The most difficult year in retail real estate’s history is at an end.
The worst case scenarios played out in terms of a hostile leasing environment, a dormant investment sales market, challenging lending conditions and troubled retailers.
Yet it wasn’t all bad and the situation began to stabilize much more quickly than many thought it would.
While there were many store closures and bankruptcies, experts thought we were going to see more. In addition, the year brought with it an important change as retailers, owners and managers began to embrace social media-something that promises to shape how consumers shop in the years to come especially as more mall-centric applications are developed for mobile devices. And the industry seems to have gotten through the all important holiday shopping season in decent shape. As a result, the coming year looks to be the start of the industry’s recovery.
Before that begins, we decided to take one last look at the year that was in retail real estate.
Next Page: January
The year begins with the commercial real estate industry lobbying for expansion of the Term Asset-Backed Securities Loan Facility to cover commercial mortgages. This effort pays off when the Financial Stability Act is expanded in February.
Real Capital Analytics initiates a program to identify distressed and potentially troubled assets. Its first reading identifies $106 billion in potentially troubled assets.
Glimcher Realty Trust sells a property for less than the price of its mortgage. However, the deal does not spark a run of distressed sales that many predicted would materialize.
Wal-Mart takes the unusual step of shrinking one of its stores, a 220,000-square-foot location that it converts into a 93,000-square-foot concept.
South Coast Home Furnishings Centre sells for $35 million-a $63 million drop from what the same property fetched in 2007.
Many retailers throw in the towel after a rough holiday shopping season. Goody’s and Circuit City opt to liquidate. Against All Odds, Shane Co. and Gottschalks file for bankruptcy.
In addition, New York & Co., Macy’s, Supervalu, Cost Plus, Yankee Candle, Filene’s Basement, Phillips-Van Heusen, Brown Shoe, Home Depot, Starbucks and Chico’s all announce store closures.
Next Page: February
Our February cover story explores how a REIT bankruptcy might unfold and the potential issues a restructuring owner might face.
Simon Property Group takes advantage of rules handed down by the IRS and opts to pay its fourth quarter dividend in the form of 90 percent stock instead of cash. The move allows the REIT to hold onto more cash and is the first of many moves the company takes in 2009 to build an equity buffer that it later puts to good use. In addition, during the firm’s fourth quarter earnings call, CEO David Simon drops a bombshell by saying, “The new development business is dead for a decade…. Maybe it’s eight years. Maybe it’s not completely dead. Maybe I’m over-dramatizing it for effect.”
Pier 1 adopts an interesting negotiating tactic and says that if its rents aren’t lowered, it will seek to terminate leases on up to 125 stores. It eventually announces 80 closures, but later decides to keep some of those stores open.
Microsoft first reveals its plan to open retail stores. The first locations debut later in the year.
General Growth Properties misses payments on some of its loans, increasing speculation that the firm will soon file for bankruptcy.
Tesco admits that it took the wrong approach to trying to break into the U.S. market with its Fresh & Easy concept. It later clarifies those comments and a spokesperson for the company says, “No one could’ve known then what the economy was going to look like today. What Tim was saying is that the times and economic conditions have changed. And (Fresh & Easy is) making changes based on what’s happening now.”
Developers Diversified Realty Corp. sells 30 million shares to German developer ECE Projektmanagement. The transaction increase Alexander Otto and certain relatives’ stake in Developers Diversified to a total of 36 million shares.
Both regional mall REITs and shopping center REITs report respectable fourth quarter earnings.
Fortunoff, Bruno’s, S&K Famous Brands, Innovation Luggage and Ritz Camera all file for bankruptcy.
In addition, Talbots, Jimmy’Z, Z. Gallerie, Zale Corp., Gap and Sears announce store closures.
Next Page: March
In a bid to cut costs, some landlords opt to shorten the operating hours of their centers. Meanwhile, tenants at some properties begin to team up to increase leverage in winning concessions from their landlords.
Our March cover story looks at how the trend of mixed-use development is being affected by the recession. The mix of uses is changing for projects that are moving ahead while owners postpone, scale down or cancel projects when they can.
Target opens 27 stores in one day.
Starbucks tries to shift its image by introducing low cost menu items.
Equity One Inc. reportedly eyes Ramco-Gershenson as a takeover target. A deal, however, does not come to fruition, but Equity does win two seats on Ramco’s board in May.
After winning several extensions from lenders, General Growth finally hits a wall and is unable to win further time. This sends the firm closer to its eventual bankruptcy. It prepares for this by shuffling its executive ranks.
Trade associations for retailers and owners take opposite sides in a legislation that would ease bankruptcy rules for retailers.
Joe’s Sports & Outdoor and Bi-Lo file for bankruptcy. Gottschalks opts to liquidate.
