What’s in Store: 6 things you don’t have on your ICSC bingo card that you should
Guest: Karly Iacono
Topics: ICSC, tenant deliveries, capital markets, bankruptcies
In this week’s episode, Chris and Karly Iacono, Senior Vice President of Investment Properties at CBRE, offer their takes on themes that they did NOT expect to be talking about at ICSC in 2024. tune in to hear about 6 things you don’t have on your ICSC bingo card that you should.
What You’ll Learn:
- Why are tenant deliveries being deferred to 2026 and 2027?
- How have landlords shifted their strategy to upgrading tenancy vs. filling vacancies?
- How should brokers and owners view the current capital markets environment?
- What has been the catalyst for the shift to value-add investing?
- How can delivery timelines become more efficient?
About Retail Retold:
The Retail Retold Podcast highlights community retailer stories from across the country and gives a behind-the-scenes perspective from business leaders in both retail and real estate industries. The show’s episodes contain valuable insights that help solve the needs of entrepreneurs and real estate pros. Join host Chris Ressa and new guests weekly for amazing insights and thought-provoking stories.
Transcript:
Karly Iacono 00:07
Welcome, everybody to What’s in Store. The show where we cover hot topics at the cross-section of retail and real estate. I’m Karly Iacono. And I’m joined by my co-host, Chris Ressa. Chris, how are you today?
Chris Ressa 00:19
I’m doing great. How are you?
Karly Iacono 00:21
Can’t complain, fired up today! I’m in full Vegas preparation mode. Market is nuts and feeling good. How about you?
Chris Ressa 00:30
Same. full Vegas preparation mode. Busy show ahead, getting in Friday night. Start business stuff on Saturday. So excited.
Karly Iacono 00:42
It’s gonna be a big show. I heard attendance is up. I’m coming in early Saturday morning. And I think everything’s moving earlier. Right. More focused on parties and events over the weekends.
Chris Ressa 00:53
Way more parties, invites, than, the past few years, people are back into the entertaining concept in Las Vegas. The amount of parties on Sunday night is through the roof. So, I think it’s a good sign. So increased attendance up who are who are the new people coming do you think?
Karly Iacono 01:12
I don’t know who’s new. I think maybe it’s just people who’ve realized they missed out the last few years because they decided during COVID they didn’t need to go and now they realized wait, everybody who’s in retail real estate is going. 20 to 25,000. That’s a big range. But somewhere in there.
Chris Ressa 01:27
It’s gonna be a lot of people.
Karly Iacono 01:29
It’s gonna be huge. So yeah, we’ll be there in full force, like the Super Bowl of retail real estate,
Chris Ressa 01:33
The Super Bowl of retail real estate yeah
Karly Iacono 01:34
Absolutely. So today, for all of our listeners, we are going to have a conversation about what Chris and I are going to be talking about at our ICSC meetings that we didn’t think we were going to be talking about in 2024. So what are the topics that are going to be forefront of our meetings that maybe we thought we’d be done with at this point? So we’re each going to share three back and forth and what’s interesting is our worlds are very different right now. I think yours is what did you call it yesterday? Lollipops and rainbows, sunshine and rainbows?
Chris Ressa 02:06
I use the word lollipops and rainbows a lot people in the office know that’s the phrase I use when things are like feeling pretty good. I wouldn’t call it lollipops and rainbows, lollipops and rainbows compared to some of the stuff we were talking about as it related to your world, but it’s, I wouldn’t call it lollipops and rainbows. I would say the pendulum has shifted into the landlord’s favor pretty dramatically.
Karly Iacono 02:31
I’m aware. Thank you. I’m wearing black to symbolize how I feel about capital markets currently. No, I’m kidding. It’s, it’s definitely a tale of two markets. So happy things are good for you. Let’s jump in, kick us off with one theme that you are going to be talking about in your meetings that you just were not expecting.
