Watson Development Co’s Jim Watson, reporting a Riverside area Walmart anchored center that can’t draw a single co-tenant. Meanwhile, a similar center in San Bernardino is thriving. It also depends on the tenant type according to Rich Development’s Bart Hollander, who noted a “pent up demand for food use” in the outlying community of Menifee.
Establishing the right synergy among tenants is clearly the key to fostering a successful shopping center development. But how well are developers “curating” shopping centers? And are they “betting too big” on food? “Food uses are the hottest and highest paying tenants right now, so the temptation is to lease all food,” Sigal says, but stresses this approach is a mistake, as a diverse tenant mix is critical to a center’s longevity. Sigal also favors using “data-driven consumer analysis” to “pair” the right tenants in adjacent units. Haggan’s Andy Natker, however, reasons a diverse mix of “fitness, food and service” tenants appropriately “dispersed” throughout a property is enough to stabilize a center. Watson feels restaurants are a solid bet, as eating out is a “communal experience” not likely to disappear anytime soon.
As the influence of Yelp and social media continues to grow, it’s clear these digital platforms have begun to sway developers’ decision-making process and tenant management approach. “For smaller tenants, it’s a factor,” Natker says, noting that Fresh Brothers early digital marketing campaigns influenced his decision to lease a site to the then fledgling operation. NewMark inserts a “Facebook monitoring” clause into their lease agreements, Sigal notes. Additionally, NewMark tracks social media demos and shares that data with cooperating leasing agents.
Municipal ordinances and regulations increasingly hamper retail development. Yet so many cities crave commercial development, and the tax revenue they provide. Developers, local governments and civic groups are still struggling to strike a balance between commerce and community concerns. “Cities have to wake up if they want [national, credit] retailers AND the amenities such developments provide,” Says Natker. “Communities want Whole Foods [for example], but do area demographics support such a retailer?” Not always Sigal notes in characterizing the difficulties of managing the often delicate negotiations between developers, municipal officials and community representatives.
But developers understand that cities generally determine the fate of a proposed project. To overcome municipal objections, developers frequently “get creative” to make a project happen. “In Inglewood, we promised to deliver a reasonable tenant mix… Local, regional and national retailers,” Sigal says of recent urban in-fill project. “We ‘partner’ with our biggest neighbor,” Watson says of his success in forming an alliance with UC Riverside that prompted the University to go to bat for his organization in negotiations with the city.
Tenants have long demanded exclusives, this is particularly true for credit tenants. But such lease clauses can be extremely limiting, and in some cases, crush a shopping center’s viability. “Exclusives are a KILLER,” says Natker, who advocates for an “end to exclusives” altogether. But, according to Hollander, acceptance of exclusives often comes down to “how badly do you need a deal?” Though, Hollander also notes developers need a certain degree of “flexibility,” otherwise “no one’s going to make a deal.”
The panelist universally agreed malls and department stores will likely be unrecognizable in comparison to their current state in the near future. “Malls will be less important,” states Natker, “[Grade] A Malls will be OK. And [grade] B malls will probably be OK, too. But anything less is likely better converted to another use,” he adds. According to Sigal, department stores will still exist in the future, but “won’t look anything like what we’re used to.”
The panelists also agreed in 25 years, retail will still exist, but in vastly different visage from that of today. “It will still be here, but there will be less of it,” Watson predicts. “Retail has to change, or it will die,” imports Hollander, adding “the evolution of grocery stores illustrates the path retail [in general] ultimately must follow.”
ACRE thanks Jeff Kreshek and the entire panel for providing illuminating insights, and generously donating their valuable time to this event!
Additionally, don’t miss the upcoming ACRE Shaker – August 17th, at the Bungalow in Huntington Beach. It promises to be the PARTY OF THE YEAR!