Walmart Supercenter in Albany, NY with Douglas Jerum

Guest: Douglas Jerum
Topics: Walmart, real estate brokerage

Transcript:

Chris Ressa 0:04
This is Retail Retail, 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 0:57
Welcome everyone to retail retold, today is episode three. Today I have Doug jerem. Doug is the managing director of Hana commercial, a real estate brokerage firm. Doug leads the Rochester office. I’m really excited about this. Doug is one of the more prolific people in our industry. He’s a great guy. And he’s done 55, Walmart, Sam’s Club transactions, and 175 Starbucks transactions to retailers that are dominating in today’s marketplace. And he’s got a breadth of experience that most people don’t have. And I’m really excited to have you. Welcome to the show. Doug.

Douglas Jerum 1:42
Thank you for having me. I’m glad to be here today and look forward to talking to you.

Ressa 1:47
So Doug, what city and state and what tenant are we talking about today?

Jerum 1:53
I think we’ll talk about that Walmart in Albany, New York.

Ressa 1:57
So why don’t you take us off, tell us about how Walmart ended up in Albany, New York.

Jerum 2:03
So this this particular transaction, Walmart was already there, probably the best known in the market in the Crossgates comments, which is adjacent to the Crossgates mall in Albany, which is owned by pyramid management. And Walmart originally opened there as a you may have seen around New York pyramid developed a number of these kinds of stack projects. So they developed some power centers near their malls. And we’re stacking levels of retail on top of each other both facing out opposite direction. So you had accurate parking for both levels. And they had several users one in Middletown, and they did one in Albany. And so the original project had the Walmart division one or the general merchandise store on the upper level, and then the Sam’s Club had a location directly underneath that in in the same footprint facing out the other direction. So with its own parking field, we have

Ressa 3:05
a period are we talking about the most when those originally opened,

Jerum 3:09
they originally opened would have been in the 90s, mid late 90s Probably 98. Okay, I think in that area, and that was not something we were involved in. That happened before our time we had been working to relocate that store. So the program that we worked on was the supercenter program, which was adding groceries to the general merchandise store and we had been working on relocating that store for for quite a while and gone down the road on a number of different sites is was pretty typical usually took a while to to get one that that worked and that everything came together on and so we we can reach a dead end on on some other locations. And what happened was that the Sam’s Club decided to right size as the friendly word for it as part of the store optimization they decided that they were going to close this location so that created an interesting opportunities to the Walmart box and the Sam’s box for both proud 125,000 square feet one on top of the other typical supercenter at that time was between 180 and 220,000 feet although for the most part they had gone away from the very large ones up around 220,000 and are really down to wanting to be about 175 to 180,000 square feet.

Ressa 4:39
And so Walmart with they were doing at the time and still do a little bit today is when they they have these as they call the ones are Division One stores which are just general merchandise stores. They go and they they try to expand them and if they can expand them in their current footprint because to add groceries, you know 50 60,000 square feet more space They would go and find a different location in the market. Is that right?

Jerum 5:03
That’s right. And in some cases actually finding moving to a new location building a new store was actually made more economic sense and had a better result as far as the increase in sales, but certainly expanding particularly if they either owning the land or at least a parcel that allowed for them to, to do it without some incremental rent cost was certainly attractive. In this case, it wasn’t so much that they had those advantages. It was really that salmons had a long term lease at this location. That was a liability on the books. So Sam was looking to dispose of that. And yeah, Walmart is it was in need of, of the super center. So it was a pretty unusual configuration. Yeah, with a Sam’s Club. underneath. That meant that if they wanted to look at acquiring that, that lease and taking over that space, they were implied there was ever going to look at a two level store. So we brought up the idea to possibly do this expansion into the Sam’s Club, and covering all the bases. And as you started to dig into it more, it started to become a pretty interesting possibility. One of the actually key parts of what made it interesting was that provided there were no changes to the exterior of the of the building shell, then both the landlord which was a pyramid, and the municipality, which was the city of Albany had very limited influence on the project, though, set another way, there were very few approvals that would need to be obtained in order to do this. And in fact, I’m almost almost none, which for a supercenter project was pretty unheard of. Yeah, the projects were notorious for multi year approval processes, we had projects that I did that ran 10 years in the approval project process,

Ressa 7:04
between any of the biggest pieces was the biggest piece of that municipalities concerned about Walmart entering in the marketplace.

