COVER STORY, OCTOBER 2008

TEXAS RETAIL ROUNDTABLE
How are the state’s major retail markets responding to the national economic woes of 2008?
Compiled by Lindsey Walker

While our roundtable participants did not all share the exact same perspectives when it came to the retail markets in their areas, the general consensus of the state’s viability was the same: Texas has a strong economy, and, even though the state is feeling ramifications of the national downturn, it looks to bounce back faster than most of the country.

Participants in this year’s roundtable include: Steven Triolet, CB Richard Ellis; Eric DeJernett, CB Richard Ellis; Benjamin Kogut, Grubb & Ellis Company; Mark Granados, HPI Real Estate Services; Victor Melton and James Behanick, LMI Capital; Jerry Goldstein, Marcus & Millichap; Gar Herring, The MGHerring Group; Jonathan Brinsden, Midway Companies; Kimberly Gatley, NAI REOC Partners; Dean Lane, NewQuest Properties; Joel DeSpain, Opus West; Steve Zimmerman, The Retail Connection; Mark Reeder, Staubach Retail; Jim Lemos, Texas Realty Capital; Brad Kam, TKG Real Estate Investment Sales; Woody Mann, Jr., Vista Equities Group; Peter Jacob, Weaver, Davis & Jacob Realty Group; Herb Weitzman, The Weitzman Group; and Tom Pagel, Yancey|Hausman.

DALLAS/FORT WORTH

TREB: How is Texas’ retail market performing as compared to other parts of the country?

Kam: The Texas retail market is strong compared to the rest of the nation, and much of this success is due to job growth. According to the Texas Workforce Commission, in the 12 months ending with July 2008, Texas led the nation in employment growth, adding almost 250,000 new jobs and accounting for over 40 percent of all U.S. job growth. The news is especially bright in Dallas, where the region added 68,000 jobs in the same time period — the most of any U.S. metropolitan area

Triolet: Texas has the best demographics in the country when you look at the combination of net population growth and job creation in recent years, and at the projections for the next 5 years. Texas should continue to outperform the nation, which will continue to make it a key region for retailers.

Zimmerman: Texas’ retail market is outpacing the rest of the nation, due to a relatively stable housing market, positive job growth and an abundance of affordable land for expansion. Many retailers that have stopped expanding in certain areas of the country (especially on the East and West coasts) continue to expand in Texas (although mostly with a scaled-down program). This trend bodes well for Texas relative to the rest of the nation.

Herring: We are fortunate to be developing in Texas where the retail market is faring better than in other areas across the country. In Texas, we continue to see job growth and have managed to avoid the housing bubble. These factors have helped to shield the Texas retail market from the significant downturn experienced in other markets.

Reeder: Texas across the board is one of the bright spots in the nation for real estate. Several retailers have reported strong sales in Texas, while their other national locations have been weak. While we do feel some of the effects of the economy, there are still plenty of opportunities in the Texas retail market place.

Weitzman: A handful of national markets are experiencing job losses and shrinking home values, and these are generating a lot of negative headlines. But in Texas, the news remains good!

TREB: How would you characterize retail development in your area this year?

Zimmerman: Like all other areas of commercial development, retail development has slowed in 2008 as developers continue to deal with the rising cost of construction, slower tenant expansion and the credit crunch. However, the Dallas/Fort Worth market has faired better than most U.S. markets as retailers continue to see our market as one of their few growth opportunities.

Village at Fairview.

Herring: Retail activity in the D/FW area has remained strong this year, despite a scale back in development on a national level. Collin County (located just north of Dallas) is one of the fastest growing counties in the nation and is particularly ripe for retail development, due to its growing population and an average annual household income approaching $100,000. MGHerring currently is developing a joint 3 million-square-foot, regional, mixed-use project along the U.S. 75 corridor in Collin County called The Village at Allen and The Village at Fairview.

Reeder: Retail development in North Texas has continued on a cautious basis. One developer termed it as “possible, but not probable”. Developers are facing many difficult factors. The pre-leasing hurdles required by lenders are contrary to the fact that there are fewer retailers expanding.

Weitzman: We’re still seeing an active development market involving several major projects that are opening this year and through 2009. For 2008, we’re estimating that construction will add about 4.2 million square feet. Most of this space is being added in a handful of major projects in markets with good residential densities. These projects all have outstanding anchors and are opening well-leased. Two new open-air malls are among the new centers. One, Uptown Village at Cedar Hill, is anchored by Dillard’s, Dick’s Sporting Goods and Barnes & Noble. The project’s first phase opened in March, and additional space is opening this year and into 2009 for a 725,000-square-foot total. Another big project for 2008 is Watters Creek, a mixed-use project in Allen with specialty grocer Market Street, Borders Books & Music, Cheesecake Factory and more.
Watters Creek will total 1.5 million square feet of mixed-use space upon completion.

These large projects dominate our construction market. However, we’re not seeing projects of this magnitude start without significant anchor commitments in place. And, as single-family construction slows, projects in new-growth markets that were based on residential growth projections are being delayed until residential growth meets the density requirements for the anchor tenants. This slowdown in future projects is ensuring that development does not outpace demand and lead to higher vacancy.

Kam: The D/FW market is still growing and development continues for underserved markets that need more retail.

TREB: How would you characterize retail leasing activity?

Triolet: D/FW leasing activity has slowed due to a combination of three macro events impacting the national economy: first, the crash in the housing market, which has pushed new home construction to 16-year low. This has impeded the expansion of retailers that typically follow new home development. Second, the credit crunch has impacted sales transaction volume and consumer spending (borrowing money has become more expensive). Third, high gas prices and a slowing economy have caused a shift in retail consumer demand; discretionary items and upscale goods have been impacted the most.

Reeder: Leasing activity depends on the specific project, the co-tenancy and the trade area. Certainly fashion and soft goods have slowed, but there are some destination, value/discount and hospitality users that are out making leases. The tenants that backfill second generation spaces are still active and are able to take advantage of lower lease rates.

Kam: Our clients are telling us that deals are still getting done. The main difference is potential tenants are taking longer with their due diligence while really investigating the market and location to make sure they are picking the right spot. There are very few quick decisions.

Weitzman: Leasing activity remains strong, so strong in fact that we saw our occupancy rate increase at mid-year 2008 when compared to year-end 2007. We now report an occupancy rate of 89.4 percent, based on an inventory of 168 million square feet of retail space. Occupancy is remaining steady due to pre-leasing for new projects and the absorption of vacant boxes by new retail users. Plus, we’re seeing really good tenant retention in existing centers. At Cencor, for example, we’ve completed renovations of several older centers this year. In each case, the renovations resulted in stronger leasing and higher occupancies.

Herring: While retailers are scaling back on expansion plans due to the economy, we are finding that retailers continue to recognize D/FW as an area for growth and are executing new leases in our market. For example, we recently signed Whole Foods Market for The Village at Fairview. Our location in Dallas was one of two new stores that Whole Foods announced for its second quarter.

TREB: How is investment sales activity in your part of the state?

Kam: The D/FW market continues to benefit from the relative strength of our economy compared to the rest of the nation. Buyers are calling us looking to specifically invest in the Texas market, and they are willing to pay top dollar. However, buyers want properties in good locations that are leased with reasonable rents and true NNN leases, along with ability to forecast future rent growth. They don’t want to bet on pro forma lease up and rents or areas that may or may not develop.

