Five Takeaways from RECon 2016, Day One

Five Takeaways from RECon 2016, Day One

The Leasing Mall opened for business at the 2016 RECon show in Las Vegas on Monday, May 23, kicking off a conference that often serves as a good barometer of the general health of the commercial real estate industry. Most of the attendees we spoke to seemed in good spirits, noting their meeting schedules were filled and their businesses expanding. Here are some of the overarching themes that emerged from Monday's conversations on the show floor:

  1. After several years of booming growth in gateway markets, the opportunity for investment and development seems to be moving to urban cores in secondary and tertiary markets or so-called "18-hour cities." With their high quality of life and population growth, cities including Minneapolis-St. Paul, Salt Lake City, Utah and Austin, Texas, should serve as ripe targets for mixed-use development, according to Frederick J. Schmidt, president and COO of Coldwell Banker Commercial.
  2. Retailers are reportedly in expansion mode, though they continue to be much more strategic about the size and location of their stores than they were prior to the downturn. Retailers "want to make sure if they expand, they don't have to retract," notes Lawrence S. Brewster, managing principal and co-founder of Houston-based Portfolio Property Advisors LLC. In practice, this has meant that while retail operators might close or downsize their bigger stores, they are also strategically entering new markets and launching new spin-off concepts, according to Ami Ziff, director of the national retail group with Time Equities Inc.
  3. The general optimism about where we are in the market cycle, though nobody expects large jumps in retail rents in the near future. "If you look at the fundamentals in the U.S. on a national basis, supply has been gradually decreasing, while demand has been gradually decreasing, due to job growth," says Schmidt. As a result of this equilibrium, property fundamentals are stable enough that there's muted worry about high defaults resulting from upcoming loan maturities this year.
  4. Competition for attractive assets (specifically value-add properties) is intense and prices are often prohibitively high. Time Equities' Ziff notes that over the past year, the firm has bought about one percent of the retail assets it has made offers on. "Our biggest issue is acquiring assets at attractive spreads," Ziff says.
  5. One sector of the market where buyers might have their pick? Struggling class-B and class-C malls, some of which are trading at double-digit cap rates, according to Ziff. There continues to be a bifurcated dynamic among retail properties, according to Schmidt. "Class-A malls are doing very well. Discount concepts are doing very, very well. The challenge is class-B and class-C malls. How do you repurpose those?"
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