COVER STORY, OCTOBER 2009

TEXAS RETAIL ROUNDTABLE
Retail real estate professionals from across the state discuss the industry’s performance this year and what they foresee for 2010 and 2011.
Compiled by Lindsey W. Marcec

Dallas/Fort Worth

From the Dallas/Fort Worth Metroplex, the following professionals participated in the roundtable discussion: Pam Goodwin, president of Goodwin Commercial Properties; Tim Hughes, principal with Falcon Companies; Steve Lieberman, CEO of The Retail Connection; Kipp Whitman, president of Rland Properties; and Steve Williamson, managing director and senior vice president, Transwestern - Retail Services.

TREB: What is the current state of retail activity in your market?

Whitman: I would describe it as sluggish at best. There are lots of tire kickers, first timers and deal seekers.

Tim Hughes, Falcon Companies

Hughes: We are far better than most of the United States. However, our activity has slowed considerably. Most retailer movement seems to be from a select few nationals, franchisees and fast-casual restaurants. We are starting to see movement with a few of the grocers on recently executed sites for 2011 and ’12 openings.

Lieberman: Activity has dramatically increased across the state over the past 6 months from the previous 6 months. However, the number of transactions completed is clearly down as compared to the past 2 years, and there are more challenges ahead. So far, we are doing a good job of adapting and filling the empty boxes we have inherited during this downturn. These boxes have become low-cost alternatives for those retailers currently growing, right sizing and repositioning their stores. But the lack of expanding retailers and formation of new concepts has certainly undermined demand.

Goodwin: We continue to work with national retail and restaurant pad users that are still seeking new sites or store relocations, but the activity level has dropped sharply from pre-recession levels. Many real estate managers in our market are focused on reducing square footage, closing poor performing stores, and/or renegotiating leases in existing locations. 

Steve Williamson, Transwestern

Williamson: Retail leasing activity is down significantly. There is virtually no new retail development occurring at the present time.

TREB: What leasing or development trends have surfaced during the
downturn?

Hughes: From a leasing standpoint, franchisees of several categories have been aggressive; locally owned retail businesses have been expanding, albeit slower than in the past; and, regardless of size, the transaction time has increased dramatically. Deals are being scrutinized more than ever and by more parties.

Lieberman: Retail leasing is certainly going to precede any new development. We have a tremendous amount of well-located, existing inventory to absorb first, with several infill locations in dense markets that were previously undeliverable now enabling retailers to penetrate these markets at very favorable occupancy costs.

Pam Goodwin, Goodwin Commercial Properties

Goodwin: One trend that may start surfacing is the redevelopment of big-box spaces into smaller spaces or different uses, such as libraries, medical offices, storage units and government offices moving into existing retail locations.

Williamson: National retailers are taking advantage of the opportunities presented by this difficult market to renegotiate their lease commitments with their landlords; and landlords are resisting these demands by asking their national tenants for specific sales data to see if the requests are warranted. Developers are under increasing pressure from lenders as the lenders respond to pressure from federal regulators. Whereas landlords have historically demanded financial statements from prospective tenants, retail tenants (who are still in business) are now demanding to know the financial health of the landlord and if they can perform.

TREB: What D/FW submarkets are doing the best?

Hughes: Areas of dense population and established communities where the retailer can get accurate projections and not rely on growth are doing the best.

Steve Lieberman, The Retail Connection

Lieberman: The markets that are holding up the best are the ones where the retail was built per the strongest fundamentals. This includes South Arlington, Rockwall, Southlake, Frisco, and inside the loop in NorthPark, Uptown and Preston Center.

Goodwin: We are seeing high growth in markets such as Mansfield, Tyler and Waxahachie — three geographical submarkets that are doing well. We just completed a development project with ShowBiz Cinemas that opened a 12-plex, all-stadium seating theatre in Waxahachie in May 2009.

TREB: Which types of retail product are doing the best?

Lieberman: Grocery-anchored shopping centers and those projects anchored by value super stores, such as Bed Bath & Beyond and Ross, plus neighborhood centers anchored by dollar stores, have clearly been the best performers.

Goodwin: Entertainment venues (bowling and movie theaters), fast food, value stores and specialty grocery concepts are the best performing retail segments in today’s market.

Williamson: Well-located lifestyle centers are still thriving in the better submarkets while mixed-use retail is significantly challenged, as too many projects have been built without proper retail fundamentals in place.

TREB: Have any major retailers entered or exited your market?

Lieberman: Buybuy BABY, Charming Charlie and Aldi are the highest profile major retailers to enter the market. The most visible exits are those of Linens ‘n Things, Circuit City and Shoe Pavilion. 

Goodwin: Market Street, Yogurtville and Raising Cane’s are a few retailers new to the market.

Williamson: Sprouts Farmers Market, Five Guys Burgers & Fries and Carl’s Jr. also are new to Dallas/Fort Worth.

