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Miami Retail Leads Nation In Rent Growth As Brands, Chefs Follow The Money

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Michelin-starred chefs and high-end retailers continue to expand into Miami as they follow their customers from places like New York, California and Chicago.

The flow of new tenants is pushing up rents to prices second only to New York City, according to a Lee & Associates report, and driving vacancy down to among the lowest levels in the country.

Miami retail vacancy is at 3.7%, 50 basis points below the national average of 4.2%, and the city leads all major U.S. markets in rent growth, rising 11.6% year-over-year to $42.40 per SF, according to a second-quarter report from Marcus & Millichap.

The market “is exponentially better in terms of occupancy and rental rates than pre-pandemic. I think it’s just a different world that we live in now,” said Lisa Ferrazza, the senior director of retail leasing at the Miami-based investment firm Tricera Capital. 

The city’s trendiest neighborhoods have seen the greatest growth, driven by a rise in demand from restaurants and luxury retailers. Asking rents in Brickell and Miami Beach were above $70 per SF at the start of April, according to Marcus & Millichap, and highly coveted space can fetch considerably more.

Ferrazza said her firm has done deals above $115 per SF in Wynwood with retailers looking to capitalize on Miami’s rising profile. She said retailers are bringing flagship stores to the city in growing numbers.

In the second quarter, Ralph Lauren and Amsterdam-based furniture company Eicholtz opened flagship locations in the Miami Design District, a high-end shopping destination that spans 18 blocks.

Lincoln Road, the iconic shopping destination in Miami Beach, landed eight new tenants this quarter, including Cheesecake Factory and a range of retailers selling everything from footwear to candy. The Museum of Ice Cream revealed plans for a 14K SF experience-focused shop at Miami Worldcenter, a 27-acre mixed-use development in Downtown Miami that will host the company’s first permanent location.

“If they have determined that Wynwood or the Design District or Lincoln Road is their market and where they want to have a flagship, they’re usually willing to pay the freight regardless,” Ferrazza said.

Much of the demand for space is coming from the food and beverage sector. Miami now has 12 restaurants with Michelin stars after the acclaimed guidebook announced in 2021 that it would begin rating restaurants in the city. The growth of the city’s food scene and influx of new residents is drawing more star chefs and creating expansion opportunities.

“Retailers are one thing,” Ferrazza said. “The pool of expanding soft goods, fashion retailers is much more shallow than the food and beverage market. That’s really where we see most of the activity.” 

Just this week, celebrity chef Juan Manuel Berrientos opened Elcielo Miami at the SLS South Beach hotel, the second location in the city for the Michelin-starred restaurant. Michael Beltran, the chef at Michelin star-earning Ariete in Coconut Grove, announced in May that he would open a cigar and cocktail bar in Miami Worldcenter.

Some of the new upscale restaurants coming to Miami are aimed squarely at the wealthy new arrivals who moved to South Florida during the pandemic.

In March, chef Shaun Hergatt announced plans for a private restaurant and speakeasy concept exclusively for residents at the Perigon condo tower in Miami Beach, which is expected to open in 2026. Weeks earlier, Todd English signed on to open a private lobby restaurant at the Bentley Residences, a 62-story luxury condo tower in Sunny Isles that is also slated to deliver in 2026.

Tricera is working on deals with chefs from Las Vegas and Boston, Ferrazza said.

“We’re getting a lot more Michelin chefs, and everybody knows how competitive the F&B market is,” she said. “So everyone is trying to outdo each other in the Miami market to have a presence to be talked about and be seen.”

Developers are responding to the strong demand by building more space. Across South Florida, there is more than 3.5M SF of retail space under construction, including around 1.9M SF in Miami as of March.

Miami is slated to see 1.6M SF of new space come online in the second half of this year, following the completion of around 400K SF through the second quarter, according to Marcus & Millichap.

Deliveries in Miami will be four times higher than in 2022 and “may result in some upward pressure on vacancy in the near-term while new stock leases up,” the report’s authors wrote. But with vacancy rates at some of the lowest levels in the country, Ferrazza said the market is well-positioned to absorb the new inventory.

The inflow of new residents, growth of tourism and the business-friendly environment in the state has made Miami an ideal location for retail tenants looking to grow, she said.

“I don’t know where else you would look if you are looking to expand throughout the country,” she said.

 

Source:  Bisnow

 

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Retail Landlords Urged To Embrace Flexibility In The Face Of Bankruptcies

Landlords are being urged to adopt an adaptable approach to their retail properties, according to Spence Mehl, a partner at RCS Real Estate Advisors. As the retail landscape undergoes significant transformations, we chatted with Mehl on the subject, where he shared his insights and thoughts on the current trends in the market surrounding the recent ICSC Las Vegas event.

Mehl points out that landlords have been displaying a high level of confidence in lease negotiations and amendments, fueled by a period of economic growth and a seemingly stable retail sector. However, recent bankruptcy filings from prominent big-box retailers and smaller chains, such as Bed Bath & Beyond, Buy Buy BABY, David’s Bridal, and Tuesday Morning, have sent shockwaves through the industry.

The wave of bankruptcies has raised concerns about the potential flood of vacant retail spaces hitting the market simultaneously, he tells GlobeSt.com. This, in turn, has prompted questions about how landlords will react and whether their bullish stance will remain unchanged in the face of such challenges.

The retail industry is no stranger to change, with online shopping, evolving consumer preferences, and the impact of the COVID-19 pandemic reshaping the way people shop. Landlords now find themselves at a critical juncture where they must adapt to the changing market dynamics to remain competitive. According to Mehl, it will be fascinating to see how landlords react and how bullish they remain if an influx of empty spaces floods the market simultaneously.

 

Source:  GlobeSt.

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South Florida Commercial Real Estate is ‘Off the Charts’

All eyes are on the South Florida’s real estate market as companies large and small from across the country relocate or expand to enjoy its sunny climes and tax benefits, accelerated by the pandemic.