Chris Ressa 02:50
I didn’t expect we’d be having so many conversations about delivering to tenants in 2026 and 2027. When you’re doing new development out of the ground, that makes a lot of sense. Couple years out, but most of the stuff everybody’s talking about at ICSC is existing real estate. There’s less new development and to be talking that far out. is really, really interesting to me.
Karly Iacono 03:18
And is this ground up development, are these existing retail? Backfilling spaces?
Chris Ressa 03:22
Backfilling spaces, existing stuff.
Karly Iacono 03:24
Wow.
Chris Ressa 03:25
Yeah.
Karly Iacono 03:25
Now why does it take that long, because you don’t have the space available for the tenants? And they’re sort of just indicating demand? Or is the build out timeline that long?
Chris Ressa 03:34
So two different concepts. This one, I’m talking about the fact that there’s just no availability of space, the retailers are convicted about their concepts for the long-term. They know where they want to be in certain markets. And they’re signing up now and building their pipeline down the road. Because the moment things are available, they’re snapped up. And they want to make sure that they’re getting them. There’s a retailer that was at risk from a chapter 11 perspective.
And normally, in a Chapter 11 perspective, those spaces either get rejected or go to the bankruptcy court and get auctioned off. We had a deal that if all the bankruptcy stuff didn’t, didn’t happen, or did happen, if at some point, I gotta get the space back, then I have a signed lease sitting on the shelf with this retailer.
So I have no control of space today. Right? I don’t know when bankruptcy if I will have control. So those are two pieces, right? Right now I’m dealing with an extended lease term. The second piece I’m dealing with is if a tenant that tenant filed for bankruptcy, and they closed the store and sold the store off and I wouldn’t have control. We’re talking past those two things. If those two things didn’t come to fruition. I have a deal sitting on a shelf for them to backfill them. So we’re talking a couple of years
Karly Iacono 04:59
Backup contingency plans that go a few years out.
Chris Ressa 05:02
Yes.
Karly Iacono 05:02
Wow. Now what if that same tenant finds another space in the market? Right? Obviously, they would pull out of this contingency plan, or they just putting in
Chris Ressa 05:09
They’re locked in.
Karly Iacono 05:10
They’re locked in.
Chris Ressa 05:11
Yeah.
Karly Iacono 05:12
Wow, a binding contingency plan, that’s strong.
Chris Ressa 05:15
Yes. The way the way it’s structured is, I have a long period of time that I have to get possession from the existing tenant. Okay, so I can do that in a bunch of ways. A, a natural expiration, which I don’t have. They just close the store and I take back possession, or I work on a termination. So we’re both just waiting to see what happens.
Chris Ressa 05:16
Wow. Interesting. And do you think that is strictly a product of tenant demand and lack of availability of space?
Chris Ressa 05:33
I think that’s one of the pieces. I think. So yes, on a high level. But why is there the tenant demand is I think the question which is, you know, the retailers have a ton of conviction about their concepts of going forward. We’ve gotten totally past the E-commerce narrative and the retail apocalypse. And there’s a lot of conviction about this. And they know where they want to be they know where the growth is. They know where they do well, they have so much more information and data about their customer today. And they’re executing on that.
Karly Iacono 06:22
Love it. Full steam ahead for retail real estate.
Chris Ressa 06:25
And as landlords a lot and I think this goes for everyone. Everyone always has been in the game of can we upgrade a tenancy at a project, right? However, that is good to say, it’s very hard to execute that if you have a portfolio and you have other vacancy. Right? How do you focus on the already leased stuff when you’ve got something to fill?
Well, now that landlords don’t have nearly as much vacancy, there is a serious offensive move happening in the marketplace, where landlords are working on, you know, how do I make this better for the next 10 years and really upgrading tenancy. I have a friend who’s not in the business, and I was on the phone with today, who owns a gym, okay. Little local gym.
And he called me last night I didn’t answer, I called them back on the way here today. And he was telling me that he was month to month in his space, and the landlord just sent him a termination notice, and he doesn’t know what to do. Can I help him?
Karly Iacono 07:30
So the landlord has another tenant?
Chris Ressa 07:32
Yup.