TREB: What is vacancy like? Are rental rates holding steady?

Hughes: We’re seeing, and requesting from our tenants, rents lower on new deals, as sales projections are being lowered by the retailer.

Kipp Whitman, Rland Properties

Whitman: There is significant downward price pressure on retail rents. The trouble is ascertaining those tenants who are truly in trouble versus those simply being opportunistic.

Goodwin: The properties we are working on are holding their own rental rates and are still strong. So many properties were at high rental rates and are now coming down to the market rate where they should be.

Williamson: There is 10 to 12 percent vacancy. Rental rates, depending on the submarket, have fallen 10 to 20 percent across the board. Generally speaking, occupancy is at 88 percent in Dallas/Fort Worth.

TREB: How is the second half of the year performing compared to the first?

Goodwin: There is definitely more activity in the second half than the beginning of this year. We continue to work with retailers that are still expanding and finding more opportunities. 

Lieberman: We are clearly seeing signs the economy is stabilizing and, most notably, that the housing market is coming back into equilibrium. Consumer confidence is starting to trend back up, which is very important. The money on the sidelines is certainly going back into the stock market; however we still need to see more spending on cars, clothes, electronics and other consumer products. The impact of this is tremendous, as consumer spending accounts for two-thirds of the U.S. economy. As such, consumption is the key to our recovery. 

Whitman: We are beginning to see an uptick in productive activity, which will lead to signed deals 3 to 6 months from now.

Hughes: We’ve seen a slight pick up in deals getting closed. There is more interest in 2010 and ’11 store openings, so site search has picked up in several categories. Is there more activity or optimism? There is cautious optimism and we are elated to be in Texas.

Williamson: Retailers are still cautious about expanding and are taking their time to look at/negotiate new deals. “Caution” would best describe the current environment, instead of “optimism.”

TREB: What are your goals for the remainder of the year?

Hughes: Our goals are to help our clients, retailers/landlords and team members move their deals to closure; to be as creative as possible in all areas as we all adjust to new ways of doing business in the upcoming years ahead; and to be a resource to our clients in more than one area of the business.

Whitman: To take care of our current centers and position ourselves for development in 2010 and 2011.

Lieberman: We continue to adapt our respective strategies responsively per every component of our business, leveraging our unique advantages to the fullest. As such, we will continue to play our position, delivering valuable action plans and results for our clients. Stability is the cornerstone on which confidence in the market will be rebuilt, and we remain as confident as ever per our team, platform, clients, and the future opportunities that we will share ahead.

Goodwin: Goodwin Commercial Properties’ goal has never changed, which is to service our current clients. We continue to search for new opportunities in markets in which our clients have requested us to find a new location or two.

Williamson: We continue to push new leasing, renewals and extensions, and work with banks and special services to help them solve their new found problems of ownership brought on by foreclosure.

TREB: Do you believe things will turn around in your market in 2010?

Hughes: We think it will be slow going in ’10 until the financial markets define the new rules of the game. 

Whitman: Yes, because jobs are still being created in our submarket and home building has continued at a fairly steady pace. I would love to be 20 years younger because Fort Worth and Dallas are in a 30-year boom, and we are only in the ninth year of it.

Lieberman: We expect to see retail start to rebound in 2010 as our current inventory gets absorbed.  

Goodwin: Yes, the market still has steady growth for the next several years in North Texas. Saying that, one of the biggest challenges is the lack of lending. I recently read the most dangerous time for banks will be 2010 to 2013 when $1 trillion in commercial real estate loans will mature and owners of commercial properties will need to refinance. Time will only tell, but we remain very optimistic.

Williamson: Yes, but very slowly. Due to Transwestern’s operational expertise and deep bench strength, I am excited about the retail opportunities that 2010 will present.

RLAND PROPERTIES’ UNIQUE APPROACH TO SHOPPING CENTER DESIGN SoHi The world of retail development is not usually known for its innovative designs. One Texas developer is throwing caution to the wind and building shopping centers in Texas that are anything but ordinary. Rland Properties was started 15 years ago in Texas. Originally, the focus of the company was acquiring land parcels, subdividing them and building infrastructure, then selling them off, with some development on the side. At the beginning of the decade, the company shifted its focus to developing neighborhood retail centers, but with a twist. Driven by the company president Kipp Whitman’s own eclectic taste,  Rland’s projects merge various design styles and ideas into small shopping centers that catch the shopper’s eye. Whitman describes it as the Disneyland concept: his target demographic grew up dreaming of going to Disneyland, and he wants to take them back to that youthful pleasure. Two of Rland’s recently completed Fort Worth projects, Watuppa and SoHi, demonstrate Rland’s unique take on development. Watuppa is a 30,000-square-foot, award-winning project that is designed like a turn-of-the-century, New England town center. SoHi, a 30,500-square-foot project, is designed much in the vein of 1960s Art Deco. The project was designed facing outward with shoppers driving up to the center through the back. Even more diverse projects are planned for the future. Currently in the pre-leasing phase is Boot Hill, a multi-phase project that Whitman says will combine Western styling with “a bit of Jules Verne.” A project known as Oops is in the planning stages and aiming for a 2011 construction start. The center was designed upside down and includes basement apartments that are now penthouse basements. “In my stage in life, I want to build unusual buildings that are fun — sometimes controversial, but fun-— because I think the gamble will be worth it,” Whitman says. — Coleman Wood