Big businesses are breathing life into South Florida’s office market, with major companies creating a ripple effect and influencing others to come to the capital of capital. Despite the rise in the Delta and Mu variant cases, top-dollar deals aren’t diminishing and the retail and hospitality sectors are booming.

“Occupancy was off the charts. Average daily rates were off the charts. Some of my hotel owners who had gone from crazy numbers like 9% occupancy were now full and at rate said they had never been able to charge before,” said Suzanne Amaducci-Adams, partner and head of real estate at Bilzin Sumberg in Miami.

“It remains to be the most dominant sector that continues in the new-to-market sphere. I think the openness of business and business climate in South Florida has seemingly drawn in the past year, additionally our tax climate as a state, plus being a good-sized metropolis with much to offer,” said JLL’s Jeff Gordon.

“The venture capital firms are flooding this market. The hedge funds and private equity firms are flooding this market, and they’re clustering near our building at 830 Brickell, and in Coconut Grove and Wynwood and the Design District. I think we’re going to see more of these big names,” said Ryan Holtzman of Cushman & Wakefield.

 

Source:  GlobeSt.

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Dozens Of New Stores And Restaurants Are Coming, Despite COVID-19

Never mind COVID-19. People in South Florida appear ready to eat and shop.

From West Palm Beach to the commercial enclaves of Miami, shoppers are cautiously easing back into the fold, but with a preference for open spaces, familiar brands, things to do besides shopping and, of course, safety precautions against the coronavirus.

In turn, a new stable of retailers has taken notice. Many are replacing those who failed during the early stages of the pandemic, confident they can adjust to changing consumer needs and preferences, analysts and developers say.

“People are looking for more of an experience similar to Wynwood [in Miami], where you have an integration of art and fashion and events and drinking and retail,” said Dave Preston, executive managing director of the real estate service firm Colliers International in Miami. “It’s much more interactive and reengaging and more modern. Consumers are raising their expectations. That’s what they’re looking for these days.”

According to a survey of buying habits by the Boston consulting firm McKinsey & Company, consumers nationwide are increasingly supporting local retailers.

“Community spirit is high,” the survey concluded. “People are shopping more with local brands, both for convenience and to support their community: 46% are shopping in closer neighborhood stores and 80% feel more or as connected to their communities. Meanwhile, 88% expect these connections to remain long after the crisis is over.”

The prescription appears to be in play in West Palm Beach, where the Related Companies of New York completely made over the decades-old CityPlace enclave. Now known as Rosemary Square, the area consists of a 72-acre residential and commercial neighborhood with a growing roster of new retail and restaurant tenants supplemented by art and cultural exhibitions.

Within the last half of 2020, the developer has welcomed the outdoor gear retailer Yeti and clothiers Lululemon, Faherty and Nantucket Whaler, as well as Solid & Striped, a designer swimwear chain.

A contemporary shoe and accessory brand known as mint&rose is now open, while West Elm, the home furnishings retailer, is expected to open its doors in the summer, a Related spokeswoman said.

Newly opened restaurants include Fish Bowl at High Dive, a pop-up seafood eatery serving light bites and drinks on an outdoor terrace, Pura Vida, which serves juices and health-conscious sandwiches, soups and salads, and Bonita’s, a pop-up tacos and tostadas outpost.

Restaurants scheduled to open in early to mid-2021 include Barrio, a covered outdoor restaurant serving classic Latin neighborhood street food, Planta, a plant-based eatery and True Food Kitchen, which specializes in health-conscious food and drink.

“We’re optimistic. It’s a process, this doesn’t happen overnight,” said Gopal Rajegowda, senior vice president of Related Companies. “The good news for 2021 is that there’s a vaccine on the way.”

Even before COVID’s arrival, he said, the retail world was changing as people moved to buying online and away from the free-standing malls.

“We had a Macy’s in the middle of our district that was built 20 years ago,” he said. “The department store is not the right energy. Things change. Times change. You’ve got to evolve with the times. You’ve got to react to what the market wants.”

That means offering plenty of space to walk around and events such as public art displays.

The old Macy’s — closed three years ago — is being displaced by a 21-story luxury residential tower with retail on the ground floor.

Other enclaves around the region are reporting similar stories.

In Delray Beach, the largest food hall in Florida is set to open next spring at 33 SE Third Ave. with space for 25 vendors.

In Fort Lauderdale, three to four would-be tenants are in negotiations for space along the Las Olas Boulevard commercial district, said Charles Ladd, president and principal of Barron Real Estate. He declined to name them.

Pending new arrivals in early 2021 that have been announced include a GreenWise Market, an Eddie V’s Prime Seafood and a Cuba Libre Restaurant and Rum Bar.

“We’re lucky. We’re in an area that has dynamism and growth,” Ladd said. “If you’re in Nowhere, Georgia, or Missouri, and you have a mall where a Kmart left, you’ll see it sit there for 20 years.”

At the toney Aventura Mall in upscale Aventura just south of the Broward-Miami-Dade County line, new retailers and six new restaurants announced openings in late November.

Nearby, a Brightline high speed rail station is under construction. Although the line suspended service due to COVID-19, business leaders expect the rail line’s eventual resumption will deliver large numbers of potential customers to the area’s doorstep.

A demand for open, smaller spaces

Claudio Mekler, CEO of Miami Manager, a Sunrise-based operator of shopping centers in Coconut Creek, Doral, Sunrise, Plantation and West Palm Beach, said he’s seen a “healthy demand” for retail space over the last six months from store owners who want to occupy vacated areas, or to relocate to spots where consumers feel comfortable shopping during the pandemic.

“For the most part, they are local and regional retailers,” he said. “We are receiving a significant number of inquiries from local and national casual dining restaurant chains seeking to either enter the South Florida market or expand their footprint in this market. The local restaurants want small spaces to do mainly pickup and delivery due to current demand for those services.”

