PLACES: Issue 4 by Madison Marquette

placesâ&#x20AC;&#x201C;magazine.com | 2013

The Rise of Urban Retail Foreign Investment in US Real Estate Competing Successfully with E-Commerce A Publication of Madison Marquette

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FOR LEASING OPPORTUNITIES, PLEASE CONTACT: DENISE BROWNING · (817) 238-3638 DENISE.BROWNING@MADISONMARQUETTE.COM KELLEY MAHER · (858) 876-1163 KELLEY.MAHER@MADISONMARQUETTE.COM

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A Publication of Madison Marquette

Welcoming PLACES

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elcome to PLACES â&#x20AC;&#x201D; a publication devoted to reporting on the latest and more significant trends in development, investment, leasing, management and marketing that impact the real estate industry today. The topics covered within PLACES are of great interest and importance to us at Madison Marquette. Our investment and operating teams collaborate on a daily basis to identify the most productive and efficient strategies and plans to maximize value in the assets we serve. The articles within PLACES are a sampling of some of the topics we find of particular note, and we hope you will find them of interest as well. As this issue of PLACES goes to press, we find our industry in a time of cautious optimism. Within the portfolio of assets managed and leased by our Retail Services Group, we are seeing moderate yet sustained improvement in sales, strong leasing production, occupancies approaching pre-financial crisis levels, stabilization and growth in NOI, significant investment in re-imaging and redevelopment and measurable returns on social media and on-site activation programs. Articles within PLACES provide commentary and counsel on the various challenges and opportunities we are facing today as we continue to navigate through unsettled times. I would like to thank and acknowledge the in-house experts from Madison Marquette who have contributed to this issue of PLACES, providing what I feel to be timely and valuable information derived from their current projects and activities. I would also like to thank our guest contributors who have provided their insights on our industry today, where they think we are headed, challenges to be mindful of and opportunities to be explored. For over twenty years, Madison Marquette has strived to bring a balanced mix of creative visioning, strategic design and merchandising, results-driven leasing, disciplined project execution and impactful on-site activation and marketing to the assets we develop and manage. Our goal has been to create assets of importance and value for our investors, partners, clients, tenants and the communities we serve. In the spirit of mutual success, please enjoy the fourth issue of PLACES. Cordially,

MADISON MARQUETTE LEADERSHIP Amer Hammour

Gary Mottola President

Peter Jun

Chief Operating Officer

Phil Akins

Chief Financial Officer

Property Investments

Retail Services

Eric Hohmann Senior Managing Director

Thomas Gilmore Executive Vice President

David Brainerd Managing Director

Chuck Taylor Senior Vice President, Portfolio Management

Jay Lask Managing Director Arvind Bajaj Managing Director Patrick Walmsley Managing Director

PLACES MAGAZINE

Publisher Thomas Gilmore Executive Vice President

EditorS Whitney Livingston SVP, Management & Marketing Services Robyn Marano VP, Marketing

Design Hung Nguyen, NuenDesign

PLACES TEAM Russ Matthews, Director, Graphic Design Marina Ein, Ein Communications Rebecca Kelley, Ein Communications

EDITORIAL BOARD Denise Browning John-david Franklin Anne Williams

Asbury Park 1100 Ocean Avenue Asbury Park, NJ 07712 732-897-6500

Amer Hammour Chief Executive Officer Madison Marquette

Chief Executive Officer

2013

Robert Steiner Senior Vice President, Portfolio Management Whitney Livingston Senior Vice President, Management & Marketing Services

Bill Coleman Krista Willson Pam White

Philadelphia 1845 Walnut Street 22nd Floor Philadelphia, PA 19103 215-399-5600

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TA B L E O F C O N T E N T S FEATURES

24 The Rise of Urban Retail By David Brainerd and Daniel McCahan

Competing Successfully with E-Commerce

Foreign Investment in US Real Estate

By John-david W. Franklin

By Stephen Muller

Toolbox

Q&A

08 Leasing Strategy for a New Marketplace

By Denise Browning, Kelley Maher and Chuck Taylor

By Robyn Marano

10 Get Engaged: Social Media Best Practices 12

Investment Strategy

Interview with Patrick Walmsley

32 Mixed-Use Properties

Interview with Merle Brann and Tad Templeton

Interview with Bob Steiner and Anne Williams

Interview with Candace Nelson

Interview with Richard Altuna

36 Retail Spotlight

By Angel Cicerone

37 Design Spotlight

New York City: Still King of Opportunity By Arvind Bajaj

n the Rise in Dallas: Positioning a property O in a thriving, competitive market By Whitney Livingston and Aaron Stephenson

20 The Gateway City: Investment opportunities flourish as retailers flock to San Francisco

34 Enclosed Malls

enant Mentorship: Helping Tenants T Thrive, Not Just Survive

MARKET WATCH

By Eric Hohmann and Shipra Bhardwaj

06 STARTING PLACES 14 Crystal Ball

With Nick Egelanian

22 Case Study — La Brea

Creating LA’s Newest Premier Shopping District

38 PLACES CONTRIBUTORS 40 Retail Trailblazers

PLACES MAGAZINE

Next Generation Retailers By Hedy Veverka

FPO FULL PAGE To FILL? FULL PAGE AD page 4

From the Publisher:

New Opportunities

hope you will find the topics we have chosen and the points of view presented in this issue of PLACES to be thought-provoking and beneficial. The selected articles speak to some of the important issues and opportunities impacting our industry today. Topics within PLACES include competing with the virtual marketplace, an evaluation of social media and mobile tools used by retailers, innovative and productive leasing strategies, the growth of foreign investments in the US, the continuing strength of the New York City and San Francisco markets, and brief case studies on two retail assets â&#x20AC;&#x201D; La Brea Avenue in Los Angeles and Mockingbird Station in Dallas. PLACES also features articles from our guest contributors who have pioneered new retail concepts and helped shape development and merchandising strategies for retail assets, and who have provided their own views on where our industry is headed, the challenges and opportunities we face, and thoughts on how to face both head on. Our list of guest contributors includes Richy Altuna. I have known Richy since our early collaboration on concepts for Universal CityWalk in Los Angeles. Richy has been the creative force behind designs and experiences such as notable retail concepts like Nike, Gap, Pottery Barn, and the recent transformation of Restoration Hardware. Nick Egelanian of SiteWorks has provided a point of view about the bifurcation of retail into two distinct categories. His observations

PLACES MAGAZINE

on todayâ&#x20AC;&#x2122;s retail development environment, the significant challenges that lie ahead and his ideas on how to address these are a must-read. Candace Nelson, founder of Sprinkles, is tremendous example of how important creative and bright entrepreneurs are to our industry. With a shrinking universe of retail anchors and national brands, Candace embodies the opportunity for landlords to seek out and work with entrepreneurs who have a good idea, fill a market gap, have a solid plan and are committed to the successful execution of their plan. Stephen Muller of Greenwich Group International provides detailed insights into foreign investment activity in the United States. Stephen gives us a look into the markets and types of assets of most interest to foreign capital sources, and his thoughts on activities over the next twelve months. Please enjoy the issue and I invite you to join the conversation online via our PLACES website located at places-magazine.com.

