Retail Update: Spring 2021 | The Stoler Report-New York's Business Report

Retail Update: Spring 2021 | The Stoler Report-New York's Business Report

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♪ [Theme Music] ♪ ♪ [Theme Music] ♪ >>> Michael: Retail. Am I crazy to host the show on retail in 2021? I don't know. But today I've assembled these three retailers. It's going to be a wonderful discussion on the state of retail, spring of 2021. My guests include the broker and

the retail owner, Peter Ripka, who is the co-founder and president of Ripco Real Estate and a partner at Sagamore Hill Real Estate. Ross Cooper, who is the president and chief investment officer at Kimco Realty. And last but not least, my friend who's been on the show a number of times, who've always felt I only talked about Brooklyn, Kenneth Bernstein, who is the president and CEO of Acadia Realty Trust. So, as I said, am I nuts? Am I crazy doing a show on retail? I think I'm not. So, Peter, let's talk about, since you see it on a

variety of ways and Ross and Ken see it around the country -- How do you really see the retail? >>> Peter: It's certainly a difficult period for everyone, personally and professionally, but we just added up or tallied, if you will, the amount of deals that we made in the Metro New York area since March 10, 2020, and it's 255 of that. And we lease in that same geographic area of Metro New York, New York City and suburbs, we lease 2.6 million square feet of space, retail space. So, it's not dead. And there are all kinds of different categories of retailers and service oriented users that we could talk about later that have been signing leases and looking for space. And of course, it's a brokers'

way to be optimistic, if you want to be successful, which I am. But that said, we're doing business. >>> Michael: I mean, are we in a world of Whole Foods, Target, Trader Joe's, Okay? Lifetime Fitness? Who are the new retailers who are signing leases today? >>> Ken: The short answer is all of them. But let me explain what has happened over the past year. When the lockdown occurred, when

the crisis began, there was massive disruption. A lot of pain, and as Peter pointed out, really painful time for a meaningful portion of the population. During that time period, everyone focused on necessity, which primarily meant the supermarkets you mentioned, as well as those retailers who were deemed essential. And that's where most of the activity was for the first half of the crisis. Now, as people are starting to think about the reopening of the economy, we're seeing restaurants step up. We're seeing gyms step up. We're

seeing a variety of retailers who are recognizing that we are going to climb out of this horrible crisis, that those people who have been able to transition to remote work successfully, the significant portion of the population has record levels of savings, has a strong stock portfolio, home values up and retailers are now gearing up to capture that. So, I think if you look back over the last six months, it was more nesting, home-related and essential. And then now as you look over the next year or two, you're going to start seeing some of the experience, some of the desires to get out there and reopen. And that's where I think you're going to see some

exciting activity. >>> Michael: Ross. >>> Ross: Yeah. And Michael, you started the conversation asking,

am I crazy if we're talking about retail? And while I'm not a broker, like Peter, I'm also very optimistic. I think it's a great time to be talking about retail. You know, we, we've been dealing with evolution and changing dynamics in retail for many, many years, and most recently dating back to the retail apocalypse, you know, five, six years ago, but it's a very resilient business. We continue to see a lot of optimism, particularly in the last few months with the rollout of the vaccine. And we're starting to see some real green

shoots from a lot of our retailers. And frankly, when we look at the collections of our retailers, in terms of their ability to do business and pay rent, that's continued to improve month over month, as the pandemic has continued to, you know, reach its, its one-year anniversary almost at this point. As Ken mentioned, we're starting to see different retailers doing business, aside from just the essentials that have been active throughout the pandemic. So, we've been doing the grocery deals throughout the home, anything related to home, home improvement, home goods continues to be extremely strong. But now we're even seeing the categories that were

most heavily impacted by the pandemic. Restaurants and fitness starting to come back in a pretty meaningful way. So, we do see a fair sense of optimism as we look forward to continued openings in certain markets. And even right here in New York City with the recent announcement of movie theaters and other entertainment venues, it feels like there is very much a light at the end of the tunnel at this point. >>> Michael: Since you're all owners, including Peter, who's a combination -- Are you offering, as they would say, COVID leases, special terms on your leases to help the tenants? Are you saying to them, I'll take a percentage right now and then later on you you'll adjust it? Are you giving deferrals or are you giving abatements? Where do you stay? Where do you see that happening? >>> Ken: All of the above. One size does not fit all Michael.