He said it takes up to six months to open a store, so by signing a lease now, an owner “will be able to open by the time the pandemic is more under control due to the vaccine and other factors.”

“Retailers are seeing that consumers are learning to live with the pandemic and getting smart about shopping safely, choosing curbside pickup and more,” he said.

They are catching on to a consumer preference for shopping in places “not confined to the inside of a mall.” So some owners are leaving closed-in malls for more open spaces, he said.

Consumers, Mekler added, “are tired of being at home 24/7. They are increasingly venturing out to connect with the world out there. Our tenants are doing a lot better than they were doing several months ago.

“We have a retail center in West Palm Beach that is home to Kohl’s and Dick’s Sporting Goods and the parking lot in that retail center has been packed in recent months. Our retail tenants are slowly seeing their businesses come back. They still have a way to go to be where they were 10 months ago, but they are optimistic.”

A river runs past it

Along the Miami River west of Brickell Avenue in Miami, the River Landing Shops & Residences occupies more than 8 acres in a complex that is poised to welcome nearly a half dozen retail tenants between now and mid-2021. They include an Ulta Beauty, Ficelle Boulangerie & Patisserie, Sapphire Prive Med Spa, Pediatric Dental Center, and Aspen Dental. A new Planet Fitness just opened its doors.

They’ll be joining a Publix, Ross Dress for Less, Hobby Lobby, Burlington Stores, Five Below, Chase Bank, Old Navy and AT&T, which opened earlier this fall. A Chick-Fil-A and a T.J. Maxx are also scheduled to open in the first quarter of 2021.

Andrew B. Hellinger, a principal of URBAN-X Group, a real estate development and advisory firm that oversees the River Landing development, said it’s becoming a magnet for people from both inside and outside Miami.

“I got a phone call last week from a lady asking if we were open and was looking for something to do,” Hellinger said. “If the shops were open, she was going to shop. She was from West Kendall. We get a lot of people coming out just to check out the property. They walk up the various floors of the project and take selfies. It’s exactly what we had hoped would happen — that residents of the county would come and hang out.

“We know they’re shopping because our retailers are reporting strong activity in their stores,” he added.

Between people’s desire to escape their homes after being cooped up and the sheer nature of South Florida’s consumer-based economy, Hellinger believes a retail revival is inevitable.

“I think there’s pent-up demand,” he said. “South Florida is a consumer market. We buy stuff. People are constantly changing what they wear and how they look. Retailers get that now.”

 

Source:  SunSentinel

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Why Some Retailers Are Thriving, Not Dying, During COVID-19

The potential demise of retail has been a topic of discussion ever since the Sears catalog took aim at brick-and-mortar stores in the 1890s. One hundred years later, e-commerce came along with another business model that challenged traditional retail. But we have never seen anything with the same impact—sudden, rapid and harsh—on the sector as COVID-19. That said, while COVID-19 impacted the sector swiftly, we don’t believe it has materially changed the longer-term trajectory of retail. Instead, it has simply accelerated the evolution of the industry. While the pandemic has had widely divergent effects across the different retail sub-sectors, overall retailers that have continued to adapt and innovate are proving most resilient.

Essential vs. Non-Essential Retail

Over the course of the pandemic, there has been an obvious bifurcation between essential and non-essential retail. While it is up to individual cities and states to define what businesses fall into each category, those deemed non-essential—apparel retailers, salons, gyms, and movie theaters, for example—were temporarily shut down across much of the U.S. due to COVID-19. On the other hand, businesses believed to be essential to daily life, including grocers, home improvement stores, pharmacies, banks and gas stations, were allowed to remain open.

Yet even within these two broad categories, we have witnessed different trends emerge as retailers learn to adapt in order to stay resilient. It is through these emerging trends that we can see how the pandemic may transform, rather than destroy retail.

Trend 1. Clear winners: grocery stores.

Grocery stores have done extraordinarily well since COVID-19 erupted, and it is not simply because they were allowed to stay open. COVID-19 revealed what is truly necessary in people’s lives. Consumer priorities shifted to focus on basic needs, and consequently, grocery stores have seen a huge uptick in sales. Additionally, many consumers who once ate at restaurants regularly   are still not comfortable eating out due to the increased risk of exposure to COVID-19. They have been and continue to eat more food prepared at home, and as a result, as of the second quarter of 2020, grocery store’ sales had risen 12.4% year-over-year.[1] While this percentage reflects a combination of in-store and online sales, there is mounting evidence that the vast majority of consumers have and will continue to visit brick-and-mortar stores with grocery store visits rising by 14% during the height of the stay-at-home orders.[2]

Additionally, grocery stores are expected to continue to perform well beyond the pandemic. This segment of the retail sector continues to be resilient to e-commerce, even during COVID-19, and is ingrained in the daily patterns of consumers’ lives. Online grocery delivery, or e-grocery, has lagged in recent years due to the narrow margins that prevent retailers from covering the cost of delivery to consumers. The high delivery costs, combined with consumers preferring to choose their own groceries and their dissatisfaction with a two-hour delivery window, has led to a very small market share for e-grocery. Even if the e-grocery market share were to double in 2020 because of COVID-19, it would still only account for 6% of all grocery sales.[3]

Trend 2. The magnification of the omni-channel experience.

Consumers have shown they want to choose their shopping experience: buy in-store or order online; get home delivery or pick up in-store, at a locker or curbside; return by mail, in-store or through a third party. As a result, resilient retailers are focusing on the infrastructure, systems and technology to make this omni-channel shopping more efficient and less expensive — and maintaining a brick-and-mortar presence is proving to be an important aspect in this transformation. Many successful retailers are using brick-and-mortar stores to fulfill online orders and are also accepting the return of goods purchased online, revamping the traditional physical store to better satisfy consumer needs.

