A PUBLIC STRATEGY FOR
TODAY’S RETAIL REALITY
ICSC Northern California Alliance Program 2009
Panel
 Presentations
    Janet Smith-Heimer, Managing Principal, BAE
       Retail Trends
        e a e ds
       Retail S...
RETAIL TRENDS & STORE
      CLOSURES
bae   Janet Smith-Heimer, BAE
Why Do We All Care About Retail?
      Developers/Retailers
      D l       /R il           Local G
                      ...
Impact of Recession
      Developers/Retailers
          l     /     l
        Slowed development projects
        Rising
...
National Sales Trends

 US retail sales
 grew steadily
 through this
  h    h hi
 decade…

 Until 2008




bae
           ...
Recent National Sales Trends

 Sales started
 to plunge in
 Aug 2008,
 A 2008 to
 unusual low in
 Dec 2008

 Sales startin...
Bay Area Per Capita Sales

 Accounts for
 changes in
 population
     l i

 Shows 2007
 declining on
 adjusted per
 capita...
Major Impact of Recession: Retailers
 Closed or Closing
      Mervyn’s                  Steve & Barry’s
                 y...
More Impacts of Recession: Retailers
   Closing Stores or Filing Chapter 11

BBQ Galore       Filed Ch 11            Disne...
Impacts of Recession
      Falling sales
      Closing stores
            g
      Empty storefronts
      Closing t dealer...
COMMERCIAL REAL ESTATE
- THE NEXT CRISIS?
Garrick Brown, Colliers International
The Next Shoe to Drop


The New Foreclosure Crisis

$3.5 Trillion in total outstanding CRE Debt
(
(according to Federal Re...
Amount of CRE Debt Going Bad Through 2012?


          We are already dealing with a number of
          banks on their di...
30% Failure Rate Equals…


The New Foreclosure Crisis

If 30% Failure Rate Holds…

Estimated $300 Billion in Bank Losses a...
Pretend & Extend


“Pretend & Extend?”

Lenders are opting not to foreclose, but most
are also not doing loan modification...
Inconsistencies in Pretend & Extend


Though “Pretend & Extend” is th overriding
Th     h “P t d E t d” i the           id...
The Problem With “Pretend & Extend”…


     Likely Kicking the Can…

     There are no more bailouts coming…

     Retail ...
The Problem With “Pretend & Extend”…


       Clouding the Bottom

       Without “Pretend & Extend” we would
       be lo...
The Problem With “Pretend & Extend”…


     Prolonging the Inevitable…

     The asset bubble has burst already.

     Dea...
Looking Ahead: Worst Case Scenario

  When it comes to crisis, Fed is hoping to
  manage as if controlled demolition.
    ...
Looking Ahead: Likely Case Scenario

CMBS Losses Mildly Diminished by Policy:
      Recent Extension of TALF
      Recent ...
It’s Happening Already

8,204 US Banks Remaining

Roughly 100 Have Collapsed in 2009

Over 415 on FDIC “Watch List”
      ...
WHAT DO WE DO NOW?
Panel Discussion: Leslie Parks, Doug Wiele, & Bill
Lambert
THE GOOD NEWS
Expanding Retailers and Restaurants
Retailers - Expanding

Anna’s Linens              7-10,000 sf           DSW               15-25,000 sf
Apple Computer   3 ...
Retailers – Expanding (cont….)

Massage Envy                  2,500-4,500 sf     Sprouts Organic Grocery    20-30,000 sf
O...
Restaurants - Expanding

 Bad Ass Coffee                 up to 1,800 sf    Golden Corral               11,000 sf
 Beach Pi...
Restaurants – Expanding (cont…)

Panera Bread                  up to 4,500 sf     SF Sourdough Eatery          N/A
Pho Hoa...
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Icsc Presentation Slides 10 7 09

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This is a recent panel which I moderated for ICSC Northern California Alliance program on retail trends, shrinking and expanding retailers, etc.