So, I think it's important again, to, to put the crisis in context. When the crisis hit and it may be slightly different from Ross' perspective, but almost half of our retailers stopped paying us rent. Of those retailers who stopped paying us rent, the majority in our case were national credit tenants. But now in retrospect, the collection rate wasn't 50%. It was north of 85% for most of us. For those tenants who have been able to successfully navigate through this crisis, they're doing quite well. And their need for support is minimal. For

local mom and pop retailers, who have had their business, their life savings wrenched from them, their companies, like Ross' and mine, have been there for them to work through this, because it's critical that they get to the other side and it's in our interest as landlords to see them get to the other side. So, no one size fits all. Sure, percentage rent in some instances. Sure, other relief and others. But the good news

is, whether it's spring, summer, or certainly by the fall, I think you're going to see so much pent up demand that those that get to the other side will be back. >>> Michael: You know, looking at the, your investor presentations of Ross and you Ken -- Ross, you have a new thing called The Signature Collection, which seems to me as a repositioning product. Ken probably has the same thing, but he hasn't, hasn't put the name on it yet. Tell me about The Signature Collection. >>> Ross: Yeah. Signature Series is a group of assets within our portfolio that really lends itself to additional investment, a mix of uses, really a dynamic locations that we feel are very much long-term trophy assets and signature assets for our portfolio. So, going back to your prior point about the

leasing demand and the deals that we're cutting, you have to put it into perspective. One that we do provide for everyday goods and services for our essential retailers. When you think about the occupancy of the portfolio, right as we got into the beginning of the pandemic, we were at all time highs in our occupancy. So, while there's been a little bit of an impact, certainly a modest impact to our occupancy with certain vacancies over the course of the pandemic, we have held up very strong in terms of tenant retention. And therefore, we are able to continue to negotiate, I would say very fair lease terms for both landlord and retailer. So again, to Ken's point, everything is very -- going to be very dependent and specific to that deal, to that location. But when you have high quality

properties that have maintained their value, their, their reason for existing, you're able to, you know, retain certain levels of, of demand. And, and, you know, we've been able to showcase that with our portfolio. >>> Michael: Peter, you were a couple of months ago, I think on December 31st, the deal may have closed -- The Sunrise Mall, a repositioning type of thing, which is -- let's talk about repositioning of assets today. >>> Peter: Well, repositioning is, it's the buzz word everywhere, and it's almost pretty much proven at this point that there is a little too much retail space in the United States, at least for the demand today. So, Sunrise Mall is an

opportunity to reposition that -- our acquisition to Sunrise Mall was really twofold for us. One, we were asked to be partnered by Urban Edge, a very reputable company and successful in their own right. And we were intrigued by how they were looking at repositioning of The Sunrise Mall. And since we are from Long Island and The Sunrise Mall is on Long Island, we felt like the price of it and 70 plus acres in Nassau County, we felt like it would be a good opportunity to reposition it and we're early, it just closed. So, we're trying to figure out what's the right thing to do. And we're soliciting input from anyone who has an idea, including Kenny and Ross and you, Michael. Feel free. We're really digesting and thinking

and trying to figure out what the right thing to do with the asset will be. >>> Michael: Someone would say, that was a bargain. I mean, the price -- the guy who bought it a couple of years ago, they paid 111 million. And you paid if, if the bonus comes through, about 29 million. I'd say they had a big loss. You had a good, a good buy.

>>> Peter: We hope so. We hope so. You know, someone once said when they were finally won the bidding for an asset, you know, they were congratulated and the response was congratulate me after we reposition the asset. So, we do feel good about the price, but we have, you know, it's going to be a journey getting from a to success. So, we're excited to embark on it. It's early.

>>> Michael: Speaking of repositioning Ross, you know, Ross and Ken, I think you in Florida, you're building apartments, right? So, what's happening? The, the retail giants over there, the two REITs are getting into other businesses? Let's talk about that. >>> Ross: Well, I think it's our responsibility is as owners of real estate to look at what that highest and best use is. And in many of our centers, retail is absolutely the highest and best use. In other locations, there are other alternative uses that have a higher value. So, we have spent a significant amount of

time, a significant amount of manpower internally over the last five to seven years, evaluating every single one of our assets. We look at again, what is the highest and best use? We have a team in-house that entitles that for that use. So, we do market feasibility studies. We determine should this asset be include multi-families, should it include hospitality, office, additional retail, different retail? So, we've run that analysis on every single one of our assets. And what we've been able to accomplish in a short