Savvy retailers are also accelerating their innovations in store locations, formats, layouts, branding and marketing, supporting the idea that brick-and- mortar shopping is not going away — it’s just evolving. Not surprisingly, Amazon is leading this trend as it opened its first grocery store independent of Whole Foods in 2020. Shoppers that have the option of using traditional carts or smart shopping carts which detect products and charge customers’ Amazon accounts, and windows will be available for online pick up and returns, combining aspects of online and traditional shopping.[4]

A brick-and-mortar presence is proving to be more valuable as the most resilient retailers focus on a more efficient and less expensive omni-channel experience.

Trend 3. Retailers are reopened and paying rent again.

In April 2020, the real estate industry saw a spike in the number of requests   for rent relief due to COVID-19. But even then, there were divergent situations among retailers given mandatory closures, in particular. Rent collections in April, at the start of the pandemic, for essential retailers such as grocery tenants were at 99%; for home improvement, they were at 93%, and for other essential retail, they stood at 90%.[5] In contrast, two of the major public shopping mall real estate investment trusts (REITs) reported collections of just 26%-51% as their concentration of non-essential apparel and entertainment tenants suffered during the pandemic.[6]

By the second quarter of 2020, many of the retailers most affected by the pandemic had resumed making rent payments as nearly all mandated closures were lifted. Overall, the second quarter’s rent collection outpaced predictions with 72% of all retailers making payments vs. the 60% expectation. [7] July 2020 saw 95% of essential retailers paying rent – grocery stores, home improvement stores and other essential retail continued to lead the way with 99%, 96% and 95% collections, respectively.[7]

However, only 54% of non-essential businesses were back to paying rents again.[7] While certain of the hardest hit retailers are still seeking rent relief, with fewer temporary closures than at the onset of COVID-19, most retailers are gaining some footing.

Trend 4. Landlords are supporting retailers.

Many landlords are mobilizing to provide operational assistance for retailers on a tenant-by-tenant basis and by providing hands-on support beyond rent relief. Landlords have helped organize curbside pickup programs at retail properties to help smaller retailers that don’t have the resources to set up their own programs. Hand-sanitizing stations throughout all common areas, along with six-feet-apart reminders and floor decals, help build shoppers’ sense of safety. Additionally, transforming common areas, sidewalks or parking lots for tenant use, such as holding outdoor exercise workouts in grassy areas or using parking lots for al fresco dining, have helped tenants that have endured the most significant challenges attract customers and generate revenue.

 

Retail’s Resilience Provides Reasons for Optimism

While COVID-19 has dramatically altered countless aspects of daily life, the retail sector has demonstrated its resiliency and we expect this to continue into 2021.

We believe brick-and-mortar stores will continue to be an essential piece of the overall retail model as physical locations help retailers connect with consumers even in the midst of a pandemic — from in-store shopping, to convenient store pick-up options, to efficient last-mile delivery. As consumer behavior continues to evolve, retailers are likely to continue to prioritize high-quality, well-located shopping centers that are in close proximity to residential communities and that are already a part of consumers’ shopping patterns. Grocery-anchored neighborhood centers, for example, represent a powerful repositioning strategy.

 

Source:  GlobeSt.

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Growing Number Of Landlords Are Offering Restaurants Percentage-Only Rent

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A recent survey by the NYC Hospitality Alliance helps illustrate the dire straits of America’s restaurants.

The survey found that 87 percent of New York City’s restaurants, bars and nightlife venues couldn’t pay their full rent in August. The culprit, of course, is pandemic restrictions imposed on these businesses.

Further complicating the situation, 60 percent of the businesses surveyed said their landlords hadn’t waived any of their rent in response to the coronavirus pandemic. But in New York City and across the country, a number of landlords are offering concessions for restaurants and other hospitality businesses in the form of percentage-only rent.

Some restaurant landlords are temporarily switching from fixed-rate rents to rents based only on a share of the tenant’s gross sales or revenue, in an effort to help these businesses survive, says Ken Lamy, founder, president and CEO of The Lamy Group, a Mandeville, La.-based financial management consulting firm. Landlords are then leaving the door open to revisiting the rent structure at a later date, perhaps 12 to 18 months down the road, he notes.

“Rent is a function of revenue, and with restaurant revenue getting decimated in certain types of trade areas, one way to protect the financial stability of a restaurant—and provide a cushion before we recover from COVID-19—is to structure a percentage-only rent deal and fix the restaurant’s rental expense with an acceptable percentage of gross sales,” says Jason Kastner, managing director of the national advisory group at Washington, D.C.-based Dochter & Alexander Retail Advisors, which represents restaurant and retail tenants.

Percentage-only rents are especially helpful in an industry with notoriously thin profit margins of around 3 percent to 6 percent and, now, with slumping sales. In September, sales at U.S. eating and drinking establishments totaled $55.6 billion, compared with the pre-pandemic tally of $65.4 billion in February, according to the National Restaurant Association, an industry trade group.

The percentage applied to a restaurant’s rent in a pandemic-era agreement typically ranges from 5 percent to 15 percent, according to Lamy. The figure sometimes includes common-area expenses like property taxes and insurance, but sometimes excludes them, he says. In some cases, the percentage-only rents come on the heels of rent deferrals that went into effect earlier in the pandemic.

Not every restaurant can take advantage of percentage-only rent, though. For instance, some landlords are limiting percentage-only deals to tenants that operate multiple restaurants rather than just a single “mom- and-pop” location.

At the other end of the spectrum, some landlords are being quite generous. For instance, San Francisco-based Presidio Bay Ventures, a commercial real estate investor and developer, has let Merkado, a Mexican restaurant and open-air market in San Francisco’s SOMA neighborhood, operate rent-free since March.

