PHOENIX—Steve Jaffe, executive vice president and general counsel to BH Properties, a Los Angeles-based firm that specializes in acquiring and repositioning challenged or distressed real estate properties, speaks with GlobeSt.com about the current retail market.

GlobeSt.com: What kinds of successful retail do you see in the current marketplace?

Jaffe: It's the high end retail. At the top end of the pole, the experiential retail has been successful. It caters to shoppers with entertainment and common areas, places for children to play. These are places where people may not even shop, but just hang out all day. I would cite as an example the Caruso's Farmer's Market in Los Angeles and The Americana. These are open air spaces that answer to people's needs to just be with other people. They are clean, very well maintained and very well occupied. They speak to the customers' needs. They cost a lot of money to build and not a lot of people can afford to build them.

GlobeSt.com: Where does that leave traditional regional malls?

Jaffe: I do not see a future in regional malls.

GlobeSt.com: What about the other end of the spectrum, the service-based retail center?

Jaffe: At the other end, the service-based retail center's goals have changed a bit as people's habits have evolved—via the internet. There is still a need for services that are more local like groceries and dry cleaning, for example. The challenge is dominated by the mom and pop stores being hit hard during the recession. But those are the types of properties BH is interested in. We find properties that are well located and based on serving the day-to-day or weekly needs of customers and that cannot be replicated by the internet. This is what we found in Gilbert Town Center purchased a few months ago. But it has more of that open air feel similar to a higher end retail center. We plan to upgrade the property and incorporate concepts to make the community feel more invested in the property. It's the perfect time to invigorate it as Gilbert undergoes its resurgence.

GlobeSt.com: Speaking of e-commerce, what is your take on that?

Jaffe: Some retail outlets have embraced it to great effect. Other big box operators have been more challenged. I think some have downsized their stores into fewer grand showrooms. Restoration Hardware is an example that comes to mind. It's a beautiful, three-story showroom and the employees are right there to help you order off an iPad. They are still internet and catalog driven.

GlobeSt.com: And at the other end of the spectrum, here in Phoenix we've seen quite a few strip malls with deferred maintenance issues. Do you see any answers there?

Jaffe: It all comes down to economics, management and vision. At some level there are properties that have suffered as a result of the downturn. At the cost of property owners, it was hard to react. Do they cut rents? How soon do they work with tenants? And at some point they stop putting money into the property and start losing tenants. Then the property goes back to the bank. Hopefully then the property can be purchased at a point where the owner can take care of the capital needs of the property. Some of these properties will not rebound until the market fully recovers. Unfortunately some properties are beyond help at this point and other uses will have to be considered.

BH Propertied holds 23 Arizona properties comprised of multifamily and industrial, and three of them retail. The company is looking to expand its Arizona portfolio. View an exclusive video interview with Steve Jaffe here on GlobeSt.com.

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BH's Jaffe Speaks About Current Retail

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