In addition, Virgin Megastores, Ann Taylor and Drug Fair announce closures.
Next Page: April
Our April cover story examines how owners and managers are cutting costs to cope with the slowdown in the sector. Meanwhile, our annual rankings of the top owners and managers of retail real estate shows very little movement from the year prior.
After months of wrangling with its creditors, General Growth Properties files for bankruptcy protection. The industry reacts to the news.
J.Crew tests a concept called J.Crew-at-the-Beach.
Sheldon Good & Co. and Opus South both file for Chapter 11 bankruptcy protection.
Z Gallerie and Ultra Stores file for bankruptcy.
In addition, Rite Aid, Kirkland’s and Jones Apparel Group announce store closures.
Next Page: May
ICSC’s annual RECon takes place in Las Vegas with attendance down to about half of what it was during the convention’s best years. The two largest mall owners in the world, Simon Property Group and Westfield Group, each forego operating giant booths at the show and instead do all their deals out of suites at nearby hotels. ICSC holds a town hall meeting with members where they hear heated feedback. In response, ICSC tweaks the format of the conference for 2010. The show will be shorter and be scaled back to two exhibit halls (instead of three), among other changes.
Our May cover story assesses various government and Federal Reserve-backed programs and how they are and aren’t helping the retail real estate sector. Later that month, the Federal Reserve expands TALF to cover older CMBS loans.
William Ackman holds a town hall outlining his plans for Target’s real estate. He puts together a slate of five nominees for Target’s board (including himself) to execute the plan. The slate is eventually voted down.
Reis Inc. measures massive deterioration in fundamentals at neighborhood and community shopping centers during the first quarter. Such properties recorded negative net absorption of 8.2 million square feet in the first quarter of 2009. That number is almost as large as the total for all of 2008.
However, both mall REITs and shopping center REITs report solid first quarter results.
Three subsidiaries of Lauth Property Group file for bankruptcy.
Steven Roth steps down as Vornado Realty Trust’s CEO. He remains as chairman.
We launch our Twitter.
Filene’s Basement, Anchor Blue and Oilily file for bankruptcy.
Next Page: June
As the auto sector crashes, a glut of dealership closings complicates the picture for retail real estate.
William Ackman joins General Growth Properties’ board of directors as its bankruptcy faces challenges from lenders over the inclusion of some properties in its filing.
The first same-store figures announced after Wal-Mart stops reporting the metric show a steep drop. ICSC’s index showed a 4.6 percent decline compared with the same period last year.
Eddie Bauer files for bankruptcy. Syms and Vornado buy Filene’s Basement.
Discount retailer Big Lots began testing an upscale concept.
Benderson Development buys back properties it sold to Developers Diversified in 2004 at a deep discount–perhaps more than a 40 percent discount to what it sold the properties for five years prior.
J.Jill and Ruehl announce closures.
Next Page: July
Our July cover story looks back at checkered record of private equity investors’ buyouts in the retail sector. Most view KKR’s acquisition of Dollar General as the most successful acquisition in recent years. In August, Dollar General filed for an initial public offering.
Macquarie CountryWide Trust of Australia enters a definitive agreement to sell a majority interest in an 11.5-million-square-foot U.S. retail portfolio to Global Retail Investors LLC, a joint venture of First Washington Realty Inc. and California Public Employees’ Retirement System (CalPERS) for $1.3 billion. The nationwide portfolio contains 86 neighborhood and community shopping centers located across 17 states and the District of Columbia. A large portion of the portfolio is made up of shopping centers that First Washington/CalPERS sold to Macquarie CountryWide in 2005.
A panel testifies to Congress about the sorry state of commercial real estate.
Lenders increasingly opt to pretend and extend troubled loans rather than foreclose and realize losses. This prevents the expected wave of distressed deals from materializing in 2009.
The general lack of investment sales volume on retail properties year-to-date makes true cap rates difficult to pin down.
The National Retail Federation releases its list of the top 10 retailers based on 2008 revenue. Wal-Mart remained atop the list by racking in more than $400 billion in revenue-a 7.2 percent rise from 2007. Wal-Mart’s revenues, in fact, are greater than the next six largest retailers’ combined figure.
Reis Inc. measures another big hit to neighborhood and community center fundamentals during the second quarter. For neighborhood and community centers, net absorption for the quarter amounted to negative 7.9 million square feet, down only slightly from the 8.1 million square feet of negative absorption posted in the first quarter. The vacancy rate jumped to 10.0 percent-the highest level since 1992.
REIT stock offerings hit a new high as firms rush to raise debt and equity on public markets in efforts to lower debt loads. As of early July, the industry had raised nearly $14.5 billion in stock offerings. The highest full-year total previously had been $13.2 billion in 2006.
