ICSC Texas Retail Forecast – Dallas

January 29, 2014 – Dallas, TX
Mark Dotzour – Keynote Speaker
Turned optimistic in Q4 2011
Optimistic IN SPITE of US Government

Outlook for the Economy

  • Retail is 65% of US Economy

Consumer Confidence Index – continues to be a gradual increase in CCI
Bifurcated Market – interest rates are down near zero to make people feel wealthy (Ben Bernake wealth effect); People that owns homes/stocks feel fabulously wealthy; High end goods are selling at record highs; Lower end retailers (Target, Wal-Mart, McDonalds, etc.) are struggling….people who don’t own homes/stocks are NOT feeling wealthy
Retail sales stronger in 2014 because one people are working

Consumers Paying Down Debt – we delivered down through 2011
Now Americans are starting to take on debt again

Net worth of American People has never been higher – $78 Trillion (after stock market rally)

Households lost almost $8 Trillion during downturn; this has turned the corner and equity is now being GAINED again for US households

Household debt service payments as a percentage of disposable income is now BELOW 10% – FOR THE FIRST TIME IN OVER 30 YEARS

  • Debt service payments got as high as 13.5% in 2007/2008
  • This means that the American people have more income (after debt service payments) to BUY things as consumers

Corporate profits are at record highs

  • This is the reason companies are hiring; would be more hiring if there was less uncertainty (with government and healthcare)
  • 10% of small employers are looking to hire people in next quarter

Dotzour feels like we could be in the early stages of a manufacturing renaissance in the US….never thought he would say that in his lifetime

Texas almost always DOUBLES the national average for job growth

  • Affordable cost of living and pro-business environment support this trend

Housing market is on FIRE in Texas

  • Average price in DFW homes is up 6% from a year ago
  • Inventory of available homes is around 3 months (statewide); should be at 6.5 months
  • No. 1 economic development challenge for Texas right now is to get THOUSANDS of homes on the ground!

Dotzour feels like one of the biggest risks in America right now is the risk of DEFLATION; Fed reserve is implementing its tapering program (buying less mortgage backed securities) and the 10-year treasury continues to maintain and even decrease

Energy – Dotzour feels like there is a real possibility that America can become energy independent; Ali Anawi (oil economist at TAMU REC); Black Swan event – Saudi Arabia is angry at the US because we are being too lenient on Iran and Syria; If Saudi Arabia gets angry enough at US, they could increase oil production to a level that would drop oil prices to $60 per barrel; this could cause economic warfare and could HALT all fracking in the US (by making it economically un-viable).


Capital Markets Panel

Doug Hazelbaker – HFF – moderator

Leslie Cassingham – NYL Investors, LLC

  • loan sizes from $15M to $100M; 60%-65% LTV; Non-Recourse

Jamie Fox – Senior Vice President, Bank of America Merrill Lynch

  • construction lending & permanent lending; loan sizes from $20M to $120M; seeking the total relationship

Billy Hurst – Vice President, Citigroup Global Markets, Inc.

  • Non-recourse permanent debt; 5-10 year term; 20-25 yr amortization; $3M to $200M range; 80% or greater occupancy

Patrick Ramsier – ViewPoint Bank

  • Acquiring Legacy Texas Bank (will be $5.5B bank) – legal lending limit will be $100M; Does non-recourse fixed rate loans; 95% in Texas; 3-5 year term debt; 4% to 6% rates

Coverage Ration – NOI/Debt Service
Debt Yield – NOI/Loan Amount
Health Ratio – Tenant Sales/Occ Cost (Rent + Expenses)
CMBS lending will do 10-year INTEREST ONLY loans if they can get 55% LTV


Development & Construction

Robert Young – Weitzman Group – moderator

Mark Bulmash – Howard Hughes Corporation

came from Forest City; HHC started in Nov. 2010; spinoff from General Growth; Grew from $2.5B to almost $5B in assets in just 3 years; owns the Woodlands, TX; Summerlin, NV (master planned communities)

