Good News

In March, Costco announced plans to take advantage of the distressed real estate market and open stores, despite the downturn, at its customary pace of 25 to 30 a year. “We’re getting better deals on real estate,” CEO Jim Sinegal said. “People who didn’t want to talk with us about shopping center sites now want to talk with us.”

In fact, the Issaquah, Wash.-based warehouse club isn’t the only one leveraging the recession. There is a growing list of vacated boxes—former Linens ’n Things, Circuit City and Mervyn’s locations—that are creating new opportunities. “Best Buy is taking advantage of the wealth of empty boxes coming on the market, seeking to drive low rent deals,” said Katherine Blachly, director of marketing for SRS Real Estate Partners, formerly Staubach Retail Services, based in Addison, Texas.

Sub-markets that traditionally would have been tough to get into for a number of promotional retailers are now opening up, Blachly added. “A good example is Orange and L.A. Counties in California. Both are close to being built out, but now there is opportunity in a number of sub-markets that have traditionally been tight on space.”

Grocers are continuing to find opportunity as well. Fairway Market, the iconic New York grocery operator, has signed on as a new anchor for Post Road Plaza in Pelham Manor, N. Y., occupying about 75,000 sq. ft.

Someone forgot to mention the recession to Post Road Plaza. The 268,172-sq.-ft. Levin Properties-owned center is undergoing a total makeover and is in active lease mode. Current tenants include Modell’s, Dress Barn, Citibank and A.J. Wright.

Fairway Market is but the tip of the grocery-success iceberg. “National, regional and independent grocers are very active right now,” said Todd Caruso, senior managing director, eastern U. S., for Los Angeles-based C.B. Richard Ellis.

CBRE placed first in this year’s Fastest Growing Managers survey (see related story), with 18.7 million sq. ft. of new contracts in 2008. It credits the recession for providing increased opportunity to pick up leasing, management and disposition business.

In direct response to challenges in the current economic climate, Atlanta-based Jones Lang LaSalle, through its distressed property receivership services, has accelerated its activity to provide lenders, servicers and financial institutions assistance in managing defaulted real estate assets. As of the end of October 2008, Greg Maloney, CEO and president of Jones Lang LaSalle Retail, had been appointed Receiver for nine distressed properties across the country.

It is likely, said Maloney, that the company will increase its receivership business for commercial real estate assets, as the number of defaulted assets is expected to increase over the next year.

At first blush, that’s not particularly good news, except that as a receiver JLL has the fiduciary responsibility to stabilize the properties and work toward achieving the most profitable outcome.

“Even as this is a difficult time with unprecedented challenges, there are also remarkable opportunities,” said Maloney.

Besides increasing its receivership business, JLL is taking aim at those who would say the shopping mall is dead. The company has put together marketing programs designed to underscore the positive and “renew the mall’s image as an entertainment destination,” said Maloney.

Shopping center developers are also working to pump up the image of their assets as dark spaces increasingly leave consumers wanting.

Costa Mesa, Calif.-based Donahue Schriber, which owns or operates 93 shopping centers totaling more than 16 million sq. ft. in the western half of the country, has parlayed the recession into an opportunity to inject vibrant graphics into some of its centers.

“Though our vacancy factor is at 93.5% in our operating portfolio, we’ve initiated the use of creative window graphics across the storefronts of vacant spaces,” said executive VP operations Michele Babcock. “Our themes depict merchandising or people shopping, all of which enhance the environment and shopping mood. It’s had a very positive impact on our existing tenants and shoppers.”

The nation’s largest public real estate company, Indianapolis-based Simon PropertyGroup, is on its own “malls-are-alive-and-well” mission.

David Simon, chairman and CEO, reminded the audience during a recent Wharton Leadership Lecture that those who would write the American shopping center’s obituary have been proven wrong before. “I’m going to bet on the American consumer a bit more than CNBC and the others,” Simon said. “I think [retail] will bounce back a little bit faster and harder than most people say.”

What will happen, he said, is that strong retail will get stronger, and weaker retail will suffer. And he predicted that regional malls will outperform local malls. But, he emphasized, winning in the future will be about improving. “Long term, the mall has to become a smarter box.”