Macy’s Backstage in Allen, TX
Topics: Macy’s, leasing deal
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.
Welcome to retail retold everyone. Today we have a unique episode. Just me today everyone. I’m going to be telling a story. Story I’m telling is going to be about Macy’s backstage in Allen, Texas. And I’m excited to share it with you. I don’t know how everyone’s doing.
It’s been interesting week. Father’s Day, I got those daddy like all about my daddy certificates. Fascinating. We’re like, my children are three and five. And they they have the thing that says My daddy is how old and my daughter knew my exact age. My son said I was 80. That was fascinating. And it’s just funny to see what they say about you. What is Daddy’s favorite color? Or what is Daddy’s favorite thing to do? What’s your favorite thing to do with daddy? It was really cool. It’s the first time I’ve ever had that. And so that was I got that on Sunday, put a smile on my face. mosey on over and into Monday. And to some funny things happening. So, Monday, um, my son woke up really early, I woke up at 515. So we get up. And he’s like raring to go. I want a cup of coffee. So we went out for a cup of coffee. And I have the radio on like the ad station on and on Sirius and Prince comes on. And the song Little Red Corvette comes on. My son’s like, Dad, who is this guy? I said, this is Prince. And it’s so fascinating. Because you’re like, wow, this person like, hasn’t been exposed to someone iconic, like Prince, right? And then he goes, he goes, does he have any other songs, I like this song that. And so you know, Monday was a bunch of print songs from like, 530 to 630 with my son. So anyway, it’s been a fun week so far. And
lots of good things going on. Really fascinating times in the market had been networking with a lot of people. And everyone’s got a different approach to how they are thinking about inflation, rising rates,
hiring. So I think it’s really cool to get those perspectives, it helps frame your, you know, helps reset, how you might be looking at it. One of the things I always try to do is I try to get perspectives from people in different industries, kind of get out of the echo chamber of where you’re at. So I talk to people in some tech industries, talk to some people in some consumer products kind of get different perspective on how they’re dealing with, you know, similar challenges. And I think the reality is, in times when people don’t have clarity, or at least the perception of clarity. That’s where the opportunity lies when you have conviction. And we saw that, in the Great Recession. We saw it in the.com bubble, we saw in the Great Recession. We certainly saw that in the pandemic, right in the pandemic, there was like really two distinct camps, there was the camp that was like, let’s hunker down and play defense. Let’s make sure we protect the ship. And then there was a camp that was like, you know, it’s on sale. Let’s go. Let’s figure it out. And I think that’s just interesting to look at the perspectives, look at how you handled it, learn from that and move on.
Ressa 4:14 Anyway, I think it’s a good time to gain perspective from other people take a reflection back of how you handle tumultuous times. And I’m not suggesting that that we’re in a negative time. I’m not an economist. What I’m suggesting is when I think it’s pretty fair to say that we’re in an unclear time for some and when it’s not clear because you have different markers telling you different things about you know, different key indicators telling you different things about where where the markets headed. I think that’s a good time to kind of reflect on what you did in the past what worked what didn’t, and is a good time to gain perspective from others, but how they’re approaching things. That’s my recommendation for the day.
Now, I want to give you a story of Macy’s backstage in Allen, Texas. So really interesting one, Macy’s backstages, off price model for Macy’s. And I think I’ll give you some perspective of how I personally look at deals, how the company looks at deals, how people in the industry, look at deals, and from real estate perspective, from a retail perspective. And then just a general business perspective, about business deals. I often say this shows like great for anyone who just wants insights on business deals. So the retail real estate leasing deal is a pretty sophisticated business deal. So Macy’s had had in the 2018, they had a couple of free standing Macy’s backstage stores. It was a trial in the early teen 2000s 2012 2013 2014, somewhere around there. And then things were a little. They had a lot of different things they were doing at Macy’s and so it wasn’t necessarily focus. But they had put the Macy’s backstage store in Macy’s and they were doing really well with those. And they wanted to start to bring them to freestanding locations again. And when I say freestanding, I mean, freestanding off of the Macy’s, they could be in a shopping center, just open air off Mall. They decided they were going to work with Dallas. And we have a project that we own in Dallas that’s called the village of Allen, really cool project. And there was an opportunity to put a Macy’s backstage there. And this opportunity kind of started in the beginning of
- And we met Macy’s in person, the company, DLC teammates met Macy’s in person on site a bunch, I then went to a dinner with them in Nashville, the deals moving.
