LAS VEGAS—Marcus & Millichap took a major spotlight Monday night at RECon here with the 2014 rendition of its annual Retail Trends report, and like much of the talk at the conference as a whole, the tone was decidedly optimistic. The panel consisted of Rahul Sehgal, CIO of Inland Private Capital Corp.; Fernando De Leon, managing partner of Leon Capital Group; Michael Phillips, principal, president and CEO of Phillips Edison & Co.; and Ted Frumkin, SVP of business development for Sprouts Farmers Market. On hand as well were Marcus & Millichap senior VP Hessam Nadji and VP Bill Rose, who heads the firm’s national retail group and served as moderator. (Marcus & Millichap is a GlobeSt.com Thought Leader.)
Unlike the hesitation that defined the opening months of the recovery, it’s time again to trust your instincts with the confidence that is returning to the market. “We’re seeing more capital and more cap-rate compression,” said Nadji. “Don’t overthink it. Trust your instincts. It’s a good time to buy and sell.”
The panelists essentially agreed that, in terms of geography, density is a key consideration. But they also warned not to shun locales based on current density alone. Many formerly struggling markets are getting on their feet, and “potential” is a watchword in the new economy. Markets favored by some of the panelists included Texas, Oklahoma and Kansas (Frumkin), and Phoenix and Florida (Sehgal, who also embraced the Texas markets).
Internet sales, of course, entered the discussion, and Nadji pointed out that the up-and-comers are the focus going forward. He stated that even though as many people enter retirement age on a daily basis as enter their 20s, “Echo Boomers will account for most of overall retail sales than the previous generation. The most successful retailers will embrace a combination of online and brick-and-mortar,” he said.
On the development front, it’s clear that post-recessionary retail will be built with rigorous leasing standards in place. “The projects we’ve seen recalled have been when the leasing wasn’t in place,” said Frumkin. If you want capital for construction, and reconstruction is a safer bet than ground-up for most lenders, he advised you to have 75% of the leases signed and in your pocket.
The panelists concluded with some advice for the assembled crowd. “Be location-focused,” said Sehgal, “especially if you plan to hold the asset for the long-term.”
“On the development side,” said Phillips, “it’s best to treat your tenants as customers. “They will tell you if something will be successful.
Frumkin agreed: “The developers I do business with are those who understand my business.”