New Store Opening: Planet Fitness in Dallas, TX
Topics: Bed Bath and Beyond Lease Auction, Planet Fitness, new store openings
Chris Ressa 0:00:
Welcome to Retail Retold. I’m your host, Chris Ressa, and thank you for joining me today. So there’s two things I wanna talk about. Actually, three. One, Bed Bath Lease Auction. Two, what’s going on in the market. And three, how Planet Fitness opened a location in Dallas, Texas.
So, let’s start with the Bed Bath Lease Auction. So, I’m just super interested in this one. I’m going to be there on Monday at the Bed Bath and Beyond Bankruptcy Lease Auction. I haven’t been to one before, so this will be my first. So, interested to see how this all plays out. Bids are due tomorrow, and then you find out on Saturday if you had a qualifying bid or not and if there’s a competing bid.
And if there’s a competing bid, you just show up to the auction on Monday. So dates are subject to change. They change with the wind. So you’ve got to be on your toes. But I’ll be there. So I’m sure I’ll have some reporting back on how that goes. But I think it’s a really interesting case. And stay tuned.
Two. I want to talk about what’s going on at retail properties right now. So last year was this landmark record leasing year at retail properties. And leasing is off the charts this year. I think it would be hard to be record-beating in terms of volume of leases this year in America because there’s a lot less space to lease this year and therefore, it’s just, if there’s no space, it’s hard unless you’re kicking out tenants and bringing in new when renewals come up, but it would.
Undoubtedly it is going to be hard. Even though it’s going to be a be a great year, I think it’s gonna be hard to be the same volume as it was last year. But this is going to be your epic new store openings.
And the numbers of new store openings are always interesting that you see when you read headline news, because most of them don’t include local entrepreneurs. They’re really just public or private companies. They’re really just reporting on the public entities and using that as a proxy. Typically, some numbers may. Most of the numbers I see are just really about the public announcements of store openings versus store closings.
So it’s a distinct group that represents a much larger swath of industry. That said, this is going to be an epic year. Because all those record leases that signed last year, most of them are opening this year. And new store openings is one of the best things that can happen to a property. It’s one of the most offensive things during good times, and one of the most defensive things during tough times.
You’re bringing new capital, because there’s usually money going in from construction, either by tenant or landlord, new brand, which is exciting for the community, new foot traffic to the property, new dollars spent at the property, all leads to just a virtuous cycle of good momentum for that property, the other tenants in it, for the community. And so I think it’s pretty… You know, we’ve talked about the real estate fundamentals at, you know, the retail real estate fundamentals at the property level never being so strong. I think this is only going to make it stronger regardless of, you know, the current macroeconomic conditions to boot to all that.
The appetite for new stores is voracious right now. And they’re still, you know, huge velocity in leasing transactions, maybe not 2022 record breaking, but pretty remarkable. So I’m excited to see how that all plays out. You know, we’re already seeing it at the properties we own where there’s new tenants going in, you know, people are excited in the community, other retailers at the properties are excited, and it’s just this really good thing that’s happening.
And obviously, there’s a lot of stores, I think this is really gonna… in the back end of the year as an industry, because many stores try to time their opening to back to school and to Black Friday. Regardless of how changed Black Friday is, it’s still a pretty targeted and coveted day by retailers to open new stores. And you know, before that, so you know, you’re gonna have a lot of store openings this fall. I think, you know, in that period of time between September and November, I think you’re gonna like visibly go to a property and then a month later go and go, wow, there’s a new store here.
I think you’re gonna do that as a consumer off assuming there’s a vacancy or two at the properties you’re shopping at. So today I wanted to talk about a Planet Fitness in a market in Dallas, Texas. It’s a really interesting story. So we owned this property in Dallas and we had a tenant that had filed bankruptcy. And so we got a space back. And the space was like 20,000 feet. We had marketed for a while, didn’t really get much bites.
And then… We kept marketing it and we got Planet Fitness interested in the space. So we started getting ready to strike a deal with Planet Fitness. And there was a restrictive covenant in the REA that didn’t allow for fitness at this center. And so we were like trying to rack our brain, we go and we get consents off in, and so we were going down that path. But as that happened, there’s an adjacent landowner that has a building, and the building kind of looks like it’s in the shopping center we own, but we don’t own it.
And one of their tenants, the anchor tenant of that property, went vacant. A shopper’s world was the tenant they left. So they go away. And so we… decided to say, hey, what if we bought that? We’ve always wanted to control our own destiny at this property, and then we could put Planet Fitness in there, and maybe we don’t have the same restrictive covenant challenges. So we approached that landowner.