A prime example of the percentage-only approach to rent is New York City’s Grand Central Terminal. The Metropolitan Transportation Authority, which operates the terminals, has proposed percentage-only rents for restaurants at the famed train station that are run by small businesses. The percentage, to be based on gross revenue, hasn’t been revealed. The rents would likely return to fixed rates once business reaches pre-pandemic levels.

Without percentage-only rents in place for some restaurants, vacancy rates would climb even higher, according to Lamy. (In the second quarter, the average vacancy rate in the retail sector, which includes restaurants, jumped to 20 percent, according to Statista.)

“A store that’s empty is not a good situation anytime. It’s even more damaging to the landlord today,” Lamy says. “So, is it better to have some dollars flowing with a store that’s open? Or would you rather have an empty store because you think you can re-lease it at a better rent? But when is that going to happen?”

Some restaurant landlords might even benefit from percentage-only rent if a tenant’s sales numbers happen to rise above the average, says Allan Perales, chief operating officer of Chicago-based Gold Street Partners, which represents commercial real estate landlords and tenants. Still, the most important consideration for a landlord agreeing to percentage-only rent is to simply keep a restaurant space occupied, Perales says.

The National Restaurant Association reports that in the first six months after pandemic shutdowns took effect, nearly 100,000 restaurants closed either permanently or for a long-term period. Thousands more could be on the chopping block.

For the percentage-only rent structure to work from the landlord’s perspective, a restaurant must supply up-to-date sales and revenue data, according to Lamy. This puts landlords in a “trust but verify” position, he says.

“What’s your average sale today? What was it pre-pandemic? Those metrics are critical to understanding what was happening before, what is happening now and what has happened during this time,” he notes.

Kastner believes the percentage-only rent model will remain as a restaurant lifeline for the next year or two before traditional rent structures kick in again. Unfortunately, the percentage-only setup won’t be enough to save some restaurants.

“For already open and operating restaurants, given the enormous impact to sales because of COVID-19, we will continue to see what feels like daily announcements of permanent closures,” he says.

 

Source:  NREI

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Shopping Center Owners, Retailers In Florida Seize Opportunities In Effort To Outlast COVID-19 Pandemic

It’s been an atypical summer for retailers and shopping center owners in the Sunshine State. There are no Hollywood blockbusters debuting in Florida’s movie theaters, bars remain closed for the time being and shops and restaurants aren’t packed with domestic and international tourists visiting Disney World, Port of Miami’s cruise terminals or any of the states numerous beaches at the level they would in a normal season.

The outbreak of COVID-19 has redefined the consumer experience for retail the past several months, but even though it looks and feels different, owners and property managers have reasons for optimism. Giants in the retail industry such as Walmart, Target, The Home Depot, Publix and Lowe’s Home Improvement, among others, are enjoying surging in-store and e-commerce sales.

Other retail categories have boosted their sales during the pandemic as well. Deborah Butler, president of Butler Enterprises, says that the Total Wine & More location at Butler Town Center in Gainesville is a perfect example of a retailer benefitting from the current atmosphere.

“Total Wine did 60 percent over what they planned,” says Butler. “People want their wine and cocktails and couldn’t get them at bars or restaurants.”

Guidelines remain in place for the state’s retail base, including a 50 percent maximum capacity for restaurants, many of which have opted to close their dining rooms and focus on their to-go, delivery and drive-thru options.

Despite the restrictions, Andie Blade, principal of National Retail Advisory Group, says that retail traffic remains lively, especially in her hometown of Miami.

“When I’m out and about in the Design District or Bal Harbour, everyone is out shopping and everyone has their masks on,” says Blade. “The parking lots are full. It’s not pre-COVID-19 traffic, but people are out. We’ve been surging in Miami, so we have a lot of precautions still in place.”

Retailers are also opening along the market’s heralded high street, Lincoln Road in Miami Beach. Lyle Stern, president of Koniver Stern Group and board member of the Lincoln Road Business Improvement District (BID), says that the corridor’s recent openings are a sign of confidence.

“Amazon is moving forward with its four-star store (the first one in Miami-Dade or Broward counties); YoYoSo is opening its first Florida location on Lincoln Road; Nespresso opened its new flagship store just a few weeks ago in the height of the pandemic; and Dr. Martens also recently opened.”

Shopping center developers are busy around the state signing and opening retailers in some of the denser submarkets. Beth Azor, owner of Azor Advisory Services Inc. in Broward County, owns six shopping centers in Florida. Azor says she currently has 11 letters of intent in the pipeline, which is the most she’s handled at a given time in the past three years.

Bromley Cos. recently signed a lease with Royal Pets Market & Resort to join the tenancy at its $500 million Midtown Tampa project. The veterinary and dog daycare provider will occupy 8,000 square feet on the ground floor of the Novel Midtown Tampa apartment building.

Butler Enterprises recently welcomed a new REI store at Butler Town Center.

“REI didn’t have a grand opening, but they’re thrilled,” says Butler. “There’s so much pent-up demand for it. Our property is surrounded by rivers, lakes and streams. People come here from all over the world to hike and tube.”

Similarly, there’s demand for casual wear as a large contingent of office workers and students are working and learning remotely for the time being. Hill Partners Inc. recently executed a lease with lululemon athletica at Promenade at Coconut Creek in Broward County. Bob Spratt, president of Hill Partners, says the retailer will open in November.

Additionally, several Publix stores are opening around the state, as well as its small organic grocer concept GreenWise Market. Publix Super Markets recently opened GreenWise locations in Odessa, Tampa and Ponte Vedra Beach. Hobby Lobby is also expanding in Florida, with three new locations in Panama City, Pembroke Pines and Miami within Urban-X Group’s River Landing Shops and Residences project.

Terra has recently signed Ross Dress for Less and Panda Express at its Doral Square mixed-use development in Miami-Dade County and is also opening the second phase of its Pines City Center project in Broward County. In addition to Hobby Lobby, in the past 45 days Terra has opened locations for McAlister’s Deli, AT&T Wireless, Legacy Fit and Paradise Grills at the 47-acre Pines City Center project.

