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Commercial real estate is in an awkward place right now. Between store closings, bankruptcies, and a new president the market is not what it used to be — especially in the retail industry. In the article below Mark Dufton, a real estate exec, gives his take on retail real estate and the market right now.
Q&A: Gordon Brothers Real Estate Executive Weighs in on Challenging Retail Real Estate LandscapeMark Dufton Leads Specialized Restructuring Firm Involved in a Hefty Amount of Resizing, Repurposing, Renegotiating and Relocating RetailersMay 4, 2017
With retailers and shopping center owners heading to Las Vegas later this month for RECon, the worlds largest retail real estate convention, we asked Mark Dufton, CEO of the Real Estate practice of Gordon Brothers, for his take on the evolving retail real estate market.
Gordon Brothers is among the handful of retail restructuring specialists capturing the lion’s share of restructuring work involving store closings and dispositions. Dufton has more than 25 years of real estate and management experience. He is also a managing director for Dinosaur Capital Partners, a Boston-based real estate investment and development company, as well as a member of the International Council of Shopping Centers and the Turnaround Management Association.
Q: Weve seen at least nine major retailer bankruptcy filings this year alone. How much restructuring may be going on below the surface at other retailers that the market is not seeing?
Actually, it’s not as prevalent as people think. It has become very difficult to conduct out-of-court restructuring. It used to be much more commonplace, but now the vast majority of retail restructurings are done through bankruptcy. Its essentially become the accepted standard practice, and banks dont seem to mind.
Q: While a lot of news on struggling retailers has been focused on major anchor tenants, inline retailers face the same challenges as anchors, but they are also dealing with the decreased foot traffic those anchors are expected to bring in. What adjustments are they making in their real estate decisions?
The impact on inline retailers can be viewed through two angles: new store openings and lease renewals.
The number of new store openings has slowed dramatically. And when new stores are opened, they are being scrutinized in a way we havent seen before.
Thats largely because lease deals take twice as long as they used to. It used to take six months to close a deal on a new store, now its a year-long process.
Another reason why these deals are taking longer is the added importance being put on the decision. New store decisions used to be made by an internal real estate committee, but new store decisions may now go all the way up to the board for input.
This level of thought and scrutiny for new stores is a good thing for the industry, its important to have greater discipline when adding new locations.
As for lease renewals, we’re seeing a much greater focus on the timing of lease renewals, and determining if that lease is at market value. Retailers now want to know what other factors are associated with the lease and whether they should renew or close. They are paying much more attention to this decision than in the past.
Previously, if a stores sales were mediocre and the renewal came with a nominal rent increase, most retailers would renew. Now, retailers are looking at every detail. For marginal stores they’ll go out and look at the market and try to restructure the lease to make it more profitable. There is more attention to overall occupancy expense than ever before.
Also in the current retail environment, lease renewals are no longer a secondary consideration. It is now the biggest expense for retailers after their people.
Q: When it comes to store closings and lease cancellations, retailers are increasingly choosing between Class A properties and Class B and C properties. How is this showing up in efforts to find new tenants for vacated space? And how is it showing up in the renegotiation of leases?
There is a clear bifurcation between Class A retail properties and Class B and C. Owners of Class A properties actually like having vacated spaces. They have leverage because everyone wants to model Class A traffic. This also means owners at those centers have the power when renegotiating rents.
However, malls no longer publish traffic numbers, which in itself is telling. Owners of B and C centers have little leverage with retailers for vacated spaces and are willing to renegotiate rents. We expect to see Class A properties continue to do well and Class B and C struggle. The divide between A and B and C will simply become greater.
You will see more and more vacancies and lower rents at these properties as retailers are desperate to restructure. There may be many unknowns, but retailers and landlords will choose to repurpose and restructure to improve cash flow, which impacts debt restructure and has an overall cascading effect on the property.
The future for the bottom market B and C retail space is going to look like repurposed quasi-retail, we’re talking schools, churches, call centers, gyms and medical clinics.