Zimmerman: Retail investment sales activity in the sub $5 million range continues to move along in the D/FW area. However, transactions above $5 million, particularly if they require debt, are becoming exceedingly more difficult to complete due to more stringent debt requirements. By contrast, numerous centers sold in excess of $25 million dollars in 2006 and 2007.

Reeder: Investment sales activity has slowed because there is uncertainty in the market. The national economy, higher living costs for the consumer and the upcoming presidential election have many taking a wait-and-see approach. Both sources of equity and debt are reticent to pour money into shopping centers, and so it is more difficult to get a sale financed. As cap rates have increased, some sellers are holding off until they can get a better price. I predict, though, in the next couple of years, supply and demand will cause an increase in investment sales activity due to fewer new developments currently taking place.

Weitzman: Until the past month or so, I would have said that investment sales activity was very, very slow. However, I am aware of several deals that have closed recently. Cap rates are up about 50 to 75 basis points, but I think this may be an indication that buyers and sellers are at least starting to get together again on pricing. There is still a lot of capital that is looking for a home; that has not been the problem in the slow investment market. The issue has been pricing, and debt is getting more difficult to place.

Triolet: Sales volume has largely been subdued over the past year in comparison to recent years, but transaction volume is expected to pick up once again for the Texas markets. A variety of funds and private investment groups, which have been sitting on the sidelines, are expected to re-enter the market in 2009. In many cases, these will be all-cash buyers.

TREB: How would you describe the lending environment for retail properties?

Weitzman: There continues to be loan funds available for higher-quality and well-sponsored properties. Loan-to-values are definitely lower, and underwriting is tougher. But if you have a good property, you can find a lender willing to work with you. Properties that have leasing issues or that are in secondary markets are the ones that likely will continue to experience difficulty in finding financing.

Zimmerman: Lenders are becoming more stringent with their lending requirements for existing centers. No longer are they willing to give non-recourse, interest-only loans at 85 to 90 percent loan-to-value; they are now typically looking for recourse with a more conservative 70 to 75 percent loan-to-value. As it relates to ground-up development, lenders have taken a similar conservative approach, with many now requiring pre-leasing commitments that will cover the entire debt service of the loan as opposed to the previous requirement for pre-leasing commitments for 50 percent of the center’s gross leasable area.

Reeder: The lending environment for retail is still alive and active; however, it is more expensive. Lenders are requiring higher equity contributions from developers (in some cases 25, 30 or 35 percent equity). Proven developers are getting loans, but at higher costs.

Herring: The lending environment is very challenging right now. One of the most important factors in today’s economy is to have a strong equity partner. MGHerring is very fortunate to have Prudential as our financial partner for all our Dallas projects. With Prudential’s support, we opened Uptown Village at Cedar Hill in March, and we recently closed on our loans for The Village at Allen and The Village at Fairview. Another important factor is having a strong lead bank that has adequate liquidity and the relationships to syndicate large loans. Bank of America is the lead bank for all our loans in the D/FW market, and they continue to close deals in this challenging environment.

Kam: The lending environment is tough but there is money out there for the right buyer and property. Of course, a buyer cannot expect to easily find 80 percent, interest-only, non-recourse financing anymore. In terms of investment sales, it really comes down to realistic expectations, as lenders are much more selective than past years. Generally, lenders want more equity and less term risk on their books.

TREB: What markets or submarkets have seen growth this year?

Kam: One area of Texas that is poised for growth is downtown Dallas. The past year has included some high-profile corporate relocations to downtown Dallas, including AT&T and Comerica. There is a lot of residential redevelopment taking place, and retail needs will continue to increase. The convenience of living closer to work while saving money on gasoline is a significant competitive advantage for downtown Dallas. The DART light rail system continues to grow and will only make that area more appealing moving forward.

Reeder: D/FW and Houston continue to grow, due in part to our strong job growth. Additionally, the Hispanic markets have seen growth in areas that traditionally have not seen increased growth.

Herring: D/FW and Houston have been the shining stars of the national economy for 2008. We continue to see job growth in Texas and have managed to avoid much of the fallout from the mortgage crisis. Because of these factors, retail in the Metroplex will continue to do well.

Zimmerman: D/FW and Houston experienced growth this past year, although not at the same rate as in 2006 or 2007. Based primarily on solid job growth (Dallas ranked first in the U.S., and Houston was second through the second quarter) and population growth (again Dallas ranked first, with Houston being fourth, according to the latest census data), retailers continued to look to these areas. We expect the larger Texas cities to continue to outpace the rest of the nation, but uncertainty about the economy, the political environment and rising fuel costs will continue to affect all consumers and retailers.

Weitzman: Our most active markets for new development in 2008 are Allen and Cedar Hill. We’re also seeing retailers looking to expand in markets like the Interstate 35W corridor in North Fort Worth, the State Highway 380 corridor from Denton to McKinney, and all of our maturing growth markets like Frisco and McKinney. We also see retailer interest in infill locations in built-out, inner-city areas and in expansion markets.

Triolet: The four big Texas markets all have been among the Top 10 fastest growing metropolitan statistical areas across the country over the past year. They’ve also been very high in job creation. With the Texas markets topping the list in these two key fundamentals, Texas in general should continue to outperform the market in the short and long term.

TREB: Which markets are struggling?

Herring: On a national level, the struggling markets are those that have been hit hardest by the mortgage crisis.

Triolet: All of the Texas markets have been performing reasonably well. The submarkets that have seen the most dramatic change over the past year have been some of the outlying areas where home construction has slowed and caused a subsequent slowdown in retail activity. High gas prices also have made infill locations more attractive.

Reeder: Some of the trade areas that have struggled in North Texas include the suburban fringe markets that do not have the population density. These markets blossomed with affordable residential housing, but, in many cases, were the first impacted by the credit crunch and higher consumer living expenses. Many specialty centers with the top lifestyle tenants that were the preference of so many communities are now slowing in North Texas, as these specialty tenants have a limited “open to buy” for 2009. We are seeing more of a mixture of large anchors and specialty and mixed use.

Weitzman: D/FW has more than 30 submarkets, and the majority of these have stable occupancy. So while no submarkets are experiencing notable problems, we do see some poorly conceived centers within some submarkets that are not able to compete with more viable projects for tenants. Many of these properties are hangovers from the overbuilding our market experienced in the mid-1980s. But today’s projects remain much more in line with demand.

Zimmerman: The outer edges of the markets will struggle in 2009 as retailers are concerned about a relative slowdown in housing and are focusing on more proven trade areas. An example is the 380 Corridor north of Dallas. This trade area will be the next growth area for D/FW, but many retailers have delayed their commitment until housing firms up.

TREB: What types of retail properties are most popular in Texas right now?

Kam: In D/FW and around Texas, the hottest types of development continues to be mixed-use with a lot of restaurants. D/FW is the Number 1 restaurant market in Texas. Everything is geared to increasing traffic, and these types of centers make the most sense for consumers. Again, consumers don’t want to be driving around the city with high energy prices. By combining office, retail, apartments, and restaurants all together in one area, retailers benefit as much as anyone else.

