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boynton beach mall

What is going to happen to America’s dead malls? That’s a million-dollar question plaguing retailers and real estate developers.

With a report circulating earlier this month that the biggest U.S. mall owner Simon Property Group has been in talks with Amazon to convert some shuttered Sears and J.C. Penney department stores into fulfillment centers, many industry analysts have been pontificating on the future of malls as logistics hubs.

The consensus seems to be that turning old retail space into new warehouses might not be so easy, even though it might seem like a logical solution. Demand for logistics buildings is skyrocketing as e-commerce sales balloon. But the hurdles include the need to have properties rezoned, which could be met with pushback from local municipalities.

“Just because retail space has gone vacant or remained fallow does not mean that it is automatically a good candidate for repurposing into industrial space,” the head of Moody’s Analytics commercial real estate economics division, Victor Calanog, said in a report just released. “One cannot simply build industrial buildings in areas zoned for commercial use. Often, that requires rezoning areas — a long and tedious process with a low probability of success. State and local governments typically tax industrial properties at anywhere from half to two-thirds the rate of commercial properties, so municipalities have little incentive to rezone areas from commercial to industrial use, as they will collect less tax revenues.”

Demand for various commercial real estate asset types is expected to shift noticeably because of the coronavirus pandemic, with more people now working from home, flocking to the suburbs for space and buying online things they used to browse for in stores.

According to data pulled by Moody’s Analytics REIS, apartment development in the U.S. is expected to be down 15.6% in a post-Covid-19 world. Office development is set to drop 10%, it said, while retail falls 15.7%. Industrial development, meantime, is expected to pick up 3.6%.

The firm did find five markets where it said it would make the most sense to covert vacant retail space into warehouse space, based on where retail has been underperforming and where warehouse demand is hot. Those are: Central New Jersey, Northern New Jersey, Long Island, Memphis and Detroit.

But shopping malls are likely going to be shuttering in suburbs all across the country, as store closures grow in number and landlords capitulate. Another new report out this week from Coresight Research estimates 25% of America’s roughly 1,000 malls will close over the next three to five years, with the pandemic accelerating a demise that was already underway before the new virus emerged.

The malls most at risk of going dark are classified as so-called B-, C- and D-rated malls, meaning they bring in fewer sales per square foot than an A mall. An A++ mall could bring in as much as $1,000 in sales per square foot, for example, while a C+ mall does about $320. There are roughly 380 C- and D-rated malls in the U.S., according to an analysis by the commercial real estate firm Green Street Advisors. It has said malls rated C and below “are not viable retail centers long term.”

CBL & Associates, a Tennessee-based mall owner that has a number of B- and C-rated malls in its portfolio, has said it plans to file for bankruptcy by Oct. 1, highlighting just how much pressure these landlords are facing. Even high-end malls are under pressure, though. No one is really immune. An upscale mall owner in Miami, Bal Harbour Shops, is currently moving to evict the luxury department store chain Saks Fifth Avenue for not paying rent since mid-March. It owes Bal Harbour roughly $1.9 million, according to court documents.

“Despite being given months to honor its past due rental obligations and despite Saks’ impressive post-COVID sales at Bal Harbour Shops, Saks steadfastly refused to make any effort to pay any part of its rent,” Bal Harbour Shops President and Chief Executive Matthew Whitman Lazenby said in a statement. “Bal Harbour Shops has worked tirelessly to ensure our business and our tenants can survive and thrive in this environment. Regrettably, this injudicious behavior has left us with no other option than to terminate the Saks lease and sue to evict Saks from Bal Harbour Shops.”

A representative from Hudson’s Bay-owned Saks was not immediately available to comment.

About 90% of occupants in U.S. malls are either experiential tenants like movie theaters, or department store chains and apparel retailers, according to the Coresight analysis. This makes malls the most vulnerable type of shopping centers to the Covid-19 impact, it said, compared with other properties like strip centers that have grocery stores and outlet centers that offer consumers bargains.