Jerum 7:13
Sometimes it’s it was a municipality more often than not, it was a community. So we tried to, when we kind of arbitrage a project that we looked at, you know, who was in favor, and who wasn’t if the town was in favor, but the community, you know, had a group and it was usually a small but vocal minority, if that was the situation. So essentially, if the project made sense, you know, from playing it within the framework of you know, what’s allowed and what the process is. So if we weren’t asking for his own change, and was a site that had retail on there previously, or you know, maybe it was industrial, and we’re going to move it to retail, which is arguably higher and better use. And so you know, if that made sense, and we had the town support, than that would be a project that you had a high likelihood of success, where we tended to not pursue things was where we didn’t have supported the municipality, that becomes a very difficult road to hoe. And you’re often not successful. But in this scenario,

Ressa 8:19
you didn’t need any of those. Because, I guess, because you had a Sam’s Club lease, which is owned by Walmart, and they had the right to assign or sublease.

Jerum 8:32
They actually were they consider them separate entities and separate parties. So Walmart had to take assignment of the lease, and the lease was moved from Sam’s Club to the Walmart, it was an internal thing. But yeah, they they have always treated those two companies separately when it came to property. So, you know, if Walmart wanted to acquire a piece of Sam’s property, they actually there was actually a transaction that occurred, but obviously, Walmart, you know, if they wanted to take over this lease, Sam’s is more than happy to engage in that transaction. So situation here was the only approval that would be needed, provided we didn’t change anything on the exterior of the building would be to simply get an interior renovation permit. And a building permit is, you know, if you follow the building codes, it’s yeah, it’s basically it’s not a discretionary permit, as long as you follow the rules. So this made it very interesting. Walmart, and particularly that we can really accelerate the timeline of making this happen. And so we did the project as such was submitted to the committee. It was approved, and we got under underway on the planning. What was really interesting about that, so now we have a two level box and how do you turn that into a super center there at the time for, I believe, no, operating two level super centers in the United States. There was one or two others that had been approved, but they weren’t considered erected yet. So the only two level stores that they operated were outside of the US. So they did have experience with that in other countries. And so they were able to fall back on some of that experience as well as some of the the experience, they had to date at least with planning the other two level locations that that they were moving towards constructing. So what they ended up doing is basically two footprints that were the same right on top of each other, they kept the, especially the division one departments on the second floor where they were, they already were, and then the Sam’s Club would be turned into primarily into the grocery box. And then the big alteration that that they had to do was to connect them with vertical transportation. So they had a giant hole in the floor and the, in the middle of the of the box, installed the calculators. So inside of the story, you can go between the levels with the cart escalator. And again, you know, we’re now probably 10 years ago, at this point, those type of things had become a lot more common in a big box, but at the time, especially in a secondary tertiary market, not an urban environment. That wasn’t a thing that was it was pretty interesting. I remember a fair amount of news coverage around it once it opened because of the carton later.

Ressa 11:18
I never heard I never heard that word Carter later. Yeah.

Jerum 11:23
That was what they called it. Yeah, the cart escalator. So that’s stuck that you can either go up at or they also had an elevator in the middle next to the cart escalators in the middle of the store. And they put they put glass railings all the way around. So you could look down from above. And then they got that in place. It gave them the head two parking lots two entrances either enter upstairs, where the general merchandise was or on the lower level where the groceries were turned out. Most people came in through the lower levels, bigger parking lot. And most people came through the grocery store at the end of the project, something that was it was pretty fun for a while, because we had two stores that were 125,000 square feet. And they put them both together for pretty good period of time we we had the the honor of being able to say that it was the largest Supercenter in the world. And I don’t know that that’s still the case. But at over 240,000 square feet. It definitely was. There was a little asterix on on that designation, though, because in reality, there was probably about 25 or 30,000 square feet that was behind a wall that just was not needed. So it was part of the box and it was part of the premises. But it was not in service. Let’s say either way, we got to have that. Have that designation for a while. So that was fun.

