The Local Oyster in Baltimore, MD with Mike Morris
Guest: Mike Morris
Topics: Cana Development, food hall development
Transcript:
Chris Ressa 0:01
This is retail retold the story of how that store ended up in your neighborhood. I’m your host, Chris ReSSA. And I invite you to join my conversation with some of the retail industry’s biggest influencers. This podcast is brought to you by DLC management.
Welcome to retail retold everyone. Today I’m joined by Mike Morris. Mike is the principal and founder of Cana development. Canaan development is one of the largest Foodhall developers in America. Mike has been in the commercial real estate business for over 20 years. I’m excited to be joined by him. Welcome to the show, Mike.
Mike Morris 0:42
Thanks, Chris. Thanks for having me.
Ressa 0:44
Yeah, man. So why don’t you tell us a little bit about you and how you got into owning food. hos
Morris 0:51
Sure, happy to, you know, I started Cana development 13 years ago, you know, we like to tell people, we’re retail placemaking people. And we can take an idea from concept all the way through opening, you know, our probably sweet spot is that middle third, where it’s somebody else’s crazy idea that we figured out how to execute it down to the point but not actually operate. And ultimately, as a company. Through the years, we started out in entertainment development, then got heavily involved in development of food and beverage in sports and entertainment facilities. Similar to our work as an example, in Detroit, we did and we’re responsible for all the food and beverage and retail that went into Little Caesars arena for the Detroit, Red Wings and the pistons. And now it’s football development. And largely what that is, it’s creating places that people want to spend time in. And that they know, uniquely, they have to be in that specific location for that environment and experience, that they feel as comfortable as being in their own their own home. But they know they can never replicate that experience. And we’d like to say that we’re process focus, you know, product agnostic, you know, the scale and size doesn’t really matter to us. I think right now, you know, the food halls are something that are near and dear to our heart, and something that we’ve been intimately involved in for a long time. Now, the first Foodhall opportunity we had was in late oh nine, early 2010. And that really got us excited about what was happening in the food industry. And I think our company was as well set up as any to get involved. And that’s based on the experience of myself, but also a couple of the key people that work for us, which ultimately were real estate people, you know, my background, shortly after graduating college, I landed a job at the quarters company, and kind of had, you know, a PhD in commercial real estate development, thanks to the Cordish family. And you know, went from everywhere from strip shopping center, leasing and development to entertainment districts, hotels, residential, really the full gambit. And you know, that gave me an opportunity to really see real estate at a very high level. And at the same time, got involved in a series of restaurants. And one point I had was involved in 27 restaurants. And when you take kind of the background of Cordish with that large scale kind of public, private, mostly urban development projects, and mix restaurant operations together, effectively, what you get is a food hall, when you when you when you, you know, put them all in a blender and you pour it out, you know, it’s a Foodhall smoothie. And, you know, what we realize is it’s really interesting to us, right? A Fudo, by definition is an operating business with real estate kind of principles. And you know that that background and experience in these large scale mixed use developments mixed with the restaurant operations components, I think put us in a really unique position to understand how to put these things together. And we have a very kind of specific way that we do it. We’d like to say we’re a white label. If you look at our markets from Boston and high street place to the Boston, Philadelphia, cross street market and Baltimore, you would look at three dynamically different markets from a development design, feel energy, merchandising tenant mix perspective, and each one of our markets is supposed to evoke that one of a kind, unique connection. You know, we’re not a branded approach. There are other groups that are out there that do that, and they work some cases, and I’ve been very successful. That’s just not the way you know, we’ve approached it. And fortunately, that model has worked out really well for us. On the development side, you know, our company now really focuses on two things, very, very large scale mixed use development, where we come in as the retail placemaking slash asset manager. You know, the development world, as you’re probably aware of, has become so uniquely sub specialized in vertical use. And most property owners, landlords are looking for that glue that ties the vertical uses together, not everybody goes to the 10th floor of an office building or the third floor of a hotel. Everybody interacts with the ground floor. And that’s really where I think the overall value creation can be. And the sense of place in a mixed use development and taking those same kind of methodologies and processes and applying it in the Foodhall world is the other side of our comp Honey, today, you know, we’re actively developing mixed use projects. as far north as White Plains, New York, as far south as Florida right now, in our food halls, we’ve developed seven, we have two more in the wings ready to open, eager to open, I can’t, can’t wait to get them open. And we’ve got another 14 under construction and development right now. And as far as I know, that puts us, you know, certainly in the conversation and one of the larger developers of poodles in the United States right now, and we’re excited to keep moving and we see a lot of opportunity for continued growth in that industry.
Ressa 5:34
Wow, fascinating, really had me eyebrow raising, when you mentioned the Detroit Pistons, Little Caesars arena had no idea that you had brought the retail and food and beverage to that arena, that’s really cool, unique, unique real estate development right there. Not that what people when they think of real estate development, what they get into, so really nice stuff, but really cool stuff.