Thomas Gilmore Executive Vice President Madison Marquette Retail Services

Starting PLACES

Starting

Insights, highlights and key information to navigate the retail real estate industry

Each issue of PLACES starts right here. The “Starting PLACES” section of the magazine is devoted to providing updates from previous articles and suggesting new and engaging resources to better understand the ever-changing retail real estate environment.

PLACES Continued

What the Industry is Reading

The “Eatertainment” Revolution

Contagious: Why Things Catch On

A previous issue of PLACES, published in 2009, featured an article on the rise of the restaurant anchor. The article documented the growing prominence of restaurants in retail destinations, a phenomenon driven by new consumer demand. Such demand has continued to grow and evolve since 2009, reshaping the restaurant anchor concept as an entirely new destination model dubbed “Eatertainment.” The rise of the “Eater-tainment” trend is well documented throughout this issue of PLACES. The concept has moved beyond fast-casual restaurant anchors to include premium artisan bakeries, organic restaurants, craft breweries and luxury entertainment sites such as concierge theaters that offer fine dining and cocktail options. A more discerning consumer base and increased competition from online retail have driven shopping centers of all formats to a more restaurant-heavy ratio with dynamic, market-tailored dining and entertainment choices. This market shift has had a marked impact on the food service industry. In 2009 the U.S. was on the heels of the recession and the restaurant industry had just experienced its first-ever year on record with negative inflation-adjusted growth over one percent. In contrast, the National Restaurant Association expects the industry to post its fourth consecutive year of sales growth, reaching a record high $660.5 billion in 2013. The 2009 PLACES article was spot-on in recognizing the move towards increasing restaurant tenants at traditionally retail-only locations, but the dominance of restaurant and entertainment tenants has far exceeded anyone’s expectations, as you will see in the pages of PLACES that follow.

by Jonah Berger A Wharton marketing professor explores why products succeed, and how social influence and word of mouth impacts everything from “the cars we drive to the clothes we wear to the names we give our children.” Berger lays out six basic principles that account for contagion in the marketplace, the workplace and the home.

Buy-Ology: Truth and Lies About Why We Buy

by Martin Lindstrom and Paco Underhill The gurus of all things retail are back with this penetrating analysis of what shapes consumer retail preferences. Lindstrom presents his findings after a three-year comprehensive study of some 2,000 volunteers from all over the world. This is a must-read!

The Upcycle: Beyond Sustainability – Designing for Abundance

by William McDonough and Michael Braungart A follow up to the highly regarded Cradle to Cradle, this book — which includes a forward from President Bill Clinton — delves into beneficial design and how sustainable approaches can be both economically and ecologically sound.

The Retail Revival: Reimagining Business for the New Age of Consumerism

by Doug Stephens The future is now as this expert consumer futurist explores evolving trends in retail and the concomitant realities of a completely new retail marketplace.

Langosta Lounge | Asbury Park, NJ

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Starting PLACES

What the Experts are Saying Blogroll Selections from The Dealey Group

With technology constantly improving and evolving and a growing number of informative and constantly-updated resources available, it is hard to stay up to speed on the latest news and trends. To help you stay informed, social media and marketing firm The Dealey Group recommends challenging yourself and each member of your team to read one article a day. To get you started, below is a taste of the firm’s recommended reading material: For overall digital media marketing information, don’t miss these top blogs: • Mashable.com — Reports on digital innovation and how it empowers and inspires people around the world. Mashable was recently nominated for three Webby Awards: Best User Experience, Best Business Blog and Best Mobile & Apps: News. • DigitalBuzzBlog.com — Featuring the latest digital ad campaigns, hot new websites, interactive marketing ideas, virals, industry news, social media, insights, and other great digital trends from all over the world. • SocialMediaExaminer.com — The world’s largest online social media magazine, Social Media Examiner helps businesses discover how to best use social media, blogs and podcasts to connect with customers, drive traffic, generate more brand awareness and increase sales. For industry news and updates, check out these Commercial Real Estate blogs: • dukelong.com — Broker/owner of the Duke Long Agency keeps a blog full of industry updates and personal insights. • reihq.com — Real Estate Investor HQ a top news feed for real estate news and information for investors and real estate professionals • GlobeSt.com - GlobeSt.com is a veteran industry news site that has long tracked retail news. Check out the site for comprehensive coverage of retail sector developments covered by long-time editor Ian Ritter.

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Del Mar Plaza | Del Mar, CA

Leasing Strategy for a New Marketplace W

hile the retail market has always been a moving target with evolving concepts, consumer preferences and economic factors, never has the market shifted as dramatically as it has over the last half decade. The economic collapse in 2008 reshaped the retail landscape. While the economy continues a slow recovery with decreasing vacancies and increasing retailer expansions, the post-2008 retail landscape has morphed into a mosaic, highly reflective of local tastes, preferences and trends. With this new landscape comes the need for a new leasing strategy. Gone are the days when leasing agents could plug in Retailer X at an enclosed mall in rural North Carolina, at a lifestyle center in LA and at a mixed use community in a Washington, D.C. suburb. This strategy no longer works primarily because national retailers are still hesitant to open at new locations, particularly in smaller markets. While retailer expansion plans are increasing, they are doing so at a very slow rate and the mid-price point concepts that were driving the industry several years ago have stalled in their expansion plans. Additionally, consumers have grown smarter and savvier â&#x20AC;&#x201D; they want unique, high quality options and are armed with technologies that allow them to price shop with the scan of a barcode or click of a button. Shoppers are not looking for formu-

laic shopping centers with older, tired selections. As such, leasing agents not only need to be creative but they need to be strategic. The challenge is to embrace this new market rather than fear it and to look for those retailers and concepts that can excite, expand and thrive along with you.

Know your market By Chuck Taylor

The key to this new market: know it! Understanding what the consumers have, want, need and expect is vital to identifying the right tenants to target and in turn to convince prospects that you offer a desirable market for them to open in. This knowledge goes beyond demographics. Leasing agents need to live and breathe their market and understand not only the consumers but their shopping habits, the existing retail mix, nearby competition, the economic climate, and more. Gathering market information is now a grassroots effort. In addition to demographics, exploring the community and competitors now plays a crucial role. Where are consumers currently shopping? What concepts are thriving? What merchandise and particular brands are

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TOOLBOX selling? At what price points are people in the community buying? Understanding the shopping habits and preferences of the community enables you to identify how to fill those needs while not over saturating the market. Armed with this information, leasing agents can identify which retailers will thrive in the market. It also enables us to find creative solutions to fill those needs. Research may reveal that consumers desire a particular national brand that is not currently available in a specific market. Market needs can still be met by identifying a local or independent retailer that offers that brand within its merchandise mix. An additional benefit generated from a deep understanding of your market is the ability to identify new and emerging concepts. Today’s economy has produced myriad new entrepreneurs and if you can identify and develop a relationship with these entrepreneurs early, you are at an advantage when they are looking to open new locations. This is especially true in the food and beverage arena, which has become a significantly larger portion of our retail mix as customers increase demand for “Eater-tainment” offerings. New store openings and retail expansions may not be where they were five years ago, but opportunities are out there and by putting boots on the ground and knowing your market’s needs you equip yourself with the tools to creatively fill vacancies with tenants that will be sustainable for the long-term.

