Atlanta’s Strong Appetite

SCB: Krog Street Market is a project that has garnered a lot of national attention despite being a pretty small project. How’s the project fairing post-opening?

David Cochran: It’s harder to manage than we thought it was going to be, but on the positive side, the amount of people frequenting the property is insane. We’ll buy 600,000 cups for our public water stations this year; it’s unbelievable. We don’t have enough parking and we don’t have enough seating, which are good problems to have. WE still have a number of tenants that are in the permitting process and will be opening in the next four or five months, and then we’ll be at capacity. I can honestly say that we didn’t expect it to be this talked about or enjoyed.

Michael Puline: How is the retail doing compared to the restaurants?

David Cochran: The retail is probably not as off the charts as the restaurants. Initially we thought we were going to do a market, which has morphed into a food hall. The retail offerings are a little bit underserved. I thought that they would be the only game in town because they all became food, and therefore they would really knock it out of the park. We have one retailer getting ready to open on the front corner called Merchant, which will do extraordinarily well.

SCB: Ponce City Market is opening. What’s the view from the floor?

Tisha Maley: I was hired by Jamestown on a consulting basis to help them with their dry retail leasing for the project. Retailers are now open, there are a few that have been open for about 30 days. There’s a whole group that will open up in the next week, and the rest will open in October. That’s all on the dry retail side. There are restaurants poised to open, subject to the health department. We’ll see five or six open soon. TI’s been a fascinating project to work on for a variety of reasons. Jamestown is phenomenal at place making and they’ve created a very on-point brand in Ponce City Market. Retailers responded accordingly. Initially it was a challenge because it was hard to get your arms around that project. Doing tours, the ceilings weren’t peeled back and it was hard to see the vision of the center. When it came together form a construction standpoint the retailers really responded well. National retailers have adapted their concepts to the project. For example, West Elm and Williams-Sonoma have tweaked their design to suit the project. Williams-Sonoma completely deconstructed their concept and rebuilt it in such a way that it’s a much more younger version of their store. So far retail sales have been strong, everyone is happy and that’s happening without the restaurants being open, which is interesting. It’s affirmed that that whole area is grossly underserved form a retail perspective. Having the BeltLine attached to the project has been a major sales push for the retailers. The retailers have been very interested in walkability and urban mix and having access to density in an urban core.

SCB: Which Fuqua Development project do you want to talk about first?

Jeff Fuqua: The one that we’re busiest with is the Braves project. It’s 375,000 square feet, and we have Live Nation and Comcast there, the stadium and the Omni hotel in addition to our retail. We’re going to start announcing tenants shortly. We’ve got about 90,000 square feet of restaurant space with 20 restaurants. WE don’t want to do any more restaurants than that, we want to hold true to our retail leasing there and develop the prospect as a strong apparel, fashion and entertainment component, as well as restaurants. It’s going incredibly well; the Braves are a great partner. At the site, you see massive construction happening, and it’s construction in all corridors. There’s a $35. billion worth of construction around it. That will become the downtown of Cobb. County.

SCB: Is it attracting attention from national retailers?

Jeff Fuqua: Yes, wegro have a bunch of first-to-market tenants there. It’s really interesting people that you’d be surprised they want to go there.

SCB: What other projects are you working on?

Jeff Fuqua: We currently have 13 projects and seven are under construction. Our Decatur project started, that’s 750 apartments and 80,000 square feet of retail. There’s a natural food store there. Our Lindbergh property is under construction and there’s a Kroger, seniors housing and single-family. Our Duluth project has Sprouts and a bunch of restaurants. In Midtown, Sprouts is about to open next quarter on Piedmont and Cheshire Bridge. Our Whole Foods project in Kennesaw is actually a power center, which you don’t see anymore. IT’s going good there and it has multifamily. We have two projects in Jacksonville going well. It’s been busy. All the projects are grocery-anchored, there’s suburban stuff that all looks like mixed-use villages.

SCB: Harold [Shumacher], what are you seeing from he restaurant side in terms of where restaurants want to go, what projects are they interested in around the area?