Morris 6:01
Ya know, it was a fun project, you know, working for the Ilic family was was again another, you know, world class experience. They’re great family. You know, working for an organization like the Detroit Red Wings, and Little Caesars and was involved heavily, was really cool. It’s about a four and a half year process for us. And we’re like, we’re not like we’re the development company that we have no ego, right, we come in, and we’re the guys behind the scenes pulling together a really interesting mix of designers brands, merchandising, putting all kinds of unique deals together, whether it’s landlord tenant, lease transactions, license, agreement, management, contract, license, or JV partnerships to execute, you know, world class space that people are interested in spending time in, and what happened, you know, through our experience at Cordish, you know, we gained a lot of that in the entertainment world. Not surprisingly, a lot of professional sports owners were looking at the entertainment districts and saying, how do I, you know, increase our PPA you know, our per check average for our tickets spend? How do I keep people in the seat longer? How do I get them here earlier, and looking at the entertainment districts for lessons learned. And that led into a lot of development for us in that world. And we still are actively involved in number of projects that fall into that. And it’s not very different than, frankly, how we approach our food halls. Right? And how do you create spaces that people want to spend time in? How do you create a strong check average for your vendor matrix? How do you keep people there longer, and more importantly, come back. And that’s through everything from Design and Merchandising, but also programming social media, events, and all the things that go into an operating business.
Ressa 7:34
I love it, man. It’s really fascinating stuff. I want to pivot to a new segment of the show to get to know Mike a little bit better. At retail retold, we’re calling it clear the air. I have three questions for you. Nothing to do with real estate, nothing to do with food, nothing to do with restaurants, nothing to do with retail. Okay, when was the last time you tried something for the first time? And so our first question, wow.
Morris 8:01
Um, so most of my friends and most people know me know that I played very competitive lacrosse in college. I decided in my early 20s, to mostly hang up my stick, that if I was going to be a knucklehead and get hurt, I was going to do it on my own account. And I started playing a lot of tennis. So I became quite competitive at tennis, some still pretty competitive. In tennis, out of nowhere, a friend of mine over the summer, invited me to pick up pickleball, which if I’m being really honest, my only association with pickleball was that I had to be double the age that I currently am. And reality is that couldn’t have been farther away from the truth. It’s actually a very fun dynamic game, you get a quick workout in. And it was, you know, it was interesting. I didn’t appreciate how fun of a sport it could be. And I did pick it up this summer and have enjoyed playing so pickleball
Ressa 9:00
I love that answer. I am sports fanatic. I love niche sports, and I love mainstream sports. I know nothing about pickleball if one wants to get into Pickleball is that something that’s, you know, easy to get into?
Morris 9:17
Yeah, I mean, look, it starts the hand eye coordination, and also starts, you know, uniquely, look, we’re both in commercial real estate at some level, you’re probably pretty competitive in nature. So am I. So if you’re competitive, and you have reasonable good hand eye coordination, you’ll figure it out. And the great thing about pickleball is, you don’t have to be that good. The courts are small.
Ressa 9:36
I mean, I met more if I go online, and I’m in North Jersey, and I go pickleball, North Jersey, and we’re going to find some stuff.
Morris 9:43
Yeah, yeah, absolutely. And, and it’s interesting, I thought the same thing. And the reality is what’s happening now is that a lot of people are realizing that like to play tennis, right? First of all requires more space physically, and and kind of, frankly, more expensive equipment. I mean, you can get into pickleball Well for much less than a traditional tennis racquet and tennis balls and things like that, and the ball itself lasts a lot longer, you know, I’ve neighbors that have now picked up pickleball and are now because of COVID, more or less, have built pickleball courts in their back in their driveways, right? A flat driveway is all you need, you need about 30 feet by I think it’s like 25 feet or whatever of space. And you could be playing pickleball on your driveway. And your kids could be picking it up. It’s relatively easy. And now what’s happened is there’s all kinds of environments actually, there’s a couple of of commercial organizations that are now rolling out indoor pickleball facilities with restaurants and bars and trying to make it more into a social experience, particularly in the southeast, but we’re seeing that actually pop up across the country right now.
Ressa 10:42
Are we going to see this as the next Cana development? Foodhall?
Morris 10:47
I wouldn’t say the next one. But look, we are we are all about from a food perspective for a second. How do you create social engagement? And it’s not just about the food and beverage, right? It’s about all the other layers Art Gallery and space and events and programming, and you know, cooking classes and yoga, and we’re actually rolling on goat yoga. Apparently there’s nothing better, very relaxing, and everybody loves to take an Instagram picture of a goat, apparently baby goat, in fact, interesting. And I think that, you know, can we put in? You know, pickleball? Absolutely. Can we put in Bochy, ping pong spinning, we actually had for pop up for over a year in our project in Philadelphia and escape room. Right? Again, all kinds of different social engagement layers to make people interested in spending time in our properties
Ressa 11:34
that I love that answer, and I’m gonna look up pickleball and check it out. There you go. Question two, in clear the air. What is one skill you don’t possess? But you wish you did?