And we go through the loi, we go through a real estate committee, they approve it on their end, we approve the deal on our end. And we go to at that point, we go to a lease draft and get to a lease. And one of the challenges was in snda. subordination, undisturbed screaming, so essentially, if if the owner has a lender, a major tenant might require an snda, which is sportnation. Non disturbance. Basically saying that if the lender foreclosed on the the borrower, ie the owner of the property, they would recognize their lease in the shopping center, and they they would have, they would still be a tenant there. So typically, in those scenarios, what we might do is we might have a clause in the lease that says, This deal is contingent on an snda.
And typically what will happen is the borrower’s lender, and the tenant will start to communicate with the help of the owner to work on a snda agreement. Not as cumbersome of a document as a lease, or loan docs, but still need to agree on some terms of what’s in that agreement.
Well, Macy’s was, you know, their policy, they didn’t want to have that contingency. They wanted the snda agreement signed at the same time as the lease.
And typically, the way it works is the lender doesn’t want to do the snda until the lease is final. So it’s hard to sync up the timing. So we ended up at a point where the lease was final. And the snda just kind of got started working. That point in time was March 2020. So the s&p is going back and forth. March 2020, starts to happen. And pandemic hits. And, you know, people are putting the brakes on opening new stores at this time. So I think that’s the first takeaway for this deal, which is March 2020, the lease was done, had we signed that lease with a contingency, that deal would have been fully, you know, hard when by mid April, regardless of the pandemic, because the snda would have happened.
So, what ended up happening, you know, going to the end of the movie, what ends up happening is, in the end of 2020, we’re but you know, things were, you know, back again, and things were hot again. So Macy’s was back our property. And Alan, you know, was taking off doing well, we had actually, multiple interest. Now, this was a, this was going to be like Macy’s, first or second location they were doing out of this new run at this model. We were excited for it. And so it was Macy’s. And so we just so happened that the pandemic caused everyone to evaluate, again. Long story short on that we ended up signing the deal, and then opening in the late spring, early summer of 2001. So I tell you that because of you, I think the first takeaway is on any business deal, right.
There was, you know, if you’re trying to get it locked down, which I think everybody was, there’s certain logistics and policies and procedures, that caused a, you know, potentially a year delay, maybe for good reason. But we certainly didn’t want that year delay, especially given that time in that happening, right, the whole snda piece. So
it’s a huge takeaway, in my opinion, to do the following. Both sides, not going to change policies and procedures of, of companies, right. But both sides, understanding what the policies and procedures are of the other company, so that you can navigate the waters earlier, is critical. Right? Maybe maybe, the, at the end of the day, that we couldn’t change the other bases of the policy for that they wanted, that’s fine. But maybe the snda we could have started negotiating earlier, maybe we could have told the bank some extenuating circumstances, you know, this is important one and then maybe we could have had them both lined up at the same time. Or knowing that that that might cause an extra 45 day delay, could we have done something different to compress the time during the normal lease negotiation process? All too often. We think things just are a matter of course and they will happen until they docked in so I try not to take for granted there but I try not to take for granted the things that we think are automatically going to happen because that’s just the nature of business and they do they do until they don’t some other things that I think were interesting about this deal, are you know, really understanding I think this is this is so key which is something I do on most deals. Most people have a committee most people have a committee after we all agree on the LOI. The proposal, basic terms to go to lease One of the things that some people don’t like to do, but I find is really helpful in business deals is to say, is there anything
that, you know, you’re concerned about, about this deal? After the LOI is finished, what typically comes out at that point? Are not deal related items. But things that maybe you can help to solve and relieve concerns for write something that might come up is well, you know, not about the loi, but, you know, I’m really working with my
SBA lender, they’re being slow. Well, now, I know that that’s a that would obviously be for a local tenant. But, you know, local, small business, but now I know. Okay, that’s another gating issue to our deal. Is there a way that I could help? Do we have a relationship with a lender? Do we have a way to help help that tenant?
It could be a variety of things. In, in, in this scenario, we had learned that store openings in the same time period, and mass media was really important to them, some uncontrollables?