Karly Iacono 07:32
Definitely better rents probably better credit. He’s like thanks for playing, but no.
Chris Ressa 07:36
And I was asking him, why are you on a month to month lease?
Karly Iacono 07:39
Exactly. That’s so risky.
Chris Ressa 07:40
He was just, and I didn’t talk to him in a long time and he was just, you know, coming out of COVID, but wanted flexibility.
Karly Iacono 07:46
Exactly. Exactly. Wow. Fascinating. So on the flip side, my world is very different, obviously, coming from investment sales, capital markets, the thing that we are still talking about, of course, is interest rates. And even beyond interest rates is price stabilization. And we were hoping, of course, all of us that we would have interest rate cuts, which would have been fantastic. I think the understanding higher for longer is permeating now, and maybe being accepted. Not willingly, but you know, by force.
So now we have this mindset that, okay, interest rates are going to be higher for longer. What does that mean for pricing? And we have the buyers in the market saying, well, we need positive leverage. So obviously, prices need to come down, cap rates need to come up there needs to be a spread, understood, we have sellers saying, you know, we’re losing money. If we sell, although we have debt coming due and we might need to sell, so we’re just going to wait a little bit longer, and see when the market “improves”. So it’s a standoff. It is still a standoff, which is creating just an incredible lack of velocity in the market, and a lot of frustration on both sides.
So our job is not predicting interest rate cuts, I think that was like everyone’s game for the last year like, oh, when’s the Fed gonna cut? How much? What does that do to cap rates? I think we’re done with that. I personally am done with that game. And I think it’s more of a here’s where pricing is maybe rates come down a little bit, god willing, maybe they don’t, but I don’t think anyone realistically thinks there’s going to be a tremendous shift in interest rates to the downside, right?
I don’t think we’re getting back ever personally, to ’21 pricing. So where does that put us? Right? Are we willing to accept deals with less spread over interest, you know, between interest rates and cap rates, which is the current mindset, right? Buyers are buying skinnier deals, are sellers willing to come off pricing or, are lenders going to continue to work with them and extending loan terms when their debt comes due?
So it’s really still a standoff, which I think is amazing. That it’s gone on this long in our job as intermediaries as brokers is to try to find that middle ground, right, and solve problems for sellers who really need to sell, find opportunities for buyers who are dying to put capital out, there’s certainly no lack of buyer demand. And finding sort of the cracks in both sides where a deal can be made is, is today’s challenge.
Chris Ressa 10:23
Yeah, on our side from a business perspective, you know our CEO, I had asked him in a recent interview, and I was like, from a business perspective, forget everybody in the personal side, from the business perspective, you think it’s better for us if interest rates come down, stay where they are, and depends on how good you are in the capital markets, your lending relationships, your equity relationships, and there’s probably significant opportunity coming for the people who are really dynamic in the capital markets and have existing relationships with, you know, both the debt and equity side, and we’ll see how that shakes out.
Because the lower interest rates, it just creates this significant rush, pushes prices up, and you’re competing with everybody. You know, the, this is where we’re going to see, you know, a couple of things, who can perform on the actual property level, because the fundamentals matter so much more now, because you can’t win on financial engineering, obviously, because of the positive leverage challenge. And you have to win on the ground from an NOI perspective.
Karly Iacono 11:36
Exactly. So competition is down, which is great for savvy owners. And you nailed it. It’s who has surity of close. That’s what everyone’s looking for right now. And are you a cash buyer? If you’re not a cash buyer? What’s your cost of capital? And we’re having those conversations every day all day, to make sure that people really can perform at the levels they say, because the cost of equity is really the key piece right now. Yeah, the whole game. So here we are, not a whole lot of clarity. But certainly, I think, a more honest look at pricing and interest rates and hopefully some more movement over time.
Chris Ressa 12:16
So when when the client goes to you next week in ICSC, what do you think when interest rates going to move? What’s your response going to be? Because that’s going to be what your clients are saying you.