Herring: Large-format retail, such as big box stores and discount retailers, are becoming increasingly popular as consumers look for ways to cut spending.

Reeder: We are seeing a resurgence of the grocery-anchored center in the D/FW area with Kroger, United’s Market Place and Sprouts all active.

Weitzman: D/FW is seeing new projects opening this year and next for concepts like Market Street, Sprouts and Whole Foods. Kroger also has announced plans to bring its massive Kroger Marketplace concept to D/FW in the near future. We’re also seeing vacant boxes retrofitted for new grocer entrants like Sunflower Farmers Market. The market is also seeing an extremely active mixed-use environment, with well-anchored projects opening this year and through 2010. Lifestyle retail also continues to do well. And, because Wal-Mart Supercenter has been such a strong market driver, we’ve seen peripheral projects developed for the retailers that typically follow Wal-Mart.

Zimmerman: The larger centers that contain a super big-box retailer such as Target, CostCo or Wal-Mart remain the hottest property type in Texas. Centers that include smaller anchors such as Bed Bath & Beyond, JC Penney or Belk also remain hot. For example, Weatherford Ridge in Weatherford, Texas, located on I-20 west of Fort Worth, is anchored by JC Penney, Belk and Bed Bath & Beyond. The activity for the remaining space in the center is extremely high, and the center commands some of the highest rents in the area.

TREB: Which types are not performing as well?

Reeder: The housing slowdown has impacted centers that have furniture and home décor retailers, as consumers are delaying some purchases in order to guard their disposable income. In some trade areas, unanchored neighborhood strip centers are struggling.

Herring: Non-anchored shopping centers are suffering the most. Retailers have become more stringent in their co-tenancy requirements, and securing anchor tenants is essential in order to draw other retailers to a center. Retail centers that have violated the fundamentals of development are also struggling. Location, visibility, access and strong demographics are still the keys to success in retail development. Projects that were built without these fundamentals will struggle.

Weitzman: Since our major projects are significantly pre-leased prior to construction, our anchored projects continue to do well. We have seen too many small, unanchored neighborhood centers, in the 10,000- to 20,000-square-foot range built speculatively, and some of them suffer from mid-block locations, poor layout and overbuilding in certain trade areas. These smaller centers are the only segment of our market where’re we’ve seen building outpace demand.

Triolet: Neighborhood and community centers have seen a slight decline in consumer sales. Hard corner properties and pad sites, which were very hot in recent years, have shown some significant softening as banks and other retailers have become less aggressive in their expansion plans.

Zimmerman: Smaller, urban lifestyle centers that are not extremely well-located are having a tougher time. The tenants for these centers have dramatically slowed their expansion plans and, in some cases, have shut down completely. However, new lifestyle centers that have great locations are doing well because the restaurants and retailers that are looking for an opportunity to expand or relocate do not have as many options.

TREB: Which retailers are most sought after?

Kam: According to the developers we work with, restaurants are the most sought after tenant. Again, D/FW is the Number 1 restaurant market in Texas. A good mixture of popular restaurants will result in increasing traffic and turning a center into a destination, which of course benefits the surrounding retail.

Herring: Anchor tenants that gain commitments from additional, smaller tenants are most sought after. In addition, tenants that are very selective with their sites and only commit to a few projects a year are highly sought after. MGHerring has signed Whole Foods Market, Village Roadshow Gold Class Cinema and The Container Store for The Village at Fairview. Because these tenants are so selective, their commitment makes The Village at Fairview truly unique to the market and communicates the special nature of the project to other retailers.

Reeder: Large anchors such as Target and JC Penney are still in great demand; however, many are pushing openings to 2010 and beyond. Both large-format grocery stores and smaller, specialty grocers are in great demand to anchor neighborhood developments and mixed-use projects. We have seen retailers such as Whataburger, Justice, Carter’s and Corner Bakery continue to be active in several different markets.

Weitzman: The answer to this question is: it depends on the type of project and the trade area demographics. The best retailers for any project are those that match the trade area’s demographics and can pull traffic and encourage cross-shopping. So the ideal retailer for a project in one submarket might not work for a project in a different submarket. That said, developers and leasing agents seek retailers that provide strong co-tenancy, meet the tenant mix plan and drive traffic to the center. We have experienced, over the past several years, the emergence of restaurant clusters that serve as an anchor and drive significant traffic several times a day. Restaurants are an important component for successful retail projects — especially mixed-use and lifestyle projects.

Triolet: Things are becoming more conservative for lending and leasing. Landlords are now paying much more attention to the credit ratings of perspective tenants than in recent years. Any tenant with stable financials and a proven track record has become highly sought after.

TREB: What do you think needs to happen in order for the market to improve in 2009?

Zimmerman: Our market should improve, provided it can maintain positive job growth and if economic factors that are influencing the entire country — such as the financing and housing markets — stabilize. Even with all these factors improving, it will still take some lenders loosening their lending requirements to get retail development and investment sales back on track.

Herring: In order for the market to significantly improve, the economy needs to be strengthened. Commodity, construction and land prices will have to come down and liquidity brought back into the banking system.

Reeder: In order for the market to improve we need to continue to be blessed with some of the highest job growth numbers in the country, we need the capital markets to settle down and for consumers to have the confidence to spend their paychecks on retail goods and eating out at restaurants.

Weitzman: We’re looking at a pretty stable market here in D/FW. But centers with significant vacancy will need revamped project representation and tenant mix plans, which take into account all of the factors in the trade area — demographics, traffic, accessibility, growth and so on.

Triolet: Job creation is the key driver of the economy and retail sales, in particular. Texas is leading the nation in job creation, so the recessionary forces impacting the national economy have been very muted in regard to Texas, but it still has had a moderate impact.

TREB: What retail trends do you expect to see at the end of this year and early next?

Herring: Retailers will continue to be more rigorous with co-tenancy and pre-leasing requirements, resulting in fewer new shopping centers for 2009 as compared to recent years.

Reeder: In a cautious economy, typically discounter retailers, such as Target and Wal-Mart, which cater to the value-oriented customer, will prosper. Two newer trends that we are starting to see in the Texas market include the Hispanic buyer and the development of green centers. The Hispanic population is the fastest growing population segment in Texas and the market is reacting with retailers such as Fallas Paredes, Famsa’s, Mi Doctor and Super Mercado. Green centers have also started to become the trend as people continue to infill cities and become concerned about the environment.

Zimmerman: We see retailers getting back to the fundamentals. They are no longer reaching for locations that don’t fit all their criteria of demographics, co-tenancy and traffic counts. Instead, the retailers are being far more selective and are taking much longer in the evaluation process before they choose a site.

Triolet: Retailers and developers are going to get more conservative in the coming year. There will likely be a further pullback in lifestyle centers, upscale focused shopping centers and mixed-use developments.

Weitzman: In D/FW, I think we’ll see more renovations as owners and developers seek to ensure that their centers remain competitive. We’ll also see continued retailer interest in D/FW, since our market — like the other major Texas markets — continues to outperform the nation in terms of economic growth.

HOUSTON

TREB: How does Texas’ retail market compare to the rest of the nation?

Lane: I would rank it in the Top 5.