Harold Shumacher: The emphasis on intown has been ongoing for four or five years. The intown markets came through the recession well, there’s a sizzle intown that’s unprecedented. While that’s going on, suburbs are simultaneously breaking through with destination restaurants. East Cobb and Woodstock come to mind. Chefs who either couldn’t or wouldn’t find locations intown are going to the suburbs and they’re doing well there. With Ponce City Market and Krog Street Market, it speaks to the two generations of people who’ve just grown up going to restaurants. IT’s part and parcel of what they do, it’s how they spend their time and money. About 40 percent of the retail deals done in the country last year were restaurants in terms of either square footage or numbers of deals. 

Jeff Fuqua: There are 86 chef-drive restaurants under construction in the city.

Michael Habif: If you think about it the restaurants are the new department stores. For as much as department stores have gone down with e-commerce, you can’t recreate it online. You can’t taste the food or you can’t go out with friends.

Harold Shumacher: I had an uncle who always said, ‘People always have to eat, that’s a good business.’ What’s changed is that the technology has allowed us to go online and make a reservation, order food off tablets in the restaurant and swipe your credit card at the table. Technology has encroached the production side, but it’ll never replace the experience of dining. You look at the growing number of people who want delivery, which I don’t get because I like to go out. Going to dinner is a bona fide night out. You can go to a Krog Street or Virginia-Highland you can take a stroll after dinner and get dessert and it’s a more urban experience. When you start hearing people talk about urban mix and walkability, these are buzzwords that you would’ve never heard five years ago. It wasn’t on people’s radar yet. 

Michael Puline: Are established restaurants starting to see sales transfer? I was eating at a steakhouse on a Friday night recently that was very popular a couple years ago and it was half-full. 

Harold Shumacher: There’s a honeymoon period for anyone starting. Everybody is waiting for Ponce City Market. When its restaurants finally open, there will be a barrage of people and we won’t be able to get in the first couple months. Then it will come into some type of pattern and people will have their routines on when they go there. Restaurant sales overall are up incrementally, but what we forget about is that Atlanta is going to add 60,000 to 70,000 jobs this year. Let’s say we add 100,000 new residents and they go out three times a week. That’s 300,000 more nights of going out to dinner. Yes it feels like older restaurant concepts are losing but then there’s a lot of new people in the market. An interesting phenomenon to me is that Uber has changed the parking industry. The valet business is off 20 to 25 percent because of Uber intown. I don’t know if long-term that’s going to allow developers to decide not to build as many parking spaces.

Jeff Fuqua: It won’t. Out in front of Ponce City Market instead of a taxi cab lane it’s an Uber stop.

Tisha Maley: It’s designated drop-off zones. Talking about this subject the other thing that needs to be acknowledged is that the more dense we’re getting in the urban core of Atlanta, the more we’re going to see businesses charge for parking. That real estate is going to become more and more valuable, and you’ll start to see more landlords charge for parking.

SCB: Where do retailers want to be? What projects are they looking at and what does it take for them to locate there?

Tisha Maley: Some retailers are modifying their format as a reaction to all the full-price retailers evaluating their business to best determine how to keep the shopper inside their stores. They have competition on so many levels like moderately priced retail and e-commerce. They’re looking to place their brands to where there’s an extension of their brand. They’re looking at places where they can further enhance their brand by being at a center. They want to be crystal clear that their consumer is in that safe area zone so they can capture as many footprint in their store as possible. 

​Jon Birnbrey: ​Retailers are growing as quickly as they can. There’s definitely a shortage of product to meet the demand. We’ve seen a lot of growth intown, and the challenge for traditional, national retailers is to be able to adapt. Tisha had mentioned earlier that Williams-Sonoma adapted to meet the customer demands of that market, but you also have to adapt to the nuances of these intown projects. Parking is limited so how do you evolve as a retailer to be able to combat that challenge? As the shortage of land continues, that challenge is only going to get greater, but retailers are growing as quickly as they can. 