Provide “Eater-tainment” By Kelley Maher

Successful leasing requires retail properties to meet popular needs while also creating a singularly appealing experience. For many leasing experts, the best approach to providing that experience is through the emerging “Eater-tainment” phenomenon. The concept, coined to describe the fusion of eating, shopping and entertainment, is now standard operating procedure for forward-looking retail asset operators.

Think non-traditionally By Denise Browning

The recession and its aftermath produced huge vacancies across the country and in a market where retailers have shrunk not only in numbers but also in square footages, filling those vacancies remains a challenge. This environment means leasing agents need to think outside the box. Perhaps traditional retailers are hesitant to expand, but there are ample opportunities to fill space with non-traditional and short-term tenants that can add value to the asset and the community. From churches to trade schools to medical facilities, these non-traditional tenants can help attract new visitors to retail properties, enliven a less-trafficked area and even create opportunities to cross-promote existing traditional tenants. For example, while University Mall in Chapel Hill, N.C. was undergoing renovations, we filled one of the vacancies with the public library. The library attracted 1,200 visitors per day to a traditionally low-traffic section of the enclosed mall. By getting creative and exploring prospects that we may not have targeted a few years ago, we engaged the community, increased traffic for all tenants and generated revenue for the mall.

For “Eater-tainment” to be truly effective, centers must offer retail, restaurant and entertainment options that are both demographically and geographically site-specific.

Experience is key to competing with online shopping so leasing managers are using entertainment and a vast array of retail and public resources to lure “virtual” customers to their brick and mortar sites. Centers that feature neighborhood gardens, organic food shops, seasonal outdoor seating and independent bakeries/cafes and wine bars are flourishing. When properties provide such choices, they are noting that consumers stay on site longer, return regularly and that the property brings in more meaningful revenues. However, for “Eater-tainment” to be truly effective, centers must offer retail, restaurant and entertainment options that are both demographically and geographically site-specific. If local demand and taste is not readily apparent, it is important to determine what the community might be missing. Strategically-minded leasing managers are tapping into shopper, diner and tenant viewpoints to better understand their customers’ attitudes and preferences. Understanding the reality of the 2013 retail landscape is crucial as well. Consumers are more health conscious, brand savvy and well-informed than ever before. The globalization of luxury has made these consumers demanding in other ways as well. In addition to luxury labels, they want what is special or exotic — the menu, boutique or art house cinema that is only accessible in their

PLACES MAGAZINE

neighborhood and in their zip code. To paraphrase “Field of Dreams,” when we are able to provide our centers with these retail commodities, we have truly built something to which people will come.

Non-traditional tenants can also be positioned to feel more “traditional” by working with them to add a retail component where it makes sense. If leasing to a church, it could allocate space as a Christian bookstore concept. Others could sell relevant products — a cosmetic school could sell cosmetic and beauty products or a medical center could build out a pharmacy. Regardless of the market, there are still opportunities to fill vacancies that add value. It takes creativity and strategic thinking to identify concepts that still meet the needs of the community, consumers and the asset as a whole even if they don’t fit in that traditional retail box. The trick for leasing agents is to explore every possibility and ask yourself “why not” instead of “why.” G Chuck Taylor is Senior Vice President, Portfolio Management at Madison Marquette Retail Services and is located in the Fort Lauderdale office. Kelley Maher is Senior Vice President, Leasing at Madison Marquette Retail Services and is located in the San Diego office. Denise Browning is Senior Vice President, Leasing at Madison Marquette Retail Services and is located in the Charlotte office.

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Get Engaged:

Social Media Best Practices W

By Robyn Marano

hile you could trace the origins of social media back to the Internet’s early days, the launch of MySpace in 2003 and Facebook in 2004 truly set social media on the path to the omnipresence it holds in our society. Aside from its cultural and social impact, the multitude of social media platforms and tools has reshaped the world of marketing. Today, social media is a tool marketers cannot afford to neglect. While social media must be an integral part of a shopping center’s overall marketing program, it is important to note that it is only one piece of the pie. For social media efforts to be most effective they should align seamlessly with digital media, mobile marketing campaigns and promotional collateral, all designed to support the overall goals, branding and communications strategy for the retail asset.

Regardless of the platform, social media should be focused on engagement and brand awareness, and not be viewed as another channel of traditional marketing. Customers will be most engaged if you provide interesting information that strikes the right balance between self-serving promotion and your audience’s related interests. Keep the messaging genuine, engaging and authentic — corporate or marketing speak is the fastest way to lose your audience. By providing valuable content balanced with calls to action that drive

customer traffic, you will keep your customers engaged, subscribed and loyal to your brand. It’s important to determine which social media platforms are worth the effort and costs. It is not necessary to be on every platform and not every platform will work for every brand or consumer base. Like all forms of marketing, you need to understand your customers and how they prefer to engage with your brand. Based on their preferences, you can further fine tune your strategy by identifying your social media goals — what do you want to achieve, who do you hope to reach, what is your key messaging, and how do you plan to measure your success? Whichever platform or platforms you choose, you must be prepared to commit at 110 percent. If you’re not fully engaged and invested in a social media marketing strategy, there will be little value generated from it. Social media is inherently instantaneous, and consumers expect your responsiveness to be the same. So which social media platforms are best for you? Here are some quick guidelines to determine which tools will fit best in your communications toolbox.

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TOOLBOX Facebook

While Facebook enables shopping centers to fully establish a presence through the creation of brand pages that allow for almost as much content and information as a website, less than one percent of Facebook users actively interact with brands. This is because consumers primarily use Facebook to socialize, not to shop. In this social medium, you’re not competing with the mall down the street. Your competition is even tougher — your consumers’ friends and family. Forrester Research’s Sucharita Mulpuru once said trying to sell your brand on Facebook is “like trying to sell stuff to people while they’re hanging out with their friends at the bar.” However, Facebook can still be a useful engagement tool when used with the right strategy. 6U sers: Facebook has more than a billion monthly active users and an average 618 million daily active users, as of December 2012. (Source: Facebook) 6 Best for: • Sharing graphics and visuals • Building brand awareness through the viral nature of likes and shares • Organically opening a dialogue with consumers • Positioning your center as part of the community 6 Common mistakes: • Blasting advertisements and promotions • Lacking authenticity • Sporadic and infrequent posting • Ignoring customer feedback, questions or complaints

Twitter

Twitter is the most time sensitive of all social media platforms, but can also have the broadest reach. Twitter is all about what is happening “right now,” what is trending “right now,” and what should I be doing or talking about “right now.” Timely and engaging promotions and campaigns go viral instantaneously on Twitter and reach far beyond any marketing campaigns of the past. More than any other medium, marketing messages on Twitter are no longer dictated by the brand, but by the consumer. 6U sers: Twitter doesn’t reveal its user data, but estimates suggest Twitter has approximately 288 million active profiles. (Source: mediabistro) 6 Best for: • Sharing time sensitive sales or promotions • Pushing out calls to action • Building brand recognition through the strategic use of hashtags • Maximizing the reach for a strategic brand message 6 Common mistakes: • Slow response to consumer feedback • Failure to capitalize on viral nature of hashtags and trending topics • Lack of engagement with consumers and brand influencers

Foursquare

With one out of every five global smart phone users using a geosocial check-in service, our customers are telling us — and their networks — where they are and what they are buying in real time. Therefore, Foursquare remains one of the most underutilized tools for shopping centers. What better way to drive traffic to your center than to have your customers do it for you? The key to success with Foursquare is creating engaging and ongoing programs to keep consumers “checked-in.”