“We anticipate a continued need for lifestyle-centered developments that will serve at the pulse of South Florida’s neighborhoods,” says David Martin, president and CEO of Terra.

Bankruptcy Opportunities

Another major change for Florida’s retail sector is the wave of retailers and parent companies that have filed for bankruptcy and/or restructuring since the outbreak. These include Pier 1 Imports; Ascena Retail Group (Ann Taylor, LOFT, Lane Bryant, Justice); Tailored Brands (Men’s Wearhouse and Jos. A. Bank); Lord & Taylor; 24 Hour Fitness; GNC; CEC Entertainment (Chuck E. Cheese); Brooks Brothers (recently purchased by Simon and Authentic Brands); Sur La Table (bought by Marquee Brands and CSC Generation); and California Pizza Kitchen.

“COVID-19 has accelerated the bankruptcy process for some of these retailers to thin the herd,” says Spratt. “They’re reworking their debt load and trying to re-emerge stronger and leaner.”

Azor says that the retailers that are opting to restructure and close stores were underperforming before the pandemic struck in mid-March.

“If you look at the 30 or 40 retailers that have filed bankruptcy, there aren’t a lot of surprises,” says Azor. “This put the dot on the exclamation point.”

Additionally, two homegrown concepts have also filed for bankruptcy protection: SteinMart and Cinemex Holdings USA Inc., owner of the CMX Cinemas chain of movie theaters. Blade says her landlord clients have already been working to backfill some of the big boxes that Jacksonville-based SteinMart is leaving behind.

Fitness concepts are actively taking down these vacant stores, despite being hampered by operating restrictions and deemed non-essential by the office of Florida Governor Ron DeSantis. Ivy Greaner, chief operating officer of InvenTrust Properties, says that the Chicago-based REIT is backfilling a SteinMart with an unnamed fitness concept.

“Fitness is chasing deals hard, which has been interesting,” says Greaner. “There’s also soft goods out there as well, as well as furniture. Those three are fairly active.”

Jeremy Larkin, CEO of NAI Miami, says that the retailers looking to expand now have a survivor’s mentality and are also fiscally responsible.

“The ones signing leases are well-capitalized, well-focused companies that are offer products and services that the market now demands,” says Larkin.

Landlords and operators are also working with these retailers to keep them in their locations. Samuel Sutton, president of Sutton Properties Inc., says that his firm’s Lake Buena Vista Factory Stores center in Orlando has a number of national retailers that are opting to remain in the property since those locations historically perform well.

“Ascena has both a Justice and Ann Taylor in the center, but fortunately we weren’t on the store closing list because we’re a center with high sales,” says Sutton. “Even the retailers that are having issues nationally almost all remained intact in our center just because we’re one mile from Disney World.”

Jill Strumpf, president of Clearwater-based shopping center management firm Bruce Strumpf Inc., says that her company has also restructured leases with retailers that have filed for bankruptcy.

“I have GNC in three of my centers, but in all three we were able to work out something so they’re all remaining,” says Strumpf.

Rent Collections, Performance

The second quarter was not kind to shopping center owners when it came to rent collection. Macerich, which owns a strong portfolio of malls in New York and California, collected 46 percent of its rent in the most recent quarter, according to Goldman Sachs research. Similarly, Simon was only able to haul in 57 percent of rent from its tenants, including deferrals.

Other shopping center REIT owners brought in rent collections in the 70 to 80 percent range, including Kimco Realty Corp., Brixmor Property Group Inc., Federal Realty Investment Trust and Jacksonville-based Regency Centers Corp. On the bright side, all REITs mentioned above fared substantially better in their collection of July rents.

Overall owners are reducing their rental rates in an effort to improve and maintain their occupancy. Beth Azor says her firm has come down 10 to 15 percent for new leases at its centers to get ahead of any further complications following the 2020 holiday shopping season.

“My goal is that if I drop my rents now, the majority of these deals will be close to opening by second-quarter 2021, and I’ll be less affected,” says Azor.

Greaner says that the current recession is much different than in years past for the retail sector because of the communication that exists between retail tenants. She says the current dialogue among retailers has centered mostly on the topic of rent relief.

“Not only are tenants are talking to each other about what they’re doing as far as rent workouts, they’re calling each other before to ask advice,” says Greaner. “They have a checklist of what they could or should do, and they have a list of landlords that will play ball. Some landlords and tenants are unafraid to be a pioneer while others don’t want to be a pioneer. These are big financial decisions.”

Strumpf says her ownership clients are still deferring rents across her portfolio but that it’s not nearly at the same level as April and May. Retailers that were able to remain open and operating during the pandemic such as grocers, automotive and drugstores have been able to meet their rent obligations, whereas impacted categories like bars, movie theaters and salons are still figuring it out.

For owners and operators, Greaner says that time is of the essence so having a rent relief plan in place is paramount.

“We don’t have months to work through everything for every tenant calling us,” says Greaner. “We have to have a process, philosophy and a strategy on how we want to deal with things for now.”

Unfortunately, as seen in the wave of bankruptcies and store shutterings, there have been some casualties along the way, with more almost certain to come. The sad truth is that some retailers won’t make outlast the pandemic, no matter what rent workout they strike with their landlords in the interim.

Flight to quality

There’s been a significant pullback in investment activity in recent months as buyers have been reticent to purchase assets. It’s not just in Florida as overall retail investors purchased $4.6 billion in assets in the second quarter in the United States, according to Real Capital Analytics (RCA). This is a 73 percent drop from retail investment activity in second-quarter 2019.

Some companies halted transacting at the early stages of the pandemic. Jon Adamo, senior vice president of acquisitions at National Retail Properties (NNN REIT), says the general uncertainty is still causing many to sit on the sidelines.