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Icsc Presentation Slides 10 7 09

  1. 1. A PUBLIC STRATEGY FOR TODAY’S RETAIL REALITY ICSC Northern California Alliance Program 2009
  2. 2. Panel Presentations Janet Smith-Heimer, Managing Principal, BAE Retail Trends e a e ds Retail Store Closures Garrick Brown, Senior Retail Research Director USA, Colliers International Commercial Real Estate – The Next Crisis? Panel Discussion – Public Strategies Doug Wiele, President, Foothill Partners Bill Lambert, Assistant Director of Economic Development, Alameda County Redevelopment Agency Leslie Parks, Director of Downtown Management, San Jose Redevelopment Agency The Good News – Expanding Retailers
  3. 3. RETAIL TRENDS & STORE CLOSURES bae Janet Smith-Heimer, BAE
  4. 4. Why Do We All Care About Retail? Developers/Retailers D l /R il Local G L l Governments Location Location Accessibility Accessibility Attracting shoppers Placemaking / Revitalization R i li i Occupancy Occupancy O Sales per square foot Sales per square foot Return on Investment Tax Revenue to General Fund bae
  5. 5. Impact of Recession Developers/Retailers l / l Slowed development projects Rising Ri i vacancies/ l i / lower l lease rates Closing stores Bankrupt b i B k t businesses Local G L l Governments Declining tax revenues Slowed revitalization projects Sl d it li ti j t Empty stores/blighted landscape Job losses bae
  6. 6. National Sales Trends US retail sales grew steadily through this h h hi decade… Until 2008 bae Source: Monthly Retail Trade Survey, U.S. Census, June 11, 2009 Release.
  7. 7. Recent National Sales Trends Sales started to plunge in Aug 2008, A 2008 to unusual low in Dec 2008 Sales starting to tick up in Aug 2009 bae Source: Monthly Retail Trade Survey, U.S. Census, June 11, 2009 Release.
  8. 8. Bay Area Per Capita Sales Accounts for changes in population l i Shows 2007 declining on adjusted per capita basis bae
  9. 9. Major Impact of Recession: Retailers Closed or Closing Mervyn’s Steve & Barry’s y Circuit City y Valve City Gottschalks KB Toys Shoe Pavilion Wicks Furniture Yardbirds Levitz Bally Fitness Goody Family Clothing Linens N Things Cache Sharper Image Movie Gallery Bombay and Co. y Wilson Leather Bailey, Banks & Biddle bae Sources: Metrovation & Collliers International
  10. 10. More Impacts of Recession: Retailers Closing Stores or Filing Chapter 11 BBQ Galore Filed Ch 11 Disney Stores Closing 100 + stores y Ann Taylor Closing 117 stores g Goodys Closing 103 stores Cost Plus Closing 26 stores Benigans Steaks Closing 150 stores Talbots Closing stores Boscovs Filed Ch 11 Macy’s Closing 11 stores Against All Odds Closing W. Coast stores J Jill Closing stores Black Angus Closing stores Shane Co Filed Ch 11 Ritz Camera Closing 100 + Stores Foot Locker Closing 140 stores Lane Bryant Closing 150 stores Gapp Closing 85 stores g Eddie Bauer Closing 27 stores Sprint/Nextel Closing 133 stores Home Depot Closing 15 stores Ethan Allen Closing 12 stores Pacific Sunwear Closing stores Pep Boys Closing 33 stores JC Penney Closing stores Zales Jewelers Closing 105 stores Dillards Closing stores bae Sources: Metrovation & Collliers International
  11. 11. Impacts of Recession Falling sales Closing stores g Empty storefronts Closing t dealers Cl i auto d l Stalled projects Where is this all going? bae Compact Car Parking at Target
  12. 12. COMMERCIAL REAL ESTATE - THE NEXT CRISIS? Garrick Brown, Colliers International
  13. 13. The Next Shoe to Drop The New Foreclosure Crisis $3.5 Trillion in total outstanding CRE Debt ( (according to Federal Reserve) g ) $2.6 Trillion held by banks $900 Billion CMBS Approximately $1.155 Trillion in CRE debt coming due through 2012 $ $1 Trillion held by banks y $155 Billion CMBS
