Daily market intelligence on mortgages, equity raising, investment sales, and CMBS.

Friday, 12 January 2018

Retail Isn't a Dirty Word: Transformation Drives Opportunity

The evolution of consumers' shopping habits has created opportunities to use retail space in ways that are consistent with today's e-commerce culture.

By Diane Crocker, Principal Analyst at EDR Insight

Like the broader commercial real estate sector, the property due-diligence market is in transition due to its cyclical nature.

Transition due to the pressure of regulatory forces on lenders, and transition due to technological advances that are driving efficiency. Within this rapid transition is disruption - but also opportunity.

In perhaps no other asset class is this rapid change more pronounced than in retail. Consider a few stats:

• Retail is changing at its fastest pace since the introduction of the regional mall in the 1950s.

• Forty percent of U.S. retail centers will be obsolete by 2020.

• For every company closing a store, 2.7 are opening them.

• There were more than 4,000 net store openings last year, and another 5,500 are projected for this year.

Developments in retail last year went way beyond the dire headlines about record-high store closures. "Real estate investors forget that every 15 years or so, we blow up retail concepts and reinvent new ones," said KC Conway, director of research and corporate engagement at the University of Alabama. "A year in retail is like leap-year every year - four times as much change gets packed in because disruption is just more pronounced, given its direct link to the consumer. There is not an apocalypse in retail nor a decline in consumer spending."

The encouraging wrinkle is that disruption in retail is opening up opportunities to use space in a new way that is consistent with the changing demands of consumers in today's e-commerce culture. For anyone supporting property due diligence on retail assets or design work on site redevelopment, the retail glass is half-full.

  Rank on List of Top Markets for Retail in 2018 ScoreKeeper Growth Rate (3Q17 vs. 3Q16)
Salt Lake City 1st 4%
Pittsburgh 2nd 5%
San Jose, Calif.
3rd -18%
Nashville, Tenn.
4th 1%
Portland, Ore. 5th -12%
Fort Lauderdale, Fla.
6th -12%
Orange County, Calif.
7th 8%
San Antonio 8th -11%
Seattle 9th 5%
NYC boroughs 10th 1%

Sources: ULI/PwC’s Emerging Trends in Real Estate 2018 survey;
EDR’s ScoreKeeper model.

Opportunities to Redesign, Reuse, Remake Retail Properties

On a panel at a Commercial Real Estate Women Boston event last spring, Katy Gnapp, head of commercial real estate banking at Bank of America Merrill Lynch, said: "Retail is not overdeveloped. It's under-demolished." As retail properties trade, doors open for potential property re-use and value-add opportunities. Malls and old shopping centers are becoming mixed-use properties, medical centers, seniors housing or "power villages" if area demographics warrant.

Some successful e-commerce retailers started out exclusively online, only to realize the benefits of having physical locations. Meanwhile, opportunistic investors are taking advantage of bargain properties in good locations.

And traditional big-box retailers, like Target, are moving to smaller store footprints. Walmart Stores Inc. just changed its name to Walmart to get customers to think beyond its 11,700 store locations and offer more options to buy. There are strong capital flows into the grocery-anchored market. One of the most aggressive players today is Aldi, a German chain. According to GRS Group, a provider of commercial...





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Data Digest

 

CMBS DELINQUENCY VOLUME

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CMBS SPECIAL SERVICING VOLUME

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Top Bookrunners Domestic, Private-Label CMBS - 2016
Investment Bank #Deals Vol$mln MktShr%
JPMorgan Securities 14.94 10,350.16 15.14
Deutsche Bank 14.21 9,926.60 14.52
Wells Fargo Securities 13.36 9,513.96 13.92
Citigroup 10.87 8,061.79 11.80
Goldman Sachs 10.05 7,563.72 11.07

 

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CMBS 2.0 Spreads

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Top CMBS Loan Contributors - 2016
Lender #Loans Vol$mln MktShr%
JPMorgan Chase Bank 133.67 8,670.33 13.34
Goldman Sachs 156.20 7,418.37 11.41
Deutsche Bank 178.17 6,510.75 10.02
Citigroup 184.41 5,512.20 8.48
Morgan Stanley 113.18 4,130.53 6.35

 

 

 

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