For more than 50 years the heart and soul of many American communities was not Main Street but rather the big malls outside of town, the places where you could meet friends, have a meal, shop, get a job, or just hang out. The modern mall was a place to behold, a heated and air conditioned behemoth and a world unto itself, a world which has now become much smaller in recent years.
Old and familiar retail names are now downsizing and laying off — think of Radio Shack (closing 552 stores), Wet Seal (173 stores), HHGregg (88 stores), Limited (all 250 stores), BCBG Max Azria (120 stores), Family Christian Stores (240 stores), JC Penney (140 stores), Macy’s (63 stores), Kmart (108 stores), Sears (42 stores), and even retail giant Walmart (154 stores in the US). The situation is so dire that a website exists to track the carnage, DeadMalls.com.
And yet the prospects with malls may not be as dreadful as the headlines suggest.
“It’s a binary situation where strong malls continue to do well and then there are malls that are duds,” Steve Kuritz, managing director at the Kroll Bond Rating Agency, told The Wall Street Journal.
One morning in late 2015, on Sears‘ vast Illinois campus, more than a dozen employees huddled in a videoconference room on a floor dubbed “B6.”
There, two mid-level employees were preparing a presentation for the CEO, Eddie Lampert, when their boss rushed in with some last-minute advice.
On a chart pad he wrote three words.
“He looks at the presenters and says, ‘Do not say these words to that guy,'” according to a former Sears executive who described the meeting to Business Insider. “That guy” meant Lampert, who would soon appear on a giant projector screen at the front of the room, beamed in live from a home office inside a $38 million Florida estate — 1,400 miles away from headquarters.
The pad with the three words was out of sight of Lampert’s video feed. One of the words on it was “consumer.”
The stakes were high. If any of those words were uttered in front of Lampert, the two presenters would “get shredded” by the CEO, whose frequent tirades had fostered a climate of fear among the company’s most senior managers, said another person — this one a former vice president.
Traditional lenders like banks and insurance companies have slowed their commercial real estate lending activity, and experts foresee the trend continuing well into 2017.
Lending was down 3% last year from 2015 levels, and lenders closed $491B worth of mortgage loans in 2016, according to new statistics from the Mortgage Bankers Association. The slowdown in lending was spurred by fewer property transactions taking place in need of loans, and the downtrend is expected to continue this year as investors grow increasingly cautious in their dealings. Investors spent 10% less on U.S. commercial properties during the first two months of 2017 than they did during the same period a year ago, the Wall Street Journal reports, and experts attribute the decline to rising property prices. One sector that is seeing a marked decline in lending activity due to fewer deals and tighter standards is retail. Equity Group Investments chairman Sam Zell recently said commercial real estate is overpriced, making it hard for buyers to justify entering the market. And with the sector experiencing an excess of bankruptcies and massive job cuts, mall landlords are finding it more difficult to secure loans.
Visit Biznow to view article along with other content.
Cybersecurity and data privacy have not traditionally been high on the list of concerns for commercial real estate firms. Key developments in CRE, advances in technology, and a continuing proliferation of cyber threats, however, are changing that. Data breaches like those experienced by Essex Property Trust and Fidelity National Financial confirm that the CRE sector is not immune from the dangers posed by cyber criminals seeking to steal personally identifiable information (“PII”). And as CRE firms increase their use of internet-connected technologies in building systems, they must contend with “cyber-physical” risk – risk of property damage or bodily injury that is created by cybersecurity threats to those building systems.
These risks can lead to potentially enormous legal and financial exposure for CRE firms: according to the 2016 version of an oft-quoted annual study conducted by the Ponemon Institute LLC and sponsored by IBM, the average total cost of a data breach for companies in the United States is currently $7.01 million. That total cost can include investigation and remediation costs, legal expenditures and regulatory fines, among others.
Total elimination of this legal and financial exposure arising from cybersecurity and data privacy risk is impossible. But by taking proactive steps to identify, mitigate and manage its cybersecurity and privacy risk, an organization can substantially reduce both the likelihood and impact of cybersecurity and data privacy incidents. This two-part series will describe 10 concrete actions any CRE organization can take to better position itself to weather the next cybersecurity storm.
The focus in commercial real estate finance is often on big national banks like JP Morgan or big foreign ones like Deutsche Bank, but it would be a mistake to overlook the Southern lender that’s been making waves in the commercial real estate industry, bringing a little bit of the Ozarks to the world of high finance.
Bank of the Ozarks, based in Little Rock, Ark., broke into CrediFi’s ranking of the top 10 New York City lenders in the fourth quarter of 2016 with over $500 million in loan originations and a 3.0 percent market share.
The bank had previously made the list in the first quarter of 2016, ranking as No. 7, with over $400 million in financing and a 2.4 percent share of New York City’s commercial real estate market, but dropped from the top 10 list in the second and third quarters.
The practice of taking an existing structure and repurposing it for some other use is not necessarily a new idea. This practice of adaptive reuse has, however, become increasingly common in the apartment industry.
No single reason explains this boom; it is a combination of factors. But one factor that is easy to point to is the fact that people enjoy living downtown. Renters have proven this over time by their willingness to pay more for urban core units.
Without deeply discussing principles of urban geography, one can see many structures that handily lend themselves to adaptive reuse in or near downtown areas. As cities evolved, centrally located buildings that once served a non-residential purpose (e.g. mills, factories, warehouses, etc.) are now placed in areas that present attractive residential opportunities.