Signs of Guarded Optimism at Shopping Center Convention

by Harold Shumacher

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The hugs were longer and the handshakes heartier at this year’s International Council of Shopping Center’s annual convention (RECON) held in Las Vegas in late May. After last year’s event, which was lightly attended and marked by lots of gloom and doom, the mood this year was more upbeat.  Last year, for many attendees, it felt like waiting in ICU to get news on a dying patient. This year the patient has been moved to a private room with round-the-clock nursing. Next year, maybe, we can get her up in the hallway on a walker! There was also a survivor mentality among the attendees – almost as if a battle had been fought and we’d came away standing.

There still is a major  disconnect between buyers and sellers. The amount of ‘smart money” on the sidelines is staggering. We’re personally aware of several funds with $50-$500 million available for purchases but the bottom that many projected has not been reached as many banks continue to extend loan terms for troubled properties, reluctant to take the loss on their balance sheets. The available prime properties are inching up in price, based on the numerous potential suitors. In the past 30-60 days insurance companies are becoming increasingly active, willing to pay prices for assets that individual investors and investment groups will not. We expect to see a continuing upward price movement for A assets. Lesser quality assets are available but as we all know, good real estate is still good real estate. As one observer noted, money is cheap but credit is expensive.   For many small businesses and developers there remains a severe shortage of capital.

New development is at a standstill.  There are few major developments underway anywhere in the country. The big box users, the Home Depots, Targets, etc. of the world are on the sidelines and will likely remain there throughout this year and into the next. There are a handful of grocery anchored projects underway but the amount of small shop space is greatly reduced. Unanchored strip centers have to be significantly pre-leased to get out of the ground.

Despite the obstacles those in attendance remain optimistic (maybe it’s wired into their DNA) that this year is a distinct improvement from the last and activity is “increasing.” The tale will be told in the next 3-6 months when real deals will materialize.

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