Page 26
— Retail Properties Quarterly — February 2018
www.crej.comfor sale as redevelopment opportu-
nities.
Colorado Springs’ downtown his-
torically has struggled to find its
niche. However, in recent years the
downtown partnership has done a
great job being an ambassador for
the heart of Colorado Springs, craft-
ing the vision of a thriving arts- and
business-friendly center. With the
Olympic Museum construction well
underway, retail vacancy downtown
is near an all-time low at 2.8 per-
cent. Eight new retailers announced
openings for 2018 in the downtown
market, including brands like Denver
Biscuit Co., Atomic Cowboy and Fat
Sully’s Pizza. Colorado Springs hote-
lier Perry Sanders has proposed a
Switchbacks Stadium at the entrance
to downtown at Antler’s Park. Last,
but certainly not least, the push for
more downtown living has resulted
in a focus on an expanding retail
core.
In recent years, the Colorado
Springs community has really grown
and now is reaping the benefits.
Colorado Springs is beginning to see
interest from franchises looking to
expand out of the Denver market and
is seeing new investors and develop-
ers enter into the market as well.
All of this development is impacting
local retail lease rates, which have
been climbing steadily over the last
several years, but still are shy of the
lease rates the Colorado Springs mar-
ket saw in 2007. The highest lease
rates in the market are $16.31 per
sf in the northeast corridor, which
is home to several major new retail
developments as discussed earlier.
Retail lease rate growth will persist in
2018 due to the continued commer-
cial real estate activity.
V
Johnson
Continued from Page 8fixed rates average 4 to 4.5 percent
for 10-year fixed-rate terms, up 50
basis points compared to a year
ago. These rate increases are almost
solely due to Treasury rate increases,
as lender spreads have remained
mostly unchanged.
Power centers, which typically
contain a combination of big-box,
midsize and strip retail, are not
good candidates for insurance com-
panies in 2018 unless they have a
strong occupancy history, credit
tenants, increasing sales and good
demographics in an infill location. A
power center that fits this descrip-
tion is unusual and is likely located
in a major metropolitan statistical
area. Commercial mortgage-backed
securities lenders or debt funds usu-
ally are the best sources for these
types of properties. CMBS lenders
can lend up to 75 percent loan to
value on power centers in some sit-
uations and debt funds may be able
to finance more if there is a viable
redevelopment plan that can be
achieved within two to three years.
Class B quality malls in second-
ary and tertiary locations as well as
power centers with big-box retailers
selling products that are easier and
cheaper to purchase online are a dif-
ferent story. These properties are in
major need of a redevelopment plan
and likely with higher alternative
uses. They’re the most challenging
because they usually have co-ten-
ancy clauses tied to major tenants
with declining sales and susceptible
to a “domino effect.” They often have
anchor tenants like J.C. Penny Co. or
Sears and one of these anchors may
own its store, which makes it more
difficult to redevelop due to uncer-
tainty about controlling the entire
site. There is capital for Class B
malls and big-box power centers, but
the investor needs to have a detailed
plan to replace any of these types of
tenants with a destination- and/or
entertainment-type concept or high-
er alternative use. There are virtually
no nonrecourse lenders interested
in financing a Class B mall or power
center even at a very high debt yield
unless there is a redevelopment plan
to replace the struggling tenants
that’s realistically achievable within
two to three years. Debt funds, CMBS
lenders and banks are the best can-
didates for these types of invest-
ment opportunities.
Overall, we expect investor senti-
ment toward retail will continue to
improve in 2018 as we continue to
develop a better understanding of
consumer habits. In the meantime,
there is plenty of mortgage capital
available, but real estate inves-
tors with loans maturing this year
should get started early, especially if
they own one of the more challeng-
ing subsectors of retail.
V
Keepper
Continued from Page 12the one it opened in Chicago last fall
to replace the flagship North Michigan
Avenue location. The store is designed
as an indoor plaza, complete with trees
and comfy seating. It’s a cross between
a gathering place, retail store and an
education center. For example, think
of an Apple park as a place where you
can hang out to engage in person with
Apple products, take a class on photog-
raphy, learn to code or just see what’s
new. Considering only 10 percent of
iPhones are purchased in stores, creat-
ing Apple playgrounds makes all the
sense in the world for millennials who
crave experiences, especially if they
center it around their phones.
What I love most about retailing in
America is the open laboratory of ideas
that competition among retailers pro-
motes.Yes, several of today’s retailers
and a fair amount of their space will
disappear over the next decade, but
well-located shopping centers with
innovative merchants who focus on
customer service and exciting experi-
ences will continue to thrive. Sales per
square foot may even increase as great
retailers flock to hub destinations
favored by millennials.
Mark Twain also said, “It’s not the
size of the dog in the fight, it’s the
size of the fight in the dog that mat-
ters.” I’m betting that the retailers
I’ve mentioned have plenty of fight
in them to challenge Amazon and
each other to deliver what the con-
sumer demands.
V
Ginsborg
Continued from Page 19