Goldstein: We know we’re outperforming the rest of the country because of our job creation and business expansion in Houston, particularly because of growth in energy and the port.

Brinsden: Our strong employment growth and better-than-average residential market should support a stable retail environment.

Mann: Very favorably. One of the best things about Texas is that we’re not California, Arizona, Nevada or Florida. If you can’t succeed in Texas, I really don’t know where you can.

TREB: How would you characterize retail development in your area this year?

Melton: Surprisingly, there is an abundance of activity taking place in Houston. Experts estimate that Houston has 12 million square feet of space either under construction or in the pipeline. This is compared to less than 4 million square feet delivered last year. A lot of these projects are large deals, some as redevelopment projects. The majority of development in Houston continues to be located in the north by northwest quadrant (Tomball, Magnolia, The Woodlands and Conroe) and the west by southwest quadrant (Katy, Richmond/Rosenberg and Sugar Land). Notable projects include the redevelopment of the old Town & Country Mall as CityCentre; the Houston Pavillions site in the central business district (CBD); BLVD Place in the Galleria area; LaCenterra at Cinco Ranch out in Katy;
Pearland Town Center; and Market Street and the Woodlands Waterway in The Woodlands.

Brinsden: Retail development activity has continued to be robust because of the strong local economy in Houston. The Bureau of Labor Statistics reported in March 2008 that 43 percent of all new jobs in the United States were located in Texas and 17 percent were located in Houston. Additionally, Houston was named by Forbes.com as the Number 1 place to earn a living in America because of its “dynamic business environment, low unemployment and high wages relative to income. “

Goldstein: In Houston, deliveries of new projects will be down in 2008 from 2007 because of lower demand from national tenants, which have reached the saturation point of locations here. Additionally, there will be a decrease in spec development due to the lending crunch, and some lifestyle centers will be put on hold.

Mann: Cautious. During the first half of this year, the majority of retail properties under development were the result of loan commitments issued in 2007. My perception is that new retail development has slowed considerably the last half of 2008, even given Houston’s relatively strong economy compared to the rest of the country.

Lane: Development has definitely slowed down. Financing is the main concern within the development community. Most of the projects that are under construction were in progress over 12 to 18 months ago.

Jacob: It’s not bad compared to the rest of the country, but local indicators have showed signs of slowing. As we all know, retail follows rooftops, and the retail developments that were planned in the neighborhoods serving the subprime markets have definitely slowed or even stopped. As the big-box retailers pull back, the smaller retailers are not taking action either.

However, Houston is a bright spot in the Texas economy. The population is growing in the Galleria area as well as suburbs in the Sugar Land/Missouri City and West Houston and Katy. The Woodlands also remains strong. Energy companies and those companies that support the energy industry are snatching up office space in the Energy Corridor along I-10 between Beltway 8 and the Grand Parkway. These areas are the exception to the rule as retailers find that the area is rich in activity.

TREB: How would you characterize retail leasing activity?

Mann: New leasing activity has been sluggish in Houston, especially among national retailers. Most of the national soft goods retailers are not making commitments until 2010, if then. Mom-and-pop stores have been negatively affected by the ratcheting down of the credit by banks, and by the lack of liquidity.

Jacob: We’re seeing a slowdown in the number of viable prospective tenants, which is creating a softer market as landlords offer incentive packages to entice retailers.

Goldstein: Houston’s leasing has been healthy in anchored projects, less vibrant in suburban markets in unanchored strips. Retail sales volumes in the Houston market are very good.

Brinsden: Leasing activity has remained strong along with the strong local economy; however, the weakening national economy has impacted the expansion of national retailers.

Lane: Leasing activity has been strong for NewQuest. Our projects are well-located and anchored with major retailers. Our third-party transactions are also above last year’s activity.

TREB: How is investment sales activity in your part of the state?

Brinsden: They have slowed with the tightening of the financial markets nationwide, but capital remains available for properties with strong investment criteria and strong local economies, like Houston.

Behanick: Sales are way off. Sales of high dollar luxury retail deals are virtually non-existent. These deals were dependent on high leverage financing, which can’t be found these days. But even the bread-and-butter neighborhood strip centers are not trading like they have in the past. Sellers need to go to the third and fourth offers before making a deal happen.

Jacob: Overall, Texas has remained a place of interest for investment compared to other parts of the country. Houston, in particular, has a lot more office and multifamily properties being bought and sold as opposed to retail. If there are retail centers that are under contract or coming under contract, they are the Class A, higher profile developments.

Goldstein: Investment sales have slowed because of the cost of capital and the wait-and-see attitude of some buyers.

Mann: My perception is that it has declined as well, due to the lack of acceptable financing and higher leverage requirements.

TREB: How would you describe the lending environment for retail properties?

Melton: In one word: cautious. Lenders are always interested in financing a well-located property, with a strong anchor and diversified tenant mix. With the current credit crunch, lending requirements have tightened and funds are less available. More emphasis is being placed on sponsorship experience and financial strength. Loan structure may involve personal recourse or springing guarantees, lower leverage, or pre-funded accounts to provide additional collateral to protect against potential negative events. Pro forma deals with no significant lease-up are tougher to finance. On the positive side, attractive, long-term, fixed-rate financing with an assumable feature could help owners sell their properties.

Goldstein: The lending sources have shrunk in Houston like everywhere else because of the exit of the CMBS lenders. Insurance companies and banks make up the market today for loans.

Mann: The CMBS market is non-existent, which has made it necessary for banks to hold construction loans longer than normal, which in turn has caused a liquidity crisis. Availability of equity is not the issue; availability of debt capital is, however.

Lane: The environment is bad and increasingly getting worse. Spreads and rates have increased dramatically in the last 12 months. Most lenders are out of the market completely.

Brinsden: It has tightened along with the financial markets nationwide; however, capital remains available for properties with strong investment criteria and strong local economies, such as Houston.

TREB: What markets or submarkets have seen growth this year?

Lane: Most all of the major markets are healthy, such as Houston, San Antonio, Austin and Dallas. The Valley and the border markets also are doing well. Although, a lot of the suburban markets within those markets have been struggling.

Goldstein: In the Houston market, the trends of past years are intact. Growth of retail is following population growth. Areas like Sugar Land and East Fort Bend County, Pearland, The Woodlands, West Houston and the Northwest seem to be leading suburban growth along with inside Loop 610. There have been some sleeper markets like Baytown that the national chain store tenants love.

Brinsden: Houston has certainly grown over the past year and is poised for continued growth, considering the strong local economy and the number of new jobs created in this market.

Melton: Due to steady population growth and an insulated economy up to now, the Houston retail market continues to grow, albeit at a decelerated pace. Particular submarkets, primarily located north and west of town are seeing the majority of this growth. These continue to be The Woodlands, Katy, Sugar Land, and Pearland. Some locations inside Loop 610, including the CBD, Midtown, Galleria and Highland Village areas, have notable projects going on.

TREB: Which markets are struggling?

Brinsden: In general, development in speculative suburban markets, where the full long term market potential is subject to future growth, should and will slow down.

Lane: Markets that were experiencing major housing growth.

Behanick: Anything located out in the far reaches of suburbia is going to have problems attracting new tenants and maintaining existing tenants.