All this is part of the big shift going on in retailing – instead of the 1,200 malls we see in the U.S. today, I expect that number to shrink to 800 or 900.
Q: Beyond closing under-performing stores, retailers are trying to become more efficient in their current space allocation and occupancy dollars, as well as selecting new locations. Not counting closures, where is this additional shrinkage coming from and how much are you seeing?
One area where we are seeing retailers conserve capital is in lease mitigation. Instead of spending capital on a lease buyout, more retailers are deciding to ride out the remainder of the lease and then close and maybe relocate.
For many retailers, downsizing is an easier-said-than-done proposition. Some big box retailers dont lend well to splitting up. With challenging configurations, the cost to split and utilities, they may not get the return on investment (from downsizing) without certain rent levels.
Downsizing is much more challenging to execute. More likely it is easier to relocate and downsize when the lease comes up for renewal.
Q: We tend to associate retail troubles with real estate and blame downsizing on an ‘oversaturation’ of retail space. But how much of the trouble in the retail industry is associated with real estate? What other forces are at work?
The way I view it is real estate is the cart and slowing sales is the horse. The oversaturation in the retail market was caused by lagging sales in stores. This only became a real estate problem when sales did not keep up with the market and leases became unprofitable.
The other forces at work that are affecting retailer sales, and eventually retail real estate, include: income stagnation, which continues to put a damper on the mass consumer; the growth of online retail and increasing preference for the channel over bricks and mortar, and the preference among millennial consumers to spend on experiences instead of retail goods.
As I mentioned, those factors have led to lower sales, which in turn has resulted in the sheer size of the retail footprint being too large and the store count too great.
Shoppers’ needs and wants have evolved, and retailers have struggled to keep pace with the trends of younger generations. Also, not all retailers have done a good job integrating their online presence with their brick and mortar operations. We see some retailers who do this exceptionally well and others who have not kept pace.
Q: Even as Class A properties seem to be thriving, there has also been a rise in the number of discount retailers and outlet stores. These arent the type of tenants associated with Class A space. How are they doing in the current environment?
Yes, value shopping has become prevalent at every level of the market, including luxury. We see Nordstrom Rack, Saks Off Fifth and Last Call by Neiman Marcus exceeding margins and (sales) levels never anticipated.
However, even though value retailers like TJX concepts have held up reasonably well, outlets and Class A properties are not performing as they once were. The former darling of the retail industry, outlet stores and Class A are now reporting downturns in their traffic, which makes it more difficult to terminate their leases.
Historically, outlets and high streets like Fifth Avenue in New York and Newbury Street in Boston were minimally affected by industry shifts. But now were seeing more softness among outlets and high streets. In both categories there are more vacancies than we have seen in years.
Lance Bradford Real Estate Announces Office Building
LAS VEGAS, NV–(Marketwired – Mar 9, 2017) – Lance Bradford, Founder of Stable Development announces construction of a 51,850 square feet building in Henderson, Nevada. Expected to start in the second quarter of 2017, the building will house a combination of retail, medical and professional office space. The two-story structure is scheduled for completion by the end of 2017.
Lance Bradford, a trusted and respected real estate executive and financial advisor, states, “We are delighted to not only announce the Henderson project, but the fact that it is already over 50% pre-leased. This reflects the quality of the project and its superb location.”
The new project will feature a two-story parking structure. It is near local restaurants, St. Rose Hospital and a future Costco site. With the amazing pre-leasing progress, the success of the project is already assured.
Bradford established Stable Development in 2005 to promote his unique Shared Equity financing model to the Las Vegas area. The Shared Equity approach creates long-term partnerships that provide a ‘win-win’ scenario for those involved. This model incorporates tenant ownership and has out-performed the market in the recent challenging economic environment. This format is market tested and has resulted in more than 500,000 square feet of commercial, medical and professional real estate owned in Southern Nevada.