Emil Gullia: Celebrity chef restaurants are like last year’s DJs, they’re changing. That’s what’s happening, and also the food is getting too complicated in all these restaurants. People are going to get over that. The other thing that’s driving restaurants is that landlords don’t want to see retail tenants with a large online presence with product to bring into their center. Landlords are determining that a retailer with a large amount of its sales coming from online isn’t the right fit.

Harold Shumacher: Isn’t that a trend now where retailers are showrooming? As a landlord, wouldn’t you want to have XYZ retailer have people come to the center and shop? 

Emil Gullia: Aspirational and experiential retail right now are very important to good projects, and landlords are really high on the analysis of why that project is going to be successful. So in the case of aspirational retail like Cabela’s, they’ve got a tremendous online presence. They want people to walk into the store and feel excited to get outside. They are an anchor with a tremendous amount of draw. There is a question on smaller retailers like Guitar Center where they’re asked how much of their sales are online  like Guitar Center where they’re asked how much of their sales are online because they still want people to come in and play but there’s an aspirational aspect to it.

Michael Puline: That’s the issue, where the sale is generated. I’ll play a guitar on my lunch break at Guitar Center and then my wife will buy it for me later online.

Bill Read: But that’s the retailer’s responsibility to make the point-of-purchase sale when they have them. Showrooming is an aspect to that but it’s negatively portrayed. I lost a dryer and a TV recently to a power surge at home so I ordered a dryer from a bricks-and-mortar store on Friday evening and it was delivered Saturday morning. I never went to the store even though it was five miles from my house. The bricks-and-mortar store got my business. 

SCB: What’s going on the grocery anchored side of the retail market in Atlanta?

Michael Puline: For the centers we have in really good markets, the shop
space is leasing very well. Grocery store sales in all of our properties are up across
the board, so we couldn’t be more pleased with our anchors. Even in our challenging centers the sales are going up, which is a testament to the retail environment. The moms and pops have more access to capital now, so they’re opening up stores. We’re doing a lot more traditional nail salons and smaller restaurants.

Harold Shumacher: For the grocery developers, does the onslaught of Sprouts
and Fresh Market really diminish the traditional grocery store sales? Are the grocery stores less crowded because of the increasing number of high-end national food stores?

Jesse Shannon: We haven’t seen that for any of the assets in our portfolio. In the last five years, there’s not one traditional grocer that’s had declining sales in our portfolio. If it has then we’ve sold it. Portfolio-wide, 95 percent of our stores have seen same-store sales increases of 3 percent or more over the past five years. 

Jon Birnbrey: That same analysis is going to change in the next few years as Sprouts and Earth Fare and more similar stores are coming in and impacting these existing markets, because they’re not coming into growth areas, they’re attacking the national grocers that have had that strong market share. The dynamic is going to change as Sprouts and Earth Fare open new stores and it’s more saturated.

Bill Read: Sprouts says 50 percent of their customers come from existing supermarkets within range, then 8 percent coming from the Sam’s Club and Costcotype properties. Publix and Kroger have both had annual comp store sales rises, Kroger has had it for more than 30 quarters. They’ve learned to compete and the customer always wins because the customer ultimately votes. Kroger happens to be the biggest seller of organic foods, but they’ve got to do a better job telling people so they’re not going to the other grocers. Sprouts is great competitor. If you have a Sprouts in your shopping center, it can help raise rents and increase traffic, but they’re still only going to do $10 million to $13 million in their first year and go up maybe 30 percent over the next three or four years, whereas if you have a decent Publix or Kroger, they’re going to be doing $20 million to $30 million. It’s a matter of balance, but the customer is ultimately going to vote.