  14. 14. Amount of CRE Debt Going Bad Through 2012? We are already dealing with a number of banks on their distressed assets, as well as a number of CMBS special servicers. Their individual estimates vary, but the consensus number we are hearing from lenders of all types is that they expect roughly 30% of their CRE loans to go bad over the next 36 months… Some lenders are bracing for as much as a 40% failure rate. About half f these properties will b Ab t h lf of th ti ill be retail…
  15. 15. 30% Failure Rate Equals… The New Foreclosure Crisis If 30% Failure Rate Holds… Estimated $300 Billion in Bank Losses and $50 Billion CMBS Expected Losses of $350 Billion Thru 2012 Adjusted for inflation, the approximately $160B lost in the S&L crisis, would come out to roughly $250B in today’s dollars. This is bigger than the Savings and Loan Crisis And it should have hit us… already…
  16. 16. Pretend & Extend “Pretend & Extend?” Lenders are opting not to foreclose, but most are also not doing loan modifications or workouts either… For many smaller regional and local banks, a matter of survival… tt f i l Attempt to hold back flood gates to lessen losses and to slowly release troubled assets to the market to minimize pricing pressures… Many are holding out hope for improving market fundamentals to lessen problem… Some hold out hope of government intervention or aid…
  17. 17. Inconsistencies in Pretend & Extend Though “Pretend & Extend” is th overriding Th h “P t d E t d” i the idi trend, we continue to see inconsistencies in how banks are dealing with troubled loans Individual bank balance sheets play a role in these decisions… Bank staffs are being overwhelmed by sheer numbers of problem properties… Decisions often being made by loan officers whose expertise is in writing loans, not dealing with distressed properties… Decisions often are being made from afar by individuals with little local market knowledge… g
  18. 18. The Problem With “Pretend & Extend”… Likely Kicking the Can… There are no more bailouts coming… Retail fundamentals will continue to be weak for at least another three years… There are already buyers on the sidelines… waiting… There are now two types of REITS— bankrupt or raising capital through IPOs. $20 Billi h b Billion has been raised th i d through IPO h IPOs in last five months… to both pay down debt/save balance sheets and … to build warchests f the fi h t for th firesale t come… l to
  19. 19. The Problem With “Pretend & Extend”… Clouding the Bottom Without “Pretend & Extend” we would be looking at shorter, but VERY sharp g , p market correction… Pricing declines from peak of anywhere from 50% to 80% for some property types, with pricing schism between quality, stabilized product with solid occupancy vs. weaker properties…
  20. 20. The Problem With “Pretend & Extend”… Prolonging the Inevitable… The asset bubble has burst already. Deals are not happening yet, because time is on the side of opportunistic buyers… and they know it. There are buyers waiting on the sidelines NOW… but they want 10% to 12% caps… not the 8% and 9% caps we see being offered… Sales ti it likely till t l S l activity lik l still at least six months t i th off until flood of distressed assets results in pricing declines of at least another 10 to 15%... 15%
  21. 21. Looking Ahead: Worst Case Scenario When it comes to crisis, Fed is hoping to manage as if controlled demolition. t ll d d liti Assuming they can’t… Economic recovery remains weak CRE fundamentals worsen Pretend & Extend only prolongs problem until lenders are overwhelmed by sheer volume of distressed assets Too many small and regional banks fail at once (1,500 institutions or more in this scenario)… Credit markets seize up again Double dip recession… p NOT LIKELY…
  22. 22. Looking Ahead: Likely Case Scenario CMBS Losses Mildly Diminished by Policy: Recent Extension of TALF Recent Tax Changes Continued Extension of TALF Further Policy Tweaks Small and Regional Banks Devastated 1,000 banks fail , Pretend & Extend helps some banks to survive, but ultimately prolongs crisis… CRE values drop another 20% in marketplace with murky bottom. Process takes five to seven years to work through system, with CRE values depressed Recovery significantly weighed down, but not derailed by i i d il d b crisis.