6B est for: • Building customer loyalty • Promoting retailer-specific specials • Tracking customer shopping habits and engagement 6C ommon Mistakes: • Failing to claim your venue • Not offering valuable specials or loyalty promotions • Lack of collaboration between shopping center management and tenants • Not responding to comments and/or tips

Instagram

Instragram’s role and potential as a social media tool is still being written. But what is clear is its significant and growing popularity as more than just a photo enhancement tool. Similar to the initial launch of MySpace, Instagram is rapidly becoming a preferred communication tool for younger generations. This audience is using photos as a medium to share experiences, tag friends (and brands), comment and engage in dialogue. Numerous brands are successfully navigating Instagram by posting compelling images that tell the brand’s story, take consumers “behind the scenes” and otherwise demonstrate the brand’s “personality.” 6 U sers: Instagram has more than 100 million active users as of March 2013. (Source: Instagram) 6 Best for: • Communicating the “story” behind the brand with imagery • Developing a unique relationship with users by offering engaging commentary and imagery • Supplementing fashion-forward marketing campaigns • Soliciting organic consumer-generated content 6 Common mistakes: • Exclusively posting self-promotional images • Failure to engage with other popular brands and influencers • Neglecting the effective use of image tagging

Pinterest may be the new kid on the block but it is the new big kid on the block. Growing from nine million to 40 million users in 2012, Pinterest has more referral traffic than YouTube, Google+ and LinkedIn combined. With one in five Pinterest users having pinned an item they later purchased, Pinterest also has the greatest potential of all the social mediums to influence actual purchases. 6 U sers: Pinterest has an estimated 40 million users and is one of the fastest growing social networks. (Source: Pingdom.com) 6 Best for: • Extending brand awareness • Motivating consumers towards retailer-specific sales and promotions • Enhancing brand identity and relevance through diverse content offerings 6 Common Mistakes: • Limiting content to self-promotional items • Failure to engage with other brands, which can extend the reach of your messaging • Lack of e-commerce component with direct correlation to sales G Robyn Marano is Vice President of Marketing for Madison Marquette Retail Services and is located in the Philadelphia office.

6U sers: Foursquare’s community includes more than 30 million people worldwide and has processed over 3 billion check-ins as of January 2013. (Source: Foursquare)

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Tenant Mentorship:

Helping Tenants Thrive, Not Just Survive By Angel Cicerone

oday’s challenging retail real estate environment has forced many shopping centers to rethink what were once fail-safe approaches to management, leasing and even to what constituted “sure-fire” tenant winners. A rapidly cycling economy, shock waves from the 2008 downturn and e-commerce encroachment have lead to struggling tenants and increased vacancies. These new marketplace verities have upended what once represented solid center merchandising and tenant mixes — while requiring completely new skill sets from managers and service providers.

The Warning Signs

Shopping center operators and leasing agents are coping in different ways. With fewer retailers to fill vacancies, landlords and managers are turning to innovative new approaches to bolster tenant success — even if a tenant appears to be in danger of folding. The cost of replacing a tenant (if a replacement can be found) is exorbitant. The costs to replace tenants who have failed or fled can easily run into the mid six figures — not to mention the impact on a center’s merchandising mix and the time and equity needed to fill a vacancy.

On the financial side, landlords should be aware of the tenant’s current debt, payment history and sales trends. Any major changes to the business, such as a change in hours, a new merchandise mix or addition of a new (usually unrelated) product line, or high staff turnover are signs that a business may be struggling. Property managers should be on the lookout for disturbing financial or traffic patterns, as well as troubling business relationships. If there is an adversarial relationship with the tenant it may be a sign they are struggling and it should be addressed immediately. To make mentorship work landlords and tenants must work together to achieve their mutual goals.

Considering these costs and current market conditions, shopping center operators and leasing agents have started to ask themselves if there is a better option. The answer is yes. Landlords are finding success in programs that work with struggling smaller, independently owned businesses to build sustainable businesses and keep doors open. This strategy, known as tenant mentorship, has shown to be more effective and less expensive than eviction and replacement, benefiting the landlord, tenant and overall economy. One of the most common reasons small businesses fail is owners have a singular area of expertise and they lack the skills to fully operate a sustainable business. An entrepreneur may open a bakery because he or she has a passion and expertise in baking. Problems arise because the baker does not have a business background and over-projects revenue, his market strategy doesn’t target the right audience or a plethora of other business strategies go unutilized. These factors are exactly why a mentorship program that gives entrepreneurs the tools to succeed can have a huge impact on revenue growth and the overall health of independently-owned businesses.

Landlords must learn to identify the warning signs that a smaller tenant is in danger of closing or of becoming a financial liability. The clearest sign for a landlord is of course a request for rental assistance or past due rent, especially if rent is repeatedly late or goes completely unpaid. Past due rent, however, is just the tip of the iceberg. Landlords and property managers should know their tenants and the market well enough to spot additional warning signs, with the goal being to identify issues before they become more serious.

Knowing the business owner is important as well. Are they involved in the business? Are they onsite regularly? What business experience do they have? Do they demonstrate an investment in and attentiveness to the business? If the answer is no to any of these questions, they may need a mentorship program. However, if the owner doesn’t take command of the situation it may be too late to salvage the tenant. Ultimately, success and adherence to the program is the owner’s responsibility and he or she must embrace whatever changes need to be made.

Assessing the Situation

When the above outlined signs are displayed it is time to approach the tenant and assess their willingness to participate in a tenant mentorship program. Some landlords may decide to require the mentorship program in order to provide reduced rents or other rental assistance arrangements. While tenants may be reluctant, they will recognize this as their only solution if they are truly

invested in a successful business. Once everyone is committed the team should conduct a thorough review of the business. This is where a third party consultant is useful. As a neutral party, consultants can make an impartial evaluation of the current business structure and practices and provide a strategic plan for creating a more sustainable business. Such consultation may include an analysis of sales and market data, competitive analyses, and an evaluation of the business plan, merchandising, marketing strategy, branding, store layout, etc. An allencompassing review reveals where the problems lie and how (and if) they can be addressed.