Walmart enjoys some early success with its Supermercado concept aimed at Latino shoppers.
Standard & Poor’s downgrades the ratings on some CMBS issues. It then reverses that move a week later.
Forever 21 began opening some of its large format stores that it is operating in former Gottschalk’s and Mervyns locations.
PREIT embraces YouTube by making a clever video for a Back-to-School shopping campaign.
Crabtree & Evelyn and Basha’s file for bankruptcy. Smith & Hawken announces store closures.
Next Page: August
The Macerich Partnership, L.P., the operating partnership of Macerich and long-time partner Cadillac Fairview Corp. Ltd. announce a joint venture for Macerich’s 966,499-square-foot Queens Center in Queens, N.Y. Under the terms of the deal, Macerich receives approximately $150 million in net cash and Cadillac Fairview acquires 49 percent interest in the asset. It also relieves the REIT of $167 million in debt associated with the property. In September, Macerich forms another joint venture, this time with GI Partners, on its 1.4-million-square-foot FlatIron Crossing Mall in Broomfield, Colo. Under the terms of the deal, Macerich receives approximately $116 million in net cash and GI Partners acquires a 75 percent interest in the asset. Ultimately, observers laud Macerich’s strategy.
Both shopping center REITs and regional mall REITs struggle a bit in the second quarter, but generally sit on firm footing.
A judge rules that the inclusion of certain properties in General Growth’s bankruptcy filing is sound. Experts see the ruling as an isolated occurrence.
JCPenney opens its first location in Manhattan.
Retailers increasingly opt to open pop-up shops rather than permanent locations.
Talk of a looming crisis in commercial real estate reaches a boiling point for us.
A retail property in Beverly Hills trades for $2,471 per square foot.
Real Capital Analytics mid-year Global Capital Trends report reveals that total investment in retail real estate around the world was down 61 percent from 2008. Overall, the total deal volume amounted to $20.2 billion. Activity fell across the board in the second quarter, dropping 51 percent in Europe, the Middle East and Africa (EMEA), 47 percent in Asia Pacific and 28 percent in the Americas. Portfolio sales fell by 71 percent year over year and amounted to $5.9 billion while one-off sales fell 55 percent and amounted to $14.3 billion.
TALF is extended to 2010.
Next Page: September
Our September cover story makes the argument that owners and tenants need to have a shared vision of success if retail real estate is to thrive in the years ahead. The acrimony that has marked much of the year-with owners and managers banging heads over concessions-needs to end and both sides need work together to make centers successful in a changed consumer climate.
Industry legend Melvin Simon passes away.
Taubman Centers Inc. announces the write down of the book values of 282,000-square-foot The Pier Shops at Caesars in Atlantic City, N.J., and the 820,000-square-foot Regency Square in Richmond, Va. Furthermore, the company says that NOI generated from The Pier Shops at Caesars is insufficient to cover the debt service on the asset’s $135 million non-recourse mortgage and given the dim long term prospects on the property, Taubman’s board of directors decides that the firm should “discontinue its financial support of the center” and begins discussions to turn the property over to its lender, Centerline Capital.
The IRS hands down new guidelines for the tax treatment of modifying loans in conduits. If all goes well, the relaxed rules will get servicers to work with borrowers on potentially distressed situations and might stave off a significant number of mortgage defaults.
Nearly three quarters of the way through the year the investment sales market remains extremely quiet.
Tiffany sues Westfield over the pending addition of an H&M store to Westfield’s Century City shopping center in Los Angeles.
Samsonite, Pacific Sunwear and Blockbuster announce store closures.
Howard Davidovitz makes a memorable appearance on Bloomberg in response to some economists getting excited over monthly Commerce Department retail sales figures.
Regional department store chain Boscov’s emerges from bankruptcy.
Next Page: October
Our October cover story measures how two giant consumer groups-Baby Boomers and Gen Yers-have altered their shopping patterns as a result of the Great Recession.
Reis Inc.’s figures show further erosion in retail real estate fundamentals in the third quarter. The vacancy rate at neighborhood and community centers reached another new 17-year high, hitting 10.3 percent. The one silver lining is that the amount of negative absorption in the quarter was 5.3 million square feet. That was a noticeable improvement from the first half of the year when neighborhood and community centers posted negative absorption of about 8 million square feet in both the first and second quarters. The vacancy rate at regional malls reached 8.6 percent, a 3.5 percentage point increase from the cyclical low of 5.1 percent in the second quarter of 2005.
