In The News

Retail Recovery? Private Equity Bets Big (Commentary)

Recent economic indicators paired with big private equity bets signal that the national retail real estate market is trending upward, a trend that is actually hitting home. National and local retail vacancy rates are down, due in large part to big bets by major private equity players.

However, one must wonder if such giant moves will be a catalyst for overall retail trickle-down economic recovery. Several national and local real estate investments and economic indicators point to a resounding yes.

The Blackstone Group LP is a self-proclaimed world leader in private equity real estate investment. Inside of 12 months, the private equity giant made an $11 billion bet on national retail centers. At the crux of this wager was the acquisition of 588 shopping centers across the country from [link Centro Property Group’s portfolio, 36 centered by grocery stores that were formerly owned by Equity One Inc. and 46 big-box centers bought from EPN Group’s holdings.

Blackstone did pay below market rates for these properties, but the most unsophisticated of investors realizes the magnified risk of a bet this big. A “cap rate” for commercial real estate is the ratio between the net operating income and the purchase price of an asset, with a higher cap rate reflecting a higher perceived risk. Nationally, top-quality centers have been trading at cap rates of 4 percent to 6 percent, while Blackstone has reportedly collected initial yields of 7.5 percent on the bulk of its bet.

So how do big bets like those seen from Blackstone impact the overall economic health of the retail sector? Well, if national and local absorption rates are any indicator, the writing on the wall is crystal clear. It was only a year ago that the retail real estate market saw vacancy rates at a high of 7.6 percent nationally and rising. Recent reports show a reverse in that trend. National retail vacancy rates in the top 80 markets today are standing at 6.8 percent and trending lower. Major moves from players like Blackstone are linked to such positive absorption.

But how does all of this big movement affect the average real estate investor on the smaller, local scale? The news here is positive as well. Reports indicate that from the fourth quarter of 2010 to the fourth quarter of 2011, retail vacancy in the Little Rock area fell from nearly 10.5 percent to 8 percent, positive absorption of almost 24 percent. This represents more than 419,000 SF of net absorption. The largest positive absorption was seen in the Midtown corridor, at the Riverdale Center, with Wal-Mart Neighborhood Market taking 63,000 SF.

The national media paint the grimmest of all economic pictures: scared investors, too much money sitting on the sidelines, Internet sales killing the big-box retailer. Perhaps shedding light on the slightest of positive indicators in such an environment creates false hope and optimism. So at the risk of sounding overly optimistic, the correlative nature of investor moves as large as those bets made recently by Blackstone paired with the positive absorption rates in the national and local retail real estate markets can only add to the upward trend and an overall retail trickle-down economic recovery.

J. Blake Smith is an attorney and real estate broker for Flake & Kelley Commercial. Email him at [email].

Hank Kelley Discusses Commercial Real Estate (Exec Q&A)

This Week: Hank Kelley
Partner and CEO of Flake & Kelley Commercial of Little Rock

Bio: Hank Kelley
Background: Bachelor’s degree in business administration from the University of Arkansas at Fayetteville, MBA in finance from the University of Arkansas at Little Rock; continuing education and certifications through The Appraisal Institute, the Society of Industrial & Office Realtors and the Institute of Real Estate Management.

Experience: Kelley has represented clients that include Acxiom Corp., AT&T, GMAC, Shackleford Crossings, TJ Maxx and Verizon. He is a member of The Counselors of Real Estate, a principal of ChainLinks Retail Advisors and a graduate of Leadership Greater Little Rock.

Q: Statistical and anecdotal information about retail absorption in Arkansas is encouraging. What kinds of retailers seem to be in the market for new or additional space? What does your pipeline of activity look like?

A: Active retail sectors in today’s market include grocery, automotive, discount fashion, dollar stores, restaurants, convenience stores, health and fitness, pharmacies, sporting goods and a variety of medical professionals seeking a retail storefront. Specialty fashion stores have been particularly active at the Promenade at Chenal in west Little Rock, bringing a critical mass of attractive regional and national tenants. Most of our clients first try to use existing space and move to new construction only if they can’t find a feasible location to renovate. Rent is typically more favorable for a second-generation space, barring prohibitive rehab costs.

To the full article from Arkansas Business.

LR Board Gets Final Say if Law Passes

LITTLE ROCK — The Little Rock Board of Directors will have final say on a proposed homeless-veterans clinic if an ordinance changing zoning laws passes at the board’s Tuesday meeting.
Under the proposed ordinance, building plans for anything from pawnshops to group-care facilities would have to go before the Planning Commission for a permit and eventually the Board of Directors for approval. Such uses are permitted “by right” now in most areas.

The ordinance also includes an emergency clause, meaning that if it is approved Tuesday, it will go into effect Wednesday.
U.S. Department of Veterans Affairs officials have said in previous interviews that the agency has awarded a contract to move the current clinic from Second Street to the building at 1000 S. Main St. The plan has drawn mixed reaction from community members and criticism from several government officials including Mayor Mark Stodola.

City officials said Thursday that even though plans are in the works and the contract may have been signed, no building plan has been submitted seeking work permits from the city, so the clinic would still be subject to the change in the zoning laws.
“Based on the current zoning of the location in question, urban-use zoning comes with a series of design requirements,” said Tony Bozynski, the city’s director of planning and development. “We have not seen any plans for the project, but depending on the level of renovations, if they were to apply for a building permit or, say, a business license, then they would be subject to the conditional-use change.”