Strategy for Success

Once the problems are identified a plan can be developed based on the retailer’s skills, needs and resources. It is crucial to keep these things in mind and to truly customize an approach that enables the tenant to be successful. Many retailers have the tools and resources in place and just aren’t using them correctly. For example, a POS system can provide all of the information needed to determine what merchandise is selling, when it’s selling and who is buying it. A competitive analysis can reveal what price points work, who the target audience is and what needs aren’t being filled in the marketplace. This information may be readily available, but if the retailer doesn’t know how to collect or use the information it won’t do them any good. A mentorship program teaches and trains the business owner to use the tools and information they already have in place. Proper use of the merchandising tools and marketplace analyses allow retailers to strategically and appropriately merchandise their stores, set price points and make better purchasing decisions. It also refines their marketing strategy to ensure signage and marketing collateral target the right audience with the right branding and messaging. Frequently entrepreneurs don’t connect the dots between these elements of their business. A mentorship program can train them to see the value of connecting all elements of the business, including tracking sales and revenue, pricing and marketing strategically, and effectively branding the product. Other critical yet cost effective changes can be made as well. New fixtures, paint and

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TOOLBOX window design can make a significant difference with little cost. Inspiration for such design can be found everywhere and many creative and high-end designs can be recreated with limited resources. There is no one-size-fits-all strategy, but through informed consultation, open communication and a harnessing of existing tools and resources, great improvements can be achieved. Through these methods troubled tenants can be put on a path to success.

Tracking Results

A crucial component of tenant mentorship is tracking results. The partnership is based on trust, and being able to demonstrate results builds trust in the program for both the tenant and landlord. The strategic plan should include measurable goals and objectives. This not only calibrates results but crystallizes the impact of the program and helps retailers understand the synergy between revenue and all other strategic elements of the business plan. Part of tracking results includes setting a timeline for implementation and improvement. A good tenant mentorship program should be about 90 days in length for the analyses, plan development and implementation of the devised strategy. The landlord, tenant and consultant should then set a timeline and benchmarks to determine next steps and to measure success. This includes regularly scheduled follow up, typically at monthly intervals, for one or two quarters to ensure that the tenant is implementing and taking full advantage of the objectives identified in the analysis. Benchmarks should be customized to the tenantâ&#x20AC;&#x2122;s goals, but typically include tracking revenue, sales, timely rent payment and reduced debt. The implementation of a successful program can also produce unexpected, yet still important, results for both the retailer and landlord. By opening lines of communication and demonstrating a commitment to and support of a tenant, landlords frequently see increased tenant loyalty that may benefit the center for years to come. Whether they work with third party vendors who specialize in tenant mentorship and turnaround, or implement their own programs, property managers and landlords have a vested interest in working with independently owned businesses to keep their doors open and rents flowing. By turning the business around you ensure the financial success of not only the tenant but the center as well. G Angel Cicerone is founder of Tenant Mentorship and is located in Miami.

PLACES MAGAZINE

Crystal Ball

Insights into the Future of Retail With Nick Egelanian PLACES magazine’s Crystal Ball column will provide insights into the future of retail and real estate from industry thought leaders, experts and contrarians. This month PLACES spoke with Nick Egelanian, president and founder of SiteWorks, a retail real estate services provider. Mr. Egelanian is author of the retail chapter in the 3rd edition of Urban Land Institute’s Professional Real Estate Development publication.

Nick Egelanian, President & Founder, SiteWorks

As you noted in your chapter for ULI’s Professional Real Estate Development, retail is nearing the end of its third major evolutionary shift. How do you see retail evolving in the next evolutionary cycle? NE: I believe that we are in the final phase of one very important long term trend and in the early phases of the next big trend. The “full line” depart-

ment store business (today, represented primarily by JC Penney, Sears, Dillard’s and Macy’s) has contracted significantly over the last 25 years and in the final phase of contraction, Sears and at least part of JC Penney will likely disappear. This will eventually lead to many Macy’s and Dillard’s store closures and the failure of up to several hundred more faltering malls. Eventually, the industry will have to become much more creative and adept at building well researched and better conceived “Specialty Centers” to replace part of this aging mall stock. The new trend that will continue to evolve is that all “Commodity Retailers” and many “Specialty Retailers” will have to become proficient at transparent multichannel distribution. While the evidence does not support the idea that the “internet” is killing traditional retail, it does clearly demonstrate that with the customer’s access to increasing information, transparent pricing and greater choice, retailers must

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Crystal Ball What will the impact of online retailing be on brick and mortar shopping centers?

be able to seamlessly deliver access to the primary distribution channels, including in-store, internet, and where applicable, catalog. Had Sears understood this when Amazon was starting up in the 90’s, it could have become Amazon by expanding its inches thick catalog into the internet and using its warehousing advantage to deliver on its “Sears Has Everything” slogan before Amazon moved from books to literally “everything.”

NE: Regarding online retail, despite much discussion to the contrary, shopping center-based purchases have expanded in each of the last five years and online retailing still accounts for a tiny percentage of overall retail sales. Amazon’s sales increased by around 25 percent last year, hardly an earth-shattering amount when considering that Amazon accounts for less than two percent of retail sales today. In addition, Amazon is expanding sales at the expense of profits today by subsidizing shipping costs. This will eventually be rationalized as the market forces Amazon to adopt a sustainable profitability model. In addition, the only retailers that I am aware of that have failed directly due to expanding online sales are those that sell or sold products that no longer require a “physical medium” to deliver the product (i.e. books, music, games and movies).

What cultural, economic and/or technological factors will have the greatest impact on shaping the next phase in the evolution of retail? NE: I believe that technology will directly and indirectly have the greatest impact. In commodity retail, it will ensure that customers have the greatest access to choice in the primary equation (price vs. convenience) consumers apply, usually subconsciously, in making “commodity retail” choices. This applies equally to all internet purchases, all of which are motivated in some way by price and/or convenience. Inevitably, this will result in dramatic generational shifts in how much discretionary time and income consumers have left for specialty retail purchases and how they choose to spend this time and income. While our industry is very skilled in the X’s and O’s of creating commodity shopping centers, even our

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best companies have a substandard track record in delivering the kinds of well-conceived places and tenant mixes necessary to establish and maintain the emotional bonds with customers that are essential for creation of successful and sustainable specialty retail.

Having said that, and as I discussed above, the internet and technology are game-changing forces that now mandate that retailers, particularly those selling commodity retail products, must be capable of operating through multiple channels going forward as access to greater information and choice via the internet democratizes pricing and levels the playing field for commodity goods and services. G

MARKET WATCH

New York:

Still the King of Opportunity W

By Arvind Bajaj

hen foreign investors look toward the United States, New York City is at the top of their lists. It continues to be rated as a top real estate investment location by leading economists and by the research arm of the Urban Land Institute. In 2009, New York was ranked the most attractive city for business and innovation (ahead of London, Paris and Tokyo) by Japan’s Mori Memorial Foundation’s second Global Power City Index. Also, New York real estate is considered a “bargain” by many international investors seeking a safe haven for investments. For example, according to amNew York, residential condos in New York City average $1,300 per square foot as compared to $4,500 per square foot in Monaco, $3,500 per square foot in London and $2,400 per square foot in Paris.

Strong Fundamentals

New York’s strong fundamentals add to the city’s appeal for investors. Between 2011 and 2013, employment increased in the New York metropolitan area by 66,200, or 1.7 percent. Employment is expected to continue to increase, topping prerecession peak job numbers from the halcyon days of the 2000s. Moody’s research predicts an ongoing job boom in New York City between 2012 and 2016. This impressive employment picture is coupled with limited real estate and retail real estate vacancies in Manhattan. The rise of Brooklyn as a “magnet” for young professionals and their families has contributed to rising rental rates amid fewer vacancies in this popular borough. Queens is also an “up and coming” borough. Within Queens is the very attractive Long Island City — also known as “LIC”and “the next Williamsburg.”