Karly Iacono 12:25
They’re not. Don’t depend on it. If they do, think of it as a pleasant surprise. We have the market we have right now. And we need to learn to find opportunity within it, both on the buy sell side. So I think it’s foolish to say, Okay, let’s revisit this in a year, because the whole picture will be different. Maybe it will. But if a deal makes sense today on either side, then it’s going to be even better in a year should rates come down. So find opportunity, dig, work hard in today’s market, I don’t think waiting is gonna pay off.
Chris Ressa 12:39
Okay.
Karly Iacono 12:58
How about your number two?
Chris Ressa 13:00
So my number two is, I can’t believe we’re not talking about more space coming back from bankruptcy.
Karly Iacono 13:09
Hmmm, that’s a good one. Yeah.
Chris Ressa 13:12
We had and to me, I’ll take a an angle that I haven’t heard a lot, which is, because, in my opinion, retailers have such a positive long-term outlook. Retailers are not willing to give back space, and they’ve got some fortitude right now and really trying to figure out how to optimize their portfolio. And, you know, there was a lot of watch list retailers of folks that have hung in and are continuing to improve their portfolios, and I think I would have thought we would have had, and that doesn’t mean there hasn’t been bankruptcies.
We’ve seen bankruptcies, right. And there has been some closures from it, but I thought it was going to be bigger by now. Especially after the big one with Bed Bath and Beyond last year. And that hasn’t come, maybe we’ll be in ICSC Vegas. And we’ll, we’ll hear some retailer. We didn’t expect some big news, that happens sometimes. I’ll never forget we had Dress Barn one year when like people were coming to the booth. They announced it while we were there.
Karly Iacono 14:15
Oh my goodness. So interesting timing.
Chris Ressa 14:18
Yeah it was interesting timing. But I thought we’d be having more conversations because there are retailers who are tracking struggling retailers real estate so that they know the opportunity before it actually comes.
Karly Iacono 14:37
Gonna be ready to pounce.
Chris Ressa 14:38
And that list is a little less relevant than it probably was 18 months ago and I thought we’d be talking about those spaces. And I am shocked we are not going to be I think
Karly Iacono 14:52
Joanne is the perfect example,right.
Chris Ressa 14:53
Yeah, for sure
Karly Iacono 14:54
Like we heard the the bankruptcy news and everyone was watching it and then now they’re done. Now I think they’re closing no stores, right. That’s amazing that they were able to restructure with no closures. So yeah, maybe we’ll see more of that.
Chris Ressa 15:08
It’s pretty, it’s really, the tenant market and the retail market is pretty interesting. And I think everyone’s wondering, how long of a runway do we have until it spurs new development? I think that’s, that’s the loosening up that some retailers would want. But I mean, today, if you were building like a power center, I think you’d need I don’t know thirty’s in net rent from boxes in order to make it work. So it doesn’t work.
Karly Iacono 15:45
Right. Exactly. And although I think construction costs are softening, they’re coming down a little bit, not to the point where those deals pencil yet. So I’m not sure what the catalyst is to make that really shift. But, it’s a challenge right now.
Chris Ressa 16:00
I think what I think what’s going to happen is it’s clear to me that rents are going to keep rising, there’s, it’s, you read any macroeconomic thing. And if you’re in the day to day rents are and they’re, rents are rising. And to that end, there will be a point where the rents will rise. And then someone will say, well, if I can pay this and my sales are strong, can I pay for a new build to suit or something like that? We’re just not there yet.
Karly Iacono 16:35
Right? Not long, let’s say we’ll revisit this next year, could be a totally different dynamic. So my number two is a transition to value-add investing. It’s a complete inversion of demand in the last few years for the type of product that I sell, primarily single tenant net lease. So for the last 10-15 years, really, the focus and the demand has been on investment grade, shiny new builds, long-term leases, the pinnacle of stability. That’s what all of our institutional investors wanted.
