4C — September 29 - October 12, 2017 — Fall Preview — M id A tlantic

Real Estate Journal

C ommercial R eal E state F inance

By Brenner Green, Real Property Capital, Inc. Nothing But Flowers…

I s one of my favorite Talking Heads songs. It appears on the last of

retail, promenades, parks, or simply nothing at all, which in certain cases actually enhanced the value of the existing retail that remained. What all of these transac- tions have in common is the intent to create value either through or while reducing impervious site coverage. That means retail is literally being replaced with green meadows to a varying degree in all of these redevelop- ments. The real question to me is “Is this a blip that includes bank-owned sludge at the bottom of the recession

am actually experiencing, in a real way the impossible paradox described in a song written in the days of the ad- vent of “big box” retail, 1988. If you are not familiar, the lyric that comes to mind is: “There was a shopping mall Now it's all covered with flowers” The song goes on to de- scribe the horrid reversion of Pizza Huts and 7-11’s to green meadows much to the chagrin of the observer. This impossible 1980’s fantasy is my 2017 reality. In the last year or so, we have looked

at and financed transac- tions where the business plans involved demolishing literally millions of square feet of suburban retail. This includes total demolition of a former power center, 80% demolition of a “traditional” L-shaped grocery anchored center (two of those financed), partial demolition of a former mall, and vacant strip retail on the same parcel as a free- standing credit tenant. This all occurred in order to de- velop a variety of uses includ- ing single-family residential, townhomes, apartments, new

bucket or is this just the be- ginning of something that is going to not only continue on for a while, but maybe get a lot bigger?” A recent article from Reis concludes that despite some obvious concerns, one need not necessarily worry about the future of retail, because that former Bebè store in Midtown or at the mall is go- ing to become a yoga studio or an urgent care center. I don’t buy that. According to CNN Money more than 300 retail outfits have gone bankrupt so far this year, and in a Bloomberg interview earlier this year the CEO of Urban Outfitters described the re- tail apparel business as “a bubble, and like housing, that bubble has now burst. We are seeing the results: Doors shuttering and rents retreat- ing. This trend will continue for the foreseeable future and may even accelerate.” The good news is that most retail works; the national vacancy rate is 10% and it feels like a distinct game of winners and losers where most centers are basically at market vacancy and a few are basically completely empty. In the last 20 years, there has been complete inversion in cap rates in anchored vs. un- anchored retail, with small, accessible well-located neigh- borhood centers now com- manding sometimes 200-300 basis point cap premiums to a traditional grocery-anchored strip center. This is a small win for the small guy as well because we would all rather have Payless Shoes go out of business than our favorite pizza place. The other good news is that it appears that it’s currently economically viable to rede- velop many failed centers, and the eyesore that goes with it. There is no refut- ing the fact that rooftops and brick and mortar retail correlate, and if there is a rebalancing of that relation- ship that fuels real estate and economic development, we should all be all-in for that. R. Brenner Green is a 19-year veteran in com- mercial real estate finance and President of Real Property Capital, Inc., a full service commercial mortgage banking firm based in the Philadelphia suburbs. n

their eight s tud i o a l - bums, called ‘ N a k e d . ’ For what - e v e r r e a - son, lately I have been in a Talk- ing Heads

groove (I listen to Pandora or Bloomberg Radio at my desk all day everyday) and yesterday I was struck with an amazing realization. I Brenner Green

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