Houston

From Houston, the following professionals participated in the roundtable discussion: Jonathan Brinsden, COO of Midway Companies; Jerry Goldstein, vice president investments and senior director, national retail group, with Marcus & Millichap; Matthew Keener, senior vice president of CB Richard Ellis|Retail Brokerage Services; and Harry Dean Lane, Jr., a partner with NewQuest Development Company.

TREB: What is the current state of retail activity in your market?

Jonathan Brinsden, Midway Companies

Brinsden: Obviously, retail activity has slowed from a capital availability, tenant demand, consumer demand, and development perspective. Texas as a whole has held up relatively well with respect to the national trends.

Lane: The market is healthy but slow. We are experiencing good leasing activity in most areas of the Houston market.

Keener: From a deep freeze at the start of 2009, leasing activity has picked up to approximately half of pre-recession levels. Larger new development is still nonexistent, and investment sales activity is improving but still very light.

Goldstein: Store closings by national retailers have had the greatest impact and there are local and regional tenants that have failed because of the economic slowdown. Investment sales have fallen prey to recession-style underwriting by buyers and lenders; however, select niche market properties and high-cap rate offerings are trading as well as single-tenant net-leased investments.

TREB: What leasing or development trends have surfaced during the
downturn?

Brinsden: There have been several trends that have surfaced. First, the notion of a “credit” tenant has changed dramatically — retailers once deemed to be credit tenants have fallen with regard to strategic focus and financial strength. Second, local and regional tenants have shown remarkable adaptability and strength. Many of the stronger local and regional tenants who remain successful have leveraged landlord relationships to find expansion opportunities. Lastly, the retail industry has seen a strategic shift toward retailers that have the ability to offer a new value proposition through design, manufacturing, and distribution flexibility. These new retailers have the ability to quickly change product lines to meet the needs of consumers.

Matthew Keener, CB Richard Ellis|Retail Brokerage Services

Keener: From a leasing standpoint, it’s a tenant’s market with local retailers, particularly restaurateurs, being the most aggressive in taking advantage of the market. Nationals have only recently started to get engaged, but many are still shopping for only the most advantageous deals. Categorically, food and services have been the most active, while fashion has been almost nonexistent. Most notably missing are the high-flying, lucrative bank ground leases that were so prevalent over the last 5 years and whose absence will sorely affect the proformas of developers going forward. For owners of well-conceived and executed projects with lower debt and/or more patient lenders, it’s all about maintaining maximum occupancy and cash flow through more aggressive leasing and concessions until the market returns to normal.

TREB: Have any major developments come on line this year?

Goldstein: Development is nearly at a standstill with the exception of projects already in progress. Tenants like drugstores, food stores/large discounters and banks, which led the expansion, are doing very few units. CVS/pharmacy will open only seven stores and Walgreen’s five. No new Walmarts will be delivered this year, and one new Target and one Sam’s Club will open. A number of previously announced lifestyle centers are on hold or are cancelled. We are seeing H-E-B and Kroger opening and planning a few larger-format stores that are over 100,000 square feet. The largest project being delivered this year will be the 524,000-square-foot Crossings in Fort Bend County.

Brinsden: Our own project, CITYCENTRE, a 1.8 million-square-foot mixed-use project has come on line this year in Houston. While the overall economic environment has been soft, Houston has remained a strong market. Although retail has been relatively slow, the other components of the project, including office, luxury hotel, conference center, entertainment, restaurants, and residential have worked together to create a truly dynamic environment.

Keener: A number of significant projects have come on line including Midway’s CITYCENTRE, the first phase of Wulfe’s Blvd Place, the strategic Houston Pavilions, and West Ave. Many of these are being re-conceived with smaller retail components and more office and/or residential. Several power centers have also come on line to include Trammell Crow’s Costco-anchored Greenway Commons and NewQuest’s Wallisville project. Numerous projects are planned but few will be built until financing, and willing-and-able anchors and other key retailers, are once again part of the market.

TREB: Which types of retail product are doing the best?

Brinsden: As a general trend, true mixed-use projects (three of more demand generators) are outperforming the market. The vitality and consumer demand for these types of projects places them above traditional retail locations. 