That’s what all the private clients wanted. It’s, it was a fight on the brokerage side for who can represent these developers because the product literally flies off the shelf, right, whole careers were made on the expansion of drugstores: CVS, and Walgreens. I mean, there are brokers that have just sold those and made ridiculous amounts of money. Now, the conversation is so different, right? We have those new builds, but they’re very difficult to sell. Because the cap rates are low, usually lower than interest rates, you’re looking for cash buyers, often there’s no escalation in the leases. So the conversation has shifted to what do you have that’s value-add?
What opportunities do you have, what I can re-tenant, and that used to be our risk, high-risk tolerant buyers, was a very different profile. And they were kind of like in their own category, like okay, we have these value-add buyers who maybe go for leases with two or three years. You know, they’re kind of bottom feeders. Not very nice way to say it but it’s true, right? We’re like, Alright. You know, we know those buyers. Now that is every buyer. They’re, they’re taking shorter lease terms, they’re looking for maybe less credit. And it makes all the sense in the world. It’s just a fascinating shift in demand economics. And it’s really driven by the need for cash flow, and the need for yield.
And there’s only so many levers you can pull on a stabilized property by design, right? It’s meant to be a set it and forget it asset. It’s meant to be stable. It’s meant to be long-term. But if you’re not getting significant cash flow, maybe none. The buy, what does that look like in five years? Not to say there’s no buyer that these work for but it’s harder from an investment perspective. So more of the ICSC meetings I’m expecting will be started with a higher risk tolerance because right now, risk seems to equal reward instead of like it’s not separated risk reward. Now its take on the risk to get the potential reward. And before it was we don’t want risk. We want what everybody else wants.
Chris Ressa 19:19
Are you finding those opportunities to sell?
Karly Iacono 19:22
We are. Actually we have a best and final today, which is why I was late. We have a ton of offers. It’s a higher yield property, shorter-term leases and we have I think at this point we’ve got about 10 offers. We’ll see what comes in in the next few hours so
Chris Ressa 19:37
Multi-tenant?
Karly Iacono 19:38
It is multi tenant
Chris Ressa 19:40
Ok. Are you seeing a lot of value-add net lease deals?
Karly Iacono 19:44
We are! Actually have a portfolio of shorter-term deals on market discount stores. And we have offer, we have two moving to contract right off the bat, high yields. Twi that have significant interest. So we are in, and I think value-added net Lease is what I mentioned, it’s shorter lease terms, it’s below market rents. Maybe you’re going down the credit spectrum on tenant, but you like the location.
So value-added means something different to everybody. Right? It could mean just slightly higher risk from a stability perspective. But the mindset is, I know I can return on this because of everything you just spoke about, right? The tenant demand is there, there’s really no vacancy in the market. So the risk is not of the tenant leaving as much as it used to be. It’s more can I replace the rent when they leave? And what does this deal look like when I re-tenant it?
Chris Ressa 20:35
So that portfolio of discounters, why is the seller selling that?
Karly Iacono 20:40
That client is a REIT that is divesting retail in general. So it’s their business model. It’s nothing related to the specific locations, they’re just shifting their overall strategy.
Chris Ressa 20:51
Is it a multiple state or one single state?
Karly Iacono 20:54
Multiple state
Chris Ressa 20:54
Okay. How many?
Karly Iacono 20:57
There are four. Two more likely behind it. Yeah. So that’s a shift, and we’ll see how all the meetings turn out, we still have the flashy new product, it will move. It’s just it’s been more challenging.
Chris Ressa 21:12
There’s on some of the flashy new product, there’s this backlog right? Of deals. Are people talking about that from the buyer perspective? Is that actually impacting someone goes and wants to buy a whatever net lease, I don’t know, a Chase Bank, and they’re like, wow, and I don’t know what the number is. There’s 100 Other Chase banks on the market that haven’t sold yet. Is that impacting buyers?
Karly Iacono 21:39
It does, because the market dynamics right now are such that buyers have the power, right, because they’re increasing inventory levels, there are less buyers because we have less exchanges happening. We have less private clients coming into the market because they can put their money elsewhere. There’s just overall less transaction velocity. So buyers have more choices. And when they have more choices, they’re looking a lot more closely at the full inventory portfolio and saying, okay, there’s 173 Starbucks on market. It’s crazy, right?