In December 2012 Madison Marquette acquired “The Center Building” in Long Island City, Queens, N.Y.

There is great access to midtown Manhattan from Queens — and its residents and tenants benefit from moderate prices.

Broader and More Competitive Economic Base

New and traditional industries alike are booming throughout the city as well. High tech and new media companies contributed $9.2 billion to the city economy with their toehold in what is being termed Silicon Alley – Midtown South, Brooklyn, and Queens.

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MARKET WATCH Over-the-year percent change in employment

U.S. v. New York City Average Asking Rate

November 2012 (Source: U.S. Bureau of Labor Statistics)

As of 3Q 2012 (Source: Chainlinks Retail Advisors)

$25

$20

$22.54

4 $15

$14.63

2 $10

$5 New York Area

New York City*

United States

-2

t n n d g d d s es m in en ie an ity tio tio es r ic an es ar l an es t f i a a v u e l n ic r n nm a ic rt vic iv m ct ur ta se er tio erv ct no ion erv fa is spi or po ser v r a f a l u e s s e c o s l L o In ta es s s u h G an ia an th h To rof es tr M O Ed alt nc n e a e i P s d n h a Fi bu Tr

Moreover, television and film production in Gotham now rivals Los Angeles. There are almost 150 studios and stages in the city — three of the “Big Five” music recording businesses have headquarters in New York City and more than 250 feature films are shot on location there every year. Over 23 television shows are shot in New York City currently, which is more than double the count from a decade ago. Under the leadership of Mayors Giuliani and Bloomberg, New York City is at the forefront of a burgeoning tech development effort. Initiatives are underway to attract engineers, programmers, coders, developers and program managers from around the world. In 2011, Cornell University was selected by the City of New York to develop a massive new science and engineering campus on Roosevelt Island. When complete, the campus will allow New York City to more effectively compete with Silicon Valley for new tech and bio-tech companies. With its focus on tech innovation, New York City is laying the foundation necessary to incubate new and competitive businesses and to grow its already substantial pool of technology jobs.

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New York, a “Youth Quake” City

For young people getting out of the nation’s colleges and graduate schools, New York City is viewed as being a very desirable place to live and start a career. A recent study conducted by OnBoard Informatics for Apartment Guide named New York as the top city in America for college graduates. The median age of City residents is now 35 — with many of these city dwellers indicating their passion for museums, theaters, shopping and restaurants. They also are attracted to the city’s numerous parks, the glamorous sites, landmarks and the real possibility of upwardly mobile employment. Most importantly, the difference (“post-crash” versus “pre-crash”) is that it is no longer just finance jobs that are driving the bus. These graduates are seeking and getting opportunities in tech, fashion, and media/entertainment. A recent Pew Research poll asked Americans to indicate their most desired city and 45 percent of those polled under age 35 listed New York City as their first choice city.

Average shopping center rents (asking rate/square foot) *Includes New York City, Long Island and Southern Connecticut

Square neighborhood have risen more than 42 percent in 2013 alone. Vacancies in other key areas such as the Meatpacking District, Flatiron and Soho are very rare. One has only to look at retail employment numbers to see how well New York City is faring — with projections that employment in the retail sector will reach 553,000 employees in 2025. The only other “supermodel” gateway city, San Francisco, has 2025 estimates for retail employment at 50,000. Retail real estate demand in New York City continues to draw investor exuberance — from inside our borders and from the trans-continental investment powerhouses. Frank Sinatra said it best when he wrote perhaps his most famous song — we all want to “be a part of it… New York! New York!” G Arvind Bajaj, Managing Director, heads up the Madison Marquette Property Investments’ New York office. Additional research was conducted by Katie Shaw, an Investment Assistant located in the Madison Marquette New York office.

Looking to the future, public confidence in New York City continues to grow. Retail rents in the Times

MARKET WATCH

Mockingbird Station | Dallas, TX

Reinventing a Property in a Competitive Market By Whitney Livingston and Aaron G. Stephenson

here is no denying the growth and economic vitality of the Dallas market. Forbes recently ranked it as the third fastest growing city in America and as number one on its “Best Cities for Good Jobs” list. Overall, Texas has seen significant job creation, with employment growing faster than any other state in the country in 2012. So it’s no surprise that as the local employment base continues to expand, new retail has followed suit. Last year marked the best year for shopping centers in the Dallas-Fort Worth region since the recession, according to the Dallas Morning News, with net leasing reaching 3.8 million square feet. The occupancy rate at the end of 2012 reached 89.1 percent, with an average rental rate of $21.43/square foot for Class A properties (Source: The Weitzman Group/Cencor Realty Services). One of the most productive submarkets within the region has been the Park Cities area. Achieving an occupancy rate of 93.38 percent in 2012 (compared to Dallas’ overall rate of 88.85 percent), the Park Cities were able to realize an average rental rate of $32/square foot for Class A properties — signifi-

cantly higher than the market average (Source: The Weitzman Group/Cencor Realty Services). A substantial economic driver to this performance stems from the market’s strong fundamentals, including a median household income approaching $200,000 and a collection of some of the best performing retailers in the state — e.g., Hermes, Christian Louboutin, Chanel, Jimmy Choo, Harry Winston and Stella McCartney to name a few. While the Park Cities clearly has a track record for retail success with NorthPark (one of a few centers in the country that exceeded $1 billion in sales) and Highland Park Village (a center that boasts $1,500+/square foot in sales), any developer seeking to enter this market or landlord trying to renew and/or attract new brands would face challenges. Dallas’ Mockingbird Station — situated approximately two miles from Highland Park Village and 2 ½ miles from NorthPark — was burdened with this very challenge when Madison Marquette Retail Services was engaged to reposition and re-merchandise the asset.

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MARKET WATCH U.S. v. Dallas Average Asking Rate

U.S. v. Dallas Over-the-year percent change in employment As of November 2012 (Source: U.S. Bureau of Labor Statistics)

The Situation

MMRS was engaged in 2011 to provide retail leasing and advisory services for Mockingbird Station, a mixed-use project that includes 175,000 square feet of retail, 271 residential lofts and a 10 floor office tower. While the residential and office components were 90 percent leased, the retail lagged behind at a rate closer to 75 percent. Given its proximity to a strong consumer base and its direct access from Highway 75 and the DART mass transit rail, MMRS saw extraordinary potential to make immediate and value-enhancing improvements by repositioning, rebranding and remerchandising the asset.

3.0

$40.00

2.5 2.0

2.5

Dallas

$35.00

United States

$30.00

1.5 1.0

Dallas United States

$32.00

Park Cities

$25.00 $20.00

1.4

$15.00 $10.00

0.5

$18.22

$14.63

$5.00 $0

The Vision

As of 3Q 2012 (Source: Chainlinks Retail Advisors)

Percent Change in Employment

MMRS began by conducting extensive market and consumer research along with a cross-functional evaluation of the center and its tenants. This detailed discovery process, involving multiple industry experts, yielded a comprehensive vision and plan for the asset, which included transforming Mockingbird Station into an around-the-clock “Eater-tainment” destination, positioning it as a retail draw by day and a social gathering place by night. The strategy aimed to meet the shifting needs of local consumers by providing a dynamic lifestyle experience (“live, work & play”) that was unique to the market. The team then created an experience blueprint designed to illustrate the vision and served as a tool for the Leasing team, which included local market experts from Retail Street Advisors, to sell the story.