Dan O’Neill: Keep in mind that Sprouts is a 30,000-square-foot store and Fresh Market is a 20,000-square-foot store, and they’re mostly going into infill type markets. The Publix that we just built across the street is doing $40 million in sales, and our Sprouts opened and it’s probably going to do $15 million in sales. All of those sales aren’t coming from Publix across the street, maybe not even a majority of it. Publix may see a small dip but that store has been doing so well, and the increases have been so strong that you may not even see a decrease, it just may not be as dramatic of an increase as they have been seeing in previous years. The markets that they’re going into, I don’t see those stores are going to be damaged by it, they just may not be what they usually like. We are developing about eight grocery-anchored centers at various stages of development throughout the Southeast. We’ve seen a noticeable uptick in rental rates, and it’s interesting because the majority of it has come from the restaurants. We had a conversation with one of our anchors because they were trying to be more restrictive restaurants. The grocers are protective of their restaurant areas. 

SCB: Halpern is very active. Bill, tell us about your projects.

Bill Brown: We expect to start four centers between now and the new year. We
just started construction up in Dawsonville on a grocery-anchored center. When you think of Dawsonville, you think of a lot of pine trees and a lot of future growth, but it’s the third diverging diamond interchange being built in the Atlanta area. They’re under construction now because of all the construction up there at GA 400 and Highway 53. We haven’t signed our grocery anchor yet, but we’re dealing with the same issues as far as the number of restaurants, where they’re going to be located and what size they’re going to be, but the restaurants are the ones knocking on the door and wanting to pay the rent. Beyond that, we’re going to service tenants because soft goods have mostly disappeared out of grocery-anchored centers.

SCB: Where are the hot areas in the metro Atlanta area where retailers are wanting to locate?

Bill Brown: We’ve got a lot going on in Smyrna right now. Belmont has been under redevelopment for more than 10 years, and three or four years ago we sold a tract to an elementary school in Cobb County. Last year we sold a tract to David Weekley Homes to build 163 single-family houses. We sold another tract in the spring to Wood Partners for 274 apartment units, and we’re doing the retail for them. We signed hitehall
Tavern and several other restaurants and service tenants. We’ll have a senior living aspect there as well. Right up the street at Atlanta and Spring roads, we’ve got a
project zoned for mixed-use. We’ll develop street front retail and 290 apartment units. With some of these expensive sites, the only way to make sense with them is to go vertical in some form or fashion. Normally that’ll be multifamily.

Jon Birnbrey: For the majority of the national retailers that we represent, they want to find their prototypical opportunity with great access, great visibility, great presence and, most importantly, great cotenancy. They want to be their preferred traffic generators in the shopping center. The first question for our national bigbox anchor tenants is “Who’s coming with us and how’s it going to be designed?” They’re a little bit slow to adapt to some of these unique developments because they’re unable to get their prototypical footprint and parking ratio that they prefer. It’s really a function of where their gaps are and where they are missing out on market share to their competitors. For national restaurants, their interest remains in where other restaurants are succeeding. It’s very driven by area sales, because retailers are very concerned about making mistakes. It’s easier to quantify an opportunity when there’s a proven track record for like-minded retailers around them.

Michael Habif: It’s interesting, where they aren’t going in Atlanta is to the south
side. Hopefully that changes at some point. Everything is going to the northern quadrants, but the infrastructure can only hold so much development. The south side is just not being serviced at this time, but people are seeing the benefit of the airport. Aerotropolis is taking off and Porsche’s U.S. headquarters is located by the airport. Hopefully we’ll see that next step be taken for Atlanta.

Jon Birnbrey: With the exception of Walmart and other retailers of that nature, the majority of retailers don’t want to be pioneers, the first into projects. They’re not going to the south side unless there’s a large density of retail synergy. 

Emil Gullia: By the same token our retailers are looking at the data and trying to find gaps that they’ve not previously considered. It’s not always popular but Atlanta is over-retailed and our retailers in the Southeast — about eight states — are coming up with new reasons to go to market. Some say they like markets with liberal arts colleges that are over 18,000 students because they offer classes with students who buy the products that they sell.

Jeff Fuqua: And they have their parents’ money.

Emil Gullia: That’s true, and that makes a difference. We’ve got multiple retailers that say they want to see a lot more than just one driver. Colleges have become part of that because of the youth and spending. Our retailers are looking for that synergy, but they’re also looking through their own internal data and they’re now considering targets they hadn’t previously thought about. We had three markets last week that we toured that we’d never thought would make sense, but it’s their own data management that’s telling them to refocus their efforts. Co-tenancy is key, but it’s not the only driver, there are more tools in that toolbox.