They weren’t really interested in selling. So we had kept, you know, Planet Fitness had kept working with us. We were trying to get creative, trying to figure out how to get them at this property. Months have passed. And then finally, the adjacent landowner says, okay, you’ve been calling me enough, Chris. Let’s see if we can figure out how to cut a deal. And we end up like getting to a deal.
And just as we get to a deal, we’re, well, as we’re doing that, we’re simultaneously trying to make a lease with Planet Fitness. It’s kind of like a development deal. We don’t really want to buy it without a tenant. Well, as that’s happening, working on these deals, March of 2020 hits. And at the time, Planet Fitness was, you know, gonna put a pause on signing a new lease in this location, which made the purchase, and like, unsure of who would, how commercial real estate was gonna play out, who would potentially.
Buy this or lease this, you know, we didn’t move forward with the purchase. So we’re in the thick of, you know, April, May, we’re in the thick of the COVID world. And, you know, it kind of checked in, you know, we had kind of checked in with Planet, but we had so much going on, we didn’t own that building. We still had the vacancy in our property and we’re working through it, but there was a lot going on.
Lo and behold, as that’s happening, We get a call from a group that says, they put that building under contract. They have a deal with a retailer to go in that space called Planet Fitness, and there’s an REA, and they need our consent to go in that building. And so, you’re like putting your heels, you’re like holy cow, in this time frame, I like, you know, we dropped the ball because we had so much going on and it wasn’t a major key initiative, priority, strategy for the organization. Someone else swooped in to buy this building.
They needed the deal didn’t work for them either unless they had a tenant, they had Planet Fitness. And so they asked if we would consent. They’re like, you know, we’ll give you something for consenting. And they go through this whole sales pitch on why it’s good for me as the adjacent landlord to allow Planet Fitness in. And they say, you know. We, you know, it’ll bring a new brand. There’s no fitness in our center. It’s not competing.
It will bring new traffic to the overall area, blah, blah. And so our initial reaction to this was no. So they called back a couple weeks later, and they’re like, how about if we give you X dollars to consent? We’re like, I don’t know that we have the same view on how good this is. And they were so floored by this. But thinking through all our conversations that the purchaser of this kind of connected some dots. and they came back to us and they offered us to go in 50-50 with them as partners.
And… We were able to strike a deal to go 50-50 partners, bring in Planet Fitness to the project, and there was other consents they needed us for. It was not just us, there was other tenant consents in our property that had the right to consent. And then by buying this, we were able to change the REA a bit to give us more control. in the future over this building and turned out to be a huge win. So that’s how Planet Fitness ended up here. And so there’s a lot to take away from that. I think one, just this overall creativity.
11:57 Two, whatever business you are in, if you get distracted… by whatever it is. And it’s not your main priority. Someone could definitely swoop in, out from underneath you on a deal. And whatever business you’re in. Definitely a hard lesson. But three, and we, I think in the business world, not just in commercial, in the business world, we often talk about, we don’t want to go over lawyer docs to get so much legal jargon that it kills a deal.
However, and I’ve said that before, great docs and a strong REA are the reason we were able to buy this property. Without this being, what some might say, over-legal, over-lawyered, we might not have been able to buy this property. Now we only bought 50% interest, but it… It was the documents that governed were the key to us getting in on the deal. And then I think the fourth thing that was really savvy from the buyer was,
12:59 Ff you’re really trying to strike a deal, I think it’s important to really understand the motivations of the counterparty you’re doing business with and understand their business. And they connected the dots that we wanted to own this property. We didn’t want to let someone else come in and own it, and we like, we had it in our hands to own this property. Had it not been for COVID and the weird timing, we would have owned the property without a partner.
But they recognized this and they said, hey, we could all do good here. We could all figure out how to cut a deal and hopefully make some money. We could all share in it. And that is going to create new opportunities for the partners, the partnership in the future. and it’s been a great partnership. Turned out to be great for both parties. Everyone brought some skills to the table. Everyone brought some things to the table.
More than just dollars for the asset that I think, and everyone had a lot of respect along the negotiation. And kudos to them for coming up with the idea. And it enabled us to bring planet fitness to this asset. And that’s how planet fitness ended up there. So I think a great story, cool lesson to learn. And that’s what I got for today, everyone. We are now. almost officially halfway done with the year. Crazy 2023 is moving.
Hope everyone is hitting all their goals for 23. It’s gonna be over before we know it. So with that, thanks for joining me today on Retail Retold, everyone. Hope you enjoyed the story and the take on the retail market and… Report back on what happens at that Bed Bath and Beyond bankruptcy lease auction. Thanks everyone.