Average shopping center rents (asking rate/ square foot)

The Challenges

At the time of the engagement, Mockingbird Station was approaching its 10th anniversary with many merchant expirations on the horizon. Furthermore, the expansion of NorthPark Mall (approximately 2.3 million square feet) and the timing of new inventory in the trade area, greatly limited the prospect pool for new retailers. In addition, existing egress, ingress, parking, way-finding, branding and design elements all presented obstacles to the repositioning goals. Finally, the project had significant vacancy and underperforming sales in strong categories which diminished the marketability to prospective retailers.

The Results

In 2011 and 2012, over 90,000 square feet of retail space was successfully leased or renewed, including 6 restaurant/entertainment deals at Mockingbird Station. The customer experience was enhanced with the addition of these new brands, common

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area seating and other outdoor amenities as well as a vibrant events and marketing program. These efforts resulted in double digit sales increases and a renewed interest from both retailers and consumers. The collaboration across various skill sets — marketing, property management, development and leasing — along with MMRS’s ability to coordinate the efforts of multiple teams and industry experts, were instru-

mental in transforming Mockingbird Station into the Park Cities popular downtown alternative. G Whitney Livingston is Senior Vice President of Management & Marketing Services at Madison Marquette Retail Services and located in Dallas. Aaron G. Stephenson is a Partner at Retail Street Advisors and is located in Dallas.

MARKET WATCH

300 Grant | San Francisco, CA

The Gateway City Investment opportunities flourish as retailers flock to San Francisco By Eric Hohmann and Shipra Bhardwaj 20

an Francisco continues to shine for retail real estate investors in 2013. Benifiting from the growing employment and buying power of Silicon Valley companies, booming tourism and new urban dwellers, San Francisco has been a powerful magnet for real estate investors both nationally and internationally. Decreasing vacancy rates in some of the city’s key retail neighborhoods — notably the Union Square and South Financial districts — have also been a marked driver of investment activity and interest. The Urban Land Institute this year named San Francisco as the number one most desired investment location for both commercial and residential real estate categories. With its traditionally strong technology employment base, burgeoning Asian and American tourism and vigorous local demand, San Francisco’s retail real estate market is one of the fastest growing in the country. Along with new and expanded brand flagships in heavily trafficked corridors, the city has given rise to several retail and dining trends now

spreading across the nation. Such trends include local and independent-sourced retail that supports organic, healthy living, and ease of pedestrian and bicycle access to retail in key neighborhoods. These trends coexist in a city that is now the third most expensive market in the country (behind New York and Hawaii) with no sign of any abatement in investor interest. Because new development is restricted, investors have been looking to acquisitions as a means to participate in San Francisco’s stellar retail market. In 2012, $781.7 million was invested in transactions. Among the deals that doubled 2011 totals were the sale of 33 Grant Street and 800 Market Street, and Macy’s acquisition of part of its West Coast flagship store at 281 Geary Street. Now with San Francisco’s retail market on track to outperform the rest of the country in 2013, this flurry of substantial buyer interest is unlikely to dissipate. With the limited construction, vacancy absorption rates reached new highs, especially in the Union

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MARKET WATCH U.S. Retail Property Buy/Hold/Sell Recommendations Source: Emerging Trends in Real Estate 2013 Survey.

Square “crown jewel” neighborhood of the city. The combination of dwindling availability, sustained demand and competition for premium space also has led to substantial rental rate increases. Rents rose more than 8 percent in 2012 with no visible impact on tenants’ willingness to sign leases. Vacancy rates overall were at 2.1 percent in the city and somewhat lower in the Union Square – Grant Street corridor. While new development has been curbed, redevelopment activity in San Francisco has shown record gains in 2012. Cypress Equities and The Carlyle Group have planted a monumental flag in this direction with their plans to redevelop a large portion of Market Street that had been largely derelict. The CypressCarlyle project, with its more than 250,000 square feet of new retail for delivery in 2015, created huge buzz in the local trades when it was announced last year. Keeping pace with the infill interest throughout San Francisco, Madison Marquette Property Investments (MMPI) teamed with Kinship Capital and Pearlmark Capital Partners to joint venture on a major recapitalization of the iconic 300 Grant building. 300 Grant, located in the landmark Union Square district, offers 39,000 square feet on three levels and is a top traffic draw for the city’s commercial, residential, hotel and retail neighborhoods. In continuing its near decadelong leasing and management of 300 Grant, Madison Marquette Retail Services (MMRS) will now seek to capitalize on its flagship tenant opportunity. San Francisco appears headed for a second straight year as America’s number one retail market. With Federal Realty putting down nearly $54 million for East Bay Bridge shopping center and the sale of mixed use Fox Plaza with its two-level retail offerings, there doesn’t seem to be any slowing of interest in San Francisco’s broadly diversified retail real estate portfolio.

San Francisco

62.5

New York City

59.5

Boston

51.6

Seattle

50.6

Los Angeles

47.7

San Diego

42.7

Miami

40.9

Denver

39.8

Washington, DC

37.0

Chicago

28.3

Houston

27.3

Dallas

25.8

Phoenix

25.3

Philadelphia

21.3

Atlanta

17.5 0%

Buy

Hold

Sell 12.5

25.0

9.5

31.1

9.4

39.1

13.5

36.0

13.6

38.6

13.3

44.0

8.5

50.7

22.9

37.4

17.3

45.7

28.3

43.5

16.7

56.1

12.1

62.1

26.6

48.1

19.7

59.0

18.6

64.3 20%

20%

100%

Chart courtesy of ULI.

U.S. v. San Francisco Average Asking Rate

As of 3Q 2012 (Source: Chainlinks Retail Advisors)

$30

$33.79

San Francisco United States

$25

$10

2.5 2.0 1.5

$20 $15

As of November 2012 (Source: U.S. Bureau of Labor Statistics)

3.0

$40 $35

U.S. v. San Francisco Over-the-year percent change in employment

$14.63

1.0

San Francisco

2.7

United States

1.4

0.5 0

$0 Average shopping center rents (asking rate/ square foot)

Percent Change in Employment

The city by the Bay shows every sign of sustaining its record run as the top investment location for real estate in the U.S. and the third globally (according to a recent survey by the Association of Foreign Investors in Real Estate). With its economic fundamentals securely in place and with its 2013 hosting of America’s Cup, San Francisco is once again poised to deliver extraordinary value to the investors lucky enough to gain or consolidate holdings in this truly unique market. G Eric Hohmann is Senior Managing Director at Madison Marquette Property Investments and is located in the San Francisco office. Shipra Bhardwaj is Director of Asset Management at Madison Marquette Property Investments and is located in the San Francisco office.

