Tuesday, November 23, 2010

A quick thought on pop up stores

Pop up stores by national chains is supposedly the latest "phenomenon" in retail.  Of course, this has been going on in a smaller scale by small tenants and even national retailers such as Hickory Farms for many years.  The leases, being short term, are figured out and conformed and done.  But what about the long term?

Some say this trend will continue over the long term.  I tend to agree.  Unfortunately I think it will depress prices unless lenders and buyers figure out a way to quantify and underwriter the pop ups, or pops enter into long term seasonal leases as a compromise, if landlords are willing to do so (and I would do so if the landlord had a cancellation right if it leases up the rest of the space in the mall -- there are all kinds of legal things we can do!)  In a way, it makes a lot of sense.  Cut down labor costs and dirt costs, concentrating on the couple of months that matter most.

What do I think might also happen?  It will hurt the have nots.  Let's face it: everyone wants to be in the major, in demand malls in major markets where your per sf sales are high enough to justify the year round store.  But in the have not malls with 20%+ vacanies?  You get the picture.  And that triggers co-tenancy clauses, and that triggers -- dead malls.  So, if you like to go to Water Tower Place or another mall that is basically 100% full, no change.  If you go to my local mall (which I don't, by the way)...thjings could be a-changing.

Friday, November 19, 2010

Want to make money? Get out of New York and DC!

This Globest.com piece might be the best I have read in a while.  Why?  Because it makes sense:

“Everybody got so burned by the downturn that they want safety and liquidity,” said Jonathan Gray of Blackstone Real Estate Advisors, during New York University Schack Institute’s 43rd Annual Conference on Capital Markets in Real Estate. Partly because everybody is chasing those same few deals in New York City, Washington, DC and a few other key markets, that means more opportunities in properties that are high-quality yet impaired....
Bingo.  If you want to make good money, get out into the rest of the country where the rest of us are not seeing a recovery as much as others.  And the story is also telling as to the amount lenders are putting out there.  Even though everyone says lenders are lending, transaction volume is still down 50%, 60% and more from a few years ago (not that we should be at those volumes again anyway). And even if you get that deal, the LTVs and rates are not exactly often going to knock you out.  So the deals better be good.

That said, the fire sale of the 90s is not a reality right now, or so says someone who ought to know more than most anyone:
For one thing, while the next few years will see hundreds of billions of dollars in annual commercial mortgage maturities, it’s not at all clear that this will lead to a flood of distressed assets, said panelist Neil Bluhm. “The product is coming out much more slowly and in a rational way” compared to the ‘90s, said Bluhm, managing principal of Walton Street Capital.
For another thing, Bluhm said later in the discussion, it’s not certain whether the capital flow will continue. “Most of the money we were talking about earlier, we raised a few years ago,” he pointed out.
(So yes, money is out there and just sitting on the sideline, just as everyone has said for almost as long as we can remember now.)

Thursday, November 18, 2010

A borrower hit from both sides

This was published in Crain's a week ago, but it bears writing about, however briefly:

The long and short?  Mega Chicago restaurateur Phil Stefani guaranteed a $7 million construction loan used to renovate the building where his office is located, and which is owned in part by Stefani and others, including the well-known local developer Keith Lord..  The loan is past-due and the lender, Harris Bank, is pushing what he described as tough new terms for an extension, including new equity and prepaid interest.

Why is the project under water? In large part, because its anchor tenant, Amcore Bank, went under.  But here is the real kicker.  Amcore was also the lender for the project!  When it was shut down by the FDIC, the feds rejected the lease at Stefani's building and handed over the loan and Amcore's operations to Harris. So...now Harris is putting on the squeeze because the lease of its predecessor in interest tanked the value of the property.

You can read about the rest of the case going on in the Crain's article, but that story sort of left me out of sorts.  It seems like the banks get to have their cake and eat it, too.  Call it an application of the Golden Rule, I suppose.  And I have seen other similar situations where banks or government entities really play hardball for one overarching reason: because they can.  But Stefani has some very smart lawyers here, and I'll be interested in seeing how this plays out.

Monday, November 1, 2010

Holiday Inn -- a great F&B idea or another darn upgrade?