A few years ago, there were like 12. So that’s a perfect example of inventory building. And the buyers will say, we love Starbucks, we love their credit. We like the concept. We like there’s a drive thru. There’s so many great things about Starbucks. I’m not negative on Starbucks in general. But they’re going to look at those 173 locations and say, let me put out 10 offers and see which seller bends the most, let me be really specific on location.
If I see something I don’t like, before, they probably would have said that’s not ideal, but no deal is perfect. Now they’re saying, I don’t like that line in the lease, we’ll just go find another one. So it’s very difficult to keep buyers focused, because they have so many choices. It’s fun. Are you jealous? Do you want to move the other side of the table yet? No, I’m just kidding. It’s about well, we’ll obviously they’ll work through the system. Yeah. All right. Tell me your what are we on three?
Chris Ressa 23:05
Three.
Chris Ressa 23:06
I can’t believe we’re going to still be talking about delivery timelines. So on a lot of things, we worked out the kinks from a timeline perspective, on construction from call it signed lease to tenant opening. But as a market, and it depends on which market you’re in. From approvals to getting permits to actually lead times on items.
There’s still some kinks along the way, that are extending delivery times. And it is definitely a challenge. It’s not in every scenario. They’ve improved significantly. But there are some where, a lot of things, you know, changed for certain municipalities or utility companies, and their status quo. It’s still, we’re still longer on HVAC. Everyone’s still buying HVAC much earlier in the process than they had to because it’s still longer than it was pre-COVID. Will it ever get back, maybe. But there’s things like this that just haven’t worked itself out, and we’re years later now.
Karly Iacono 23:06
Number three.
Karly Iacono 24:14
Why do you think that is? Do you think the suppliers have just gotten used to these timelines?
Chris Ressa 24:19
I think, I think the ramp up in you know, these inventories was so significant, and it puts so much pressure on those municipalities, vendors, manufacturers, general contractors, architects, everyone in the whole channel, that they’re still working through the backlog. They’re still working through and while they’re working through the backlog, and while there’s less new construction, there is a lot of deals happening as we talked about in existing stuff. So like, they just can’t catch up.
Karly Iacono 25:05
I worry that that becomes the new normal for municipalities, right. It’s almost that political, small government side, like, we’ve always done it by always, we mean in the last three years, four years, oh, he’s done it in two years, like we could never do a year. Meanwhile, you know, it probably was a year or six months for approvals, pre-COVID. So what do you think makes this change?
Chris Ressa 25:30
So I think on, I think we’re going in the short term, I don’t know, in the long term, I do believe on every piece of this channel. Technology is going to move faster than we think here. I think it’s going to help. It’s going to take a little while, but once it does, it’s going to accelerate this.
Karly Iacono 25:59
Interesting. So technology is the answer to make people more efficient, even in real estate.
Chris Ressa 26:05
I think this I think technology has a real opportunity to make an impact. I also think, you know, can new business ventures start? Start up right? On the HVAC front, like the amount of HVAC manufacturers that we use in all forms of commercial real estate, it’s pretty, it’s pretty limited, you would think that there would be a lot like, conditioned space is something for residential, for commercial, so pretty universal worldwide. And there’s very few companies that have this market, like gobbled up, right. I was, I’ve been wondering, like, you know, I’m sure it’s hard to start up a HVAC, business and HVAC, you know, business.
And I don’t mean, like an installer, I mean, an actually manufacture product. But I don’t know of any that like started up, and we didn’t hear about this new one coming to market that’s going to, you know, solve the problem. So new competition always helps in you know, competition usually speeds up business processes. Right.
So, in any world in this whole, you know, channel firm, you know, deal signing to actually new product opening, whether that’s multifamily, industrial, retail. You know, competition helps speed up that timeline. I think technology will. But as it relates to Vegas, we’re going to be talking about that, for sure.
