Unfortunately, just as the retail real estate industry is getting back on its feet, proposed legislation could create enough uncertainty to knock it back.

GlobeSt.com: How exactly are the improving retail sales helping the retail real estate sector?

Framson: In some interesting ways actually. For example, the landlords are becoming more confident in their asking rents and feeling like they can ask and receive rents that are clearly higher than they were 12 to 18 months ago.

Also, the types of smaller space tenants actively looking for space is on the upswing but there are far fewer hard goods/soft goods users looking. The vast majority of tenants looking for smaller spaces are restaurant users—local, regional and national names.

GlobeSt.com: You are based in the DC area, is anything specific about retail there?

Framson: In the DC area, the majority of the previously empty anchor/larger spaces—Circuit City, Linens N' Things, National Wholesale Liquidators—are either committed or under serious negotiations with retailers. The absorption of these spaces is stabilizing the shopping centers where the larger spaces were once available. It has allowed new users such as HH Gregg to enter a tight market like the Washington metro area with a multi-store presence and allow other large format retailers like Forman Mills to expand their presence in the market.

GlobeSt.com: The legislative agenda is on the top of people's minds these days. Basically many feel that as real estate begins to show signs of recovery Congress may pass initiatives that could dampen that growth. Your thoughts?

Framson: The derivatives overhaul doesn't look promising for the industry. I think it will slow down loan approvals and funding. Any time a bill as far reaching and comprehensive as this proposed legislation is put into law, there is a chilling affect.

GlobeSt.com: Everyone has an opinion about what it might do. What's yours?

Framson: For some period of time, lenders/bankers/commercial paper traders are going to be off kilter. They and their staff are going to have to understand the new regulations and what they mean to their institution. So for a period of time, I strongly suspect that borrowing, which is already very slow and difficult, is going to be even more problematic.

GlobeSt.com: What might be some of the areas of uncertainty, in your opinion?

Framson: Questions over who and in what circumstance can create a vehicle to hedge lending risk. Also I do think regulations in this area may force a rise in interest rates until the market gets used to the new regulations. For some period of time, lenders may feel the need to raise interest rates as a hedge against risk if they are no longer going to be able to layoff risk with some derivative product they have used for the last several years.GlobeSt.com:You said there was a retail angle to your concerns?

Framson: Yes, in a little noticed clause, the bill, if passed in its present form, gives the Federal Trade Commission new oversight and regulatory powers over the Internet. I am not sure what that means, but lets play lay out three potential problems as they may affect commercial real estate:

This may open the door to eventually taxing Internet use/sales? If it does, will retail sales be driven off the Internet and back into stores?
Will FTC oversight create new federal mandates and what can and cannot be done with a web site? Also, will additional oversight force companies to spend unbudgeted sums reviewing web content, enacting new internal controls, and create PR and marketing nightmares on companies deemed by the FTC to have breached some non-free speech protected clause?
Also, what does new FTC regulation mean to companies doing business on the Internet? What new costs, what new restrictions will it create, how will international business be affected when so much commerce is now done internationally over the web, with Ebay, Amazon, Comp-USA.com being some obvious examples.

Instant Insights /

Green Light Retail Real Estate Services' Peter Framson

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