According to this WSJ article Holiday Inn has just completed " a sweeping, global overhaul that upgraded their hotels' bedding, signs, lobbies and showers, among other things, at an average cost to [franchisees] of $300,000 a property."

In the industry this is called a PIP.  So now what? On to the next one?  The next idea is to incorporate breakfast buffets (a la Embassy Suites?), socialize the meal process and streamline food and beverage service to cut back on labor costs.  This will, however, be implemented gradually, starting with some test markets to see if the idea works.  Although I am not a frequent HI, I actually like this idea.  That said, while the whole social networking thing is an interesting concept, most lobbies I see aren't usually big hubs of activity unless there is free food.  Also, just because you finish one program does not mean you should not be on to the next idea to maintain relevance.  It is almost like the people who redesign the menus at casual restaurant chains -- finish one and start the next!  I also wonder if some franchisees will try to incorporate the cheaper portions of this idea faster to cut labor cost.  I'll be interested to see whether and how this is implemented and whether this and the other HI upgrades pay off.

Completely OT: an immigration and tourist visa proposal

Okay, I'm taking a risk here, especially after the whole "I think Sarah Palin is a lousy speaker" debacle at ICSC.  And I know this has almost nothing to do with commercial real estate. But what the heck.

I am a firm believer in common sense when it comes to immigration.  As the husband of a legal immigrant, I believe in open borders -- to an extent.  If someone, for instance, is most likely going to make a significant contribution to our country, why not let that person in? Take my wife, for instance.  She jumped through years and years of hoops to obtain a green card and her "blue passport" (meaning US citizenship).  Her marrying me had nothing to do with it.  And she is a most productive member of society, treating our children and paying oodles and gobs of taxes to boot.  I want the best and brightest of the world -- doctors, engineers, software pros, etc. -- to come here to the maximum extent possible.  We have some programs available to encourage this, and I want more.

What has stuck in my mind for the last decade or so is our visa policy in some cases.  I am seeing my family driven crazy by i.  Take my highly-educated niece, for example.  When her father was dying, our government refused her a visa on the grounds that she was a "flight risk" and not likely to return home because her application to join her family in the US was still pending. Because we did not to do anything illegal or risk her application, she never got to see her father again.  She subsequently obtained her green card (after an eleven year wait) and promptly found a high-paying job as a software consultant.

My nephew's wife is going through a similar problem: her sister and father cannot visit her here because of "insufficient ties to the home country."  She is literally in years because she'd like them to see the wonderful life she is building here with my family. 

Let me say it isn't all bad.  My mother-in-law, brother and law and his family have been back and forth several times now, with of course absolutely no flight risk.  Many thanks to the consular officials who saw the honesty in them.  My mother-in-law's tourist visa is up for renewal next year. I cannot imagine her being denied given her record of traveling back and forth, although if it is we will immediately file a petition for permanent residency.

Don't get me wrong.  I absolutely see the other side of the coin.  We don't want people overstaying their welcome as tourists and potentially becoming liabilities on our government.  I totally get that and support it.  But isn't there a solution? 

My middle of the night idea, which for all I know exists or has been proposed already, is to have some method of sponsorship for someone who wants to be a tourist but is perceived in the government's opinion to be less likely to go home.  In other words, if I want relative X to visit, I will personally guarantee his return to the home country, and put up a significant deposit or bond (be it a lump sum of x% of net worth) and be required to pay for all enforcement and deportation costs if that return does not happen.  It should be a draconian amount, in my opinion -- one that no one will want to pay, and perhaps on a sliding scale based on income.  That way no one will sponsor someone that isn't really, really, going back.  Perhaps the privilege should only be available to citizens, or to green card holders with the possible penalty of losing your permanent residency.  I don't know.

All this may be impractical or pie-in-the-sky.  But darn it, I have family members who want to visit this country and go home again, and I'm willing to put my money where my mouth is to guarantee it.  There is nothing legal we would not have done to let our niece see her father before he died (and no, we did not have sufficient time or clout to push a Private Member's Bill through Congress, which a friend of mine actually did receive some years ago).  Is there another way?