Goldstein: The Sharpstown market and Fondren Southwest close in Southwest suburban markets have deteriorated over the years, and, because of poor demographics and crime, don’t seem to be progressing with the rest of the city.

TREB: What types of retail properties are most popular in Texas right now?

Mann: In Houston, grocery-anchored centers still seem to have investor appeal, as do well-located and well-occupied neighborhood centers. However, our experience has been that the expectations of sellers and the expectations of buyers are still far apart.

Jacob: The hottest properties in Texas remain grocery-anchored because everyone eats and shops for groceries. But the number of grocery-anchored projects are now few and far between. As the economy continues to decline and people eat out less frequently, grocery traffic will increase.

Brinsden: Urban, infill locations with proven and mature trade areas are hot — and often house mixed-use environments. These properties exhibit excellent demographics and high barriers to entry.

Melton: Well-located, mixed-use projects seem to be in vogue. Most notable projects have some component of retail, office and multifamily space in the mix. As people become more concerned about commuting costs and quality of life issues, the answer appears to be to develop projects where they can live, work and play. Strong grocery-anchored projects are always in demand. Single-tenant properties are also popular, and not just for 1031 exchange transactions. In uncertain times, single-tenant deals with some credit component provide a safe bet for investors.

Goldstein: Regional trade areas that have evolved around Wal-Mart Supercenters have become expansive and are magnets for national big box retailers.

Lane: Neighborhood or regional groceries anchored have always been the most successful.

TREB: What types of retail properties are having trouble?

Lane: Unanchored strip centers and specialty retailers with no major anchor.

Goldstein: Unanchored, ill-conceived strip centers mainly in suburban markets.

Behanick: Newer, unanchored strip centers that were built ahead of the curve on new subdivisions. The local tenants will suffer from the lack of increased foot traffic provided by major anchors. Another struggling property type would be traditional shopping malls. Consumers are now attracted to the open-air, lifestyle centers that are closer to their homes.

Brinsden: Small, speculative retail centers in speculative markets with low barriers to entry will suffer with a tightening economy.

Mann: Can’t speak for all of Texas, but in Houston, it’s definitely the smaller non-anchored strip centers, which have been tremendously over-built in the last 2 years due primarily to some questionable lending decisions by financial institutions.

Jacob: Again, the market is cleansing itself of the poorly conceived and located shopping centers — especially in those neighborhoods negatively impacted by the mid- to lower-priced residential communities.

TREB: What retailers are most sought after?

Lane: Grocery and major discount stores, such as Target.

Jacob: Any retail tenant with a pulse and who can pay the rent. If they can fog a mirror, we’d like to talk to them.

Mann: National retailers who are forward-looking and can see the forest instead of the trees. Regional and local retailers with a successful track record and good credit standing. Leasing to mom-and-pop stores these days is akin to playing Russian roulette.

Brinsden: Strong national and regional tenants who are positioned to grow within a slower economy and who deliver a great product and customer experience.

Melton: With less disposable income, shoppers are looking toward discount retailers, like Wal-mart, Target, T.J. Maxx, Marshall’s, Ross Dress For Less and Payless ShoeSource. H-E-B and Kroger are two of the more popular grocery anchors.

TREB: What do you think needs to happen in order for the market to improve in 2009?

Lane: The debt market needs to settle down.

Goldstein: A better lending environment.

Melton: I feel pretty bullish on Houston’s retail market. We are fortunate to continue to lead the nation in new job creation, we have three of the Top 10 Texas counties in median household incomes (Fort Bend, Montgomery, and Brazoria), and we have continued population increases forecasted. However, buyers and sellers need to come closer together on price. There is still a disconnect on cap rates between the two. Second, there needs to be a reliable source of capital to finance the deals that is not subject to pressure from governmental oversight. And, in order to ensure equilibrium, lenders need to do their part by exerting some restraint on funding new projects to allow absorption of the new space coming on line in the marketplace.

Brinsden: The weak housing market needs to improve through the reduction of home inventories and the stabilization of home values along with the stability of the financial markets and large financial institutions.

Mann: Liquidity needs to be restored to the banking industry, the CMBS market needs to open up, and banks need to stop making construction loans to every wannabe developer who walks in their front door with no understanding of the terms “equity” and “pre-leasing”.

TREB: What retail trends do you think will emerge as we approach the end of 2008 and enter 2009?

Jacob: Selective mixed-used projects that integrate office, retail, hospitality and residential will continue to be at the forefront of development types. These self-sustaining developments have been growing over the last 10 years and, now with increased transportation costs and operating expenses, these developments will continue to be favorites with both communities and developers.

Goldstein: We need to see those holiday sales before making too many projections. Retail sales have been good but there continues to be some national tenants either going out of business and some closing underperforming stores.

Brinsden: Continued concentration on more urban locations with proven trade areas and a focus on delivering great experiences for retail customers. Additionally, an understanding of the macro influences of changing demographics across the county is critical. Mixed-use environments with retail, residential, hospitality and office components will lead this trend.

Melton: I believe that developers will become more concerned with ethnicity changes going on in Houston. Hispanic and Asian population increases will lead to targeting these population segments. Also, more LEED standards toward energy conservation and sustainable development will become more important. I think retailers, especially luxury retailers, will be hesitant to open more stores or sign leases for new locations until they believe the economy is starting to rebound. Also, as noted earlier, mixed-use development will continue to emerge as the market demands shift to places that create a sense of place. Currently in Houston there are a number of significant mixed-use developments under construction and more are proposed.

CENTRAL TEXAS

TREB: How do you think Texas’ retail market compares to the rest of the nation?

Gatley: We should be very thankful that we are in Texas!

Granados: We are considered a bright spot, but this is more of the other markets having serious problems than it is a major endorsement of Texas.

Pagel: Texas and Austin are feeling the impact of high energy costs, troubled financial markets and the accompanying economic slowdown, but not to the same degree as some other parts of the country. The Texas economy is strong, and we continue to create jobs. I think people are taking note of that and want to do business here. We continue to see corporate relocations and/or expansions into Texas, and as long as people continue to move into our area, there will be demand for retail.

DeSpain: The Texas retail market is part of the national landscape due to national retailers being such an important part of the leasing lineup. Job growth in Texas is the healthiest of any state; therefore, we believe that the Texas retail markets will improve at a faster pace than the national retail market in general.

DeJernett: Favorably. The strength of the Texas oil and gas industry, as well as continued job growth, are providing a more stable market than other parts of the country. Texas will see less economic softness overall and recover sooner than the balance of the nation.

Kogut: It appears (from the inside) that Texas is still on many retailers’ radar and is relatively strong, especially in and around the large cities.

TREB: How would you characterize retail development in your area this year?

DeJernett: The majority of retail development occurring in Central Texas is the completion of final phases of existing projects or the start of projects committed to and financed earlier this year. The slowdown in the housing industry, employment growth, tightening credit market and the corresponding pull back by national retail expansion have brought most new projects to a halt. We anticipate very few major development announcements during the next 12 months.

Kogut: Retail development is declining unless the developer has pre-leased a large percentage of the project.

Lemos: The focus for new retail construction in Austin continues to be in three areas -— the Far North and South suburbs and within the CBD. With national retailers reducing plans for new stores in suburban areas, we expect development to be limited to infill locations.