Jesse Shannon: There’s not a hardand-fast rule of where retailers are going
right now to that point. It’s not necessarily urban or suburban, it’s both. Most of the retailers right now are looking a void analysis looking for the opportunity for growth and where they lack stores. You’re seeing a disproportionate number of retailers looking at secondary markets compared to the past because most major MSAs are covered by their existing store counts. 

Peter Pelt: We’ve seen surprises recently in the likes of Hobby Lobby and Dick’s Sporting Goods opening in places like Tifton and Waycross. In the case of Waycross, we talked about what makes that unique and the statistics aren’t what they appear to be. There’s a lot more pent-up disposable income in some of those markets and they’re being drawn from greater distances. 

Jesse Shannon: One of the helpful drivers in securing retailers for those locations is leading with a grocer. One of the things that Fuqua Development has done really well is that everyone of their developments has a grocery component. Typically the grocers don’t require cotenancy. They’re the lead tenant. What we’re seeing in a lot of our deals is that we’re really developing a power center with a grocery component ultimately as part of the project. If you can lead with that particular tenant, perhaps you can secure your first soft goods discount retailer and then you build off that because there’s somewhat of a herd mentality with retailers. There’s safety in numbers, and some of them have fantastic internal sales data that let them know which retailers they need to co-locate with to drive sales. We’re seeing a disproportionate share of power center development right now.

Michael Puline: Leasing off of grocery stores, especially new ones with the exclusives that they have, can be extremely difficult. Some grocery stores won’t let you put sandwich shops in there or pet stores.

SCB: What are the general contractors seeing in terms of what’s coming to the Southeast?

Channing Mason: We have the easy job of just building. For a few years we had to go a little farther out — up to Charlotte and over to Alabama. Georgia is back and has had some really nice projects recently like Belmont with Halpern, Emory Point with Cousins, Avalon with North American Properties and LakePoint with Neal Freeman. These are all very high-profile, exciting projects that we’re just glad to be apart of.

SCB: What are Ackerman’s plans to refocus on the retail market?

Leo Wiener: We’re a regional developer in the Southeast, and I’ve taken over the role as president of Ackerman Retail. Ackerman has been in the retail business forever, and Charlie Ackerman is obviously an icon in Atlanta. For the past five or six years Ackerman has not been as active as they were in the past. That’s notwithstanding the expansion of Perimeter Town Center with apartments in a joint venture with Coro Real Estate. Ackerman is going to develop the retail below the new apartments. Over by the Braves stadium, Stadium Walk will be a mixed-use project with apartments and retail and restaurants out front. The goal for Ackerman is to elevate and expand the brand, we’re not starting it from the ground up. There was already a retail presence with more than 1 million square feet of retail space in the portfolio. With that in mind, we are going to try to build a little bit of a third-party business with leasing and management to bring that retail DNA back into Ackerman. We have people on the ground and we’re gaining that market intelligence. At the same point, the focus is really on acquisition and development. Ackerman’s existing relationships are incredible, the brand is incredible so we’re going to try to leverage off of that. We have a lot of partners in a lot of different types of projects from medical office, office and land. 

SCB: What’s selling and not selling as far as investment sales in Atlanta’s retail market?

Mac McCall: Obviously there is so much capital chasing yield and real estate gives that, even though there’s a lot of risk compared to other asset classes. With the amount of money we’re seeing for single-tenant assets and well-placed shopping centers is through the roof. We sold a Chick-fil-A for a 4.1 percent cap on a ground lease and we’re selling a McDonald’s for a 4 percent cap. There’s so much money that’s pent up looking for opportunities. That’s the biggest problem for getting people to sell projects because of the money they’ve invested. The amount of family office money and foreign money coming in still is rampant. Interest rates aren’t going to change anytime soon based on the world economy, so the real estate market is going to be a very popular asset class for a couple more years to come at least.