“There’s a side of the market that is waiting for an adjustment that may or may never come,” says Adamo.

“At the moment, clarity doesn’t exist,” adds David Perlman, managing director of Thorofare Capital and head of the firm’s New York City office. “Brokers are having a tough time creating a market for retail properties.”

Adamo says that investors that are actively purchasing shopping center assets are taking a long and hard look at the creditworthiness of the tenant base. Those that were deemed essential and able to operate throughout the pandemic are in high demand.

“’Essential’ is now the term of the past few months,” says Adamo. “Any retailer that was open and operating during COVID-19 and paying rent are the gems people want to pick up right now.”

Adamo says that grocery-anchored centers remain the most coveted retail category. Recent acquisitions around the state include Zurich Alternative Asset Management buying a Whole Foods Market-anchored project in Coral Gables for $46.8 million; The PMAT Cos. buying a Publix-anchored center in Port Richey for $7.6 million; and Westcott LLC buying a Winn-Dixie-anchored center in St. Augustine for nearly $8 million.

Adam Tiktin, president of Tiktin Real Estate Investment Services, says that there is a flight to quality among investors.

“Investors are looking for credit and for stability to get through this pandemic,” says Tiktin. “They want to know their income is solid.”

Tiktin says on the other side of the negotiating table, sellers have differing levels of urgency now to sell that may or may not have existed before the pandemic.

Joe Gallaher, senior vice president of NAI Miami, says that there’s also a delta between buyers looking for discounts and sellers that are unwilling to come off their asking price.

“Sellers still have 2019 numbers in their minds and buyers have 2020 in their minds,” says Gallaher. “There’s a gap, but it all comes down to motivation. Sellers are more motivated than what they were previously to liquidate their assets. In some situations, we see a little more meeting of the minds.”

Additionally, Tiktin says that the market for redevelopments is strong, especially for sites that could be zoned for mixed-use and multifamily. His firm recently found a multifamily buyer for a site in downtown Fort Lauderdale that currently is leased to Sherwin Williams and a bus terminal for Greyhound.

Operational shifts

In addition to signing leases, shopping center managers are busy helping consumers navigate their centers in a responsible and efficient manner.  Rod Castan, president of leasing and management services at Courtelis Co., says that it requires flexibility on the part of the owner and strong communication among all parties to be successful.

“We’ve become more flexible in allowing take-out/short-term parking spaces, outdoor seating, cueing areas and increased signage for our tenants. And we’ve become closely aligned with them in social media marketing of both the shopping centers and the individual businesses,” says Castan. “We’ve really never had such close communication and one-on-one problem solving with our tenants. It’s been exhausting, and as property managers, we need to take things day by day, but we will end up with closer relationships with our tenants as a result of this.”

Although it’s been a challenge, owners and operators say the onsite approach remains the best way to conduct business despite the pandemic. Scott Crossman, CEO of Crossman & Company says his firm’s hands-on approach was a key reason it’s been able to achieve 90 percent rent collections at its properties.

“As a management company, we choose to keep our offices open and continue to function on a face-to-face basis with no reduction of staff,” says Crossman. “We believe this effort to stay in close communication with our clients, tenants, staff and vendors was key to the results we have seen.”

Similarly, Mary Reichardt, vice president of marketing at Butler Enterprises, says that Deborah Butler has been a fixture at the Butler collection of shopping centers in Gainesville, and it has been critical to help support the retailers and restaurants with items like curbside pickup and wayfinding.

“Having the owner on property every single day allows us to pivot really quickly and adjust to what each of the individual tenant’s needs are,” says Reichardt. “It operates very differently at some of the malls and shopping centers where you can’t make decisions quickly.”

Although less retail space is being used overall, operators say that expenses remain either the same or even more expensive than pre-pandemic. Crossman says that streamlining operations has been a key way to help keep expenses down. This includes reprioritizing maintenance items like landscaping and pressure washing to an as-needed basis and also helping tenants access personal protective equipment (PPE) that local governments are providing.

Reichardt says Butler Enterprises is enabling its two boutique apparel shops, Agapanthus and Narcissus, which is a Tony Burch boutique, to do curbside pickups and virtual shopping.

One thing that owners and operators are concerned about in today’s environment is being conservative with their expenditures. Greaner of InvenTrust Properties says that her firm’s portfolio saw fluctuations on the expense side of the ledger in recent months.

“There was a drop in some expenses like garbage collection but then an increase in things like signage,” says Greaner. “On balance it’s not going to be more or much less.”

Stern says the Lincoln Road BID partnered with Jayda Knight, a Miami-area artist and former set designer for Saturday Night Live, to design face masks for patrons of Lincoln Road’s shops and restaurants.

Additionally, owners and operators are turning to ancillary retail options to bring in extra revenue, including temporarily backfilling vacant boxes with seasonal retailers such as Spirit Halloween. On Lincoln Road, The Comras Co. recently converted a former BCBG boutique into a popup theater for the Miami City Ballet to safely practice their performances before the public.

“By utilizing inactive space and zeroing in on arts and culture, we’ve given people that compelling reason to visit while supporting area businesses,” says Michael Comras, president and CEO of The Comras Co.

Shopping center owners and operators are also looking for innovative solutions to help their local communities. Azor’s partner recently opened a digital learning study hub at Weston Town Center that is catering to students and parents in the community, as well as bringing added traffic to the center.

“It’s got 42 cubicles and 10 private offices. We’ve hired four college students who are education majors and a current teacher in the school system who will act as principal,” says Azor. “When parents register their kids, we give them a $100 gift card for any of the nine restaurants in the shopping center. We have 80 families who will have dinner at the restaurants in our shopping center, and we have 80 people who will be at our property twice a day for nine weeks.”

Outlook

Shopping center owners and managers expect short-term pain as the historic demand generator of tourism remains on the ice during the pandemic. International travel has slowed down significantly, which has been a tough blow for retailers in markets like Miami and Orlando.

