ICSC RECon Recap: Time Will Tell

Tuesday, May 29, 2018

Real estate indicators by HFF Managing Director Claudia Steeb in HFF's Pittsburgh office. 

The International Council of Shopping Centers's (ICSC) annual RECon conference, which is known as the global retail real estate convention, was held in Las Vegas from May 20 through 23 and started with everyone wondering about attendance, tone and overall expectations of retail. The HFF Retail Team wasted no time preparing for the conference by starting with its traditional kickoff meeting on Sunday morning, using this opportunity to review trends, strategies, best of the best practices and overall market themes for discussions during the conference. Our focus: Put the client’s interest first!

Also continuing with tradition, HFF hosted our annual ICSC cocktail and networking reception, which is a great opportunity to connect with clients, friends and guests to discuss current market conditions as well as conference expectations. While the general mood and theme centered around “it seems to be better than last year,” everyone was still trying to determine what that comment really meant.

The answer to the pending uncertainty regarding attendance at ICSC RECon quickly became evident by the approximately 40,000 registered attendees, up from 36,000 registered attendees in 2017. In addition, the 1,256 exhibitors this year (also up from 2017) included 150 new exhibitors at the conference.  

Daytime meetings in addition to evening dinners, cocktail parties and other events provided the opportunity to continue lively discussions regarding the future of retail, retailers, trends, etc. All in all, more than 80 HFF attendees scheduled dozens of meetings, meals and events throughout the three-day conference to connect with buyers, sellers, lenders, borrowers and retailers to discuss and understand the current retail market conditions, which will enable all of us to provide excellent guidance to our clients throughout the year. The ability to walk through the halls, listen and just be seen are invaluable opportunities for all commercial real estate professionals and retail specialists to get a handle on the current topics and concepts.

ICSC RECon Themes and Takeaways

This year, as always, themes and takeaways varied at the conference. Everyone seems to want the same product; however, a few topics resonated throughout the three days at many of the events.

  • Values:  While clarity in values continues to be a topic of discussion, it appears that many property owners have accepted current underwriting and perhaps the bid/ask gap may be closing.
  • Capital:  Many firms stated that they have, are in process or will be raising capital specific for retail properties today. Defining the product, pricing for the product and returns should be clarified as these funds deploy their capital. It is anticipated that the returns for retail should be higher than in the past and higher than other property types.
  • Underwriting:  Today’s underwriting, whether from buyers or lenders, requires an in-depth analysis of co-tenancy, in-place income, rollover risk, market rents and replacement tenants among other key factors.
  • Cap Ex, TI and LCs:  The actual costs required for capital expenditures, tenant improvements and leasing commissions have increased as a result of tenant demands. Property owners and lenders focus on recent actual costs incurred to determine the underwritten amount in valuing a property. Are the tenants in control, demanding higher tenant improvements to be paid by property owners? Many developers say that is a requirement to capture a desired tenant today.
  • Lenders:  Lenders continue to make funds available for retail properties, but underwriting has tightened, with greater focus on sponsorship, location and real estate fundamentals. Attracting lenders to properties other than dominant, high-sales, grocery-anchored centers with low leverage loan requests require the ability to “tell the story.”
  • Change:  Change in retail may be the “new normal.” Expect retailers to continue to open new stores, close stores and update formats. Also expect owners to adapt to the new retailer demands, including smaller store footprints while capturing consumers. Big box/department store redevelopment remains a major focus, opportunity and concern.
  • Experiential:  Experiential retail appears to be part of the “new normal.”  Fitness centers, restaurants, food halls, live entertainment, bowling and games have become desired tenants that attract shoppers.
  • Technology:  Technology enables retailers to capture shoppers while property owners provide advanced technology features for the shoppers.
  • Omnichannel:  Omnichannel retailers continue to have the most success. Brick-and-mortar retailers have added online opportunities, while online retailers continue to open brick and mortar locations.
  • Mixed-Use:  The opportunity to convert a portion of a retail property into a mixed-use development by adding an office, hotel or other non-retail component appears to be highly sought by many developers. Will this be the next “most desired” retail property? Many major property owners have already been able to take advantage of subdividing unused land parcels and either developing the alternative use or selling the parcel for a complimentary non-retail use.

Are we at a turning point in the investor mindset for the buy, sell and lending sides of retail? Time will tell. Retail continues to be a challenging property type, whether buying, selling, lending or borrowing, with change and uncertainty impacting strong and weak retail properties. In the meantime, we at HFF continue to focus on listening to our clients and providing them with the best guidance.

About Claudia Steeb

Claudia Steeb is a managing director in HFF’s Pittsburgh office. She has more than 30 years of experience in commercial real estate finance and sales. She is primarily responsible for originating debt and equity transactions throughout the eastern United States and focuses on retail, office and self-storage properties and portfolio transactions. During the course of her career with HFF, she has completed in excess of $14 billion in commercial real estate transactions.

Ms. Steeb joined the firm in June 1995.  Prior to HFF, she was an originator with Lane, Noland Smith & Co. (now Grandbridge Mortgage), after working for five years at U.S. Steel Corporation in the Realty Development and Audit divisions.

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