Karly Iacono 27:39
And do you think it’s supply chain or politics? Because I’m not sure how competition or technology will improve the politics of local municipalities?
Chris Ressa 27:51
I would say supply chain. Right. We’re, we’re not getting caught on barges anymore. Right. A little more to it than that. But, you know, I would say, just the availability of the product, right to actually manufacture it, right. When you build something you need trusses. Well trusses are usually custom to that building, that you’re making, they’re longer than they were before. Right. So that’s not the supply chain like how we’re thinking about the logistics portion of the supply chain,
Karly Iacono 28:22
It’s not logistics, it’s actual manufacturing.
Chris Ressa 28:24
It’s manufacturing, There’s competition for products, and a lack of vendors, in my opinion for that product. And then, I don’t know that it’s, I wouldn’t call it actually politics, I would just say the actual on the municipal front. The to get through the process. Not necessarily the politics, but the process is, is challenging.
Karly Iacono 28:56
Interesting. So basic inefficiency of government, but not necessarily politically motivated. Yeah. approvals or, or not. Yeah,
Chris Ressa 29:02
that’s not it’s just like, their timeline to do things as long. If, you know, they might cancel a meeting, because for whatever reason, they cancel a meeting. Well, now you’re a month out. You gotta go to the next meeting. Like why did they cancel that? Well, we weren’t going to have enough for the board here that week. We got to go. There’s no, there’s no, someone had to work late. These people have jobs. Someone had to work late. They had to cancel the meeting. Those are some of the things that happen.
Karly Iacono 29:03
And meanwhile, we’re waiting with bated breath for this meeting. Yeah, a month and you’re like, you can cancel. You’re like, yeah, we’ll see you next month or not, we’ll see? Right. It’s not as important. Very interesting. I’m not sure how to solve that. But I like the technology piece. So yeah, we’ll have that comes into play. For sure. So my last one is is not new, but it’s it’s something that I think I’m surprised we’re talking about as though it’s this new focus and that is an enhanced look at real estate fundamentals.
And it’s funny because real estate is all about location, and actual real estate fundamentals. I mean, that is the core of what real estate is right. But for the longest time, we’re talking like, again, 10 years, 15 years, it’s been more heavily slanted to the financial engineering, ability of a property, the tenant credit and the lease structure. Now, all those things still matter. Of course, they’re very important for financing and so forth. But now we have this increased focus on the dirt again. So it’s like when the world turns upside down. Everyone goes back to core, which I think is right. I think that’s the mindset, right? You, you have all this instability in the market.
So you come back to basics and say, Okay, let’s build a deal. In our mind, not really not, not actually build it. But let’s build a deal that makes sense, from the ground up. What is the dirt look like? What is the access? What’s the traffic counts? And again, these aren’t new, but everyone is talking about it like, wow, I mean, what’s the police report for that? Which is new, by the way we love place?
Or what’s the data look like? What is the the demographic shift? And before it was the conversations that we started with? What’s the tenants credit profile? And how do you think that’ll be changing in the next five years? And now it’s due, we think that this location will have increased demand over the next five years from a leasing perspective. So it’s, it’s a shift in evaluation strategy that I think is really interesting.
Chris Ressa 31:28
Okay. Yeah, I think on the on the multit- tenant front, we’ve haven’t lost that, like, so about the fundamentals of what makes a great piece of real estate, right, access visibility, in the multi-tenant, the co-tenancy, the sales at the project, these are all things that, you know, are, have been pretty paramount for us. And, you know, we’ve always had the well, the, the significant positive leverage as the gravy on top of the actual fundamentals.
Karly Iacono 32:14
And I think that is much more common with multi-tenant investing, and especially to larger scale, not necessarily the small multi tenant, but grocery anchored. I think that makes all the sense in the world. For a single tenant. It’s a shift. Yeah, that’s why I play a shift. So we’re ready. We’re ready to answer all the questions. I’ve got all the placeer data. We’ve got. We’ve got all the information. It’s just interesting how its switched
Chris Ressa 32:38
When over the last five years, you were going to a meeting in Vegas, where you were talking about a potential site to sell for a buyer. And the conversation wasn’t.