DeSpain: After record-breaking square footage deliveries in 2006 and 2007, 2008 has been a year of adjustment and slowing by almost all retail developers in the Austin metro area. This is a natural consequence as retail development follows residential roof-top development, which has been reduced by approximately 25 percent in 2008.

Gatley: The San Antonio retail market continues its expansion phase, characterized by substantial new development in all sectors. Approximately 5.5 million square feet is currently under construction, including three major power center projects and several other sizeable centers, many of which were started over a year ago.

Pagel: Retail development in the Austin area has clearly slowed this year compared to the past couple of years. By way of comparison, just a little over 400,000 square feet of new space was delivered in Austin during the first half of 2008 compared to more than 1.75 million square feet during the same period in 2007. For several years, Austin was playing catch-up in retail development. Not only have we caught up, but now retailers are being affected by the slowdown in the national economy, causing some of them to slow their expansion plans. On top of that, financing terms are not as attractive, affecting both retailers and developers. Consequently, retail development has slowed. All that being said, Central Texas still has excellent underlying economic and demographic characteristics that will keep it on the developers’ and the retailers’ radar screens, and I think it will be one of the first areas to pick up again.

Granados: San Antonio is over built with too many small, unanchored,  poorly conceived centers.

TREB: How would you characterize retail leasing activity?

DeSpain: Leasing activity for Austin projects that were opened in mid- to late-2007 has been steady during 2008; however, for those projects that were opened in the first half of 2008, the leasing has been mediocre, at best. Rental rates continue to be held at healthy levels, but leasing velocity in the market is off by about 20 percent.

Lemos: Overall, Austin has continued to see year-over-year positive absorption; however, new leasing year-to-date in 2008 has slowed significantly, as small tenants find it difficult to finance new store openings and national chains have cut back, and — in some limited cases — closed locations (such as Starbucks Coffee and Chili’s).

Granados: Leasing is steady but down significantly from last year.

DeJernett: Activity has slowed locally in correlation with the national economy. While absorption is not as strong as it has been during the last several years, we are still seeing interest from retailers desiring to be in the Central Texas market long term.

Pagel: We are still making deals. Many landlords are offering very competitive terms to fill their centers. This is creating opportunities that retailers have not seen in the recent past in Austin, but there are fewer expansions by both local and national retailers, so they are being more selective in their choices. Non-anchored, poorly located retail centers are seeing very few deals.

Gatley: In general, leasing velocity in the San Antonio market has slowed compared to this time last year, but gross leasing activity through mid-year generated over 619,000 square feet of positive net absorption due in large part to the pre-leasing of big box tenants in newly developed centers.

Kogut: Retail net absorption has been strong in 2008, which has shown a decrease in vacancy, but a slight increase in sublease opportunities.

TREB: How is investment sales activity in your part of the state?

Granados: In San Antonio, they are at a standstill.

DeJernett: Retail investment sales have dipped significantly compared to prior years’ velocity. This is due to a combination of tightening underwriting guidelines and a cloudy horizon for retail rates and occupancy levels. However, we have continued to see strong demand in Central Texas for single-tenant NNN investment properties. This seems to be attributable to investor confidence in the long-term outlook for the Central Texas economy.

Kogut: Investment sales in Austin and San Antonio have dramatically slowed down. Prices have fallen and the gap between bid and ask remains wide for many properties. Sellers are in a holding pattern waiting until the capital markets improve.

Gatley: The positive long-term economic forecast and healthy fundamentals of the San Antonio market keep investor interest strong but the volume of retail sales transactions has been limited by the difficult lending environment.

Pagel: Overall sales velocity has slowed because financing is not as attractive, but Austin is still very high on investors’ lists, so when properties become available, especially good properties, they usually sell.

Lemos: As an active provider of financing for retail acquisitions, Texas Realty Capital has seen the number of transactions slow dramatically since the summer of 2007 and continues to be very slow in 2008.

DeSpain: The trend in retail investment sales during 2008 is no different than the slowed trend in office sales and multi family sales, which are all down in numbers and in dollar volume by approximately 70 percent compared to 2007.

TREB: How would you describe the lending environment for retail properties?

Kogut: The capital markets have been condensed and therefore require more equity, thorough underwriting and higher interest rates. Buyers must broaden their search in order to find capital and then be prepared for a longer due diligence period.

Lemos: Lenders are more reluctant to finance high-end strip retail based on the belief that rents, which are at historically high levels, can only come down. Also, with the paucity of retail center sales, they feel that cap rates have moved higher and will continue to rise into 2009. As a result, loan quotes for Austin’s retail property are very conservative, and often require some personal recourse to achieve a loan to value above 65 percent.

DeSpain: The lending requirements on retail properties is a bit more stringent in 2008 compared to the last 2 years, in that the lenders are requiring about twice as much equity investment for construction loans from the developer, or about 25 to 30 percent of project cost. Pre-leasing levels have firmed and letters of intent from retailers are not as readily accepted as the lenders want to see firmed, signed leases.

Pagel: Tighter underwriting and less attractive rates than last year.

Gatley: In a word: tight.

DeJernett: Central Texas has not been immune to tightening lending practices throughout the country. Lenders have become much more conservative in their underwriting metrics which have cut off all but the most liquid investors. This trend is likely to continue until the national housing market has clearly stabilized and begins to rebound.

Granados: Extremely conservative.

TREB: What markets or submarkets have seen growth this year?

Gatley: Far West San Antonio has seen a tremendous amount of retail growth over the past year, especially with the substantial completion of Alamo Ranch Marketplace (900,000 square feet). Growth, however, has not been limited to the Far West sector — there have been significant projects developed in all San Antonio submarkets over the past 12 months. Looking ahead to 2009, growth is expected to bring new projects to the far Northwest interchange of Loop 1604 and I-10, and continue along the I-10 corridor out toward Fair Oaks Ranch. Similarly, the Far Northeast sector will also see the completion of Gateway Plaza (850,000 square feet) at Loop 1604 and I-35.

DeSpain: All of the major Texas City retail markets have grown in the past year with San Antonio probably having the highest percentage growth with an expansion of approximately 10 percent of its total retail square footage mainly in the North/Northwest and West sides of San Antonio. The Austin market continues to grow in the North Central part of town with the expansion of The Domain project, as well as expansion in the Southwest part of town with the expansion of the Hill Country Galleria project. Dallas and Houston are both poised to expand their retail square footages in 2009 and 2010 due to continued solid job growth. The areas of retail growth in both markets will be in the North and Northwest sides of town, and Houston will continue to expand retail in the West and Southwest sides of town also.

Pagel: The Austin/Round Rock MSA is consistently ranked high on the lists of the best places to live and do business by a number of reliable publications and studies. Approximately 14,000 new jobs have been created in the last 12 months, outpacing the state and national economic growth. Our retail market even experienced modest improvement in the second quarter with positive net absorption and a slight decrease in vacancy rate from 7.5 to 7 percent. The Austin area has all of the ingredients for improvement in the retail market and has the potential to be one of the bright spots in the nation.

DeJernett: The Central Texas retail market has expanded substantially in the past few years and will remain an attractive area for retail investment. However, new development will slow to a crawl in 2009 for reasons mentioned above. The bulk of new demand will be in urban and infill developments where the existing demographic is undersupplied.