period of time is over 5,000 multifamily units entitled within our portfolio. That's expected to grow up to 10,000 units in the next five years, and then we undertake what we call our decision tree. Where we then say, is this an asset that we want to invest a significant amount of Kimco internal capital? Do we want to bring in a joint venture partner to bring expertise and capital for that non-retail use? We've done several long-term ground leases with non-retail developers that are essentially our tenant that pay us rent, and then they go on and take on the development and the construction risk on that project. Or do we get the entitlements, create the value on the land and then sell those off and enjoy the amenity that, that non-retail component brings to enhance our retail? >>> Michael: Let's get to the topic of urban retail. Ken, you

you've been very active in urban retail and you have, you know, you have Soho, you have Harlem, you have all other areas, you have enormous amount of things. I mean, Let's talk about the boroughs. And where do we see the retail over there? >>> Ken: We're throughout the United States with about 20% of our portfolio is street retail in the key gateway markets. D.C., New York, Boston, Chicago, San Francisco, LA. And when COVID hit, it was a body blow. And we're still climbing out

from under that, for that percentage of our portfolio. And I would tell you that the last few months were certainly tough. And I think the next few months, frankly, this is going to be a tough winter. But the great news is, retailers are stepping up, and they're saying, yeah, this is where we want to be. We want

to capture the reopening in Soho, in Melrose Place in LA, in a variety of these other areas. And it's very encouraging. Because what they're seeing -- and we touched on this earlier, again, this has been a heart-wrenching crisis for so many people who lost their job, for so many frontline workers. But for the affluent consumer, this feels so much different, Michael, than when we were climbing out of the global financial crisis. Out of the GFC, your stock portfolio was down, your house was down, et cetera. Your discretionary spending was questionable. And even then we saw a decent

rebound. This time, that type of consumer is very well positioned. Now it won't be one size fits all. And you touched on different boroughs, different parts of New York City for instance, are going to need a lot of time, attention and assistance. And let's hope that the government steps in for those components. But for the street retail piece that we own throughout the U.S., it feels like it's right for a nice

rebound. >>> Michael: Here's a question for all three of you, because I know Ken, you have funds. I think Ross, you sometimes get outside investors besides the public company. And Peter, you always have people that are asking you where they should make an investment. What do they feel is the best opportunity? And what do you feel is the best opportunity in the next six months? >>> Peter: We're lucky Kimco, Acadia and Ripco, because we have a presence in the outer boroughs and the suburbs of Metro New York and for KDR and Kimco in the U.S. So, right now, where people live, we're seeing a strong demand in retail with retailers add in services. Could be medical, fitness -- Ross and

Kenny mentioned earlier. Where people live, they're buying food. They're going to start to go out and have dinner and eat in and outdoor, the sidewalk, something's been set up, or in the suburbs. And so that's where the investors are going to want to be as well. I will, well, I can't speak to office buildings that are all in Midtown Manhattan or in urban markets in other cities. But where the people are living, that to me is

a great place to make investments in real estate because people will be staying home a little bit more. They know they can work remotely. So, I do believe, and I'm sure we'll get to this also that we need to collaborate. We need to meet. We need to bump into someone in the streets and make a plan to have a drink after work and dream ideas together. That will happen. And that's why the cities and Manhattan in particular will come back. But right now, the residential

areas, even in the city, we lease Stuy-Town, and Peter Cooper Village for Blackstone, we're seeing demand for the retail space. We're seeing restaurants want to be in the West Village, looking for second-generation space and we're seeing demand all over the outer boroughs and in the suburbs. So, I think to dovetail up the last question, and it's specifically to answer your question now, I think where the people are living is where we're going to see a fair amount of investment activity. >>> Ross: Yeah. And I would just add to that, you know, retail is a tough business. But the nice part is that, with challenge

comes opportunity. And there are a lot of investors out there that want to take advantage of dislocation that want to invest in a product that maybe isn't white, hot, like industrial or multi-family or others, where maybe there's a little bit more yield and they're looking to those various established sponsors that have a long track record of creating value in navigating through challenging times. And that's where we believe that there's an opportunity for us and for Ken and for Peter and those that have done it and have been through it, is that there there's investors that want to put out capital that just don't necessarily know how to do it within retail and in this market. So, we've been having lots of conversations. We've been approached by a lot of

different groups that would like to participate in this dislocation and try to take advantage while there's still some opportunity out there before it gets bid up. So, obviously it comes down to location. It comes down to fundamentals. It comes down to the quality of the real estate, the tenancy, everything else. But there, there is plenty of opportunity to, to make money in this business, if you know what you're doing and you're well capitalized to do it.