Ressa 12:48
And it’s in so it’s still there today. Correct.

Jerum 12:52
Still, today, it’s a very successful store. It’s always done. Well, it was well received. Yeah, as you might imagine, yeah. Some early growing pains on operating the store. But like Walmart does, you know, they just kept iterating and figured it out and became a very successful store for them.

Ressa 13:09
And so how long was it between? When Sam’s Club closed, and when Walmart opened the doors is a new Supercenter?

Jerum 13:20
It’s a good question. It was probably it was certainly I think less than 18 months may have been a shorter time period than that, but don’t actually recall the the dates from when it when it closed.

Ressa 13:34
Wow, that’s that’s they were they were aggressive about trying to get this open.

Jerum 13:40
Yeah, it was fast. And with, you know, with having just interior work to do that, you know, much shorter timeframe than a ground up development, especially without any significant permitting to do.

Ressa 13:51
Was there resistance from the developer? Not

Jerum 13:55
particularly if at the end, it was a win for them? You know, even though they always would prefer to have a seat at the table, which they didn’t really this time. Yeah, having Walmart say, Look, we’re gonna take our vacant box and make a supercenter here. It’s there’s not too much to complain about.

Ressa 14:14
Yeah, totally. Totally. So when Sam’s Club was still there, how long were you looking for a relocation?

Jerum 14:23
We had probably been looking for three or four years at that point.

Ressa 14:27
Wow. And so, you know, you’re looking to move this store, and how big of a geographic area were you able to go outside of?

Jerum 14:37
Not very big. Yes. So the Super Centers are huge stores, but they’re really community based, you know, with especially with grocery. And so that was some of the work that we were doing was really taking, you know, the Division One strategy, which was more of a regional strategy and converting that to a little more dense strategy, albeit with larger stores. So you know, we were really You trying to keep it within a couple miles of where it was, doesn’t leave a enormous amount of options of where you can, where you can go.

Ressa 15:09
And and it’s super center, how many acres would you have needed?

Jerum 15:13
Generally, we needed around 20 acres in a 16, the 20 Plus depending on, you know, what the municipality required for density and green space and things like that.

Ressa 15:25
Essentially, the task was a couple miles away from the existing location, find 20 acres in a very developed market, you know, all been a while secondary, tertiary, it’s still developed. It’s not in, you know, it’s not in rural country in North Dakota, or Iowa or something like that. And so you spend three, four years looking at this, and then you get this fortuitous opportunity where the Sam’s division decides to close. And that’s what really got this going.

Jerum 15:55
Yeah, 100%. I mean, we had toured multiple times multiple sites, that just for one reason or another didn’t come together. Yeah. So you point out, it’s not just in the Albany area, it was in the city of Albany slash town of guilderland. While there are some undeveloped pieces, ones of that size that had the infrastructure that could support the project were limited, we were looking at a lot of industrial that we were looking at, you know, repurposing so demolishing, you know, a couple 100,000 feet of of industrial, or more. So that was a couple of the things that we had looked at, you know, assemblages of properties in the area, you know, a variety of things, none of the options were, you know, this 20 acres, or that 20 acres of Greenfield and, you know, let’s pick one. Yeah, we had been exhausting, a lot of what I would call creative thinking, but in the end, none of them were able to gain traction for one reason or another. And yeah, when this came along, we were still looking. And it wasn’t actually the first thing when the Sam’s Club blows, because we still had things that were in process that we were working through. It wasn’t immediately Yeah, let’s go and do this. The idea was floated. And it wasn’t really until kind of some of the other things that weren’t process came to a dead end that we came back to. How about this? Because the resistance was it’s two levels. We don’t operate two level super centers in the US. Yeah,

Ressa 17:23
yeah. So that’s great. So that’s fascinating. So I mean, when it opened in Albany, New York, and you know, Albany is a great market, just the largest Walmart Supercenter is in Albany, New York at this time period. And was it the only true story Walmart opened in the country at time did at that time? Did you have both those distinctions?

