Developers Talk Shop: DLC Management Corp.

DLC co-founder and CEO Adam Ifshin is a breath of fresh (open) air on the retail real estate scene. The operator of more than 95 grocery-anchored and necessity-based centers cutting a swath from Texas on up to Maine was excited about the prospects for open-air centers in a recent conversation with Real Estate editor Al Urbanski:

Malls are dead. True or false?

What’s not working right now are B and C malls in secondary and tertiary markets. What’s struggling are malls with heavy concentrations of undifferentiated apparel retailers. They range from Macy’s, Dillard’s, and Penney’s  through to  American Eagle, Abercrombie, and Gap. Dillard’s can’t draw you any meaningful traffic anymore.

It’s a different story with A malls. JLL just released a study of 90 regionals and super-regionals and found that their average rents are $72 per square foot — 3.5 times higher than the average rents at second-tier malls.

Yes, the good stuff looks like it’s still good. The top malls still draw people, but with a different slate of retailers. Great merchants reinvent themselves. Some catalysts cause stress on retailers and the good ones react and make changes. And e-commerce is far from the only thing that causes stress. Heavily leveraged buyouts and retailers saddled with debt are larger issues than Amazon or e-commmerce.

For more than 25 years now, DLC’s game has been investing in grocery-anchored and necessity-based centers, and lots of them are in highly saturated regions like the Northeast and Southeast. How have you handled stress in the marketplace?

Open-air has remained strong, whether in secondary or tertiary markets.  I was in Buffalo all day yesterday and, let me tell you something, open-air in Buffalo is rocking!  The economy is pretty good there, but people still don’t have big budgets. Consumers want value. People want to go to Sam’s Club, Target, Walmart, and the grocer. And then there’s brands like Burlington, Shoe Carnival, Ulta, Joanne’s, Michaels — all tenants we’re doing deals with.

Are you starting to do more deals with non-traditional tenants like fitness centers and medical facilities?

Fitness is a big deal.  In the same way that athleisure has put the hurt on full-price apparel sellers, fitness has a seat at the table as a traffic-driver. We’re doing a lot of deals with LA Fitness. One LA Fitness location that we’re turning over is 37,000 sq. ft. It’s a lot easier to cut up a box in an open-air center than a mall. But we’re also doing fitness deals in smaller spaces with Orangetheory and Club Pilates.

What other categories are flourishing in open-air centers?

There are three big areas right now. Home is hot. People are staying put in their current houses and Home Depot and Lowe’s benefit, so now we’re seeing expansion from furniture stores and home furnishings.  We see TJ adding more HomeGoods stores and Kirklands is very active. Another one is kids’ daycare. That’s been coming for a while, but now we’re doing something with a 5,000-sq.-ft. concept, a two-hour babysitter service. They’re playing off the restaurant trend. Parents can leave their kids there and go get dinner alone. Health is big. We’ve redone three anchor boxes with hospitals. We plan to do more.

At the National Retail Tenants Association conference in September I heard  negative talk from retail leasing managers about medical tenants. They seem to think dialysis patients aren’t necessarily shoppers.

Tenants are getting enlightened about health care. At the end of the day, traffic is traffic. When we did [Hartford Hospital in] Vernon, Conn., we needed five waivers from tenants. It took a long time, but we learned about the mechanics. They do generate traffic. People don’t do dialysis by themselves. What’s the person who drove the patient to the center going to do for three hours?

Essentially, what you’re saying is that necessity-based centers thrive on people’s needs, and that those needs are changing.

The world is changing, you can’t deny it.  Are you going to sit around and deny it, or figure out how to take advantage of it?