The Lowdown on Seattle Retail
Last week, our Retail, Hotel & Restaurant practice group leader, Sandip Soli, moderated the Seattle Retail Real Estate Summit presented by Bisnow at the Seattle Renaissance Hotel. Following is a summary of the high profile players active in the local retail development market and what they had to say to the 200 people in attendance:
- Peter Powell, Founder and CEO of Powell Development, has developed large shopping centers in Washington, Oregon, and Utah, most recently in the sprawling Puget Sound suburbs of Marysville, Bonney Lake and Maple Valley. Strategic partners include Costco, Fred Meyer, Lowes, Safeway, Albertsons, Target, and Walgreens. Powell Development is also a preferred developer for Walgreens and Chase Bank in the Pacific Northwest. Peter says many of the larger grocers think the present is the ultimate time to relocate—before prices go up again. Relocation moves are strategic, not exploratory: “The idea of you build it and they will come is not here,” he says. “You can’t just transport what you built here to the next market.” Peter also talked about the changing dynamics in retail shopping centers where grocery stores and gyms can actually co-exist and share a parking lot, when previously they could not. Lifestyles have changed and it is commonplace to see people go to the gym during the weekday, and buy their groceries on the weekend. Another change is the placement of wellness and medical uses in retail centers. The challenge is to amend restrictive covenants in leases and title that previously did not accommodate these changes in the retail marketplace.
- Craig Ramey is the Senior Vice President and Senior Market Officer of Regency Centers which is a real estate investment trust (“REIT”) that develops and owns suburban shopping centers throughout the United States. Regency is currently developing Phase II of the Grand Ridge Plaza shopping center in the Issaquah Highlands neighborhood, which will include Regal Cinemas, a new Safeway, restaurants and retailers. Regency has learned a thing or two about developing shopping centers to withstand changes in the economy. Craig’s advice to the crowd: “You really have to look at the co-tenancy provisions. What you hate to see is a co-tenant pay reduced rates while their volumes are continuing to boom.” Open tenancy is the new co-tenancy, he says: “We’re going to build what we say we’re going to build, but after that it’s a head’s up deal.” Further, Craig adds “We’re only as successful as our tenants.”
- Maggie Georgilas is Vice President for Retail North at Harsch Investment Properties which has a diverse portfolio of retail, industrial, office and multifamily developments in five Western states. Harsch is currently redeveloping Celebration Center in Federal Way, anchored by Ross and Michaels. Maggie says that though some of the traditional big boxes like Office Depot have been downsizing, discounters like Target (which just opened its City concept in downtown Seattle), Nordstrom Rack (which relocated to Westlake Center in downtown Seattle and plans to expand to Northgate) and TJ Maxx, Marshalls, and Ross are expanding. Harsch has completed 20 deals in the past year. “Surprisingly, it’s been a very good year for us,” Maggie says. “In so many cases these retailers are saying, ‘give me my store, let’s me just go in and rack it, merchandise it,’” she says. Maggie notes, however, that the recession has increased the scrutiny of tenant’s finances prior to signing leases.
- Nat Franklin is CEO & Principal of PMF Investments which develops shopping centers and mixed-use commercial real estate projects throughout the Pacific Northwest. PMF recently redeveloped the Kelsey Creek Shopping Center to bring Walmart’s Neighborhood Market concept to Bellevue. Nat focuses on the economics that drive acquisition and development. Although interest rates may be sub-4% in some areas, Nat says that interest rates may rise. It may not be a bad thing to see them rise, either: “If interest rates go up, it presents an opportunity. Because what’s happening now is interest rates have dropped so much that it’s lowering the cap rates and inflating the property’s value . . .” If interest rates rise, acquisition pricing will decrease. As for leasing up tenants, Nat advises to ask for at least two years of financials and tax returns up front to make sure tenants can keep their long-term commitments.