During the pandemic, movie theaters and clothing shops have faced long windows of being closed, while consumers could still flock to strip centers for food, cleaning products and other essentials. In some states, such as New York and California, movie theaters remain closed to this day. And so with minimal revenue coming in, these are the businesses that are most likely requesting rent reductions, or not paying rent at all.

Mall developers had up until now been courting entertainment companies like Dave & Buster’s and iFly indoor skydiving, and restaurants like Cheesecake Factory, to lessen their dependence on shrinking retailers. But those businesses have also not fared well in an age of social distancing.

So, if not warehouses and entertainment complexes, analysts have pondered other potential use cases for so-called dead malls: Churches, medical facilities, office spaces and even apartment complexes.

But even office space is a risky bet now, as the working-from-home trend could become permanent for some. Workers in JPMorgan Chase’s corporate and investment bank, for example, will cycle between days spent at the office and at home, keeping the ability to work remotely on a part-time basis. The world’s biggest Wall Street bank by revenue has said it could shutter backup trading floors located outside New York and London as a result of the move.

The outdoor retailer REI is also looking to sell its recently completed corporate campus in suburban Seattle, shifting instead to more satellite offices, as a result of the pandemic.

“Unfortunately, this whole Covid thing has thrown the experiential pitch out the window,” Moody’s Calanog said in a phone interview. “Until we resolve this pandemic, I suspect we are going to be in a holding pattern with hollow retail space. Then we will see what the most viable format is.”

View the CNBC news video ‘How Shrinking the American Mall Will Impact Local Tax Revenue‘ below.

Source: CNBC

West Palm Beach

Developer Jeff Greene is moving forward with a four-building, 352-apartment complex that looks across Clear Lake reservoir toward the West Palm Beach skyline. But wait — that’s not all.

Greene, who owns probably more West Palm Beach property than anyone, and who long has drawn city criticism for holding off on construction, says he has pushed the launch button not just on Clear Lake Estates but on several projects in and around the city.

Among them:

– One West Palm, a two-tower, hotel/office/apartment complex downtown at 550 Quadrille Blvd., whose groundbreaking was last month, is scheduled for completion in the first half of 2021.

– A Westgate neighborhood apartment complex, off Congress Avenue north of Belvedere Road, is in the permit process.

– An industrial project off Jog Road, south of Okeechobee Boulevard, is a few weeks from construction.

– He hopes to start a refrigerated distribution center for McArthur Dairy off Florida Mango Road in 30 days. That would allow McArthur to move from its current location on Flamingo Road, where the developer plans to expand his Greene School and build indoor tennis courts.

– A residential complex overlooking Currie Park, with the city’s tallest towers, could be under construction in 12 to 18 months, depending on permitting and the city’s ability to more forward renovating the park.

Housing Affordability A Growing Challenge

The city commission gave initial approval Monday to site plan changes to will allow Clear Lake Estates to rise on the 11-acre site of the scuttled Sail Boat Club project, just across the water from downtown. A vote on final approval is expected as soon as May 20.

Greene said in an interview that another nearby apartment complex he built four years ago, Cameron Estates, is so fully leased it indicates the market is ripe for the Clear Lake project. He’s getting rough construction cost estimates now and would start building as soon as possible, with city approvals. As planned, the project is short 106 parking spaces of the 721 required, so in exchange for a waiver on that requirement, Greene has offered to contribute to transit alternatives.

He would build a waterfront walking and bike trail on the property’s lakefront, and a publicly accessible path linking that trail to Executive Center Drive, or pay the city $158,000 to do the work, by the end of 2020. That work would create a non-vehicular connection between the Palm Beach Outlets, Okeechobee Boulevard and downtown. The developer also agreed to install a PalmTran bus shelter on Executive Center Drive.

At Monday’s city commission meeting, commissioner Cory Neering asked planning officials whether they would require Greene to include workforce housing in the project. Housing affordability has been a growing challenge as the city works to attract companies and their employees downtown. Neering was told the city could broach that issue with the developer over the two weeks before the final approval vote.

