Topics: Spectrum, strategic deals, opportunistic deals

Transcript:

Chris Ressa 0:00
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.

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Ressa 0:59
Welcome to Retail Retold everyone. I’m your host, Chris Ressa. Thank you for joining me today. I’m excited for you to be here. So I’m gonna do something I really rarely do. But just talk about the news for one second, because one of the things I constantly do is I go to Google, I type in retail news or retail real estate news. I do that every day. And I just want to see what comes up, and I get Google alerts for certain things, but I want to see what comes up.

Two things are coming up, dominating my screen when I put that in. And I thought it was relevant talk about, one, which is retail store openings, all these different stores opening everywhere. And then two was organized crime. And let’s talk about this for a second. So one, why are these retail store openings coming up? Because, you know, I see the numbers of like, how many stores are gonna open and close. And there’s more openings than closings. And that’s all good.

I personally, I think the number could be higher than what’s being reported. But nonetheless, last year was epic leasing years for groups, even the year before, this year is going to be pretty strong too. But those two years were epic new leasing for landlords. All those retailers are opening up this year. This is newsworthy, it’s why it’s coming up, because there’s all these new tenants opening. And I think this is great for retail centers. And I think this is great for retailers.

And let’s talk a little bit about why that’s so good. Well, right now we have a pretty record low supply of retail space, no vacancy to speak of. And that’s because there’s been construction of new retail real estate has been muted. You could look at charts in years past and it’s pretty astonishing how little new construction there is. The second thing is, is you’ve had retail real estate that’s repurposed. We don’t talk about this.

And if I keep, you know, beating this drum, which is we’ve had a lot of retail space that’s been converted to either self storage, or to a multifamily, or to something else. And I think this is really important to know, and some of this, of some, you know, old, tired, obsolete, real estate is continuing to be repurposed where it economically make sense. Three, we obviously have more tenants opening and closing. And four, we have this, you know, we have a lot of new users who require retail real estate.

This doesn’t get talked about enough either. Whenever a business wants to get closer to the end consumer, that means they need retail real estate, because retail real estate is the closest real estate to the end consumer. I mentioned this a lot that in like 2010, 11, I don’t know the exact time period, but the healthcare industry basically, you know, said anything that’s not an overnight stay, we want to try to get it out of the hospital, it’s costly to operate here.

We can open up urgent care locations, and what’s happened. There’s an urgent care in almost every shopping center in the United States. Whenever groups need retail real estate, they, whenever groups want to get closer to the end consumer, they need retail real estate. I think this is great for centers. You know, usually when new stores open, both landlords and tenants are putting capital on the properties.

So we have all this new capital going into the properties, capital going in the property is good, both aesthetically, structurally, for, you know, sharp ability of the property. You have new tenants, which means new traffic, which means helping the other retailers. It’s obviously taking away vacancies. So in a place where the retail real estate on the fundamental, on the ground, were already strong. Going into next year, they’re about to be stronger.

This is remarkable to me. You’re seeing some, you know, some tailwinds of this too, which are really interesting. One of the interesting things is because there’s not a lot of real estate available for retailers. If you look at like some of the public REITs, we’re going to have epic renewal years because retailers gotta make a call if you’re going to exit a market and totally leave this market or have to renew in place. The option to relocate is probably not available.

And, you know, most retailers don’t want to give up that market share, that branding. Especially if it’s profitable. This is, this is also an opportunity for landlords because, you know, you can drive rents, and you know, sometimes not all the time, it could be a better deal to renew an existing tenant than put someone new in place. But this is continuing, these tailwinds.

And all these macro forces have been continuing to make the fundamental act, the ground real estate, retail real estate, stronger, notwithstanding the capital markets. I’m not going to go into that, obviously, there’s some challenges there. And then the second thing dominating my newsfeed is the, you know, not newsfeed. That’s the wrong word, which is, you know, the Google screen, when I Google retail news or retail, is this organized crime.

A lot of groups trying to stop this haven’t been able to solve it yet. It’s clearly a challenge. It hurts retailer’s margins. Man, it’s made a lot, you know, it’s terrible.

And, you know, hopefully we figure out a solution. I’ve been, I’ve interviewed some people on Retail Retold that have talked about this, we had a chief of police and someone in loss prevention from retailers on who were talking about this, and how to, how to deal with this issue and some of the things that are actually going on, and how this organized crime is working. So I encourage you to go listen to those.

Hopefully, the group will put in the show notes, those episodes so that you can listen to that as well. Because if you miss that it’s insightful.

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Ressa 7:34
All right, let’s talk about some retail real estate deals and how they ended up where they did. So, Spectrum in Rome, New York and Niskayuna, New York. So here’s what happened. I don’t remember exactly if, you know, anyone that had reached out to us first. So we reached out to them, or I don’t even remember all the nuances of the deal or work on the deal in particular.