Kogut: The Austin market has continued to grow and I expect the surrounding areas will see slightly more rapid growth in the upcoming year.

Lemos: Austin continues to see solid population and job growth and is recognized as one of the top commercial real estate markets in the nation.

TREB: Which markets are struggling?

Granados: The smaller markets and outlying areas of the major metros are struggling.

DeJernett: The slowdown in new home sales in outlying suburban areas has caused absorption in those areas to become sluggish. Unanchored centers in areas with abundant retail space are also struggling for new tenants.

DeSpain: Most of the new products in Dallas, Houston, Austin and San Antonio are taking a breather, but at the same time, show positive progress signs. So, we would not characterize any of the major market areas as struggling.

Pagel: Expansion in retail markets depends on population growth. There are some outlying suburbs that have not seen the residential development that was expected, and those markets are struggling. Projects that were started are slow to lease up, and others have been put on the shelf. It will take an improvement in the economy and the home financial markets to put residential development back on track, and, until that happens, there is nothing to drive retail leasing and development in those areas.

TREB: What types of retail properties are most popular in Texas right now?

Pagel: Well-located, anchored retail properties are usually the best, especially in a slower market. Retail tenants, lenders and investors are all looking for the best properties, and that is especially true today.

Kogut: Grocery-anchored or big box-anchored properties remain as the hottest.

Gatley: Power centers/lifestyle centers continue to dominate the San Antonio retail market. In terms of development, three power center projects account for nearly half of the total amount of retail space currently under construction. In terms of rental rates, power centers, again, dominate with the highest quoted average rent, topping $25 per square foot on a triple net basis. Finally, in terms of vacancy, power centers boast a citywide vacancy rate of 5 percent.

Lemos: Given the economic situation facing much of the nation, grocery-anchored centers will remain the favored class within the retail field.

DeSpain: The major power center properties that are anchored by two or more 50,000-square-foot or greater anchors continue to perform well, and the strategically sited and designed multi-use lifestyle centers, which are currently having some leasing challenges due to national retailer downsizing, will do well as the market improves toward the end of 2009.

DeJernett: In addition to urban and infill development, Central Texas is starting to see new interest and activity from neighborhood grocers such as Sprouts and Sunflower. This will help rejuvenate existing centers with vacant anchors and provide for possible new neighborhood retail development.

Granados: Grocery/discounter-anchored centers.

TREB: Which types are struggling?

Pagel: The non-anchored, mid-block retail centers, especially in outlying areas, are really having a tough go of it today. They are not able to attract quality tenants and are experiencing significant turnover due to failed businesses.

Gatley: Smaller, unanchored, neighborhood centers and strip centers in San Antonio continue to struggle the most. Preleasing of new centers has been slow as smaller retailers are taking more time to weigh their options and carefully consider their plans in this current economy.

Lemos: We continue to see a lack of demand for unanchored, strip retail property throughout our region. Much of this is driven by the lack of available bank financing for tenant finish and inventory. Unfortunately, given the condition of the banking industry, I do not see this improving in 2009.

Granados: Lifestyle and mixed-use urban town centers.

DeJernett: We continue to see unanchored, neighborhood strip centers and older properties without a high-traffic anchor struggle to find new tenants. Nervousness in the market has caused tenants to gravitate toward proven retail environments.

DeSpain: The older Class B and C suburban strip centers with no anchors or that have lost their grocery anchor or other major anchor continue to be challenged by their tenants moving to newer properties. The older properties that can be strategic by renovating and upgrading their elevations and designs will fair the best.

Kogut: Non-anchored neighborhood strip centers.

TREB: What retailers are the most sought after?

DeJernett: At this point in the cycle, landlords are looking to secure credit-worthy tenants that are willing to finalize a lease.

Granados: H-E-B, Wal-Mart, Target and Costco.

Lemos: In addition, Whole Foods, CVS/pharmacy, Walgreens, The Home Depot and Lowe’s Home Improvement Warehouse.

Gatley: While the major projects have been successful in leasing up big box spaces, small shop space has been left largely vacant. New projects are in search of smaller retailers and specialty shops to fill vacant small-shop space.

Pagel: Today, like always, the high-traffic draws with good credit are the most sought after retailers. Grocery stores and other tenants that bring shoppers to a center on a frequent and regular basis are highly desirable because they benefit the other stores in a center. These retailers help developers attract better quality tenants, achieve higher rents and lease their centers more quickly.

TREB: What do you think needs to happen in order for the market to improve in 2009?

Kogut: From an investment sales standpoint, we need the capital markets to recover and for retailers to succeed. Also, a drop in energy costs would improve consumer confidence, which will allow them to buy things that they want instead of merely need.

Pagel: There is a lot of uncertainty in America today. Just getting the elections behind us should help to remove some of that uncertainty, but,  more importantly, we need to see some clear direction on a number of things, including how our energy costs will be reduced and how our financial institutions will be returned to health. Once consumers feel good about issues like these again, we are likely to see a return to solid growth in our retail market. Texas and Austin are feeling the impact of these problems to some extent, but not to the same degree as some other parts of the country. The Texas economy is strong, and we continue to create jobs. I think people are taking note of that and want to do business here. We continue to see corporate relocations and/or expansions into Texas, and — as long as people continue to move into our area — there will be demand for retail.

DeSpain: Three things need to happen. First, retail developers need to be very discriminating as to the projects they choose to develop; second, the major national retailers need to get back on their feet after hundreds of store closings across the country and need to show positive year-to-year, same-store sales growth; and third, the lending market needs to come back to support smart strategically sited and designed projects.

DeJernett: We need to see an improvement in consumer confidence, credit markets, and job growth. While retail spending in Central Texas has remained fairly stable, current market conditions will not support significant retail expansion near term. However, a slowdown in new construction is exactly what the market needs to improve long term. Most retailers and developers are optimistic about the underlying Central Texas economy and looking to secure new leases for development in 2010 and beyond.

Lemos: According to all the economic forecasts, Texas will outpace the U.S., and Houston and Austin will outpace Texas in 2009 and 2010; however, I do not think anything, including the results of the presidential election, will move the United States out of the recessionary environment we are in before we start to see improvement in 2010. The key to an economic recovery will be the stabilization of the banking industry and a renewed interest to lend money. If the current de-leveraging cycle continues for the banks, the likelihood of a meaningful recovery will be much delayed.

Gatley: Unlike the national retail scene, San Antonio has not experienced falling rental rates or significantly increased vacancies, but national economic conditions must improve before leasing velocity increases and anchor tenants grow store numbers, thus prompting more development.

TREB: What trends do you think may emerge as we leave 2008 and enter 2009?

Lemos: Austin will continue to see more mixed-use projects, like The Domain, and CBD developments that offer retail uses in a lifestyle setting. City policies dictate some of that in the CBD, along with the natural developments along the new commuter rail line that will be operational in parts of Austin within the next 12 months. If gasoline prices continue to rise or stay at current levels, properties in far suburban submarkets will suffer in comparison to those in the urban core.

Gatley: In the San Antonio market, new development will slow significantly through the end of 2008 as projects already under construction reach completion. Vacancy rates are expected to rise due to the amount of new inventory and rental rates will likely flatten or soften heading into 2009.