Harry Dean Lane, Jr., NewQuest Development Company

Lane: Lifestyle seems to have been hit the hardest. The high-end product is not selling. Most of the discount retailers are in good shape.

Keener: Grocery-anchored and value-oriented power centers have been the most stable product types.

TREB: Have any major retailers entered or exited your market?

Brinsden: Overall, Houston has remained fairly stable. There has been limited expansion in the discount, grocery, and restaurant sectors.

Lane: No major retailers have come to market. Most of the new retailers are franchised, but there have been a lot of new restaurant concepts.

Keener: 2009 has really been about retailer reforestation — a painful yet healthy phenomenon that was overdue. Second-tier, weak sisters were eliminated while, non-essential/luxury retailers contracted down to their strongest units.

Jerry Goldstein, Marcus & Millichap

Goldstein: We’re not seeing major retailers entering the market but smaller tenants like Five Guys Burgers & Fries, Tasti D-Lite, Smashburger are among the new ones.

TREB: What is vacancy like? Are rental rates holding steady?

Lane: Vacancy is on the rise but not out of control. Vacancy is about 13 to 14 percent.

Keener: Rental rates have adjusted downward 10 to 20 percent with low or no-debt projects allowing for even larger rent reductions in order to generate cash flow and augment customer traffic. In addition, previously rare concessions of free rent for 6 to 12 months is now common.

TREB: How is the second half of the year performing compared to the first?

Brinsden: The second half of the year has proven to be much more optimistic than the first half of the year. However, consumer confidence and positive retail trends are balanced with the reality that the commercial real estate market will still realize a significant correction. Loan maturities, lending demand, and tenant defaults will remain significant issues over the next several years.

Lane: There seems to be a little more optimism in the leasing side of the business.

Goldstein: Since there isn’t the same fear that prevailed in the first quarter of 2009 and affected first half activity, the second half is more positive than the first. In the investment sale business things are still negatively impacted by the availability of financing and risk assessment.

TREB: Do you believe things will turn around in your market in 2010?

Goldstein: I don’t think turn is applicable. I think the structural change in pricing/leverage that has occurred will continue and more distressed assets will surface. However, financing should improve here as the risk profile will be better understood. Since we are not a terribly overbuilt market, we should lead the nation as it emerges from recession. Sales velocity should increase.

Brinsden: Houston and Texas, in general, have remained relatively strong through this economic cycle. The housing market has not seen a significant drop in value; employment remains strong with the support of energy, technology, and medical industries; and the cost of doing business presents a tremendous value proposition for most companies. As the retail market recovers and tenants look for expansion opportunities, Houston will remain an extremely attractive market.

Keener: We still have a long way to go to regain our pre-recession levels of activity and it will take all of 2010 and well into 2011 to get us there. Keep in mind that the lack of new development over 24 to 36 months, combined with building consumer and retailer demand during this period, should result in a very robust market going into 2011 and 2012. The key is getting from here to there for most developers and brokers.

Lane: We really do not need a turnaround in Houston. Houston needs optimism and stabilization. We are not in bad shape. If the banks stay reasonable and give developers more time, we will take care of the rest. Do not panic.

Central Texas

From Austin and San Antonio, the following professionals participated in the roundtable discussion: Bobby Dillard, vice president-development at Direct Development; Michael Jersin, president and partner, and Guyla Sineni, executive vice president and partner, with UCR-San Antonio; Keith McRee, vice president-retail services for NAI REOC Partners; Jeff Newburg, managing principal, Endeavor Real Estate Group; and Michael Watson, regional manager of Marcus & Millichap’s San Antonio office.

TREB: What is the current state of retail activity in your market?

Dillard: Central Texas’ economy has outperformed many other markets during the current downturn. We are still signing leases and the few tenants that are looking for spaces have gravitated toward Central Texas due to the relatively strong retail sales in the region.

McRee: Activity has been steadily increasing since about mid-July in San Antonio. More and more tenants are getting out and testing the market to see how good of a new lease they can find or taking advantage of aggressive landlords to better their existing lease.

Michael Watson, Marcus & Millichap

Watson: Investment activity in San Antonio has declined more modestly than in other national metros. Many local investors who were on the sidelines as out-of-state buyers bid up prices are now returning to the market.

Newburg: While Austin and Texas, in general, have fared better than most parts of the country, the national recession and the sluggish job market certainly have affected retail sales and, consequently, retail leasing in the Austin market. Overall, occupancy has continued to decline to just under 90 percent, and average rental rates for vacant space have decreased approximately 12 percent to approximately $20.00 per square foot, still well above the national and state-wide averages.

TREB: What leasing or development trends have surfaced during the
downturn?

Sineni: There is limited expansion of national tenants and active expansion of local and regional tenants. Ground leases have also become financing–challenged.