  23. 23. It’s Happening Already 8,204 US Banks Remaining Roughly 100 Have Collapsed in 2009 Over 415 on FDIC “Watch List” Watch List FDIC looking into borrow billions from “Healthy Banks” to deal with p y pending crisis g The victims will not be the “Big 3” but banks small enough to let fail… Excellent Website to Research Individual Bank Health: http://banktracker.investigativereportingwork shop.org/banks/
  24. 24. WHAT DO WE DO NOW? Panel Discussion: Leslie Parks, Doug Wiele, & Bill Lambert
  25. 25. THE GOOD NEWS Expanding Retailers and Restaurants
  26. 26. Retailers - Expanding Anna’s Linens 7-10,000 sf DSW 15-25,000 sf Apple Computer 3 5,000 15 20,000 3-5 000 & 15-20 000 sf Famous Footwear 5 8,000 5-8 000 sf Avis Car Rental NA (malls) Batteries Plus NA Fantastic Sams 1,200-1,500 sf Bed, Bed Bath & Beyond 20-30,000 20-30 000 sf Foods Co 65-80,000 sf , Brooks Bros 8-10,000 sf Forever 21 2,500-90,000 sf CPK 5,000 sf Gamer Doc 800-1,500 sf Carter s/OshKosh Carter’s/OshKosh 2-4,000 2 4 000 sf Game Stop 1,200 2,000 1,200-2,000 sf Children’s Place 4,000 sf Golfsmith 20,000 sf Staples Copy 4,000 sf H&M 10 – 40,000 sf Citi Trends 5,000 5 000 sf Henry Markets 20 30,000 20-30 000 sf Cost Cutters 900-1,200 sf Home Goods 25-37,000 sf Costco 100,000 sf+ JoAnn Fabrics 35,000 sf Dollar Tree 10-12,000 10 12 000 sf Jos A Banks 4,500 4 500 sf Kohl’s 86-92,000 sf Sources: Metrovation & Collliers International
  27. 27. Retailers – Expanding (cont….) Massage Envy 2,500-4,500 sf Sprouts Organic Grocery 20-30,000 sf Old Navy 15-19,000 sf Staples St l 15,000 f 15 000 sf Payless Shoes 2700-3300 sf Styles for Less 2,500-3,000 sf Pet Food Express 6,500 sf Supercuts 900-1,200 sf Petco 12-15,000 sf Sylvan Learning Centers S C 1,600-2,500 sff Party City 12,000 sf Target 125-175,000 sf Rack Room Shoes 6,000 sf malls The Avenue 4,500 sf Rainbow 5,000 sf TJ Maxx/Shoe Store 10,000 sf Sleep Train 5,000 sf Villa Sport 70-80,000 sf Smart and Final Extra 25-30,000 sf Walgreens 14,500 sf Sports Chalet 40,000 sf Zara (malls) up to 14,000 sf Sources: Metrovation & Collliers International
  28. 28. Restaurants - Expanding Bad Ass Coffee up to 1,800 sf Golden Corral 11,000 sf Beach Pit BBQ 2 – 2,500 sf Habit Burger 1,500 – 2,200 Big Swirl Yogurt up to 1,500 sf Java City up to 3,000 sf Boston Market up to 3,500 sf Jimmy John’s up to 1,500 sf Cheba Hut 2,000 sf Johnny Rockets up to 3,500 sf Churro Station (malls) 800 sf Julie’s Thin Crust up to 2,500 sf Cici’s Pizza up to 4,200 sf L&L Hawaiian BBQ up to 2,500 sf Einstein’s/Noah’s up to 2,500 sf Maos Vegetarian 1,000 sf El Pollo Loco up to 3,500 sf Marco’s Pizza up to 1,400 sf Extreme Pita 1 – 2,000 sf Mary’s Pizza Shack up to 4,000 sf Extreme Pizza up to 2,500 sf McDonald’s 4,000 sf Pad Five Guys Burgers & Fries 1 – 2,000 sf Mr. Pickles 1 – 2,000 sf Fraiche Yogurt 800-1,500 sf Old Chicago Pizza & Pasta up to 4,500 sf Fuddruckers up to 5,500 sf Pacific Yogurt Partners up to 1,200 sf Fuzio Universal Bistro 3 – 3,500 sf Sources: Metrovation & Collliers International
  29. 29. Restaurants – Expanding (cont…) Panera Bread up to 4,500 sf SF Sourdough Eatery N/A Pho Hoa 2 – 4,000 sf Shakey’s Pizza up to 4,000 sf Phoa Noodle 1200-1800 sf Smashburger 1,800 sf Pinkberry up to 2,000 sf Spicy Pickle up to 1,800 sf Pizza Patron up to 1,200 sf Sonoma Chicken Coop 5-8,000 sf Pad Pizzeria Venti 2,500 sf Spoon Me up to 1,300 sf Popeye’s Chicken 2,500 sf Pad Submarina up to 2,500 sf Red Mango up to 1,200 sf Subway 1 – 2,000 sf Round Table Pizza 2 – 3,000 sf ToGo’s up to 2,400 sf Rubio’s Mexican Grill 2 – 2,600 sf U-Food Grill (airports) 800 to 2,000 sf Sandella’s Flatbread up to 1,500 sf Wahoo’s Fish Tacos up to 2,500 sf Seller’s Markets up to 3,300 sf Wing Stop 1,500 sf Sources: Metrovation & Collliers International

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