Developers Diversified Realty obtains new first mortgage financing from Goldman Sachs Commercial Mortgage Capital L.P., an affiliate of Goldman, Sachs & Co. The $400 million, five-year loan is secured by a portfolio of 28 stabilized shopping centers. The mortgages became part of the first CMBS sale in almost a year, aided by the TALF program.
Experts expect store closings to peak in the first half of 2010.
RREEF Alternative Investments, the investment management arm of Deutsche Bank, announces that it had chosen five firms-Jones Lang LaSalle, United Commercial Realty, Mid-America Asset Management Inc., Crosland and KeyPoint Partners-as property managers for its 105.5-million-square-foot U.S. retail portfolio.
Microsoft opens its first stores.
The Mall of America reaches a naming rights deal on the Hubert H. Humphrey Metrodome.
Game Crazy and Inkstop announce store closures.
Next Page: November
CIT Group Inc. files for bankruptcy. Despite fears that this will hurt smaller retailers, the bankruptcy is largely a nonevent and CIT emerges from its restructuring in December.
General Growth Properties reaches agreements to restructure a large portion of its maturing mortgages. The bankruptcy court ultimately approves the restructurings and General Growth continues to restructure loans on additional properties through the end of the year. As of late December, the firm had has won approval from creditors and a federal court to restructure loans totaling $11.6 billion. The restructuring take place as it is revealed that both Simon Property Group and Brookfield Properties have each purchased about $1 billion in General Growth unsecured debt.
The annual Emerging Trends report from the Urban Land Institute and PricewaterhouseCoopers reveals an overall somber outlook for the sector next year.
Blackstone reaches a $320 million deal to buy some assets from Glimcher Realty Trust.
Developers Diversified Realty appoints Daniel Hurwitz as successor to Scott A. Wolstein in the role of company president and CEO. Wolstein will stay on as chairman. The change will take place January 1.
The Kelo house, which was at the center of the famed eminent domain ruling four years ago in New London, Conn., is now a vacant lot. Pfizer announces plans to shut the research and development site it built after residents were evicted.
Some TICs come to a bad end.
An Apple store opens beneath the Louvre in Paris.
Regional mall REITs and shopping center REITs both exhibit signs of stability when reporting third quarter earnings.
The holiday shopping season gets off to a mixed start with the National Retail Federation measuring higher volume, but lower spending during Black Friday weekend.
Real Capital Analytics says that total investment in commercial real estate will amount to $49 billion in 2009.
Royal Ahold announces plans to expand in the U.S. through opening of convenience stores and other formats.
A court decides to remove Joseph Freed and Associates as developer of the Block 37 project in Chicago. It names CBRE as the receiver, although the handover of the project has been delayed.
Next Page: December
In a surprise move, Simon Property Group announces it has reached an agreement to buy Prime Outlets Acquisition Co. and some of its affiliated entities from the Lightstone Group and Lightstone Value Plus REIT Inc. for approximately $2.3 billion. The purchase price includes $713 million in equity and the assumption of $1.2 billion in non-recourse mortgage debt and the payoff of $405 million of existing construction debt.
Inland Western Retail Real Estate Trust Inc. obtains a new $625 million, non-recourse, 10-year secured loan from JPMorgan Chase Bank N.A. The loan is secured by a portfolio of 55 retail properties in a joint venture owned by Inland Western and principals of The Inland Real Estate Group Inc. JPMorgan is slated to convert the $500 million first mortgage in the deal into a CMBS offering and plans to do it without support from the government’s TALF program. It will sell $125 million in mezzanine debt through private placements. This provides hope that the CMBS market is beginning to revive.
The industry’s mood remains cautious at the ICSC New York National Conference and Dealmaking.
There are a flurry of developments as General Growth makes a lot of progress on its reorganization.
The final reading of the Moody’s/REAL Commercial Property Price Index for 2009-which covers through the month of October-shows that prices are 43.7 percent off 2007 peaks.
Realpoint LLC’s monthly report shows increases in the delinquent unpaid balance for CMBS in almost every month. In October, the amount increased to $32.55 billion, up from $31.73 billion in September. The figure is a 504 percent increase over October 2008 and is more than 14 times the low point of $2.21 billion recorded in March 2007.
CBL & Associates Properties announces that Stephen D. Lebovitz will assume the post of CEO at the company effective Jan. 1. He will succeed his father, Charles B. Lebovitz.
Leaders from major commercial real estate trade groups meet with Treasury Secretary Tim Geithner to discuss possible measures to aid the industry. According to the story, “One source said the meeting did not generate any specific, imminent policy steps to help the industry, which is struggling to recover from the recession and financial crisis. The source described it as a ‘listening session’ for Geithner and several of his top aides.”
Scotland’s second largest mall trades hands for $479 million.
Super Saturday is snowed out in the Northeast, but the season looks relatively solid overall.
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