With Bradford’s remarkable experience and entrepreneurial spirit, Stable Development has become one of most successful commercial office developers in the Las Vegas area. According to Bradford, “We’re very excited about this real estate opportunity. It not only gives us a stronger presence in Henderson, but we are proud to create employment opportunities for the area.”
Stable Development is expanding its unique business model to new markets, including California, Texas, Kansas and New York. The company has enjoyed tremendous success and growth and has now added a full-service architectural division. Bradford’s remarkable experience and experience will assure the successful expansion of Stable Development into new markets.
Lance’s latest business venture is the Shared Equity
Ownership Model(TM). It has to do with
real estate equity and ownership especially on the commercial real estate side
of things. It bridges a gap between
developer and tenant relations, and it can bring many benefits. Learn about it
in the press release below:
Lance Bradford Real Estate Introduces Unique
Shared Equity Ownership Model (TM)
Revolutionary Model Provides Building Ownership by Long-Term Tenant
LAS VEGAS, NV / ACCESSWIRE / December 14, 2016 / Lance Bradford, founder/CEO of Stable Development LLC in Las Vegas, Nevada, announces a unique Shared Equity Ownership Model. With this approach, tenants take ownership of their office space with minimal cash outlay.
Real estate expert Lance Bradford created this model to provide long-term tenants with the opportunity to affordably acquire a share of real estate equity. In turn, the developer receives greater security and stability a win-win for both parties. According to Bradford, We are thrilled at the acceptance of our revolutionary approach. Long-term tenants see the value immediately. They can reap the benefits of ownership without the management headaches.
Stable Development LLC was established with the vision of enabling medical and professional business owners the opportunity for Class A building ownership. The remarkable Shared Equity Ownership Model empowers tenants to receive the benefits of ownership, including growth in equity and property appreciation.
Stable Development has the track record to back up this model. With over 410,000 square feet of medical and professional office space in the southern Las Vegas area, Bradfords company has both performance and staying power. In fact, the company thrived during the recession of 2008-9. Operations have expanded and a full-service architectural division has been added. Stable Development continues to expand its acquisitions, development, property management, and real estate investment services.
We will continue to grow, both in size and services. We also plan on employing more people in the southern Nevada community, states Bradford. Originally an accountant, Lance Bradford transitioned his practice into commercial development in 2006. He has since become one of the most trusted and respected executives in the real estate industry. There are significant Las Vegas area projects in his portfolio and more to come. His reputation is now expanding nationally.
He plans to expand this unique model across the country to California, Texas, Kansas, and New York. In Nevada, the company continues to expand its ownership and operation of professional and medial office space. Commercial development opportunities are also under consideration.
Accredited investors are welcome. For information, please contact Stable Development at www.StableDevelopment.com or call (702)735-5532.
SOURCE: Stable Development LLC
Article sourced from: http://www.live5news.com/story/34055122/news
The city of Las Vegas will be getting millions of dollars in a tax credits to reinvest back into the area. This is promising because it means funding for new projects and development in the area. Las Vegas’ economy is finally on the upswing after the recession and tax credits like this will continue to help that. Read more about this in the article below.
City Of Las Vegas receives $55M in new markets tax credits
LAS VEGAS (KTNV) –
If you have dreams of being successful and want to build a strong financial foundation you will find this article helpful. There are certain things you can do presently and for the future in order to become financially successful. You might have to take a risk or two, but without risk there is no reward. Make note of the two steps explained in this article in your efforts towards financial success.
2 Critical Steps You Can Take Right Now to Build Lasting Wealth08/30/2016 06:06 pm ET | Updated Aug 30, 2016
Want to be successful? You have to prepare. Success isnt accidental. Its the combination of preparation, focus and opportunity. When these three things overlap, like the Venn diagrams you learned about in school, amazing things happen.