Jerum 17:44
I think that’s I think so I think it was the maybe not the only two story Walmart, I think it was the only two story supercenter at the time pretty quickly after that. There. It had some company, as I mentioned, there was other projects in the pipeline. But yeah, it was certainly in a small cohort at that time, not not a lot of those types. But they got better at doing those. Yeah, the realization of being more flexible, and you know, the, you wanting to get into more urban areas, etc. Yeah, they they got more creative. That was kind of the start of them moving past that, hey, if it’s not, you know, one single floor plate, all the parking in front, etc. Yeah, that was kind of the beginning of that time.

Ressa 18:23
And so whose brainchild was this to say, you know, what, retail on one level is? How it’s done, the United States going to its, you know, accepting real urban environments, you know, the consumers used to being really convenient drive up, walk in, now they have this, what could be more complicated two story environment. Whose idea was it? Was it your guy’s idea? Was it someone at Walmart, whose idea was to say, You know what, let’s do this two story store.

Jerum 18:52
Yeah, it was it was our idea born out of, I don’t know if frustrations is quite the right word. But it came from this facility not to do this, you have a lease liability, whether it’s sitting with Sam’s or Walmart, you have a pretty large, I think there was at least another 10 years to go on the primary term of the lease. It was a large liability here. And actually, there was a very key thing that made this happen, and it wouldn’t have happened otherwise. And that was the fact that there was accurate parking at both entrances. That actually was what won the day and got them to be willing to do it. It was kind of part of how we positioned it was to say, Look, I get that it’s two stories, but you don’t have to shop it that way. If you don’t like that, you can just park at the entrance that you like, and you’re you walk right in. So it was tons of parking at grade for each entrance. And that was really the thing that that was able to get them comfortable with doing it. And I don’t believe they would have done it if it was configured any other way.

Ressa 19:59
Now That’s interesting, you know, great challenges in retail, when you have the interactions of people in physical structure are always interesting and, and clearly, easy access to parking was a point that was really important to Walmart. What was the process for, you know, then how hard was it for them to get it approved? Because I can only imagine, right? Someone in Walmart going in front of a committee or a board and saying, hey, I want to do a two story store in Chicago or New York, and everyone gets it right away. But to say you want to do it in Albany, New York, there’s probably some eyebrow raising, and I know you weren’t inside their offices, but from what you do know, how did that work? And then getting that approved? Was it a big struggle for them to make that happen and make that commitment?

Jerum 20:47
Their processes incredibly efficient? And was oh, it was it was very interesting, because for many, many years, the CEO and one, Rob Walton, yeah, the people, the top of the company, still approved every deal, huge part of their on, yeah, they put a lot of resources into this real estate committee, and it was definitely a big deal. So by the time something got there, you had lined up all the support, you know, all the way up and down. So that, you know, when you got in the room, while things were not guaranteed to get get approval, at least everybody else had vetted it. And and if you got pushed back, it was from that committee level, and not from somebody else, sort of lower down in the in the org chart, because you had already addressed all those things prior to getting there. So yeah, it was really more of the process of getting the earlier layers, you know, getting it through the process, you know, with the, you know, the director and the VP, and then their operational meeting ahead of putting it on the real estate committee agenda. And their big thing would be having operational support, right. So if the operators are on board, that they think that they can operate the store in that format, then you’ve got a really high likelihood of getting approval, really, everything else was kind of working for us. Yeah, we’re taking care of a lease liability. And prospectively a fast development timeline, all of these other things really helping us. And it was, it was really just getting the operators on board to support it, which took a little bit of a little bit of time. But, you know, again, I think that, you know, the parking really helped to get their support.

Ressa 22:29
I imagine a real estate director, you know, walking around for the people who were in the real estate committee, like, weeks before walking their office and just going, Hey, I got a crazy idea. Just hear me out to try to build consensus before getting into that boardroom to present this, the world’s largest Super Centers. First us two story store in Albany, New York felt pretty interesting. So one of the things you mentioned lease liability, Sam’s Club closed, and you had 10 years of lease term life, so it’s gonna owe the landlord 10 years of rent. And so they thought it was better to close the store and not operate the store and sell merchandise, because they were moving it or they just wanted to exit the market.