Pagel: In Austin, I think we will see more mixed-use development, some of which will be transit-oriented as our commuter rail system comes on line and expands. Also, developers are looking for infill opportunities to serve the growing in-town population. On the construction side, there seems to be a trend toward more and more green buildings. In terms of kinds of retail, I think we will see more tenants and shopping centers geared toward the growing ethnic population and the aging baby boomer crowd.

Granados: Value retailers will grow, while high-end, specialty retailers will continue to struggle.

DeSpain: Any new lifestyle center projects will be delayed until the national inline retail tenants sales margins improve.

DeJernett: The slowdown in retail expansion is creating a market more favorable for tenants to negotiate their leases and lease renewals. This is actually and excellent time for a retailer to expand or secure a long term lease.

Kogut: It is possible that shopping center owners will owner finance for a short period in order to dispose of their properties.

Berenson Associates Redeveloping Northline Mall into Open-Air Center In the early 1960s, Boston-based Berenson Associates Inc. built Northline Mall in Houston, and, at the time, it was a significant shopping destination in the area and one of the first enclosed centers in the Southwest. However, over the years, the mall lost its luster to newer, open-air shopping centers, which are more attractive to both retailers and consumers, according to Eugene O’Brien, vice president of Berenson Associates.  “The face of retail has changed significantly since the mall was developed,” O’Brien adds. “Category killers dominate the marketplace.” As a result, Berenson Associates has razed the mall to make room for Northline Commons, a 460,000-square-foot, open-air, lifestyle center. Office Depot, Marshalls, Ross Dress for Less, Conn’s and Palais Royal will anchor the project. Adding to that a Wal-Mart Supercenter as a shadow anchor, altogether the development will total approximately 750,000 square feet with close to 70 merchants, service providers and restaurants. Northline Commons. “The location is as good today as it was when we selected it for development almost 50 years ago,” O’Brien says. “The immediate trade area is under-served, and we believe our national, regional and local retail merchants will attract many of the commuters that drive by each day (approximately 300,000).” Currently 70 percent leased, the project is opening in phases and will be complete in 2009. CDA Architects of Houston is the project architect; Houston-based Lagrone Services Inc. (LSI) is the general contractor. Says O’Brien, “We believe the development will be a great success because of our conscientious merchandising effort, the national tenants we have attracted and our superior location.” — Lindsey Walker

The Villages at Allen and Fairview Are Set to Comprise the Largest Mixed-Use Development in Texas The Village at Allen. Dallas-based The MGHerring Group recently announced that Whole Foods Market has signed on for 45,000 square feet at The Village at Fairview, adding to the already impressive list of retailers set to open at the center (which will feature 1 million square feet of retail space, among other components). With The Village at Allen right next door — adding another 1 million square feet of retail — Collin County residents will never have to drive far again for their shopping needs. “Collin County is one of the fastest growing counties in the U.S. With a current population of approximately 300,000 and an average annual household income approaching $100,000, Collin County has the demographics to sustain a project of this magnitude,” says Gar Herring, president and COO of The MGHerring Group. The MGHerring Group is developing The Village at Allen and The Village at Fairview together as one massive mixed-use project. Spanning a total of 400 acres, the project will include 2 million square feet of retail and 1 million square feet of office, residential and hotel space, upon completion. The Village at Allen and The Village at Fairview are located at the intersection of U.S. 75 and Stacy Road (with Stacy Road separating the two). “With the unique combination of department stores, big box retail, specialty shops, restaurants, hotels, an events center, a luxury movie theater, offices, residential space, a dog park, jog/bike trails, parks and a children’s play area all in one location — it is our goal that The Village at Allen and The Village at Fairview will become the retail, entertainment and commercial hub of Collin County and North Dallas for many decades,” Herring says. Anchor retail tenants at The Village at Fairview will include Dillard’s, Macy’s, JCPenney, The Container Store and Barnes & Noble. In addition, the project will comprise 500,000-square-foot of specialty shops and restaurants; a 200,000-square-foot, Class A office building; approximately 675 multifamily units; a 280-room hotel with an adjoining 80,000-square-foot conference center; and an eight-screen Village Roadshow Gold Class Cinema. The Village at Fairview is scheduled to open August 5, 2009. Across the street, The Village at Allen opened its first phase this month. Phase II will open next March. In addition to its 1 million square feet of retail space, The Village at Allen will consist of 500,000 square feet of office space; a 220-room hotel and conference center; and a 6,275-seat events center, which just recently broke ground. The $52.6 million Allen Events Center, which will be owned by the City of Allen and managed by Phoenix-based Global Entertainment Corp., will host approximately 150 events per year, including concerts, touring shows, family entertainment and professional sports. The center will have a capacity for 8,500 seats (6,275 fixed) and 26 luxury suites. Completion is scheduled for November 2009. “The Allen Events Center solidifies The Village at Allen and The Village at Fairview as a true regional entertainment destination,” Herring says. “The events center will expand our trade area, drawing visitors from regions outside Dallas/Fort Worth including other areas of Texas, Oklahoma, Arkansas and Louisiana. It also will drive traffic to our hotels, retail shops and restaurants as visitors from these outside areas come to enjoy concerts, shows and sporting events at the Allen Events Center.    Together, The Village at Allen and The Village at Fairview comprise the largest mixed-use development in Texas, and one of the largest in the U.S. “We have stayed true to the fundamentals of retail development with The Village at Allen and The Village at Fairview,” Herring says. “We selected a highly visible and accessible site at the intersection of U.S. 75 and Stacy Road in Collin County and are developing in an area with strong projections for population and income growth. In addition, there is currently no other destination in Collin County that can offer the same combination of retail, restaurants, entertainment, recreational amenities, offices, residential space and hotels on such a grand scale. The Village at Allen and The Village at Fairview are truly unique to the area.” — Lindsey Walker

Sprouts Farmers Market Continues to Expand Sprouts Farmers Market. This specialty grocer sees plenty of opportunity in the Metroplex. Sprouts Farmers Market, a Phoenix-based natural and organic foods retailer, currently has six stores in Texas, all in the Dallas/Forth Worth Metroplex. A seventh store is set to open at the end of this month. With so many retailers choosing to curb expansion in the tougher market of 2008, why has this grocer continued to open new doors? “Sprouts found an opportunity in Texas to serve a customer base with a strong desire for fresh and natural foods at affordable prices,” says Doug Sanders, president and COO of Sprouts Farmers Market. “The company’s every day values, pricing, quality and selection has proven to be a great fit for the communities of which we are a part,” Sanders adds. Sprouts’ current locations include stores at 4100 Legacy Dr. in Plano; 2301 Cross Timbers in Flower Mound; 11722 Marsh Lane in Dallas; 220 Randol Mill Avenue in South Lake; 5190 Preston Rd. in Frisco; and 1343 W. Campbell Rd. in Richardson. The newest addition, which will span 26,303 square feet, will be located at 207 E. FM 544 in Murphy. The retailer, which operates 28 natural food stores in the western U.S., recently increased its growth rate to more than 15 new stores per year. In addition to its new store in Texas, Sprouts’ rollout includes new locations in California and its debut in the Colorado market. — Lindsey Walker

©2008 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.