But Greene told The Palm Beach Post the site, which he bought in 2015 for $17 million, was too expensive to offer subsidized, below-market rents.

“This building, with the cost of construction and rents will just barely make it” financially, Greene said. “It only works for someone like me, who builds it for what it’s worth when its done. The rents just aren’t high enough and construction costs have gone up so much. The problem is, I can build it if I just make a return on investment, make cash flow, like owning a bond. But if I had to sell it to make a profit, there’s not enough there,” In short, he concluded, “if you try to have any kind of reduced rents, it would probably kill the project.”

No Tenants Yet For One West Palm

One West Palm, its foundation finally under construction, also faces challenges. The project, which Greene announced several years ago and got city approval for two years ago, has yet to line up a tenant for its 209,000 square feet of Class A office space.

Meanwhile, The Related Cos. is coming out of the ground with a competing downtown office tower, 360 Rosemary, to be completed about the same time, next to Rosemary Square (the renamed CityPlace development).

And the city’s Community Redevelopment Agency this week approved a letter of intent for developer Charles Cohen to build an office tower as big as 490,000 square feet, on the ‘tent site’ at the corner of Okeechobee Boulevard and Dixie Highway. Greene, who owns the former Opera Place lot just north of the tent site, where he could develop as much as 1 million square feet, said that despite the current shortage of Class A space, he doubts there are enough tenants out there now to fill three or more buildings.

All the construction comes at a time of sustained growth in the city, which counts $3 billion of substantive projects in its development pipeline and has been challenged for solutions to the traffic that inevitably will generate. These include highrise residences off N Flager Drive in the North End, a sprawling Anchor Site mixed-use development and Currie Park redevelopment on opposite ends of Northwood Road, the renovation of the 1930’s-era Sunset Lounge in the Historic Northwest, a rebuilt golf course and tennis center in the south end, a Drive Shack indoor golf entertainment center and Mitsubishi dealership near the airport, condo towers on S Flagler Drive, and a possible doubling in size of the county convention center, just to name a handful.

Of course, not all proposed projects get built. Greene has tabled a number, himself. His Opera place site has remained vacant for years. He dropped a micro-apartment building a block from Clematis Street and tabled a residential project on Clematis, after commissioning drawings by the same high-profile firm that designed One West Palm, Miami’s Arquitectonica. For the 20 acres he owns around the Currie Park waterfront, he has hired an even higher-profile firm, the Switzerland-based Herzog & de Meuron, designers of the Beijing Olympics’ Bird’s Nest stadium, but that’s another site he’s been talking about for a long time that remains vacant land.

Despite complaints from city officials or neighbors of his vacant sites, the Palm Beach billionaire gets construction cost estimates, does the math and only moves forward when the numbers add up to a profit, particularly since he’s generally not using other people’s money but his own.

At One West Palm, he waited on the market, held off while the city politicked zoning changes that benefited a competitor and he took time off for a run for governor. Now he’s done the numbers again and they add up to a worst-case scenario in which he makes only a little money, and best-case in which he makes a lot, he said. So, the cranes are in place.

Meanwhile, seeing occupancy stabilize at Cameron Estates at a healthy 95-97 percent, the numbers told him that despite construction costs trending high amid the building boom, Clear Lake Estates stood a good chance at success.

 

Source: Palm Beach Daily News

Miguel Pinto of APEX Capital Realty just signed the first two tenants at their Little River listing, known as an innovative warehouse complex that illustrates some of what he views as the top three trends/predictions for next year.

The Little River project at 300-320 NE 75th Street is an innovative warehouse complex that has been developed into a flexible multi-business space concept offering tailored tenant build-outs in 24 industrial spaces. They can be easily built-out and tailored to meet different space needs of each tenant and their particular individual business.