To stay focused on preparing for the future, I think about a quote from Robert Herjavec: I dont think anyone wakes up and says, I want my life to suck today. Ive witnessed and personally experienced both success and failure. We all have. But, what sets the winners apart is that they focus their efforts, down to the minute, on a singular goal.
Take action towards your goals. If, like me, your goal is to become completely financially independent, then you need to do the following:
1. Create Multiple Streams of Income
Talk to any financial adviser. Theyll tell you that the key to long-term growth in your investment portfolio is diversity. Things go wrong, but if you have alternative streams of income to rely on, you can bounce back without crashing. Think of diversification as a type of insurance.
For those of you killing it in your 9-5 job, with benefits and a reliable salary, you need to focus on how youre spending your time outside the office. Your diversification is what you do in your off-time. Or, more accurately, making your off-time your opportunity time.
During the height of the Great Recession, U.S. News published an article outlining 10 Reasons to Have Multiple Income Streams. This was written at a time when the unemployment rate in the United States was soaring towards double-digits. There was genuine panic that the world was shifting in a way that would leave millions without a reliable source of income. Even today, the psychological effects of the Great Recession are still rippling their way through our daily lives.
The number one suggestion during this time was to start focusing on finding more ways to patch together an income. I still remember a dinner party I attended that year. I crossed paths with Robby Du Toit, the Founder of Fast Sale Today. He told me, You know, my business was built on providing an exit strategy for distressed properties. Before the crash, that was less than 4% of the market. Today, thats more than 50% of the market. People just dont have back-up plans, besides pulling cash out of their homes. Property today has become the emergency fund of yesterday.
It was a sobering thought. To think that millions of Americans didnt have an emergency fund. If their primary source of income was lost, they could lose everything.
Key Takeaway: Use your leisure time to identify opportunities to earn more. Creating multiple income streams will save you from disaster if something goes wrong (which is a matter of when, not if). In addition, you need an emergency fund that can last up to 6 months in case total disaster strikes (illness, family emergency, etc.).
2. Defend Your Future Wealth
Aside from economic disaster, there are other things you need to think about in terms of building and protecting your wealth. As Benjamin Franklin once wrote, In this world nothing can be said to be certain, except death and taxes.
Tax liability is a critical part of building real-wealth. Take advantage of tax-deferred programs:
Individual Retirement Accounts (IRAs)
401(k)s (preferably with employer matching)
Exchange-Traded Funds (ETFs) with lower portfolio turnovers.
529 Plans for Educational Purposes
Incorporation of Business Entities to Provide Tax Advantages
If youre going to follow the advice laid out in part 1 of this article, building a diversified income stream, youll need to meet with a tax professional, as well as a good attorney to discuss the benefits of structuring your income streams within a corporation.
Its important to understand that many expenses incurred in the pursuit of new income streams can be tax-deductible. Every business, big or small, has a silent partner: Uncle Sam. Dont let him take more of your hard-earned money that he has to. Theres a reason major corporations hire lobbyists. FactCheck.org reports: As the New York Times and others have well documented, GE has employed a number of aggressive (and legal) strategies that have greatly reduced the companys corporate tax burden.
Key Takeaway: Think of yourself as a business, with multiple income streams and opportunities to cut-costs. Use every legal mean at your disposal to reduce tax liabilities and improve the legal protections of your wealth.
Find the full article here: http://www.huffingtonpost.com/ahmad-raza/2-critical-steps-you-can-_b_11771350.html
The second quarter commercial real estate report for the Las Vegas area was released and it shows overall improvement and growth! The commercial real estate market has been recovering from the recession for years and there might soon be a light at the end of the tunnel. Read the major findings of the report in the article below from Yahoo! Finance.
Las Vegas Commercial Real Estate Markets End Second Quarter 2016 Strong — Job Growth Fuels Office Market Expansion
LAS VEGAS, NV–(Marketwired – Aug 29, 2016) – The Las Vegas office of Cushman & Wakefield/Commerce released its Q2, 2016 report, which details the office, industrial and retail market, economy and the state of commercial real estate in the Las Vegas area.