McRee: Development in San Antonio has been very limited. Developments that are being talked about are much smaller than previously planned. On the retail leasing side, it is all about free rent and TIs. Landlords, in order to secure new tenants, are having to either “white-box” space on new construction projects or provide significant amounts of free rent.

Bobby Dillard, Direct Development

Dillard: Landlords are thinking creatively, offering incentives to help offset the limited financing options available to tenants in the current environment. Many retailers that have access to capital are taking advantage of current conditions to gain market share and/or negotiate attractive rates with their current landlords. 

Newburg: We are pleased that occupancy rates within Austin’s Class A centers have remained healthy, at or around 95 percent. However, deals within new space and second-generation space are commanding higher tenant finish allowances, up $10 to $15 per square foot from where they were approximately 18 months ago. Rent abatement has also been utilized as a tool to accomplish deals; however, this has been used on a very limited basis. Regarding development trends, most development has been postponed until such time as suitable financing and tenant demand warrants the commencement of construction.

Tacara, San Antonio, Texas

TREB: Have any major developments come on line this year?

McRee: Alon Town Center and Stone Ridge Marketplace, both H-E-B-anchored developments.

Jersin: Tacara, a 58-acre mixed-use development with over 350,000 square feet of entertainment, retail, restaurant, office, residential and hospitality space, is planned for the northwest corner of U.S. 281 and Stone Oak Parkway in San Antonio. Phase I is currently leasing.

Jeff Newburg, Endeavor Real Estate Group

Newburg: Fortunately, very few large projects have come on line during 2009. Stonehill Town Center, anchored by Target and The Home Depot, opened in Pflugerville this year. A significant portion of the project remains undeveloped, and while it’s projected to be a 1 million-square-foot power center, only about 500,000 square feet has been brought on line this year. Additionally, a significant amount of ground-floor space located under multifamily has come on line, primarily in and around the CBD. For the most part, absorption of this space has been slow. Other large projects have opened partially developed in Bastrop, Kyle and San Marcos.

Watson: Approximately 1.3 million square feet is under construction in the North/North Central submarket, nearly all of which is expected to be delivered by the close of this year. Retail demand in the South and Northeast submarkets should receive a boost from the relocation of Medtronic. The Caterpillar plant opening in Seguin in 2011 will bring more retail construction for many years to come.

TREB: What submarkets are doing the best?

Dillard: In Central Texas, the submarkets that are more mature in their growth are performing best. Also, submarkets that derive their growth from economic generators of a non-cyclical nature are outperforming others, such as markets with universities, large medical hubs  and military bases. 

Michael Jersin, UCR-San Antonio

Jersin: The Far North West, North Central, North East and South East submarkets, and in-fill locations such as the Alon Town Centre project, are doing the best in San Antonio.

Watson: The North/North Central and Northeast submarkets continue to perform well. The area near the Brooke Army Medical Center at Fort Sam Houston will continue to perform well as thousands of new jobs are brought to that submarket.

Newburg: In terms of Austin submarkets, the Southwest, due to its limited supply and development potential as it sits over the Edwards Aquifer, has continued to show strong levels of occupancy, as has the Round Rock submarket, although to a lesser degree.

TREB: Which types of retail product are doing the best?

Keith McRee, NAI REOC Partners

McRee: Your grocery-anchored or power centers seem to be performing best. This is happening as tenants are looking to try and feed off of the larger retailers even more now in the downturn. This, along with less competition for space, has allowed for more opportunities for some tenants to get into the larger projects.

Newburg: As is the case in most markets, grocery-anchored shopping centers continue to perform well, as consumers continue to shop for groceries and other necessities and services typically located within grocery-anchored projects. Due to the limited amount of luxury retail in Austin, The Domain and The Arboretum area projects have continued to perform well.

TREB: Have any major retailers entered or exited your market?

Sineni: A major category experiencing expansion in San Antonio is the entertainment category. Major retailers who have exited the market are Circuit City and Linens ‘n Things.

McRee: Sports Authority has come back into the market.

Newburg: Austin has had a significant amount of new entries into, as well as exits from, the market. Major tenants who have entered the market include BuyBuy BABY (a division of Bed Bath & Beyond), Dick’s Sporting Goods, Nordstrom Rack (planned opening for fourth quarter of 2009), and two natural food grocers, Sprouts Farmers Market and Sunflower Market. Major tenants who have exited Austin include Shoe Pavilion, Linens ‘n Things, and Circuit City, all of whom had multiple locations. Many of these vacancies have been absorbed by the aforementioned new market entries; however, a few Circuit City and Linens ‘n Things stores remain vacant.

TREB: What is vacancy like? Are rental rates holding steady?

Watson: Downtown San Antonio vacancy is at 10.1 percent with rental rates at $14.74 per square foot. In the suburban markets, vacancy is at 11 percent with rental rates at $15.58 per square foot.