Morris 11:50
Alright, I’m gonna answer this two different ways for a second if I can. From a technical side, I can’t draw. I wish I had an ability. I can, I can do it with the best of them. But I can’t technically draw. I have. I’ve used the crutch of hiring world class architects and interior designers to create the initial drawing and, and allowing me to work with them to filter it into a product that we can all be proud of. I wish I was technically able to draw and take my ideas and put them on paper myself. From a tactical side, most people that know me really well will tell you that empathy is not my strong suit. You know, and you hear, you know, people like Gary Vee and others talk so much about it. And it’s important, right. And, you know, it’s something that particularly as we’ve grown as a company, and then particularly going through a pandemic, like what we’ve had, you know, we have over 179 vendors in our portfolio to go through and really appreciate where those people are coming from, and try to work through what’s happening right now, both on a business perspective, but also a personal perspective, you know, I think is incredibly important for me, as a business owner, and for what we do as a company. And, you know, empathy has three different levels, right? cognitive, emotional, and compassion, that all bring in their own right. important values to a business owner. And, you know, that’s something I’ve focused a lot on this year, you know, I’d say, taking that even a step further than empathy would be like attunement, you know, I told everybody in my company, that my word for 2021, we have this, you know, I think a lot of groups have, you know, pick a word that kind of establishes your focus for the following year. And mine is attunement, which is basically the reciprocity of empathy. Right? I think it’s as a challenge. It’s one thing to be empathetic to another to really reciprocate that. So we’ll see it’s early in the year. So I still have a lot of a lot of time ahead of me, hopefully to improve on that.
Ressa 13:56
One, I love the artists thing I am. I can’t draw a stick figure with a ruler. I am not musically inclined either. And it’s a that’s a really vulnerable answer and empathy. So I appreciate that. I think it’s unique. I love the the word theme for the year. My theme is think big act small. Personally, that’s what I’m focused on. If you’ve read the Jason Jennings book, it’s from the early 2000s. But really, really cool answer. Thank you. Last question of this segment. What is something you think most people agree with? But you do not.
Morris 14:41
So I would tell you that I have a specific cancer in our industry for a second in the football industry, almost all fubo operators really other than us, exclusively operate their bars. And they they do that to offset look footballs are expensive operations, and the overhead incurred in the operation. Most of our most other football operators choose to use the bar business as a means to offset those costs. And philosophically, we’ve taken a very different approach. We have full service bars in our markets. We also then sprinkle out liquor, beer and wine throughout our markets, where applicable to be to create a better consumer experience. You know, frankly, I mean, selfishly, right? If I’m, if I’m going to a stall and one of my food aisles, and I have my three kids with me, and I’m going to the burger operation, and the person at the cash register accused me correctly. Hey, Mr. Morris, great to see you. Thanks for your order. Would you also like a beer with your burger? You got a 5050? Okay, maybe better than 5050 chance that I say yes, right. I’m not taking my three kids after we order a burger and go to a bar to stand in another line to get a beer. So that happening. And I believe that that adds value to the burger operation, it creates a better consumer experience, and ultimately really doesn’t impact the bar. Many other operators would, would argue that that’s a different philosophy.
Ressa 16:16
I love the real estate angle on that. In particular, I love the Foodhall angle on it. So thank you for being our first guest to play part in the clear the air segment.
There’s good questions. All right. Well, I appreciate it. It took us a while to come up with them. But appreciate it. All right. Food halls. It is something we read about in headline news, often, but I don’t think too many really understand them, because they’re so new. Big question. What’s the state of food halls right now?
Morris 16:50
Sure. Well, let’s get one. Let’s clear the air for half a second. So food halls have existed since the Roman Empire. So they’re not really that new. If we’re being honest with each other. I think the challenge really is that there’s so much Miss nomenclature, right? There’s so many people using the term food hall and applying it to so many different things and different experiences, that it’s difficult to make apples to apples comparisons. For half a second, if I can, let me let me tell you what my kind of definition of a food hall is. So ultimately, a food hall creates a sense of discovery. It’s a collection of, of food businesses, not exclusively, largely focused on makers largely focused on the people behind the counter that are actually making a specific product that is unique to that time, place and location, that the seating throughout the market is not rectilinear in one area, which is a huge differentiator between a food court and a food hall, that the physical space is not rectilinear. There’s a sense of discovery. And largely the brands are unique to the marketplace, as opposed to a food court where your brands are ubiquitous, largely right. And we all know the collection of brands that we typically see in a food court. I think from there, there’s lots of differentiation, right? How much non food can you go into how much non prepared food can you go into? What’s the size and scale I mean, as a as an operator, we range from 5000 square feet up to 30,000 square feet, we have a number of markets, I think the sweet spot, generally speaking is in that 15 to 20,000 square foot range, typically in most markets, although that can be adjusted one big pet peeve of mine, while while we’re like really throwing out terms here, there is no such thing as a ghost kitchen Foodhall. That’s just an I have lots of friends who are in the ghost kitchen world. I just and I hope this doesn’t ruin our relationship. But you know, it’s got to be said, a food hall is as much about the overall hospitality experience, as it is about the physical space as it is about the blend of merchants as it is about the seating or delivery or takeout. It’s all of those things. A fruit aisle can have a ghost kitchen component to it. A ghost kitchen can’t ever really be a food hall, just by simple fact that they don’t have any true direct interaction with their physical space. And the consumer. I think we’ll get off of that horse for now. But
Ressa 19:24
well, maybe to come? Well, you said a ton there. Let’s unpack that. Because my next question is, what is the difference between a food hall and a food court? Is it just the shape?
