Retail – No Longer the Unwelcome In-Law

By Marcelo Bermúdez, President, Figueroa Capital Group, subsidiary of Charles Dunn Co.: This coming Sunday, May 19, commercial real estate professionals, developers, and retailers from all over the country will convene in Las Vegas for the International Council of Shopping Centers annual RECon event.

This coming Sunday, May 19, commercial real estate professionals, developers, and retailers from all over the country will convene in Las Vegas for the International Council of Shopping Centers annual RECon event. ICSC estimates that 50 percent of all industry deals are conceived or consummated at this event. Optimism is high. Attendance is expected to exceed 33,000 and 127 more companies are exhibiting compared to 2012. Retail, it seems, is no longer the unwelcome in-law.

Since the third quarter of last year, the political noise has become badly chosen background music to a market that is recovering ever so slowly. The fiscal cliff came and went and nobody cared. If you Google “QE3 market,” the first handful of article titles proves few know what the government is intending. Last month, it was full steam ahead. Today, there are talks of QE3 being pulled back. The general conversation is undermining the power of retail consumption and the potential economic recovery it can bring. National job growth has increased 1.5 percent year over year in March. While some may argue what is truly employment / unemployment / underemployment, the momentum is heading in the right direction. Consumers also need to be given more credit. They’re doing more with less and managing their finances better. To prove it, the residential mortgage delinquency rate is the lowest it’s been since 2008. 

The credit markets continue to improve for retail investors as well. While banks might be a little tighter with their underwriting, it’s something you can ask for and get a solid response. Beforehand, they wouldn’t return your calls. Lending products like CMBS are mostly agnostic to product type as long as it cash flows and you’re buying below replacement cost. Spreads can be 200 basis points in spread for a 10-year SWAP deal which means 4.00 percent rates at 75 percent LTV. Pricing certainly improves with lower leverage. 

A word to the wise … if you’re attending ICSC: Ditch the Wingtips or high heels. Wear comfortable shoes!