Success In The Suburbs: Build For Underserved Customers Outside The Urban Core, Florida CRE Experts Say

Excerpted from Bisnow story.

In South Florida, the focus is usually on the flashy, the sexy, the chic. But developers working in the suburbs of Fort Lauderdale are finding that it is profitable to leave trendy developments to others and focus on quieter deals in underserved areas, like the small cities of Sunrise, where the Florida Panthers hockey team plays, and Plantation, where major companies like Magic Leap and Virgin Cruises have recently established headquarters. 

The area is transforming rapidly. Sunrise is bracing for an influx from a $1.5B development, Metropica, on 65 acres. And the Miami-Dade County Commission will vote Thursday on approving the country’s biggest mall and theme park, American Dream Miami, on 175 acres just south of the Broward County line. While rents are high across the board, people priced out of hot markets like Miami or Fort Lauderdale are better able to afford the western suburbs, and retailers are now coming to them.  During the Bisnow West Broward Neighborhood Report event Wednesday, moderator Arthur J. Gallagher & Co.’s Lisa Neumayer asked panelists what they felt were common misconceptions about the western part of Broward County.

“West Broward has stronger submarkets than East Broward,” Franklin Street Senior Vice President Greg Matus said. He said a main suburban road, University Drive, is arguably the strongest retail corridor in all of Broward County. 

“Retail is actually underserved in West Broward,” he said. “I live in Cooper City with five kids and I have to drive through traffic 10 minutes to find a restaurant. Pines Boulevard is probably stronger than Federal Highway.”

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The 5 Questions Shopping Center Landlords Need To Ask Before Leasing To Retail Tenants

A recent report from Credit Suisse signaled tough times ahead for America’s malls: 20% to 25% are predicted to close by 2022. As the number of shopping centers shrinks nationally, landlords have had to scrutinize the retail tenants that fill their properties. No longer subscribed to the “shop until you drop” mentality, consumers are traveling farther and less frequently to high-end shopping centers that combine attractive stores with entertainment experiences.

“Landlords have to be more selective and more proactive,” Franklin Street Senior Vice President of Retail Agency Leasing Cary Beale said. “If landlords are not being proactive, the center is going to fail.”

Beale, who has more than 20 years of experience representing both shopping center landlords and retail tenants, has laid out five essential questions landlords need to consider when looking at a retailer for a shopping center.

1. What is the center’s and the retailer’s target market?

At the Baldwin Park Village Center in Orlando, Florida, Franklin Street’s leasing team has brought in 13 new retailers and restaurants since taking over leasing in May 2016. Most are new-to-market concepts and boutique stores that offer family-friendly options for residents and serve as a destination for those living outside the upscale Baldwin Park community.

Open-air shopping center landlords have increasingly tapped into the large and affluent demographic living in Baldwin Park, a population that enjoys one of the highest average household incomes of any neighborhood in Orange County. The stores include Tactical Brewing Co., a new microbrewery, and Manny’s Original Chophouse, a steakhouse chain known for its road trip-themed décor.  

As shopping centers struggle to attract shoppers, particularly millennials who have abandoned the former watering holes of their parents for online shopping, landlords must carefully compare the demographics around their property with the target market of the prospective retailer.

2. What is the center’s main competition?

Understanding the other options shoppers have in the area can help landlords bring in retailers that make their center stand out. Malls close to each other will compete for customers, and having identical stores lowers the probability that either will be chosen.

Nearby big-box giants could sway the competition in their favor. Filling a shopping center several miles from a Target with department stores would set up the landlord for failure.

“Make sure you are best in the market,” Beale said. “You need to know who you are competing against.”

3. What are the retailer’s build-out costs?

Shopping centers have become a riskier investment, making it a less welcoming environment for retail startups. Asking prospective tenants for their estimated build-out costs offers one way to assess their experience in the market.

“Many of these new startup businesses don’t know what the startup cost is, and they evaluate it to be much less than their actual cost,” Beale said. “If they are opening a restaurant and they say it is $100K, and you have built 30 of these and they are actually $300K to $500K, the tenant doesn’t really have its heads wrapped around what it’s doing.”  

Prospective tenants willing to spend more, and who have the financing to do so, could prove that they are willing to invest in the success of the center. “It shows the landlord that they are going to fight to succeed,” Beale said. 

4. Does the retailer have multiple locations?

Another bellwether for potential retailer success is whether the concept already has multiple locations.

“For a landlord, bringing in a tenant with multiple locations is exciting and we know they have a good record in the past, they are already a proven concept,” Beale said.

Landlords can also use a shopping center to debut an internationally successful brand. At the Santa Anita mall in California, Taiwanese menswear brand Simple, Style, Trend & Casual Life, or SST&C, opened its first U.S. store. The store caters to the large demographic of Asian families living in the area.  

5. What is the game plan for the center?

Shopping centers do not become successful from individual deals with tenants. Now more than ever, a holistic experience across all the stores affects the return on investment.

“The biggest mistake landlords make is they don’t look at how the tenants impact the shopping center,” Beale said.

Balance is important. Overutilizing high-use tenants in shopping centers is a common mistake. A landlord might build too many restaurants that have too few parking spaces, leading to frustrated customers and a loss in revenue.

The ideal shopping center leverages a healthy mix of entertainment and exciting new restaurant concepts. Amenities like a movie theater or arcades have become essential, while dining has shifted from franchise-heavy offering to more unique, chef-driven experiences. Celebrity chefs and local farm-to-table options have also been making waves in the market.

As e-commerce and shifting consumer trends continue to pressure malls and shopping centers to adapt, it is more important than ever to find retail tenants that fit the complete vision for the shopping center.

