Don Casto on retail properties post-pandemic

Don M. Casto III’s father, Don M. Casto, Sr., started the Columbus-based Casto real estate company to develop single-family homes and shopping centers. Today, the company manages more than 26 million sq. ft. of property in the Midwest, the Southeast and the Mid-Atlantic. Don’s seen lots of changes in the past half-century. We were interested to hear what marketplace shifts he’s seen take place during COVID-19’s presence on the planet.

Have you seen anything develop during the pandemic that surprised you?
When I was new in the business, I asked my old partner Dick Solove how he had gotten so successful in the real estate business.  “It’s really simple,” he joked. “You have to live a long time.”  We’ve been developing in Florida for a long time and, we’ve been seeing a lot of medical uses becoming part of retail developments. We have two projects nearly completed that are anchored by medical tenants. Multiple practice groups are working out of 75,000-sq.-ft. buildings. They generate almost as much traffic as a typical retail anchor. Medical development in retail space is exploding right now.

Anything other significant new trends?
Yes. Single-tenant net lease development used to be ancillary to our business. Every now and then we’d do some pad development in front of or adjacent to our shopping centers. Today we have a division that’s developing more than 60 net lease properties. Net lease is a product type that doesn’t always need an anchor, and we’re leveraging our experience to grow that side of the business.

Casto has been doing quite a bit of mixed-used development in recent years.

Will that continue?
Yes, we’re comfortable in that arena and it will continue where the market demand exists. The mixed-use component adds stability to a project. At our Winter Park Village project north of Orlando we’re adding dense apartments, five new restaurants and, interestingly, medical is becoming part of this project, too. Our Hamilton Quarter project in northeast Columbus has done very well and includes retail, multi-family, and both medical and conventional office as well as hospitality. 

Retail brands are expanding, but labor and material costs are high. Is that slowing you down?
One thing that retailers have to understand is that we’re currently in an ever-increasing cost environment. We believe it’s beneficial for retailers to understand that developers and landlords are in a tough spot on construction costs. There’s a significant gap between existing development and new development. For example, what not long ago was a $12 per sq. ft. rent for new, junior box construction is now going to be $18. And yet, nearly all developers we’ve spoken with recently say lease signings are high and vacancy rates are low. Right now, within our portfolio, we’re at historically low vacancy. In our entire central Ohio portfolio, we have just a handful of larger spaces available. Deals are tougher to make these days, but when they’re being well thought out we’re seeing that both the tenant and landlord sides are experiencing win-win situations.