Jim Hamilton: I would echo that, the market is more flush with capital now than maybe ever before. There’s absolutely a supply-demand imbalance where there’s just not nearly enough supply for sale out there. We continue to see cap rate compression across all different spectrums of retail assets, especially in the grocery-anchored space. We’re seeing new buyers emerge, new domestic and foreign capital sources that are pushing the risk curve further out, whether that’s into secondary markets or chasing different types of retail investment. Right now is about as frothy as we’ve seen the market in a long time.

Mac McCall: And now the lenders have really opened up, that’s the key.

Michael Habif: I was actually feeling pretty optimistic about the market until I heard you guys. Four percent cap rates?! The party may be over, that’s a little bit scary.

Tony D’Ambrosio: Now I hear from buyers that they like to purchase assets at a 6 percent cap but they’re willing to go into the 5 percent cap. And this is for traditional shopping centers, not single tenants. In 15 years I haven’t seen things quite that frothy, and it’s because of the supply and demand. There’s so much capital aimed at real estate, and you guys aren’t building enough new product. Traditional grocers like Kroger and Publix only do one or two stores a year now.

Mark Joines: Not only that, but Publix more and more is wanting to own their own stores, and Kroger as well. Walmart has done that for a long time too. The product has kind of dried up and there’s not that much development. In Alabama Publix is buying more stores than they’re developing.

Jim Hamilton: The depth and diversity of the buyer pool today is more extensive than we’ve ever seen it before, even compared to 2005 and 2007, it’s extremely competitive out there today.

Pierce Mayson: At last year’s roundtable I said that private guys were looking at secondary and tertiary markets because they couldn’t compete with the REITs in the primary markets. Now with pension fund money being aggressive, international buyers coming to Atlanta and 1031 money, the REITs are going further out as well. That’s the effect, the private guys are doing anything they can to set themselves apart. We have a power center in a very secondary market in Georgia that has a ton of interest from public and private money. A 1031 buyer was one of the best bidders but we told them we didn’t know them and they don’t have a track record buying that type of product compared to the other bidders. They asked what they had to do to buy the deal and later offered to put $2.3 million in cash down on day one and we said, ‘You got it.’ Those types of buyers are trying to do anything they can to set themselves apart.

SCB: Since owners are getting hit on all sides with capital, how does the owner decide what deal to take these days?

Jim Hamilton: That’s a conundrum. If you look at four or five years ago, you were just hoping that one group would step up and pay the magic price. Today, there’s a very deep bench of buyers willing to pay the same price so how do you select the buyer? It’s a very delicate process. You’re seeing buyers do things and you’re pushing them a little bit outside of their comfort zones. It’s beyond a monetary aspect of the offer, it’s either a shortened due diligence or shortened closing process or nonrefundable money day one. We’re seeing buyers do things like that to be competitive.

Sonny Molloy: The particular challenge with $1 million to $10 million buyers is that there’s a number of private equity investors competing for the same deal, so
how do you qualify them, particularly if they’re going to use debt looking at the CMBS market, life company or bank. It all comes down to if you have an all-cash buyer that’s highly qualified and you see a clear path for them to close. If you have multiple buyers competing with financing, you really have to understand the path to get that deal from contract to close. What market are they financing in? What’s the volatility there? Buyers financing in the CMBS market right now are seeing a little bump up in grade that’s affecting the returns, yields and re-pricing.

Jesse Shannon: Speaking from a buyer’s perspective, it’s absolutely brutal. I can now give the investment sales guys credit to actually get into a final bidding round at this point, it’s uncomfortable and it’s literally like you’re filling out a college application. The screening process for equity, sourcing debt and leverage are all very valid to be asking, but it’s not something as a buyer you’re always wanting to be answering prior to having a deal under contract. The screening process has become unbelievably brutal, and in certain situations we have cut up nonrefundable earnest money upon execution of contract. Certainly not $2.3 million, but earnest money commensurate with what we’re going to expend in due diligence anyway pursuing the deal before we determine whether or not we’re going to acquire it. 