The Woodlands – 28,400 Acres – started in the 1970’s

  • Exxon relocated and consolidated their world HQ just 4 miles away
  • 2 Million SF of office is being constructed in the Woodlands
  • Mixed use, hotel, fitness, multifamily units, restaurants, Whole Foods – all coming and under construction

Dean Lane, Jr. – NewQuest Properties

100 employees; 30 brokers; developer & 3rd party group; Grocery anchored centers in DFW; Houston based company

Nick Summerville – Neal Richards Group

commercial developer; private healthcare/physicians/hospitals; did $685M in transaction volume last year
exclusive developer for Forest Park Medical Center

They are now buying larger tracts to take advantage of the mixed use development that can occur surrounding a large healthcare anchor

  • 20 Yr Single Tenant Hospital lease – 8 to 8.75% exit
  • Multi-Tenant MOB – trading in low 7’s
    • Broke ground of a 60 acre mixed use project just north of Austin
    • 300,000 SF office/research; 80,000 SF MOB; Entertainments space; skilled nursing/memory care; Operating space; over 1,000 MF units

David Wilson – The Retail Connection

they rep 250 retail tenants; strength as developer comes from strong tenant relationships
  • Retail Connection is doing a project in Tyler that has no “Exclusive” provisions for the retailers
    • Tyler, TX – 100,000 population swells to over 300,000 during daytime population
    • 700,000 SF center / already has 430,000 SF leased

Retailer footprints are generally smaller than they were a few years ago
Co-tenancy is still an issue that developers face; this has not gone away
Medical category in retail space is prolific and growing

Construction costs are anticipated to continue to increase; architectural fees, engineer fees, legal fees, etc.

  • Because of this, we will start to see rents increasing for retailers
  • Building smaller footprints does tend to increase the PSF price for the assets
  • Hard shell costs: 10,000 SF in $60-$80 PSF (stone, expensive brick, fancy awnings push it to $80); Get to 15,000 to 20,000 SF and this average hits $50 to $60 PSF
  • Ground up cost for Hospital – $310 to $355 PSF; MOB is $100 PSF shell plus minimum of $50 PSF for TI

Retailers

Karla Smith – UCR – moderator

Mike CoreyFirst Choice ER

First Choice – has 29 facilities; all but 2 are in TX; mission is to provide highest quality ER care to communities they serve; First Choice ER ranks in top 1% of satisfaction of all ER visits
  • Biggest difference from Urgent Care is that ER’s are monitored by the State Board of Health; will always see a physician on staff
  • Has CT scans, digital X-rays, ultra sounds, etc. in the facility; results are typically delivered within 30 minutes
  • Typically seen by a doc within 5-minutes of arrival
  • ER is open 24-hours

Jody Detmore – Spec’s Wine & Spirits

Specs – started in 1962; run by same family today; has 169 locations – all in TX; 158 are retail, 11 are warehouses; have also been acquiring smaller brands; in 70 different cities
  • 4 Superstores – over 40,000 SF; largest is 65,000 SF in Houston; FW is 56,000 SF
  • Highly focused on customer service; their employees are highly knowledgeable on certain product types
  • Known for a huge selection with a wide variety (20,000 different brands)
  • Holds education classes, wine tastings, samples, gift ideas

Keith Moore – Darden Restaurants

Darden Restaurants– been lots of recent press about spinning off Red Lobster; will open 75 new restaurants in 2014 (Eddie V’s, Capital Grill, Yardhouse, etc.)
  • Looking at ways to maximize sales PSF without taking away from customer experience
  • Upscale patios and private dining rooms are important in higher end concepts

Stephen Smith – The Fresh Market, Inc.

The Fresh Market – Greensboro, NC – 150 locations in 26 states; started company in 1982…was privately held/family owned until 3 years ago…went public; grew from 50 stores to now over 150 stores. Opened first stores in Houston in 2013. Hitting DFW market in 2014. Will grow at 15% unit growth year over year.
  • Small format (20,000 SF average) specialty grocer; focus is on perishable product
  • Their competitors are Sprouts, Whole Foods, Trader Joes

 

KW Net Lease Advisors