Texas ICSC – What Did We Learn?

by Brandon Miller

texas-icscThe annual Texas ICSC Conference has come and gone, and the inevitable post-convention hangover has worn off.  It’s time to reflect on what we learned from a dizzying schedule of attending panel discussions, meeting clients, and happy hour networking.

First, a quick look at the attendance figures sums up the convention’s overall positive vibe.  This year’s registration of 3,268 attendees was up 11.6 percent over 2011.  The last time the Texas ICSC exceeded 3,000 was in 2008, which happens to coincide with our great nation’s descent into a deep recession.  The general feeling throughout the conference was that the retail sector is coming out of hibernation – retailers are looking to expand.  Debt & equity capital is more readily available.  It goes without saying that developers and property owners are ready to make deals.  The retail sector is by no means back to levels seen before the recession, but at least the needle is finally pointing in the right direction!

While things are looking up pointing up for the retail sector, the future of retailers and retail development remains cloudy.  Notwithstanding surviving the recession, many retailers are now facing the “showroom” dilemma more than ever as consumers still visit stores to test products only to leave empty handed because those same products can be purchased cheaper online.  Stores like Best Buy, Target, and Wal-Mart recently launched price-matching policies to compete with online retailers like Amazon.  How long will they be able to remain profitable with this strategy while still having to cover overhead associated with physical store locations?  The future of retail development is sure to be altered as big box retailers adjust to the changing dynamics in the retail market.

With big box retailers in a state of flux, most of the new development deals seen or heard on the convention floor involved grocers.  Unlike the large retailers, grocers have not suffered as dramatically from recession or “showrooming.” However, the prototypical grocery-anchored shopping center of the past is likely to change much like future big box development.  Grocers such as Whole Foods and Wal-Mart Neighborhood Market will continue to open new stores, but as they look to reach consumers in urban in-fill locations, they will build smaller stores.  Many new projects will be built-to-suit for a grocery store or anchored centers with only a limited of adjacent retail “shop” space.

Developers will also find success with other user-driven projects.  Some of the most active retailers at the convention were fast food, casual restaurants, and healthcare providers.  Growth in these sectors will provide opportunities for developers with a solid exit strategy as the market for single tenant assets, especially with credit tenants, is very active.

While ICSC is typically about developers, leasing brokers, and retailers cutting deals, the state of the capital markets was top-of-mind for many participants.  After all, what good is a deal if you do not have the money?  The good news is that capital, debt and equity, is more readily available now than it has been since 2008.  The CMBS market continues to rebound with an estimated $50 billion of new loans in 2012.  Peter Scola, Managing Director at Cantor Fitzgerald, stated that CMBS levels needed to reach $100 billion to be a healthy market.  While capital is more plentiful, lenders and equity providers will remain very selective.  The Capital Markets Panel hosted by MCA Director Scott Lynn represented all facets of capital including Life Companies, Banks, CMBS, Bridge Lenders, and Private Equity.    Cash Flow remains “king” with capital providers as they will continue to look for deals that have stable income or some income in place with a good value-add proposition.  Development deals will get consideration from both construction lenders and equity investors, but, as discussed earlier, most will be grocery-anchored or user-driven projects.

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