Jerum 23:12
They they had it was, you know, in hindsight, it was the first step in exiting the market. But actually, that’s not correct. They’re still they’re still there. So they, they have three stores in the market, they closed two of them reduce it down to one exam, I have to look, I believe the last one there, although they might have exited last year to go back and look. So it was a it was a doubt Yeah, was a downsizing of of that market.

Ressa 23:39
So do you know do what got them comfortable that they could do a Walmart Supercenter would be great here. But at Sam’s Club wouldn’t be good in this

Jerum 23:47
market. The issues of set Sam’s had underperformed generally in New York. And so they had the data that that showed that this wasn’t an anomaly that you know that there was necessarily anything wrong with the location, per se. And in fact, the Super Centers, the other super centers that exist, that are in the Albany, MSA have always done very, very well. And so they had the Sam’s Club data showing that, you know, generally speaking across upstate New York, they were underperforming. And conversely, super centers were outperforming so those data points together, gave them the comfort that it wasn’t about the location. I mean, they have the division one there as well. So they know what the sales are for that that store was performing well. So it was really able to paint a pretty clear picture that the it was a concept issue, not a real estate issue.

Ressa 24:45
Got it. That’s a pretty fascinating story. Anything we didn’t talk about about this story that maybe you think we should, you know, tell the listeners about?

Jerum 24:56
No, I think we pretty much covered everything things are pretty stable. They’re

Ressa 25:00
pretty fascinating. I would have never thought that the time the largest Walmart Supercenter in the world at any point in history was at Albany, New York, and

Jerum 25:10
you can win. You can win Jeopardy with that one. With Jeopardy

Ressa 25:15
with that one. That’s pretty great. Last two questions we call retail wisdom. So sort of fun questions about our industry. So what is the layup which is your best piece of commercial real estate advice to anyone on listening out there?

Jerum 25:31
This is we’re talking about yet developments and and the time it can take all I’ll say that a good piece of advice is it will take longer and cost more than you think.

Ressa 25:44
Yes, you start adding vertical transportation and cost estimates sheets, just throw them out the window. So that is good. That is a good piece of advice. It is hard to predict what’s what’s coming in development. Second one on retail wisdom, your favorite extinct retailer that you wish would come back from the dead.

Jerum 26:06
I mean, actually answered that a little bit differently, I’m going to instead give a seeing the future award out. And I’m gonna give that award to Service Merchandise in their way. You know, they foretold a lot of certainly a big element that we, you know, that we’re seeing in, in retail today, which, you know, is all different forms of, of the showrooming that they that they did, you know, and so many of the direct consumer brands and you know, other other concepts. Yeah, and it’s now not just exclusively showrooming, like we were seeing, you know, maybe five or 10 years ago, but you’re seeing this combination of, you know, one part showrooming one part, you know, clicking collect, and one part walking by in store all kinds of combined, but you can trace it all back to Service Merchandise. He was really the first one to do that. That kind of showrooming

Ressa 27:07
awesome, really appreciate. Well, Doug, thanks for coming on and telling that fantastic story and, you know, giving us insight into your experience, which is pretty incredible working with a ton of retail brands, you know, 175, Starbucks, 55, Walmart, and Sam’s clubs. Now a lot of people in the US can say they’ve done that combo, so really appreciate your insights and Take care man, thanks for coming on.

Jerum 27:35
You welcome anytime. It’s, it’s a lot of fun. And good luck with that with the podcast.

Ressa 27:42
Thank you for listening to retail retold. If you want to share a story about a retail real estate deal you were a part of on our show. Please reach out to us. This podcast highlights the stories behind deals from all perspectives. So it doesn’t matter if you’re a retailer, broker attorney or an architect. Contact Diane Lee at D L E N DLC mgmt.com Also, don’t forget to subscribe to retail retold so you don’t miss out on next Thursday’s episode