McRee: As of second quarter 2009, overall market vacancy is at 14.5 percent. Rental rates are holding steady but have started to flatten. I would not be surprised to see them drop when  third quarter numbers come out.

Newburg: Market-wide occupancy rates dropped from 90.4 percent in December 2008 to 89.6 percent in June 2009. This is significant in that rates have not dipped below 90 percent in Austin since 1995. Regional malls, power centers, and neighborhood/grocery-anchored projects all maintained occupancies between 90 to 92 percent, with unanchored strip centers showing the sharpest decrease, to approximately 84 percent. Excluding The Domain, ground-floor, mixed-use retail space has been slow to absorb and is also negatively affecting the overall occupancy rates.

Jersin: For well-located projects, rates are stable but TI dollars have increased.

TREB: How is the second half of the year performing compared to the first half?

McRee: It is performing better. Optimism is better, people are at least starting to think there is a light at the end of the tunnel. The question still remains though whether or not it is the end of the tunnel or another train about to come through.

Watson: There is a bit more optimism in the early part of the second half of this year. However, a full recovery will not take place until 2010.

Guyla Sineni, UCR-San Antonio

Sineni: There is considerably more activity and optimism in the second half of the year.

Dillard: We have seen a noticeable increase in activity in our projects in the second half of 2009. We are hopeful to see a steady increase through the end of the year.

Newburg: Our company anticipates that traditional leasing will continue to limp along at a level similar to the first half of 2009. Our overall portfolio occupancy is in excess of 95 percent, so we are pleased with its performance; however, the level of transaction activity has clearly dropped off from the 2005 to 2008 levels. We continue to see good activity with respect to pad site absorption, as well as shop space absorption within our portfolio.

TREB: What are your goals for the remainder of the year?

Jersin: Complete as many quality deals as possible for our landlords and tenants, who we, UCR, represent.

McRee: Remain positive and continue to push forward on deals.

Watson: Our objective is to continue to provide value-add brokerage services to our clients and offer them the best investment sales, financing, research and advisory services in the industry.

Newburg: Like many developers, our goal for the future is to grow our third-party management and leasing portfolio and export our leasing and management capacity to the benefit of third-party owners. Endeavor is unique in that it thinks and behaves like a landlord, which we view to be a benefit to third-party owners.

TREB: Do you believe things will turn around in your market in 2010?

McRee: 2010 will be a better year, but I don’t know if it will be much better. I think the first half of the year will remain slow. I think that we are going to see a slow holiday shopping season again this year, and the market isn’t really going to see any real significant improvement until companies begin hiring again. If the market continues to improve this could start next year.

Sineni: Positive job growth and low unemployment have allowed San Antonio to enjoy a positive retail trend.

Watson: Things will turn a bit, but not markedly. Employment needs to stabilize and job growth needs to become consistent. Also, credit needs to re-enter the investment market in a steady, reliable way.

Newburg: Many in Austin remain optimistic that things will stabilize, or potentially improve ever so slightly within Austin, due to the fact that Austin continues to see population in-migration, even if job growth is more sluggish than ever before. People simply want to live in Austin and they continue to move here, even without a job. Therefore, these factors, combined with very limited retail development, should allow developers and leasing agents to lease the space that exists within the market and help to keep the retail market in Austin fairly healthy.

TASTI D-LITE EXPANDS INTO SOUTH TEXAS Tasti D-Lite In recent years, the dessert shop business has seen increased competition from frozen yogurt chains such as Red Mango and Pink Berry, and ice cream chains such as Ben & Jerry’s and Coldstone Creamery. Though the market may seem saturated, a new competitor has entered the national stage and hopes to carve out a niche with a tasty and nutritious alternative. Tasti D-Lite is a frozen dessert company that started in New York City more than 20 years ago. For most of its existence, the brand remained in the boroughs of Brooklyn and Manhattan, but it has recently opened up to franchising and is looking to expand nationwide. “Across the board, whether you are talking about desserts or whatever category of food, people are targeting healthier choices, and I think Tasti D-Lite fits right in with that trend,” says Aaron Webster, the South Texas area developer for Tasti D-Lite. Webster was first attracted to Tasti D-Lite from his time spent in New York. He had unsuccessfully tried to open locations outside the Northeast before, but when the company began to offer franchise opportunities last year, Webster was approached about opening Tasti D-Lite stores in Texas. A native of Houston, Webster picked his home town as the first South Texas market to see the frozen treat. He plans to open three stores this year, one of which is already open. If the Houston stores prove to be successful, Webster will expand into the Austin and San Antonio markets. Right now, he has an agreement with Tasti D-Lite to open 40 stores in South Texas in the next 10 years.  “The first store has seen quite a bit of activity, which is pleasing,” Webster says. “So, as long as we are able to open centers and, within a couple of months, are as profitable as the first one is proving to be, we will execute our plans to open 25 to 30 stores in Houston and probably half of that in the Austin and San Antonio markets.” People are eating out less due to the recession, but Webster does not think this will affect the company’s expansion. For one, dessert chains across Houston are doing fine right now, and the Tasti D-Lite he already has open is no exception. More important, Webster sees Tasti D-Lite as a treat that people are not as willing to part with when money is tight. “I think the dessert market, especially a treat of this nature, is not passed over as often,” he says. “In times like these, it is a happy way to spend 20 or 30 minutes with your family that is not so expensive. — Coleman Wood

