On Retail Rent

I was going to write about housing affordability, of all things, but I’m going to an ICSC conference this week so I’ll pick up where I left off last month . Before I do, allow me to stir the pot for a minute (I’m a bit of a pot-stirrer if you haven’t noticed).

Some of the brightest and most creative real estate professionals I’ve ever met are ICSC members. But I gotta tell you: as an organization ICSC is completely out of touch with the realities of American retail today. Their email blasts make for the fattest targets. I didn’t subscribe to the National Association of Home Builders in 2008, but I’m pretty sure that the person who wrote those it at ICSC now (my friend Michael Skena is certain it’s actually Baghdad Bob).

ICSC is still talking about Online Sales Taxes. Do what?!? Online sales tax is about #437 on the list of retail crises to address, maybe just behind trends in Dri-FIT porter uniforms. One email blast noted that bankruptcy refugee Charlotte Russe was opening a new store. A new store! Can you believe it? One whole new store. In Erie PA. Wow.

*There is no Retail Apocalypse! [BTW this would make a spiffy porter uniform]*

Another had these two co-headlines: In 2020 retail needs to be a part of mixed-use and Vitamin Shoppe opens inside an LA Fitness. As fantastic as I’m sure that one Vitamin Shoppe is, new retail construction has nowhere else to go but inside dense mixed-use. This leads me to my larger point:

In urban(izing) areas there is a theoretical future where all retail space is free. Maybe not completely free. Maybe not always free. Pay the CAM, pay some percentage rent, maybe a low fixed amount. But basically free and certainly not at a reasonable return on the developer’s cost.

Free because while retail space has economic value to users, in the right hands it has more value to landlords as a place-making tool. HR departments want authentic retail for their employees. Apartment residents want to leave their cars behind when they get home. But we have more retail space than cool users to tattoo in. So the cool tenants have leverage even if they don’t have money, because it is shocking how much money the rest of us will throw around to hang out with cool kids (we should have been nicer to them in high school).

*Claire was really only interested in Bender for his hip live-work motorcycle repair loft.*

So let’s say you own the retail building across the street from brand new Hipster Yards, with the buzz and the crowds and the Instagram followers and the coffee shop from Reykjavik and the cool kids paying no rent. How do you compete? Be calm! All is not lost. There is hope.

Be involved. Invest in events and marketing and porters and valets. Work with your tenants; y’all are in business together whether you like it or not. Your job is to bring patrons to the center. If you do and your tenants still can’t make it, that’s on them.
Be picky. If Hipster Yards is that buzz-worthy then other tenants will want in on the action, so put together a strong merchandising plan and stick to it. Don’t let in any poke franchisees. Find the users that your patrons want and hold out to get them, even if it means some vacancies for a while.
Be flexible. Sign shorter leases. Load them with percentage rent. Make them terminable: you need to keep it fresh and you need to get rid of losers.
Be hospitable.
Listen to your patrons. Ask them what they want. Talk to your best tenants and see who they want to come join them.
Be patient. You may have to play the same free-rent game as Hipster Yards for a while. Save you cash flow. This could be a bumpy ride.

This future world of “free" retail rent is coming but it isn’t fully here yet. And even when it does arrive it won’t be everywhere: there will always be hot retail destinations where tenants clamor to get in (even if those places change from generation to generation).

But here’s the thing: if you do your job and assemble the right users and push the events and the marketing and bring your patrons back again and again, then your tenants will be making money and you can turn those free rents into (big) paying rents.

*You gotta give it away if you want to make any money*

It’s a tough trick, more art than science. But change is coming and we don’t have much of a choice. That should be the subject of an ICSC email.

What we’re working on: we’ve been brought in by Rubenstein Partners to assist with the redevelopment of Lindbergh City Center, Atlanta’s first TOD. 1M sf of office, 50,000 sf of retail and some development sites, all almost completely vacant. Rubenstein asked us to assist with due diligence and retail strategy and now we are overseeing retail redevelopment, merchandising, events and leasing. We’ve got a great team and we think we’ve got a strong plan. You’ll certainly be hearing more in the months to come.

City Guide Nashville

We’ll be at OAC if they don’t cancel our badge, and thought we’d share some of our favorite spots in one of our favorite towns.

City House. With Rolf + Daughters temporarily closed, this is easily the best restaurant in town. 24-seat Bastion is also worth a visit (get a drink at Earnest’s first).

White’s Mercantile

Nashville leads the league tables in great local retailers and makers. Among the many worth checking out: Emil Erwin, Nisolo Shoes, Otis James, Hatch Show Print, Salemtown Boards, Imogene + Willie and White’s Mercantile among others.

Rotier’s

A burger on french bread and a High Life at Rotier’s is hard to beat. An old girlfriend took me on a trip to visit her folks; I married her and have been coming back since. If you can’t make it there, Brown’s Diner is a close second.

Santa’s Pub

Santa’s Pub might be the best bar in America. Karaoke in two trailers in a gravel parking lot painted to look like a giant Coca Cola Christmas ad. Fake trees, colored lights, $3 beers and nothing but a good time.

Gruhn Guitars

It’s where Eric Clapton and Jack White buy theirs. Why are you going anywhere else?

Electric Western. “The Most Stylish Dance Party in America.” Traveling often but at the 5 Spot in East Nashville every Monday, DJs Jacob and Reno spin old school Garage Rock, Girl Groups, Motown and more.

We’re always looking for new spots: Let us know if you have any suggestions. On our list:

Chopper Tiki: New East Nashville tki joint from Barista Parlor’s Andy Mumma.
Old Glory: speakeasy with great cocktails.
‘za: Karl and Sarah of beloved Biscuit Love just opened a pizza spot in Hillsboro Village.
Thai Esane: the long-awaited return of of of Nashville’s best Thai joints
Lakeside Lounge: late night beers, pool and food from the owners of Attaboy.

Thanks again for reading! If you’ve been forwarded this note and would like to subscribe, just send an email here.

Let us know if you’ll be in Nashville this week and want to connect. Or if you have a project that needs some cool kids who don’t pay any rent (we know way too many…)

Cheers,

George BanksFebruary 24, 2020