Morris 19:34
No, I look, I think that so there’s lots of nuances but I would break it down specifically into three categories. Partially is is the overall layout, right food court traditionally rectilinear common area seating in the middle food hall, traditionally non rectilinear seating, you know, spread throughout the space. And there’s a sense of discovery. You can’t walk in the front door and you see 100% of the brands and seating and everything. So part of his layout Part of it is, is brands, right? So in a food hall, you have a collection largely of makers, largely of vendors and tenants, businesses that are unique to that space. And that operation, whereas in a food court, you traditionally see a number of ubiquitous brands throughout every food court. Right. And those are largely national brands. And that’s not to pick on them. There’s a time and place for those operations. You traditionally don’t see them working out in a food hall, right, a food hall has that again, going back to the layout, that sense of discovery, that uniqueness, that having brands that you can find anywhere, erode that general kind of hospitality component and feeling.
Ressa 20:42
If I were to unpack that even further, to make it simple. Could we say the three biggest differences are shape, discovery and uniqueness?
Morris 20:52
Sure, you said it better than I did.
Ressa 20:56
I just unpacked what you said, I don’t think I said it better than you. You said a ton there. But that I think that’ll be very helpful to the listeners, because I am big on precision of language. And I think the nomenclature matters. And I think that’s a really strong distinction between a food hall and a food court. You did mention one other thing. What are food courts? I’m sorry, what are the typical sizes of food halls? You’ve mentioned a very wide range there. So what are you? What are you seeing today?
Morris 21:27
Yeah, again, I think what we’re seeing is similar to most, I think, on the small scale, the most, most end up somewhere larger than four to 5000 square feet. And the large largest of which would really be the food hall that the food hall group is developing in Nashville right now, which is over 75,000 square feet. In general, your average is probably 20,000 to 25,000 square feet, in most, you know, across the country right now.
Ressa 21:56
Very helpful. We had this pandemic, we’re still in it. Obviously, that affected food operators, all over the country, we’ve all read the news. What has been the impact on food halls in particular?
Morris 22:11
Yeah, I mean, look, this has been the last 12 months, right, if if, if the word for Mike Morris is attunement, the word for the last 12 months in the food world is pivot. I mean, it’s every two to three weeks, and in every market has been different, right seating capacities and overall restrictions. And every sub market has changed on an ongoing basis throughout this entire period. And, you know, fortunately for our food halls, we were were as well set up as most in the food and beverage, hospitality industry, to pivot to delivery and takeout. And that buoyed a number of our vendors, you know, the challenge, candidly, operationally, our vendors in our food halls, pre COVID, we’re experiencing extremely successful volumes that you simply can’t replicate through a delivery model. And again, it’s not to knock delivery, there’s just an efficiency that you have, when you have a consumer waiting to willing to wait in line. And you’re cranking out numbers, in addition to having delivery and takeout. So we were very fortunate with a lot of our vendors that we were able to do that and pivot into the delivery takeout world, but their numbers are way off, but they normally are because of the restrictions and capacity limits. And frankly, what we’ve essentially come to the conclusion of is essentially any version of the capacity restriction issues mean that the economics of the food hall and frankly, retail world and the hospitality side don’t work, meaning everybody’s taking a haircut, there’s nobody’s being made whole in that vertical right now. Based on the fact that there are restrictions and, and capacity issues at play. And so that’s the challenge is making that work. And largely, you know, frankly, we’ve been working hand in hand with every single one of our operators and been having weekly or monthly calls and working with them to be as flexible as we can, we’ve been very fortunate that you know, the way we’ve structured our food halls and the partners and clients that we have on the on the landlord property side, get the fact that we have to be extremely flexible, and working out, you know, arrangements with every single one of our operators to hopefully maintain them knowing that eventually this is going to be over. Right and macro economics, you’re gonna come out of this with less competition, stronger labor and pent up demand. And that largely should translate into success. And and how long does that take, though? I don’t think it’s a light switch moment. You know, I don’t think we just turn around tomorrow. And you know, things are back to normal. There’s going to be a ramp up period and a build up. And lots of things that play into that. And every market is going to be a little different on what’s driving those forces. And we just have to be as responsive as we can be. And as empathy. So as we can be to our both our vendors and the consumer,
Ressa 25:05
everyone took a haircut. I think that resonates with a lot of people. It was a tough year. And I don’t think it was just hospitality and food courts. But it feels like that would be a market that really had some challenges. And seemingly, you guys have figured some of them out and still working through others. I want to go back to the beginning a little bit. Talk about economics of food halls a little bit and not detailed, but is it similar structured, to other real estate? Is it a typical lease with one of the vendors they pay rent, just like in any other place? Are you seeing more percentage of rent, a percentage of sales type rent deals? What are the typical economic structures we’re seeing in food halls to that?