>>> Ken: Ross is spot on, in this, I don't think for an extended period of time, retail will not be for amateurs. For years everyone felt they could do it well. And it's a tough business that requires a level of experience and acumen that may not change for a while. That being said, we're seeing compelling opportunities. We think of it as a barbell approach, but on both ends of the spectrum. So, you can buy

stable retail real estate. You gotta be selective about it. But where you can get mid-teens returns out of current cashflow. We've been at this business for a while. I can't remember the

last time we saw stable yields like that out of high quality retail. And then the other end of the spectrum, which is still a little bit early, but there will be distress, there will be opportunities to buy vacany and reposition assets and get rewarded for that. So those are the both ends of the spectrum that we're most interested in and deploying our fund dollars today. >>> Michael: You know, New Jersey passed the, the marijuana bills. There are a number of States who have the marijuana

bills, coupled with the having gaming, which has been very successful. Have you seen people in those industries coming to, to lease in your properties? >>> Ross: We have, but we're going to leave that to Peter on the private side. I think it's a little bit challenging for us in the public markets to participate in that, but you never know what happens in the future. It's a little early in that for us.

>>> Peter: We saw the building just in the past two, three weeks have closed in New Jersey, to a group that's going to use it for cannabis purposes. Not sure what they're going to do inside, but -- there's -- we're seeing a ton of inquiries for cannabis uses and also for, we're starting to see some interest for gaming as well. Heavily regulated industries. >>> Michael: Right. Do we see more of more, more TJ Maxes, Marshals, Burlingtons opening up? Because I remember pre the pandemic, Burlington had said they were -- they weren't going to do any e-commerce. So last February, a year ago

February, they said, no, we don't want -- we just want a brick and mortar. What's happening with the, the combination of e-commerce and retail? >>> Ken: So, you, you hit on the one area, the off-price retailers, who seem to have been able to succeed without having to spend significantly into the omni-channel. I believe omni-channels the future, I believe that the majority of retailers are going to have to embrace it, but the retailers you just mentioned have great businesses without having to pay up for the not for profit, free shipping, free returns and very low margin. And every indication we have is they are going to continue to roll out. It's not just off price apparel. TJs has home sends and home goods that are doing. Great business. I, I

would not bet against those retailers, even though they are heading or continuing to be in a direction that's very different than Target and Walmart and some of the other very successful omni-channel retailers. >>> Michael: Have you seen Aldi and Lidl coming into the markets, because they've had major expansion from Europe? >>> Peter: Yes. Clearly. They're opening up stores. They would like to open up more. It feeds right into where the world is

today, which people are still eating at home. So, they're buying their food in supermarkets and they're allowed to be open during the pandemic. And it's kind of a perk -- I think actually it's the golden era of the supermarkets right now. I really do. Where people eating from home, they're enjoying cooking, they're making it a family activity. It's just been a terrific time for supermarkets and we're seeing it in without Lidl and many others, small 10,000 square foot users, high-end users, 40,000 square foot, 60,000 square feet, we're seeing it all sizes and appealing for all levels of demographics across the entire spectrum in Manhattan, in the outer boroughs and in Metro New York. >>> Ross: Yeah. And I would just add, it's not just the grocery

component itself that's so compelling as a retail landlord. It's the halo effect that it has for the remainder of the property. I mean, the traffic generation that you get from these grocers, it could be the Aldi and the Lidls that have that, that discount element. The more traditional supermarket, the Albertsons, the Publixes down in Florida or HEB in Texas and elsewhere, the specialty grocers, like the Trader Joe's and Sprouts Farmer's Market. I mean, they all are doing something a little bit different, a little bit creative to, to draw in that shopper and to get that market share. But it also is what it does for the rest of the property, the small shops surrounding it, you know, we're, we're currently about 78% grocery anchored within our portfolio. We have an internal

goal to get that up to 85% in the next few years. So, we're, we're very bullish on grocery currently and longterm. >>> Peter: It's always been true. Our whole careers that the supermarket and shopping center is just it it's tried and true. It's tried and true. >>> Michael: So, I have my crystal apple. Now, I was going to say, it seemed very dull before the three of us started speaking. And now for some reason, it's becoming very

shiny. So, I think the outlook is bright for retail. I think it's bright for retail owners, retailers in general. And I'd like to thank my executive producer, Mr. Ripka, for

bringing Mr. Cooper over here and Ken Bernstein. And I'll see you next week. Thanks again. >>> Peter: Thank you. >>> Ross: Thanks for having me. ♪ [Theme Music] ♪

2021-03-23 05:27

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