Tony D’Ambrosio: Atlanta was the heart of distressed shopping center real estate for five years or so. We became accustomed to having clients ask where those are and asking for proof of funds, bank letters and Schwab statements with the actual balance on it. When I was selling shopping centers in 2008, the clients on the other end of the special servicer wanted to see everything. That has carried over to now. You’d never ask Branch Properties what their credit is, but that’s where we are now.

SCB: Where’s the capital coming from?

Chuck Taylor: There is a lot of capital out there right now, and it comes from each side of the stack. Debt capital markets are wide open, banks have certainly come back in a big way. It’s a good time to be a borrower, even though it’s tough to win the acquisition. There’s plenty of debt capital available, and you’re seeing that grow in the mezzanine space. Capital is coming in from all over on the equity side.

SCB: With all the equity in the market, how difficult is it for the debt players to get back into the market? 

Chuck Taylor: It’s hyper-competitive at this point. I know a lot of people who were lending a couple years ago are finding it pretty difficult following their entrance into the bridge space where a lot of fund capital is come into play over the last 24 months or so. My company [Realty Mogul] is an online marketplace and we’re focused on commercial real estate. We’re placing credited investors into equity on a private placement basis using technology to get them into equity opportunities. We also have institutional capital that’s putting capital into the debt markets as well. On the debt side it is really competitive, whereas a couple years ago you wouldn’t see on a bridge opportunity too many bids. Same thing on the acquisition side as far as the number of borrowers today, the names are astounding. On the retail side, grocery-anchored isn’t the difficult project to get financed. It’s probably finding the right assignments.

Tony D’Ambrosio: CMBS has been sort of a lubrication, providing so much liquidity, even if not everyone is using it. It’s so helpful and useful in retail. Do you see the amount of CMBS issuance and CMBS debt slowing down?

Jeff Enck: To continue on the CMBS discussion, in the private capital sector, we’re seeing very few conduit loans just because the difficulty of going through that whole process. If you’re buying a $6 million deal, 90 percent of the financing is coming from banks these days. The banks are being a little bit different of an animal than what they were. The national banks are not as active. The local and regional players are very active. We’re seeing in some cases that local banks will do a nonrecourse loan, which is important because a lot of the buyers are international. You may have a fund with money coming from Germany where no one wants to sign on the note personally, but they can get a non-recourse loan from a local bank now, which is a little different than the last goaround. Class B assets where you have the super credit properties like McDonald’s and Chick-fil-A are at the bottom of the cap rate market, and that’s been the case for about two years. Now we’re seeing outparcel centers that are lesser credit are starting to move up in favor, because buyers are looking for yield and don’t like 4 percent returns, so they’re looking for something like an IHOP or three-or four-tenant properties. Those are very favorable because the cap rates are dropping and rents on those outparcel centers are very high. Now we’re seeing $400 to $600 per square foot centers selling pretty regularly. The issue becomes educating appraisers. The appraisal process has become difficult. If you’re in an up market at any given point, you’re in a property that is going to be the cutting edge of the market, so how do you appraise that? Markets are good though.

SCB: From a legal perspective, what kind of deals are you seeing the most? How do you see activity in the Southeast based on that volume? 

Andy Litvak: Capital is the driver, you’re seeing it on both the buy and sell side. There’s a lot of new acquisition activity with a pretty rigorous pre-screening, diligence and competition process to get into that best and final round. With the cap rate compression and how competitive the market is, those are tough deals to get. On the leasing side, there’s a ton of momentum and a lot of activity. Most of my practice [Nelson Mullins] is with regional and national retail and restaurant operating companies, so the capital is placed not trying to get the hard asset but the operating company. We’ll see what their wisdom identifies in five years. The private equity groups are all looking into the exit and they need to keep growing to do that, but what they’re doing has been justified. We’re also seeing volatility with some of the foreign markets. China and South America traditionally have a lot of volatility, so we’re seeing a lot of capital and equity being placed domestically. It’s only going to get more competitive. There’s a lot of investment appetite and activity.

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