But I remember being in the rooms, on what we were thinking and how we were thinking about it, which was Spectrum and their charter communications had announced that they were going to expand the broadband into upstate New York to thousands and thousands of new customers. Well, immediately, you know, we were talking about we have to reach out to them. Because they didn’t say that, you know, at that time, it wasn’t about opening new stores.

It was about expanding the broadband. But what we knew was that if they were going to do this and do all this infrastructure improvements, you know, adding fiber and cable all up in the rural areas they hadn’t before, that they were going to need real estate, you weren’t sure for what, maybe retail locations. And we can stop there for a second. It could be office, maybe not stop there. Could be office, could be retail locations. Maybe they need storage, who knows.

But yeah, I said stop doing the retail locations because we could argue we’re pulling the faith whether, you know, a cable company needs retail locations. They have their reasons why, right, their customer service and support. They do product demonstrations, they sell some product, billing and account services, equipment, exchange, marketing and sales, community engagement. I think that’s important.

You know, and it’s branding and marketing. It gives you a competitive advantage. And so this is why they have them. And I think they’re good for centers. Actually, they take some spaces that are tough, they bring in repetitive traffic because cable, or more importantly broadband, has become essential. And so I would argue that it is a central retailer and it’s always good to have more and more essential retailers that your properties. But what’s the point?

It’s not about Spectrum, even though we did, we ended up doing deals in this in Niskayuna, New York and in Rome, New York. It’s not about that. What it’s about is, sometimes we wait until we get hit in the face with, you know, the headline. Group A needs products B. But I would encourage you to think about, you know, especially if you’re an owner, real estate is like, what activity might incite the need for real estate? Right?

And clearly, this was something that was going to necessitate real estate needs for this business, what they were going to be, we didn’t know. But we knew that we owned a lot of real estate in upstate New York. And if they weren’t going to expand broadband up here, there were probably going to be some opportunities. And we need to talk to them to see if there might be. Turned out we did some deals. So there was, but I think when you’re thinking about your market, I think one of the things is, and you’re scouring the news, and you’re seeing what’s going on, oftentimes we might miss it.

If it’s just like, hey, I need a space, I need x. If you wait for them, you might, you might miss your opportunity, you might be fast enough. The way to think about that sooner is, what are the things happening, that might necessitate the need for real estate for a group, company or person. And so this clearly did. And that’s what I would call a strategic opportunity versus opportunistic opportunity.

Opportunistic would be like, if I had a shopping center in town A, and a couple towns over, there was this pizza restaurant, that was amazing, I thought they would help my center, bring a lot of traffic, I need to do whatever I can to get them over here. But that person wasn’t necessarily looking for space. So I went to them. And they’re like, oh, that’s an interesting opportunity. I never thought about it, you’re trying to craft the solution. And so it’s long sale, takes maybe a year or two.

And finally, you figure out a way for them to open up their next location, you help them do that one, it’s gratifying, it’s great been a part of that. But that’s opportunistic versus strategic, right? This business decision that this Spectrum made at the time, required that they were going to need real estate. And so those deals are faster. Usually, there’s like a set of parameters where a group decides, hey, here’s the type of deal we’re gonna make.

We could do this, this is the type of real estate, and they want to move fast, they need to go because they have this. It’s just an ancillary part of their grand vision and their bigger plan. They have a strategy, and real estate’s just a function of it, but they need it to go and help execute that strategy. So they’re willing to move fast. It’s typically not a prolonged negotiation. It’s, and you get things moving. Oftentimes, those are, how fast can you get me open, if you can’t get me open fast, then that spot is not for me.

Most tenants are great. And in this case, Spectrum, they take a good size, there were good credit, they paid a fair market rent, the terms were good. But I think it’s important to like the opportunities that are in front of you. Are they like opportunistic, which might be more rewarding, might have more impact in the long run, potentially. But you know, greater chance of not happening where the strategic which maybe have more impact, maybe do not, but probably happened faster, and maybe more favorable to you.

Maybe, not always. So that’s what I have today, I wanted to talk about, you know, these strategic opportunities versus opportunistic, and, you know, really, what I wanted to say was, you know, what is happening? Especially in a time like this, what is happening that might necessitate the need of real estate, and you should know what those things are in your market, no matter what type of real estate you own, whether you’re a real estate service provider, or if you are a user of real estate.

You might be a tenant, you should know these things too, because then these are the people you’re competing against. And so what are the things happening in a market that might necessitate the need for real estate?

That is critical to anyone who’s in commercial real estate. All right. I hope you’ve enjoyed this one. Like I said, in the show notes you should find some notes about when I did the episode on Organized Crime. Thank you for joining me. Stay tuned. We’re planning a bunch of stuff for November, December, and really going into the new year and looking forward to you joining me with it. Thanks.

Thank you for listening to Retail Retold. If you want to share a story about a retail real estate deal that you were a part of on our show, please reach out to us at retailretold@dlcmgmt.com This show highlights the stories behind the deals from all perspectives. So it doesn’t matter if you are a retailer, broker, entrepreneur, architect or an attorney Also don’t forget to subscribe to Retail Retold so you don’t miss out on next Thursday’s episode.