Previous Page  26 / 28 Next Page
Information
Show Menu
Previous Page 26 / 28 Next Page
Page Background

Page 26

— Retail Properties Quarterly — February 2018

www.crej.com

for 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 8

fixed 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 12

the 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