Morris 25:51
Sure, there are essentially three models. You know, one of those models is more what I would call the almost the public market model, which by the way, we operate public markets as well to food halls, major difference between a food hall and a public market, obviously, typically, a public entity owns the property. And in most public markets, they serve a true community need and likely have non prepared food product, meaning a butcher shops, if you monger, bakery, things like that. But in that model, your rent model, because you have vendors that are not selling prepared food, you tend to have fixed rents, similar to what you would see, in traditional retail, those rents tend to be trying to capture an occupancy for similar retail, six 8%, occupancy costs. So they’re lower and fixed, and really generally don’t have percentage rents tied to them in the non prepared food world. And it’s analogous to like a grocery type vendor. Right. On the other side of that spectrum, you have vendors out of operators out there, you know, I think it’s well documented that, you know, the timeout group, as an example, is a percentage rent only model, where they effectively build out their stalls, they effectively, you know, curate an incredible selection of chefs, the chef’s come in with, you know, their knives, and you know, stock for food, and everything else is taken care of, and they collect a percentage of the sales of the business as the operator Foodhall. And that’s typically a high number, you know, I mean, it’s anywhere between 25 to 30%, on average, from what I understand, we have a little bit our perspective is kind of a hybrid model, frankly, in that what we do is we look at our markets, and we basically build out a merchandising list and based upon a specific use in a specific space, identify what we think that business can generate an a gross sales perspective, our year one rents our base against a 10% projection against what we think they can do in sales. So we think the burger operator can do you know, $500,000 in a year, their base rent is going to be $50,000. for year one, we then have apply a percentage rent equation. And it comes down to do they sell prepared food, do they have a hood? Do they have liquor, or alcohol sales, or do they only sell liquor alcohol, and it’s a sliding scale on the percentages that range from 10, up to 16%. Against the percentage, pre COVID, we were seeing most of our vendors about 75% in the percentage rent category for us, which is healthy and strong. We believe that our model of this hybrid approach, we see less turnover, because frankly, our occupancy costs in general are somewhere in between, to the traditional retail model, and the percentage rent food hall model. And so because of that, I think we have a little bit more cushion for our vendor. And in a little bit lower kind of break point, all of our numbers by the way, the biggest difference between your world right and traditional commercial retail, and our world in the food world. Most of our economics are gross, you know, whereas you’re you’re generally charging triple net rents, right? Cam taxes, insurance maybe on. So our model is a little different. When we charge our 10% number or whatever that number may be to our vendor. That’s a gross rent. Net of utilities that are separately sub metered and generally speaking, directly charge the vendor and marketing fund and what we call our operational pass throughs. So that’s things like code cleaning, pest control, grease interceptor cleaning, where those are things that the operator would have to do on their own anyway. But we have the we can create the value for the operator because we have this collection of vendors. So you know, in most of our markets, we have anywhere from 12 to 20 vendors, we can go to a hood operator hood cleaner, and say hey, instead of a one off, give everybody a deal. Let’s talk about doing everybody and we’ll manage that for you. So ultimately we tend to get better pricing for our vendors and we pass that through literally that value gets back passed to the to the vendor themselves. But what we get the benefit of is that the burger operator isn’t cleaning out, you know, their grease interceptor at nine o’clock in the morning next to the coffee shop. Right. And we can help kind of art, you know, work that out where it’s getting done at the most efficient time for the market on whole. And in return, the individual vendor gets the value of, of hopefully a better price. And that’s typically what ends up happening.
Ressa 30:22
That was great insights, I think the listeners will find that extremely helpful. I want to move to the a little bit of the structure. Those are some interesting economics, because we see a lot and you hear a lot about, and you mentioned before, there’s a landlord. Maybe there’s a developer involved, maybe there’s and then there’s the vendors, maybe some of the developers are the operators of some of the vendors, the vendors inside, what are we seeing typically is like the structure you have a food hall? And who are the players that have an interest in this food hall?
Morris 30:57
Sure. So you know, simply put, there’s basically two models. You know, the first model is your traditional landlord tenant, third party, arm’s length lease transaction, right, where the food hall operator signs a lease negotiates a rent that’s traditionally lower than normal, or, you know, below market, so to speak, traditionally get some sort of investment, ti tenant improvement dollars and allowance from the landlord. And they’re playing arbitrage, right? They’re saying, hey, what I have to pay the landlord. And what I can collect from the vendors minus my expenses for operating is, is my business model. If I’m being honest, that a that’s not our business model, and be most of the third party groups that were doing that model have largely moved away from that in the last 12 months for fairly obvious reason. And I don’t think that that’s going to change anytime soon. Frankly, I think there are fewer and fewer groups out there. I mean, we’re talking about giant spaces, right, you know, in some cases of over 75 80,000 square feet, to take that kind of of risk, and play an arbitrage game, you’re starting to look at, you know, similar situations to co working. And I think more and more of the operators are realizing that in a tenant landlord lease transaction, the risk reward is simply probably not there. The other side of the structure really is a management company structure, you know, similar to a hotel management group, right, where they come in as an operator, and they develop, lease and or operate the market on a fee basis. Candidly, our models, kind of a hybrid. So ultimately, we’re, we’re more on the management side, right? So we get hired to come in, develop, lease operate the markets that we’re involved in. Separate from that, though, if there’s an opportunity, and it makes sense, I’ll invest either through deferred equity, taking a fee or deferral or fee into an equity position, and or actual cash investment into the project. You know, candidly, if you’re looking at our existing portfolio right now of a few dollars, it’s almost 5050, about half of our food halls, we’ve been a fee for service model management contract, and about half, we’ve done the management, but I’ve also have equity in the football operation. And a couple of those actually have equity all the way into the property as well, for what it’s worth. Just really depends on our on our opportunity. You know, candidly, you know, there are food halls that are ultimately meant and can be profitable within their four walls. And in those deals, will invest. You know, but our money. We’ve we’ve been involved in a handful of fruit halls and markets where either the overall structure or size of the investment doesn’t work for us. And or frankly, it’s not being approached with the need for those for that business.