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Restaurants Key To Retail Developers In South Florida

Miami residents’ stomachs are becoming key to the future of the retail experience in South Florida.

“Food is the future,” Terranova Corp. development director Joshua Gelfman said. “Human beings are social animals, and we want to have experiences in public.”

Gelfman said restaurants are key to creating experiences that shoppers crave at shopping centers and in neighborhoods like Lincoln Road.

Locally owned businesses — especially restaurants — have become key to retail real estate in Miami, said CBRE senior associate Danny Diaz, who was part of a Bisnow panel Tuesday that included Franklin Street senior vice president of investment sales Greg Matus, Comras Co. CEO Michael Comras, Kimco Realty president Paul Puma and Plaza Construction president Brad Meltzer. 


Optimism Runs High in Fort Lauderdale

While prices of Fort Lauderdale commercial properties have been pushed up in recent years, today’s buyers likely will not regret the investment in a decade, according to local real estate execs.

“No one really knows the direction of the market,” Franklin Street’s Greg Matus said at Bisnow’s Fort Lauderdale’s State of the Market event on Tuesday. 

“History says we’ll have a downturn in 2018. But I think we’re heading for a double header or extra innings.” 

He said the market is going through a shift, and it will be a different place in 10 years. 

“The time to buy is now,” Matus said. “You’re going to look back 10 years from now and say to yourself, ‘I wish I didn’t get paralysis from analysis in South Florida and Fort Lauderdale. I should’ve bought now.’ There’s such a scarcity of product right now, you got to take action.” 

EDENS vice president Nicole Shiman echoed Matus’ views on the area, adding that “money is chasing deals in a very aggressive way.” 

“Every time an asset with a grocery anchor is listed,” she said, “it’s pretty unbelievable to see the interest from the buyer pool.” 

EDENS prefers investing in value-add retail in high-growth, high-density urban areas with strong demographics that can be repositioned, she said. Still, Fort Lauderdale has its challenges. 

IP Capital Partners co-founder Josh Procacci said REIT and institutional investors have been flooding the market for industrial buys, driving some prices up to points that did not make sense for his firm. He highlighted an unidentified FedEx crossdock facility that traded for more than $350/SF, “which in my mind is far north of replacement cost [and] starting to get into some really low cap rates.”

Fort Lauderdale Mayor Jack Seiler, in a keynote speech, said the city led the way in the state with job growth — adding 26,300 private sector jobs last year with a 4.4% unemployment rate — but there were 25,000 job openings still unfilled in Fort Lauderdale because of a skills gap. 

“It is the biggest problem we are dealing with in this area,” Seiler said. He encouraged the public and private sectors to foster a talent base of workers who take vocational training versus going the college route. “It’s hard to find good, solid employees when you go out to market. There are so many great jobs out here in Fort Lauderdale that are non college jobs.”


Retail Rents, Pricing Not Going Down Anytime Soon

Retail may be nearing the top, but we’re not coming down soon, many of our panelists said during our Retail & Restaurant Roundup last week. Franklin Street‘s Monetha Cobb, who moderated a panel of development gurus, says rents are near a top on what the typical retail tenant can afford.

“I feel momentum picking up,” says Loudermilk Cos’ Robin Loudermilk. Robin also says land prices are still high, making new developments difficult to pencil out. In fact, if you haven’t tied up land for development, he predicts it’s too late since sellers still have “stars in their eyes” when it comes to pricing their properties. “I think we’ll have an economic rollback,” he says, “but I think there’s still a runway on some of the land prices.”

Robin and Monetha were part of a lineup of developers and brokers that included Marcus & Millichap’s Michael Fasano, North American Properties’ Ron Pfohl and Halpern Enterprises’ Jack Halpern at the JW Marriott in Buckhead last week.

Restaurants are still a darling tenant for many retail developers. Jack highlighted his redevelopment in Smyrna, the 48-acre Shops at Belmont project. The development, which will include medical office and retail, will feature a majority of local restaurants. “Over half the square footage in that project is devoted to restaurants,” Jack says, adding they’re all locally run operations. “We take chances with people whose credit might not pass muster with larger retail owners.”

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The Return of the Condo Market

Condos are making a comeback. But only on the high end.

That’s the message from Atlanta Fine Homes Sothebys International Realty’s Christa Huffstickler during our 2016 Multifamily Forum at the Cobb Energy Centre yesterday. Christa tells us she’s working with more multifamily developers looking to rejigger potential projects by converting some units into condominiums. The half-and-half approach, she says, is a strategy to get financing that’s becoming more scarce.

“We know that there will be some condo announcements and offerings coming to market. There are some very ambitious people,” Christa told our audience of more than 350 attendees. But for now, developers are focused on the luxury condo market, where units can start at $1M. She says there’s a pool of buyers seeing housing in pricing between $600k to $1M, “and there is nothing for them. The challenge with even the new projects we announced…everything is trending toward the very expensive, very high-end luxury base.”

Christa was part of a panel that included Hunt Mortgage Group’s Keith Morris, CFLane’s Brooks Castellaw, Institutional Property Advisors’ Brian Murdy, Colliers International’s Will Mathews and Franklin Street Real Estate Services’ Jake Reid. Brooks says size is becoming a desirable option—the bigger the unit, the better. For instance, its Ardmore & 28th project has eight townhouses that already have leased six of the units at $4,500/month. Its Olmstead Chamblee project now underway will have 10 townhouse units as well. “I think there’s a great demand for larger units,” he says.

During his keynote address, US Department of Housing and Urban Development regional center director Ruben Brooks told our audience that there is evidence of a multifamily slowdown in the Southeast. Last year, HUD saw $2B in transactions, down from $3.2B the year before. “we’re seeing a slight …slowdown, which is probably a sign of things to come,” Ruben says.

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