West Texas and the Rio Grande Valley

From Amarillo, El Paso, Lubbock and McAllen, respectively, the following professionals participated in the roundtable discussion: J. Gaut, president, J. Gaut & Associates; Bob Ayoub, president of MIMCO, Inc.; Wesley Hallmark, senior investment advisor for Sperry Van Ness|Hallmark & Assoc., Inc.;  and Michael Blum, partner and managing broker with NAI Rio Grande Valley.

TREB: What is the current state of retail activity in your market?

J. Gaut, J. Gaut & Associates

Gaut: Leasing activity in Amarillo has been sluggish, at best. There are a few local retailers wanting to relocate to take advantage of better pricing.

Hallmark: In a word, the Lubbock market is “stable.” Due to Lubbock’s diverse economy, we’ve been able to dodge the bullet that much of the nation has experienced. Although there have been several big box spaces that have gone empty over the past year or two, area leasing brokers report that non-anchor space is holding steady in the mid-90 percent occupancy range. Stable is also confirmed by City of Lubbock officials, who report that retail sales for the first 6 months of 2009 compared to same period in 2008 were only down by 0.13 percent.

Ayoub: In El Paso, leasing activity is very slow but is better than in the first half of the year, and very little new retail development is occurring.

Blum: New leasing has slowed considerably in the Rio Grande Valley since the economic downturn. Access to capital for tenant finish-out has created a huge impediment to entry. Landlords with pre-existing facilities did not have funds in their budgets to cover unanticipated TI costs not covered by lenders.

TREB: What leasing or development trends have surfaced during the downturn?

Gaut: Smaller space is desired, but landlords are not willing to spend the money to subdivide space. Also NNN charges are being scaled back from actual costs to marketable costs.

Wesley Hallmark, Sperry Van Ness|Hallmark & Assoc., Inc.

Hallmark: Not that much change has occurred. You may see a little more free rent, but managers are not reporting wide-scale lease renegotiations. They are not losing many tenants, but they aren’t gaining many new ones either.

Ayoub: In this market there has been an increase of people wanting to start or open new restaurants in all size ranges. Some are having difficulty with financing, and most are looking for previously occupied restaurant locations. The main focus in leasing is occupancy costs — rent and pass-throughs. We are also seeing activity from the regional and national value or discount retailers looking for new locations in the market.

Blum: Overall, the trend is not much leasing. It seems the most interest in retail leasing is in the food business. Both locals and chains are still looking for quality sites. This has been a very strong market for restaurants and we expect this trend to continue.

TREB: Have any major developments come on line this year?

Gaut: None planned, none delivered in 2009.

Hallmark: No new major retail developments have come on line this year. What has stopped is building of small spec neighborhood convenience centers, which is probably a good thing.

Bob Ayoub, MIMCO, Inc.

Ayoub: We at Mimco do not have any “major “ developments planned, but we are working on (either planned or under way) a new strip center in Northeast El Paso, a build-to-suit for a new coin–op laundry chain, a new neighborhood center on Dyer and Hondo Pass in Northeast El Paso, and a new pad buildings in East and West El Paso. While the total square footage is not large, the fact that we are continuing to develop in this market is significant. 

Blum: No new projects have surfaced and not much is planned for the balance of 2009. Most major developments are in a holding pattern.

TREB: What submarkets are doing the best?

Gaut: Central Amarillo-area retail near long-established traffic generators and diversified neighborhoods are seeing the most activity. New space in front of power centers is struggling with vacancy.

Hallmark: Most of the recent growth over the past several years has been to the southwest, west, and northwest sides of the city.

Ayoub: The East (Joe Battle and Montwood area north to Montana), Northeast and Downtown submarkets are seeing renewed interest and activity.

TREB: Which types of retail product are doing the best?

Gaut: Neighborhood.

Hallmark: Most of the new retail product has been neighborhood strip centers, and there’s also Canyon West, the new lifestyle center on the west side of town.

Ayoub: Neighborhood centers and power centers are doing the best in El Paso.

Blum: Neighborhood is doing best.

TREB: Have any major retailers entered or exited your market?

Gaut: No major retailers have entered, and only a few local retailers have closed.