“Any retail location in the world that relies heavily on tourism, especially international tourism, is feeling a pressure on retail sales that we haven’t seen in a generation,” says Justin Greider, senior vice president of JLL and lead of the firm’s Florida retail team. “However, these tourist-focused areas make up a very small percentage of the overall retail sales in Florida, and the traditional suburban consumers seem to be demonstrating stronger shopping habits now than in the past, especially in the grocery and service retail categories.”

Sutton of Sutton Properties says that his firm is marketing Lake Buena Vista Factory Stores in Orlando now to locals and regional tourists who are visiting the center from markets like Alabama and Georgia.

The rejoinder among property owners and brokers is that a second shutdown would be devastating for Florida’s retail sector and could damage even the most durable retailers as there could potentially be less disposable income.

“Our biggest concern is another shutdown, either full or partial,” says Crossman. “So many of our tenants did get through the last one, but they’ve burned through their reserves. Our hope is that we see a significant reduction in the infection rate and a continually reviving economy. Our tenants are hopeful about the future and a return to vibrancy.”

Looking further on the horizon, property owners are searching for opportunities at the property level to boost sales and traffic. Retailers are likely going to downsize their footprints and store layouts, as well as rethink their merchandising. Castan of Courtelis says this potential design shakeup will require nimbleness on the part of shopping center owners.

“We are going to have to be open and creative as developers, because this is a whole new ballgame,” says Castan.

For now, Greaner says that all any company can do is plan for the short-term and be ready to adapt at a moment’s notice.

“We’re taking this in small bites, we can’t plan for what’s going to happen for the next two years because we don’t know,” says Greaner. “We do our best for what we’re doing today, but we’re ready to pivot if the market changes. Florida will be OK, and then it will thrive when it needs to.”

 

Source:  Shopping Center Business

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Shopping Centers Stay Strong In South Florida. Miami-Dade County Has A 92.9 Occupancy

Density is helping sustain occupancy rates in Miami-Dade County’s shopping centers, making it the healthiest market in South Florida.

Miami-Dade has a 92.9% occupancy rate among its shopping centers, according to a third-quarter report by Boca Raton-based 11th St. Capital. Palm Beach has an 88.8% occupancy rate, and Broward has an 88.6% occupancy rate. Joshua Ladle, the CEO and founder of the real estate investment and management firm, visited all 1,720 shopping centers.

“The significant dense population in Miami-Dade is one of the main drivers to its success in terms of occupancy. Where there are concentrated amounts of people, retailers like to be there. More people coming to their stores means more dollars in their cash registers. Driving the nearly 700 centers in Miami-Dade County, it’s clear that there are still a lot of people shopping in all those stores, which is keeping the company lights on,” Ladle said by email.

Still, restaurant and store closures are inevitable and will impact commercial real estate, he said by email.

“More vacant space will come onto the market and will need to be backfilled. As always, premium, well-located space will be the quickest to be picked up by those tenants that are still expanding while the more challenging areas will struggle to fill the increased vacancy.”

Some new restaurants and retailers moving into recently vacant storefronts may help counteract the anticipated closings. Miami-Dade has 500,000 square feet of “Coming Soon” space while Broward has had a million during the third quarter, Ladle said by email.

“I believe that occupancy rates will still trend downward in Q1 2021, but only slightly because of all the ‘Coming Soon’ space,” he said. “Good case in point, Broward County, from Q1 2020 to Q3 2020 only fell from 89.1% to 88.6%, despite those 6 months being right in the thick of the pandemic.”

 

Source:  Miami Herald

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How Covid-19 Is Changing Leasing Agreements For Businesses

Experts say changes are on the horizon to the decades-old language in retail and restaurant leases as a result of the Covid-19 pandemic.

New leases are being written with substantial changes, particularly in regard to provisions that provide relief for tenants that are unable to fulfill their contract obligations because of circumstances out of their control, such as a natural disaster or pandemic.

Steven Silverman, a shareholder at Miami-based Kluger, Kaplan, Silverman, Katzen & Levine PL, who deals in lease negotiations, said the language in these provisions is often broad, and landlords did not interpret them to apply to shutdowns caused by a pandemic.

As a result, many new leases signed over the last few months include more specific language, Jaime Sturgis of Fort Lauderdale-based Native Realty said.

“Moving forward, there’s going to be a little more clarity,” he said. “[The provision] is broad by design, so I think moving forward more clarity and more specific language addressing these types of situations.”

Click here to read more about this story.

 

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How One South Florida Landlord Made Forbearance Decisions

In March and April, Claudio Mekler, the owner of five retail centers in South Florida, was busy. As COVID-19 was forcing his tenants to close their businesses, he was focused on working out forbearance deals with them.

“When making the decisions on forbearance, we analyzed each case and made one-on-one decisions based on real data,” said Mekler, CEO and founder of Sunrise-based Miami Manager. “We negotiated agreements that benefited the tenant, our investors and our lenders.”

That strategy mitigated the immediate need for rent relief. Mekler took a personalized approach to each situation. For instance, if a tenant paid six months in advance, he would reduce the rent by 50 percent. He let a tenant who was halfway through construction of a new store defer rent payments in April and May so they would only have to pay the common area maintenance, or CAM, fees during that time.

“Another tenant paid us 50 percent of the rent plus the CAM in April, May and June,” Mekler said. “In July, the business was to begin paying full rent again. Then in January, February and March 2021, that tenant will pay full rent plus installments of the deferred rent.”

As Mekler has worked through agreements with current tenants, he is still approached by companies interested in leasing space in the shopping centers that he owns, manages and leases in Miami-Dade, Broward and Palm Beach counties.

 

TO READ THE REMAINDER OF THE STORY, CLICK THE “DBR” LINK BELOW

 

Source:  DBR

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