The Las Vegas economy is progressively improving as more than 22,000 jobs were added in a year-over-year basis. The unemployment rate in Las Vegas is still higher than the national average; however, it has decreased 0.9 percentage points since Q2, 2015 and these trends are expected to continue.
“Commercial real estate in the Las Vegas area continues the recovering process during the second quarter,” said Michael Dunn, market leader for the Las Vegas office of Cushman & Wakefield/Commerce. “The market remains active, the tightening of availability will linger as the limited supply of quality space continues to drop. Through this trend, we have seen job growth continue to increase. Nevada was ranked as third for job growth, which is a result of the increase of expansion as established companies grow and new companies moving into the area from around the country.”
Q2, 2016 marks the seventh consecutive quarter for the office market to see a positive absorption with an overall absorption of 68,000 square feet, and 235,778 square feet year-to-date. The West market showed the most positive absorption, while Henderson South market experienced the highest level of negative absorption. The total overall vacancy has continued to decline, and currently stands at 7.8 million square feet. Compared to Q1, 2016, vacancy rates decreased from 18.3 percent to 18.1 percent.
As rental rates increase slightly, and vacancy rates continue to decline, new construction will remain limited. The Las Vegas office market saw 7,894 square feet of completed buildings in Q2, 2016, a slight increase from zero square feet in the first quarter. The ongoing trend of tenants renewing at their current buildings and signing longer term leases, rather than moving locations has continued in this market. New construction is expected to remain very low for the next several years as developers want to wait to develop until the vacancy rate declines and rental rates increase enough to support development costs. Click here for the full report: http://bit.ly/2bltzYa
Q2 of 2016 has been reported as the eleventh consecutive quarter of positive absorption, with a total overall absorption of 455,327 square feet. The second quarter saw 12 speculative building projects. New buildings are under construction, Henderson had 163,000 square feet; the Southwest had 547,514 square feet and North Las Vegas had 886,126 square feet, totaling 1,596,640 square feet of speculative construction underway. The total overall vacancy did not change from 2016’s first quarter, and remained at 6.6 million vacant square feet. In addition to the speculative buildings mentioned above, Chinese-backed car company, Faraday Future, which began development on a 3 million square foot factory in North Las Vegas at the Apex Industrial Park.
Increasing land prices and labor costs in the industrial market will force developers to raise rental rates to justify new construction. For new mid-bay multi-tenant buildings to be constructed, rental rates will need to rise from the current average $0.58 monthly per square foot triple net (NNN) to approximately $0.70 monthly per square foot NNN to justify the cost for construction. Tenant demand should continue to remain positive during the rest of the year and vacancy rates are expected to remain consistent in the 6 percent range with supply and demand in relative balance. Click here for the full report:http://bit.ly/2aJIHNz
For three consecutive quarters, vacancy rates remained the same but have decreased by 0.1 percent during each quarter of the first half of 2016.quarters. The overall vacancy rate in the Las Vegas retail market was at 7.8 percent at the end of the second quarter which was nearly a half percent decrease from the first quarter. The Downtown submarket continued to have the lowest vacancy rate, which stayed below 3 percent for the first half of 2016. Rental rates remained stable at $1.35 monthly per square foot NNN, which decreased slightly from the 2016 first quarter’s $1.36 monthly per square foot NNN.
The total overall positive absorption was near 460,000 square feet at the close of the second quarter. The second quarter of 2016 marked the third consecutive quarter of positive absorption, as well as increased activity for each quarter, which indicates market growth and stabilization. Ikea occupied its 351,000 square foot building which accounted for majority of positive absorption during the second quarter. Outside of Ikea’s absorption, the overall market absorbed 109,000 square feet. Overall absorption is expected to remain positive and vacancy rates should slowly decline and rental rates should slowly increase moving forward. Click here for the full report: http://bit.ly/2b8meLb