APEX Capital Realty founded in 2017 as a local boutique brokerage within a year began adding staff and expanding to a national market. Their focus continues to specialize on the urban core of Miami as well as other major cities throughout the US.

What are those three trends that he predicts for GlobeSt.com?

1. Tokenization, a new method of financing real estate deals.

“It will change how commercial real estate is done for the better in 2019,” he says. It makes ownership easier by using cryptocurrency into tokens that are stored on the blockchain. The effect is to allow virtually anyone to invest in a new and unique real estate asset class.

“For real estate investors, tokenization will be a new way to raise equity or debt on deals,” he says. It will also reduce a traditional reliance on banks and financial institutions for capital.

2. Opportunity Zones.

“This versatile program has the potential to stabilize and revitalize distressed neighborhoods and surrounding communities by unlocking private investment capital through a series of tax benefits,” he says.

The provision allows individual and corporate investors to defer capital gains tax until 2026 if those gains are reinvested into new construction or major rehabilitation of projects in economically depressed areas via designated opportunity funds.

“The expectation is that the added tax incentives will make investment in these disadvantaged areas just a little more enticing and add another option to the capital stack,” he says.

3. Industrial development/ecommerce is on the rise.

“The expansion of e-commerce is far from over, and the need for facilities to accommodate a denser distribution network is acute and will only increase over time,” he says.

He sees the redevelopment of infill properties becoming distribution facilities to increasingly meet market needs.

“I see investment in industrial space as a good bet for 2019 in all markets in the region. Last-Mile distribution centers will keep being built and filled as communities grow and expand and delivery time keeps shortening,” he says.

 

Source:  GlobeSt.

The number of industrial buildings coming online nationally slowed slightly in the first nine months of 2018, after several years of strong growth.

A total of 237 million square feet of new industrial space was delivered across the country from January through September, down slightly from 243 million square feet year over year, according to a new report by Avison Young.

The slowdown follows a major growth period for industrial development across the country, with 1.5 billion square feet of new space coming online since 2012, the report said.

“The surge in deliveries in previous years left many markets struggling to absorb the new space, and developers unwilling to start new projects,” Avison Young principal Erik Foster said. “As the existing space is filled, new projects will start getting launched.”

Markets like Los Angeles and Chicago have been leading the way in industrial market growth, and developers have benefited from record low vacancy rates and strong rent growths. But after years of growth, even those markets slowed this year.

Chicago saw 10 million square feet of new industrial space in the first three quarters of 2018 — a steep drop from the 22.6 million year over year, according to Avison Young. Los Angeles saw 5.4 million square feet of new industrial space through three quarters, which is about 77 percent of the way to its 2017 total of 7 million square feet.

In Chicago, the drop in deliveries caused vacancy rates to continue falling, with the 5.7 percent vacancy in the third quarter a 20 basis point drop year-over-year. That’s not the case in Los Angeles, where vacancy in the Inland Empire area increased to 4.9 percent but is still near record lows.

While deliveries are down so far in 2018, they won’t be for long: More than 337 million square feet of new industrial space is under construction across the country, the report said.

New Jersey has already eclipsed its 2017 industrial delivery total, with 10.3 million square feet of new space coming online through three quarters of this year, compared with 9.7 million square feet delivered all last year.

In Miami, demand for warehouse space has pushed vacancy rates to a record low 2.7 percent in the third quarter, falling 33 basis points year-over-year. But more than 4 million square feet of industrial space under construction will increase the supply.

“Secondary markets across the country are now benefiting from the same economic factors that caused a surge of industrial development in larger markets,” Foster said.

Growth in e-commerce is leading companies to increase the amount of industrial space needed for productive storage and delivery. Columbus, Ohio, for example, has seen 4.3 million square feet of industrial deliveries so far this year, eclipsing 2017’s year-end total of 3 million new square feet. In Greenville, South Carolina, 2.8 million square feet has been delivered through the end of the third quarter, eclipsing 2017’s total of 2.3 million square feet of new development.

 

Source: The Real Deal