Ressa 34:04
Just like an amenity. It’s an amenity. So it is
Morris 34:08
you’re leaning into the value creation. I mean, ultimately, we know now because we’ve done enough of these that a well executed Foodhall can traditionally increase, you know, per square foot office rents by three to $7 a square foot in the building that you’re in. We know mark to market rental increases in the residential side can go up between eight to 12% year over year, as opposed to comparable project across the street that’s increasing mark to market two to 3%. Because ultimately people want to have that amenity. And it’s unique. We’ve also seen landlords choose to monetize entire areas, right with Foodhall. So we’ve had a couple of groups that have approached us or landlords. One we’re actively involved in, that they they looked at this brutal as how do I monetize a sub market, not just the building, but they went and bought millions of square feet around the property and said well, if we create this this entire sub market is Gonna be amenitized. And hopefully we see a trickle up, you know, in that entire portfolio, and they’ve been fortunate to see that already. So,
Ressa 35:07
wow. Fascinating. Do you see food halls ending up? In suburban America? Traditional suburbs?
Morris 35:16
Absolutely. And it’s already happening, frankly, look, I think there’s a couple of different things that are gonna happen somewhat because of COVID. And the pandemic, and somewhat just because of the natural growth of where we are in the food whole world, you know, food all’s well. Yes. And I was kidding, you earlier had been around for, you know, 1000s of years. The reality is that the current wave is really started in the last 10. Right. And, you know, I think there’s still natural growth in front of us, particularly in in tier two, and tier three, you know, markets across the country, I think there’s a huge opportunity in the suburban product and university, you know, college markets, that I think people are just starting to see, you know, a kind of a hybrid for that, right is for us, you know, our work in like High Point, North Carolina, where we’re going into an urban market, but you know, it really trades more suburban and urban, we happen to be pretty close to the university. And we see a synergy there of of destination with lack of competition, and an opportunity really to kind of be the big fish in a medium pond. Similar work that we’re seeing right now in Greenville, North Carolina, right next to ECU University’s facility, I think there’s lots of those opportunities that are still to be on tap. Frankly, I also think that there’s going to be an opportunity here in the next year or so you’re gonna see a roll up in the in the football world. You know, there are lots of operators out there that have done one offs, that have come to the conclusion realization that either it wasn’t probably the best use of their time didn’t make sense, or frankly, it’s too complicated. And you’re going to see, I think, a couple of groups out there kind of picking these things up. And some of those are both suburban and urban. I think figuring out the suburban model obviously, provides a lot more opportunity long term. Because frankly, there’s just more suburban markets out there than urban markets. And so we’ve been spending a lot of time and working on that, and also hydrating the model. As a sidebar, you’re also seeing a number of of the departments or groups, right saying how do we break these boxes down and put a kit of parts together, that can be stable and long term reinvestment opportunity into them. And I think a food component makes a lot of a lot of sense, right? I don’t think it can fill the whole box or should it? But I think, you know, creative workspace, experiential entertainment, retail, and other kind of uses, in concert with a football component could be pretty successful in a lot of those suburban box sites.
Ressa 37:48
I hope you’re right, that’ll be interesting. My wife and I would love a Foodhall by us if, if that comes to fruition, and it starts to scale out in suburban America. I will stay tuned on that one.
Morris 38:00
Yeah. Well, look, we we see that there’s an opportunity. And I think you guys are not exclusive in your interest for that. Right. I think the average consumer is looking for their experience, particularly the food and beverage perspective in their suburban sub market to become elevated over the last couple of years. I think it’s become pretty stale. And I think there’s lots of operators, not just food, all groups working to solve for that. And I think food is just one element that we’re actually going suburban and, you know, we’re already seeing other groups do that as well.
Ressa 38:32
That is terrific. I’m looking forward to it. I am glad that we’re still gonna see Foodhall growth post pandemic. I am sure it’ll be changed some but I am excited to keep seeing successful restaurant tours and chefs, you know, deliver food to us in unique ways. So that is very cool. We are going to take a quick break here. And now a word from one of our sponsors. With over 80 years of architectural practice, NWS architects, and its sister MBE firm, Shahadat, and associates are committed to the visions, budgets and schedules of their clients incorporating the best in architectural sustainability, licensed in 48 states with a 98 percentage rate. It’s easy to see why clients such as DLC management, Brookfield properties, Dollar General and many major Junior anchor and anchors trust NWS architects with their projects large or small, call Sanjeev at 312-735-7123 or visit NW sa architects.com To learn how they can provide value for your next project.
And I want to get to another interesting story. We call this the story of how that story ended up in your neighborhood. You have Have a oyster oyster bar in Baltimore, you want to tell us about what is the name of this oyster bar.
Morris 40:07
It’s called the local oyster,
Ressa 40:09
the local oyster in Baltimore. Tell us the story of how that story ended up how that restaurant ended up in Baltimore.