Chris Ressa 32:50
This is the best corner in the market. This has the best there’s a billboard here, there’s a train stop here, a billboard. This makes them more valuable you we weren’t talking about those things?
Karly Iacono 33:00
It was mentioned,
Chris Ressa 33:01
It was mentioned.
Karly Iacono 33:02
But now it’s starting with that right? Before it used to be the credit of the tenant is A- S&P rated, highest level, right? Ultimate security. The lease term is 15 years, triple nets, no management responsibilities, right? Here’s what the financing looks like, here’s your delta between the interest rate and cap rate, here’s your cash-on-cash return. Here’s why this is a stable property. And oh, by the way, it also happens to be in Florida, or wherever, right? Name your market. And it was like, Oh, neat. Okay, great. Wherever it is, is fine.
Chris Ressa 33:37
How much do you expect that potential buyers will want to know about the other real estate in the market? So one of the things when we’re buying right, if we’re buying this, where’s the competition? And are we out-positioned? And what does that mean? Are they talking about that?
Karly Iacono 33:56
Lately yes. That’s one of the new shifts, right. And especially with things like the Family Dollar closures, which is not dramatic, in my mind, it’s a small portion of their portfolio, the stores that they’re closing, it makes sense for them to prune underperforming locations. But what news like that does for the private client market is shake things up. And they say, well, these these stores could close.
That’s not usually how people start with net lease investing. They believe it will always be long-term. So if they’re closing stores, how many are in the market? Which ones? Are they closing? Do I have a better store? Or do I have one that’s not as well positioned? And even if they’re not buying a Family Dollar, insert whatever tenant, as you see tenants prune underperforming locations, which they always do.
That becomes more of a conversation piece. That how am I positioned? Should this tenant want to change the real estate strategy in five years, ten years, this year? And what does that look like?
Chris Ressa 34:56
If you heard some of the due diligence things we’re asking it you might be like, oh my god please don’t come to net lease, because we’ll be we’re going to in some centers, right where we’re going to do tenant interviews beforehand. Like once we’re in, once we have a contract, we’re going to do diligence.
We’re going to tenant interviews, I’m going to want to know, how long is that store, the store managers, everything in the store? It’s way more, it’s more important than the real estate most times. So I want to know, how long has that person been there? Have you had major turnover in this store?
From the store manager perspective, store is going to struggle to take off if every year the manager changes, right person has been here five years. The team loves him. Okay, that’s good stuff. Okay, so there’s a lot more, potentially, of these questions coming down the pike for your world? Because if they have anything like, how are we thinking about it?
Karly Iacono 35:49
I’m ready.
Chris Ressa 35:50
There you go.
Karly Iacono 35:52
Awesome. All right. Well, I for one am very excited about Las Vegas. Did I tell you I was speaking this year?
Chris Ressa 35:59
No.
Karly Iacono 35:59
It’s been Yeah, it’s been a goal to speak at the flagship, the mothership of commercial real estate, retail real estate conferences. So yes, excited to put that in the mix this year as well. So very cool. Come visit, I will be running from the booth to the stage and running back.
Chris Ressa 36:12
So I’ve spoken a couple of times. One of the things that is interesting. It’s usually one of the bigger audiences you have so thats good.
Karly Iacono 36:22
Yeah I’m excited. It’ll be fun.
Chris Ressa 36:23
Awesome.
Karly Iacono 36:24
Well, can’t wait to see you in Vegas to everyone listening. We hope we will see you there as well. And if you’re not at ICSC Las Vegas connect with Chris right after the show. We’re happy to share perspectives and tell you what we learned. I think that’s a wrap.
Chris Ressa 36:37
That’s a wrap.
Karly Iacono 36:38
Thank you so much for tuning in. That was what’s in store with Carly and Chris and we will see you again very soon. Have a great day everyone.