VA spokesman Debby Meece said Thursday that she did not have immediate access to the building plans for the Main Street clinic, and did not know whether the plans would require the agency to apply for building permits. Several other VA officials familiar with the project did not return calls for comment by Thursday evening.

The existing clinic provides veterans two meals a day, something the new clinic may need a commercial-grade kitchen to provide.
City Attorney Tom Carpenter said the ordinance was designed to clean up the city’s zoning laws and to address complaints about the lack of notification for neighbors and communities when specific businesses or centers open. He said city staff members discussed the clinic when they were drafting the ordinance but the conversation focused more heavily on other facilities.
“This may impact them [the clinic], but it was not designed to do so,” he said. “The ordinance came about when we were looking at the complaints we were getting about lack of notification and community discussion, and the types of places that we were hearing about are the ones we looked at.”

In addition to the current ordinance, Carpenter and City Manager Bruce Moore said they believe that the clinic would most likely need city approval because renovations on the building will add up to more than 50 percent of the building’s value.
However, because the VA has not submitted a construction plan or applied for a zoning exemption for parking, it’s unclear how much the renovation would cost.

Carpenter said the change wasn’t proposed to prevent projects that people might not want in their neighborhood.

Several city directors said Thursday that they were unaware that the ordinance would address the planned Main Street clinic. Some said they thought the ordinance was designed to address ongoing concerns with businesses selling alcohol. Others said they believed that the ordinance would change the rules for residential-treatment facilities only.

“I didn’t think about the ordinance in regards to the [homeless-veterans] center because we’re having so many problems with these convenience stores opening up and selling beer,” said at large City Director Joan Adcock. “If an issue comes to us, the Board of Directors is allowed to consider things like neighborhood input, social issues and other things, and the board does not always agree with the Planning Commission’s recommendation.”
Adcock was one of a handful of directors who have complained about how businesses selling alcohol are approved and how many of those stores can be put in a neighborhood or a close proximity to one another.

Moore and several city directors hope the ordinance will address those concerns, but officials at the state Alcoholic Beverage Control Division said the agency’s board does not consider local zoning matters when permitting alcohol sales.

“The city already gives notice, as far as I know, to the local neighborhood associations when someone applies for an alcohol permit,” said agency Director Michael Langley. “It looks like they have a desire to make all alcohol sales a conditional use. From a legal standpoint, I don’t know that they can do that. It would be up to folks to seek relief through the circuit courts on that.”
The other facilities that would require city approval if the ordinance is passed include rooming, lodging and boarding facilities; family-care facilities; group-care facilities; establishments of religious, charitable or philanthropic organizations; community welfare or health centers; establishments for care of alcoholic, narcotic or psychiatric patients; “beverage” shops; stores where beverages make up not more than 10 percent of the floor space; and pawnshops.
Moore said the ordinance language will be clarified before the board meeting Tuesday to specifically include convenience stores that sell beer and wine.

By Claudia Lauer
Front Section, Pages 1 on 02/03/2012
Print Headline: For veterans clinic, hurdle in the works

Evelyn Hills Sporting Healthy Outlook

2011 brought a renaissance of sorts to Evelyn Hills Shopping Center, which for decades was a bustling center of commerce in Fayetteville but fell on leaner times as retailers migrated north toward Joyce Boulevard.

In 2002, the 155,000-SF center on North College Avenue at Memorial Drive was nearly half-vacant. And over the last 10 years, it’s seen plenty of retailers and restaurants come and go.

But Northwest Arkansas’ oldest shopping center added eight new businesses last year, bringing the current total to 25. That leaves only two large spaces – about 10,800 SF and 5,800 SF, respectively – and a few smaller office-type spaces vacant, said Matt Dearnley, CEO of Flake & Kelley Commercial Northwest, which leases and manages the property.

Jordan Jeter, a partner with Flake & Kelley, said they’ve got some leads on the larger spaces and hope to get those filled soon.

To view the full article from Arkansas Business.

ChainLinks National Retail Investment Report

ChainLinks Retail Advisors is proud to present the inaugural edition of their U.S. National Retail Investment Report. This report covers investment trends across all regions of the United States as well as top deals transacted. It also details historical sale trends for retail properties of all types. Among the shopping center types that are covered are regional malls, neighborhood and community centers, power centers and strip centers. ChainLinks also covers single tenant retail properties ranging from drug stores and fast food properties to standalone big box properties of all size ranges. This report will be published on a semiannual basis following the close of the first and third quarters of each year. For the inaugural edition, ChainLinks includes major deal transacted since the beginning of the year.

Flake & Kelley Commercial is the ChainLinks affiliate for Arkansas. Through ChainLinks, we are part of a nationwide network that facilitates expansion, disposition, relocation and repositioning efforts on a local, regional and national basis. For over 30 years ChainLinks has been and remains the largest retail-only real estate services organization in the world. Within the retail industry ChainLinks serves the full range of clients, including restaurants and hospitality providers. They maintain 110 offices in 23 countries on three continents. Our 1,000+ agents, brokers and consultants represent 2,000 retailers and 500 landlords on an exclusive basis.