Morris 40:16
Yeah, I mean, I just love the story. It’s so the owner is a guy by the name of Nick showman. And I literally so there’s a relatively famous street in Baltimore called 34th Street, made famous by it’s kind of over the top holiday lights. So it’s a series of bro homes that have been decked out for years now. And it’s kind of a mini tourist, local tourist market for the holidays. People drive by walkthrough and it just it’s a fun place to take your kids. It’s a fun place for nostalgic purposes, right. And I’ll never forget, this is in 2014. I came up to the market with my kids, three children, right. And there’s a guy sitting in front of the hardware store at Keswick and 34th right at the entrance of 34th Street, right, doing buck a shuck on the corner for $1. And the guy was just awesome. Like, he’s first of all, he’s he’s a great guy, great oyster shucker you can’t meet this guy and not walk away just like excited about life. Right?
Ressa 41:18
And it’s super rare. And I love meeting those people.
Morris 41:21
Yeah, like you just look, we see all kinds of personalities in the retail world, particularly the hospitality world. But when you have somebody who, you know, has an incredible product has incredible passion, and can evoke that kind of emotional connection. Like you’re nailing everything at that point, right. And, you know, we started, I started a conversation literally with him on the corner, right. And he had, unbeknownst to me had been having a conversation with another gentleman, Patrick Hudson, who wants to Chesapeake which is an oyster farm, down on on, on the Chesapeake Bay. And they had been playing around with this idea of opening up their own oyster bar. And we were at that ended up translating into their first location at the Mount Vernon marketplace. And to say it exceeded our expectations would be like a wild understatement. You know, the volume and the success they’ve had is just incredible. But equally or more importantly, they’ve taken that one conversation that he and I had on the corner in front of a hardware store in the middle of December, they now have three oyster bars, and they have a full service restaurant open and operating called Chesapeake Oyster House that’s been open now for about two years, you know, wildly critically acclaimed, Esquire Magazine did a write up on it. And in the business, I think last year, just before the pandemic, they’re I know, they’re under development right now on the New Orleans style restaurant. So literally there, you know, in a couple of years time, they’ve been able to take a conversation on the corner, in front of a buck a shuck oyster concept and in auto hardware sidewalk, right into a multi unit concept that ranges from a Oyster Bar concept all the way to full service restaurant. That’s pretty cool. Right? And that’s like, what things you know, that the beauty of these food halls is that, you know, we’re putting businesses like that into place. I mean, our average business, right, over 50% of our businesses are minority or women owned businesses. Majority of them I think, well over 70% are unique concepts, like these are one off opportunities that you know, the goal is they become the local oyster right, the goal is that they become a viable successful business that can be replicated if that operator wants it to be and to see that actually happen is especial and it’s you know, definitely a fun story. So
Ressa 43:35
that is a amazing story. The bucket shuck turned into multiple venues. They operate in one of your food halls today.
Morris 43:44
Yeah, they operate in the Mount Vernon marketplace in Baltimore. It’s been open and operating since October of 2015. And they are also down in Boston at Boston quarter. And then they’ve got another market in Federal Hill, ready to open.
Ressa 44:00
Wow. So he’s doing better than he was shucking oysters in front of the hardware store today. Think so. That is incredible. I think that’s a, you know, what that’s really a lesson about to me is don’t be afraid to have conversations with people. You have conversations with people, you never know where they might go, you know, the old story of, you know, have a conversation with the person on the plane when you’re flying, you know, shake the person’s hand next year in a non COVID when we don’t have to socially distance now world shake the person’s hand say hello, and learn about the person next year and you never know what might come from it and the opportunity you created because of that is truly remarkable. How long before he shoved an oyster frog for you. You had a conversation to the real ideation of going into one of your public markets or one of your food halls.
Morris 44:59
I mean, so The conversation he and I had was in December of 14, and they opened in October 15. Wow. So, you know, it’s pretty quick. Honestly, I don’t think so I thought we we stayed in touch. But if I remember correctly, it wasn’t until late that spring, that the idea really came together at 15. So it was probably a good solid four or five months of, of light conversation, but not really, because he also had to figure out a relationship with Patrick. And there was all kinds of other things at play there. I think the the deal ultimately ended up getting caught in June, and they opened in October.
Ressa 45:37
Wow. One last question. And that may reminded me that I didn’t ask in the, in the previous segment. How long are the leases typically in a Foodhall?
Morris 45:50
Sure. So for us, our average term is right around four years, just under frankly. So what does that really mean? Because nobody signs like a 3.9 year lease, right? From a retail perspective. And by the way, I would say in most of our markets, we’ve transitioned actually away from a lease, majority of our vendors actually signed license agreements, not leases. That being said, our average agreement length is just under four years right now, about 45% of our vendors a little less signed five year terms, that 30% sign three year terms, and the balance are widely elsewhere, we will we really won’t do anything longer than seven. And we do have a number of our markets where we do six month 12 month deals, even pre COVID We have this little space in Mount Vernon that we’ve continually used as kind of a test kitchen of sorts, although ironically, it has no kitchen to try things out and test them. And a lot of our markets, we’ve had the ability to do that in so we’ve done pop ups and short term deals as well. Wow.
Ressa 47:00
Are you seeing other successes like the bucket shock guy? Are you seeing other successes where this turns into something remarkable like that, to me, that’s remarkable. Guys on the corner. shucking oysters for $1 in front of the hardware store turns into not only a couple of food hall locations, but a restaurant a sit down restaurant location, or as this success story everywhere.
