Lever’s Angle from ICSC 2019
By Adam Horowitz, Principal, Lever Capital Partners
What we learned:
This year’s ICSC continued to accelerate trends that have been propagating for a few years now; new technologies, mixed use projects, and value-add acquisitions over ground up development. As usual we met with various people at the convention ranging from owners and developers to management companies and leasing agents. What we heard in these conversations last week mirrored the trends that we have been seeing at Lever Capital Partners.
Technology was everywhere at the conference as vendors, new and old, were fighting for a seat at the proverbial retail table. Their goal is to convince the masses that these innovative concepts could drive retail tenants back to their brick and mortar locations.
Mixed-use projects were also at the forefront as evidenced by many multifamily, office and hospitality attendees. Everyone is trying to figure out the perfect combination of uses that will drive traffic and keep their consumers engaged and on-site.
Lastly we had many conversations about rehabbing existing assets rather than providing capital for ground up products. This is due to the ability to modify these types of properties much below replacement costs given rising construction costs.
What are the possible solutions:
Did you know that Augmented Reality in retail is a thing? According to JLL President and CEO Retail Americas Gregg Maloney, “AR is going to impact retail in a way we all really don’t understand right now, but we’ll have to embrace it because when retailers start bringing it into their store, owners and developers will have to bring it into their property.” Maybe this will happen soon or maybe not so fast, but it’s clear that current stores must do something to enhance the in-store experience, especially to appeal towards millenials and Gen-Z patrons.
Many of our meetings this year included some form of the live, work, play lifestyle. The challenge many of our clients have is that they really only know the retail space and need to be able to put together a team of experienced multifamily, office, and hospitality sponsors to compete in the mixed-use arena. Mixed-use projects have always been harder to finance as both lenders and investors have a harder time underwriting all of their uses, typically feeling more comfortable financing a single use. But the times, they are a changin’ as we’ve started to see more capital providers underwrite to various uses as long as there is a strong sponsorship team in place. ICSC conducted a survey in late March of more than 1,000 adults, finding that 78% would reside in a “live, work, shop and play”community due to the convenience/efficiency and easier access to amenities. (Sleter, 2019).
Given the concerns that lenders and investors have over the amount of time it’ll take to build a brand new asset vs rehabbing an existing one, many owners are pouring money into the ones they already own. Current owners are under pressure to modify their store lineup and are adding “water features, art, and interactive experiential displays”, according to Bisnow’s Joseph Pimentel. The good news coming out of ICSC is that Gen-Z are patronizing malls because they see it as a destination. “Gen-Z cites the abilities to socialize, physically see items and get them immediately as their top reasons for going to stores,” said the ICSC study. “Nearly two-thirds of Gen-Z say it is important when buying online for that retailer to have a store nearby.”
What we can do for you:
We understand how the rapidly changing climate of brick and mortar commerce is continuing to challenge retail owners and developers. Our mission, as always, is to find the best capital providers to help our clients fund their projects. Knowing which capital providers are interested in working with retail sponsors who are using new technology, working on mixed use projects, or rehabbing older assets will allow us to help retail sponsors secure the best available capital for these projects. If you’re wanting to get creative with your retail project, we’d love to help. Schedule a call today and our team will happily evaluate your project!