Well, that really, there wasn’t a lot I could do in that regard. But what it did enable me to understand is the reality of some timings. It helped me in being able, because I was like, first to relieve some pressures on construction team, by, you know, maneuvering some dates that were stuck in the lease from a year ago. But, and they just got pushed out a year. But the reality was, we could push those days because it was a different time period that was really necessary to open up. And had I not ask the question at the time, or at my team ask the question, is there anything that you’re concerned about, we wouldn’t have known that, you know, opening some stores in similar time period, and having the media solidified, and being able to hire across multiple stores simultaneously for deficiencies? We weren’t thinking about, we’re think about the real estate deal, right. And so the point is, there are always things about a business deal, that are really important about the business deal, that really affect the business deals that have nothing to do with the deal. Or at least your deal. They might have to do with the have to deal with the person on the other side of the table, and what they have to deal with, but they’re not really necessarily about the deal that you’re working on. But they are important. And I think it’s the job of someone you know, who’s ever making a business deal, any business deal to understand those in a really great time, is once you’re all agreeing on terms. And the proposal or the LOI is done, or do you have any other concerns about this deal? be surprised how often you’re able to actually find something has nothing to do with your deal. But then you can help the other person resolve or put at ease to move forward faster, potentially, right. I have dealt with some small businesses over the years where I asked that question, if I didn’t ask that question. And for a month that they went silent. They finally gotten back in they’re like, Well, I did talk to my partner. And here’s this issue him and I were having, it turns out I actually could have been a solution in that. There was a way for us to work with him on helping them through that. So the Macy’s store is opened. It looks fantastic. If you’re now in Texas, you should check it out. There’s still there’s multiple now in Dallas. And I think that it’s really exciting store, really cool branding in the store, great product and really adds another cool, unique, differentiated retailer to the off price market. Backed by, you know, a behemoth legacy iconic retailer. That’s what I got. And so what else is going on? I don’t know. Leasing volume. Let’s talk about some other stuff in the industry. So leasing volumes still robust. Working on a lot of deals, I think there’s this interesting thing specific to retail real estate. One of the things I would say is one of the things that impacts the supply and demand that we don’t talk about enough, we just kind of see in headline news. And it’s if you’re not directly hit with it, it might not seem to affect you, if you’re in retail real estate, this affects everybody, which is an it affects the supply and demand, which is, I think the one thing that I’ve come to realize, impacts supply and demand, which impacts a lot of things are major mass store closures. And I’m not talking about smart business, you know, pruning, unproductive parts of your business every year talking, you know, the business as a whole isn’t doing way well. And so one of the things you do is you make a really tough decision to close a massive amount of stores. And from a supply and demand to retail real estate, this is really impactful. And the reality is we haven’t had any in a long time. And it’s made the rest of the industry really healthy because of what’s happened on the other side. So over the last two years, there’s been a ton of leasing done in retail real estate occupancies picked up. Why is that? Well, one, retail sales have been really strong. And there’s been a lot of drive to the stores by retailers because it’s a very profitable way to sell goods. We’re seeing we’re seeing, you know, many DTC brands, open up stores, we’re seeing new concepts in incubated, we’re seeing mature retailers, you know, maneuver, expand and reposition their portfolios. So, occupancy is ticked up, number one. Number two, there’s been a lack of new development at scale. In every market, there’s some level of new development, but not compared to historic numbers. And not nearly at the pace that existing space is being leased up. And here’s the last caveat. We’ve talked about repositioning, functionally obsolete, retail real estate, as an industry for a long time. That’s finally happening. We’re seeing some dead malls be repurposed in the whether that’s industrial multifamily self storage, so they’re taking supply off the market. You know, we’ve often said we were over stored, we haven’t built anything new, we’re actually you know, demolishing and repositioning some and the rest is being you know, occupied. Now, you can look and you can see, you know, ecommerce store growth has gone through the roof. I might argue that we have, we might be over stored digitally, not physically in America anymore. What will you know, if we have multiple mass store closures that could impact the supply and demand conundrum. But right now, it’s really a landlord market out there because at the end of the day, there is a lack of supply.
And there’s been expanding competition for space in a, you know, obviously, real estate’s market specific. So every market is different, but on a whole, right, and we own nationally, so I get a kind of a breadth of multiple markets. So
yeah, that’s, that’s going to be interesting to see how that shakes out because, you know, pre pandemic. You know, one of the things that I think some pundits got wrong about the retail space is that you know, the retail real estate industry took a lot of its medicine, pre pandemic, whether that was no weight, or whether that was just some of the major stores. You think about all the all the retailers that were hurting, that went away. Pre panda MC. And that was already the retail standard. It took its medicine on that. And then, so going into the pandemic, it’s just a whole lot healthier than some pundits gave it credit for. And I think it was because of this halo of the impacts of E commerce, which I now think are tailwinds not headwinds. You know, we’re all saying we need, you know, on the Champion, what’s the answer? So, I think it’s going to be a an interesting time. It’s such an exciting industry to be in the intersection of retail and real estate. And thanks for spending the time with me today. So, one more thing. You know, at TLC, we have a really strong position on retail real estate on what how we view the state of the industry. If you go to our website, www dot DLC mgmt.com. We have this deck. It’s called the store has one think you’ll find it really informative. Feel free to download it, check it out, share it with your friends, and thanks for tuning in. And I hope you enjoyed the story about Macy’s and some of the lessons I took away and hopefully you take away some as well. Thanks so much. 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 retail retold at DLC mgmt.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