Morris 47:25
Look, it we’ve been very fortunate to see it often. You know, and I think that’s part partly hos partly finding the right people and also way more them and their execution and their passion, right. And to be a great operator in a food hall. It’s like the three P’s you know, it’s product, passion, and people, if you don’t have all three of those, you’re gonna struggle, if you have all three of those, you have the recipe for being very successful, you know, and you’ve had the ability in our markets to see that more than more than once. And, you know, like, you know, a cross street market, a market public market that we opened up roughly a little over a year ago, you know, to vendors come to mind there. I mean, we’ve got gangster vegan. It’s a franchise concept and the franchisee this was, the two teachers came together. Husband and wife, and Tanisha the wife is just an absolutely remarkable woman, nothing to take away from her husband, but you know, she’s a rock star. And again, it’s kind of personally like, you can’t help but want to put your arms around pre COVID and give a hug. She’s just awesome. And you know, she had cancer and through cancer, realize kind of the value of eating healthy and you know, all the nutrients, antioxidants and things that come from that kind of lifestyle choice. And choose to really took that passion and that focus on her and take on this business. And I opened it and was had been wildly successful. Since then, she’s opened two more locations and sign another lease with us. You know, unbelievable. And by the way, in the middle of all this had another unfortunate cancer scare and had rebound from that. And she’s going through chemo while signing. I mean, she’s just, she’s unbelievable, right? We have another husband and wife, owners of so beachy, Haitian cuisine, right, you say Haitian and most people are like what is that? It’s similar to Jamaican in a lot of ways very generic kind of stew focused cuisine, but we found Chanel and Leo, literally basically in a street market that Baltimore City was operating. And we’re able to bring them in and give them an opportunity to open up a grocery market and you know, wildly successful and, you know, you can go buy his stall without him engaging you. And it says he’s got that kind of just outgoing personality. And he has this big smile and he engages you and then you immediately try the food and it’s fantastic. And you know, he just couldn’t get To be booked, right? And I think that, that that business is going to end up going places down the road. And we’re just excited to see what, where they’re able to take it. And, you know, obviously, the pandemic and everything is has thrown a wrench in a lot of these people’s lives and situations, and we’re doing everything we can really to help them. And you know, our basic philosophy, right as an operator is if you’re doing everything you can, we’re going to do everything we can to help you. And you know, we’ve kind of really stuck by that. And so, but there are lots of stories like that. And almost every one of our markets has at least one, if not multiple ones.
Ressa 50:34
Unbelievable. I want to try them all. We’ve got two minutes left, I want to get to our last piece of the show called retail wisdom. Sure. And I think a lot of our listeners are, would love for me to dig into a little bit more of the cost. There’s a lot about how these food halls cost so much. And it’s hard to actually make return as a landlord on these. So maybe we’ll do a little quick YouTube clip or something like that, at some point in time, we could talk about, you know, aptitude, the profitability of some of these food halls, we didn’t get there. But we would all want to bring the food hall one on one, but I want to bring it to retail wisdom. And the last three questions that show you ready. Absolutely. All right. Question one, what extinct retailer Do you wish would come back from the dead
Morris 51:23
Cohen’s closures, perspective, local clothing shop that, you know, as a kid growing up, I bought everything from swimming suits to you know, my first Blazer was family owned for I think 100 years. Wow. And just it was a shop that if you were in the Baltimore area that I live in, everybody went there. And it says something like that not exist for my kids. It’s just disappointing and they had impeccable taste and get everything from casual to literally formal product. It’s pretty, pretty incredible. From a food perspective, because I have to answer somewhat for what I am with food for a second if I can. So I went to school up in Connecticut in New Haven, I would tell you that I miss Cafe eau de lis. It was an Eritrean restaurant. And their shrimp Barca is like dreams made of like, still talks about it. And the only thing would be the Yankee Doodle in New Haven. They had a fried donut. They literally took a donut, cut it in half slab more butter on it and put it on the flat top. And then you could turn it into a breakfast sandwich. This was before Instagram and before anybody was doing anything like this. It was it was legit. Good.
Ressa 52:37
Wow. Sounds it? Second question. What’s the last product you bought for over $20? In the store?
Morris 52:47
In a store? Yes. golf shoes. What store? Dick’s actually? Yeah, golf shoes are so the last pair of golf shoes. I’m like, struggling golf hack, basically, like I’m good enough that I understand to be good. I think the last pair of shoes I bought was like nine years ago. It’s not something like I love Zappos. I feel like if you’re gonna buy golf shoes, and you have no idea that technology changes are going like it’s the kind of product like you want to go in and try like all of them. Yeah, make a decision.
Ressa 53:21
So last question. Sure. If you and I were shopping at Target and I lost you. What aisle would I find you in?
Morris 53:33
Either the electronics section, or the tea and coffee section?
Ressa 53:37
You can coffee I like it. Well, listen, Mike, this has been great. Thank you so much for playing my game at the end there. We’re gonna catch up. We’re gonna do another zoom clip on Foodhall one on one. We’re gonna talk about a little bit the cost structure and we’ll share that with the world. Sounds good man.
Morris 53:55
Absolutely. Pleasure. Thank you so much.
Ressa 53:57
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