Hallmark: Over the past year or two, several big box spaces have gone empty with the departure of Albertson’s grocery, Circuit City, and Linens ‘n Things. Canyon West, the new lifestyle center located on the west side of town, continues to make slow-but-steady progress filling its spaces. The 1.17 million-square-foot South Plains Mall, the largest mall in the 30-county trade area, lost a Mervyn’s but they may have a replacement tenant. They have added a new Barnes & Noble, which will be relocating from a nearby power center; a new Forever 21; several other smaller tenants; and they are building a new food court.

Ayoub: Kirkland is expanding in the market, and, while they are not new, JC Penney and Kohl’s have both opened new stores in El Paso.

Michael Blum, NAI Rio Grande Valley

Blum: The third Best Buy opened this year at Palms Crossing. Ashley Furniture opened its first Valley store this year, and Rooms To Go and Pappadeaux Seafood Kitchen are both under construction with their first Valley stores. Buffalo Wild Wings is under construction with its second McAllen store. Several CVS/pharmacy stores have opened this year. Mervyns, Circuit City, Linens ‘n Things have closed their doors. Other retail is very slow.

TREB: What is vacancy like? Are rental rates holding steady?

Gaut: Vacancy is creeping up slightly; there’s maybe 95 percent occupancy in well-established centers and 85 percent in newer, higher rent centers. The two newest centers are both approximately 15 percent occupied and in unfinished shell space. Rental rates vary from $12 to $20, but nobody is getting anything close to $20. A few deals have gotten $16 or $18, and lots of older, less desirable space at $12 to $14.

Hallmark: Average occupancy of non-anchored strip retail is in the low- to mid-90 percent range and NNN rental rates are running from $8 to $10 for Class B centers and up to the $22 for A properties.

Ayoub: Vacancy is basically stable.

Blum: We don’t have a current update; however, we are seeing more vacancy in well-leased strip centers and slow to no growth in existing centers with shell space. Rental rates range from $12 to $21, depending on the location.

TREB: How is the second half of the year performing compared to the first half?

Gaut: For sure, the second half has seen more activity and inquiry, but not as many deals signed as evidence.

Hallmark: A poll of local leasing brokers indicates that occupancy rates are holding fairly steady and that rental rates are holding up pretty well.

Ayoub: The retailers are still struggling.

Blum: For the Rio Grande Valley, the second half has been worse.

TREB: What are your goals for the remainder of the year?

Gaut: My goal is to educate landlords that they should focus on renewals and reduce rent to avoid TIs.

Hallmark: I hope to continue our marketing efforts to better position ourselves for increased activity.

Ayoub: We will continue to work to fill existing vacancies and begin planning for new developments for 2010.

TREB: Do you believe things will turn around in your market in 2010?

Gaut: 2010 may see some improvement, but our economy has really not been hit like other markets. Our banks are pretty conservative, which helps prevent a lot of overbuilding/borrowing. Just the passing of time usually helps these markets of reduced activity and I am hopeful that our community will be doing better in a year.

Hallmark: I believe we’ll see slow but steady improvement in Lubbock through 2010 and into 2011.

Ayoub: Yes, primarily because of the economic drivers in the market.

Blum: Unless the financial markets ease up, tenants are going to struggle trying to find dollars for their improvements. Landlords are going to have a tough time leasing space unless they have funds to finance TIs.

CENTERGY RETAIL FINDS DEVELOPMENT OPPORTUNITIES IN THE BORDERPLEX The Fountains In El Paso, Texas, a new shopping center is springing up on 55 acres across from the popular Cielo Vista Mall. Called The Fountains, the project will consist of a 500,000-square-foot power town center — a combination of power center junior anchors with smaller lifestyle tenants. The project is being developed by newly formed company Centergy Retail, which is headed by former Regency Centers executive West Miller, who is now the principal of Centergy. The current business climate may not seem like the best time to start a retail company, but Miller is not deterred. “Though we are at an economic low and the lack of financing has dampened the retail development business...I am getting in place to seize opportunities that will arise from this current storm,” Miller says. So far, there continues to be a large amount of interest for the center. According to Miller, letters of intent have been signed for approximately 70 percent of the center. He attributes this partly to the fact that The Fountains will feature space for multiple junior anchor tenants, something few centers in El Paso offer. While competition from Cielo Vista Mall seems likely, Miller does not see that as a problem. “We are working with tenants that do not want to be in an enclosed mall; they are outdoor tenants,” Miller says, adding that the two shopping centers will serve as complements to each other. Development is currently under way for Phase I of The Fountains, which will consist of 300,000 square feet of space and is expected to be delivered in fall 2011. The completion of the final phase of the center should coincide with the planned expansion of nearby Fort Bliss, which will increase from approximately 25,000 to approximately 90,000 troops and family members by 2012. “Today everyone is looking at the development arena with pessimism, but we have proven that if you find the right pocket in the right market that will allow development, you can go forward,” Miller says. — Coleman Wood

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