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CASE STUDY — La Brea

Creating LA’s Premier shopping district By Thomas Gilmore

hen Madison Marquette Property Investments purchased 11 buildings on a popular Los Angeles city block in 2008 they had successfully curated the largest assemblage in the area at the time — for which they had an extraordinary vision. La Brea - with approximately 85,000 square feet and a parking structure located on the west side of La Brea Avenue between 1st and 2nd Street - had a lot of potential.

The Vision:

The Challenges:

The buildings that currently compromise La Brea would be transformed into a creative collective, a complimentary mix of retail, food and office connected by a shared sense of creativity, design and style. La Brea sparked the coalescence of non-distinct buildings and the disjointed surrounding neighborhood into a coherent destination for street fashion and accessories shoppers and creative/design oriented workers. When combined with the existing retailers across the street, La Brea would become the catalyst for the creation of “District La Brea” — L.A.’s soon-to-be mini-SoHo district.

Purchased just before the 2008 economic collapse, the first two years of the project were focused on thoughtfully developing a comprehensive plan and marketable brand. Now more than ever it was going to be critical that the project stand out from the crowd. To achieve the vision and proforma, La Brea needed unique-to-market, small retailers and creative office tenants that were not only cautious about site selection due to the economy but were also being courted by numerous landlords in a position to offer competitive deals.

The Difference:

LA LABREA BREA LA Merchandising: BREA •LA •THE THE BREA • BRAND THE BRAND • THE BRAND GUIDE GUIDE BRAND GUIDE GUIDE The

Co-Tenancy & History

Strategic merchandising efforts focused on securing unique and edgy tenants The The Logo The Logo Logo The Logoto the urban, fashion focused La Brea audience. At that would be appealing The The LaLa Brea Brea The logo logo La is Brea The the is The the logo entry La Laentry Brea Brea ispoint the point logo logo entry into is into is the the point the entry brand, entry into brand, point point the itsits use brand, into into use has the has the its brand, brand, use hasits its use use has has a great a great effect effect a great onon how effect how aa great great Laon La Brea effect Brea how effect is perceived. is La on on perceived. Brea how how isLa La perceived. Brea Brea isis perceived. perceived. the time of this writing, the leasing team has successfully secured ten leases totaling over 44,814 square feet.

The La Brea neighborhood was known for its eclectic mix of emerging retail and dining concepts as well as launching iconic retailers, such as Undefeated, American Rag, Union and Stussy, which remained neighbors to the project.

Location

Set amidst high density residential and studio production facilities, the project offered ease of accessibility for the coveted demographics living and working in the surrounding areas of Beverly Hills, Hancock Park, Hollywood Hills, Mid-Wilshire District and Silverlake.

Authentic Character

The existing ‘distressed’ architectural and physical characteristics in each of the buildings provide an ‘authentic’ appeal in a city lacking in heritage buildings. The exposed brick walls, wood truss ceilings and steel beams are all elements that are highly desirable to the types of retail and office tenants targeted for La Brea.

•The R etail Tenants The Colors The Colors Colors Theinclude: ColorsJudith Bright, Kelly Cole, A+R, Garret Leight, Color Color is used is Color used to to stimulate is used stimulate Color Color tois brand isstimulate used used brand association, to toassociation, stimulate stimulate brand association, evoke brand brand evoke emotion, association, association, emotion, evoke emotion, evoke evoke emotion, emotion, What Goes Around Comes Around and Steven Alan, as well as restaurants and and express express and personality. express personality. and andpersonality. express express personality. personality. Sycamore Kitchen and Sugarfish. Identity Identity Identity •Identity O ffice Tenants include: marketing and branding firm Troika, Renewable While While brands brands While speak speak brands While to While to people’s speak people’s brands brands tominds people’s speak speak minds and to to and minds people’s people’s emotions, emotions, and minds minds emotions, brand brand and and identity identity emotions, emotions, brand is tangible is identity tangible brand brand is and identity identity tangible and appeals appeals isisand tangible tangible toappeals to and andtoappeals appeals to to thethe senses. senses. the It is Itsenses. the is the visual the the visual It senses. senses. is and the and visual verbal ItItverbal isis the the and expansion expansion visual visual verbaland and expansion of verbal of verbal thethe brand. brand. expansion expansion of the brand. of of the the brand. brand. Resources Group and Standard Time. Light Light TealTeal

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By positioning District La Brea as Los Angeles’ newest premium street shopping district and by providing La Brea with a fully integrated services platform, Madison Marquette successfully created vision driven value for this historic property. The TheTenants The Tenants Tenants The Tenants

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Parking

La Brea is home to a three story parking garage with 125 parking stalls. The amount and distribution of available parking and a customer-oriented parking management plan are distinguishing amenities not offered by other properties along La Brea.

Judith Judith Bright Bright Judith Judith Bright Bright Judith JudithBright Bright

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La Brea — CASE STUDY

The Redevelopment: Over the past three years, the project has undergone significant improvements such that upon anticipated completion in late 2013 the 11-building site will host a complementary mix of retail, dining and creative office space. This urban adaptive reuse project included three phases, with construction beginning in 2010. • Phase I of this process was completed in 2011 and included renovations to the façade, interior core and shell for two buildings and included the unveiling of six new storefronts. To better accommodate both vehicular and pedestrian traffic this phase also included streetscape work and renovation of a three story parking structure with 125 parking spaces. Phase I | Bldg F & G (Before) • Phase II, which was completed in 2012, involved redevelopment of two additional buildings adding almost 12,000 square feet of retail and restaurant space. -" #3&" Ŕ EXPERIENCE • Phase III of the redevelopment included the final three buildings, which are now The La Brea Experience should... underway with anticipated completion Ŕ be contemporary Ŕ build on heritage by late 2013, will include structural and Ŕ be understated Ŕ be eclectic façade upgrades. The ground floor will Ŕ be bespoke Ŕ be oblique house small specialty retail shops and a Phase I | Bldg F & G (After) restaurant, with 33,000 square feet of creative office space.

CONTEMPORARY The new modern is decidedly smooth and cool. Elegance and craft take priority over graphical fluff. Modern is simple but charts its own path.

The Brand:

UNDERSTATED Understated experiences have no need for superfluous graphics or packaging; excessive graphics and branding can appear dishonest. Sticking to the facts and building on the real characteristics of your brand is more effective.

The Marketing:

BESPOKE The age of massproduced, cookie cutter products and experiences is over. Savvy consumers demand customization in every aspect of their lives, from their skinny, extra-hot vanilla latte to their handcrafted limited edition sneakers.

The La Brea team used events, the local art community and pop up The La Brea brand was developed to speak directly to the design-driven stores to generate buzz about the project. La Brea hosted many art tenants and shoppers that would frequent the property. Madison galleries, block parties, seasonal tenants and even food truck events to Marquette started by defining what the La Brea experience needed to be -" #3&" Ŕ EXPERIENCE activate the site. to attract this distinct audience and then designed a branding campaign utilizing iconic graphics derived from the property’s original tenant, To further extend the La Brea brand repositioning, the team identified Continental Graphics. The La Brea Experience should...a unique opportunity to partner with renowned urban artist Shepard HERITAGE ECLECTIC OBLIQUE In the age of globalization, filled with Many brands and their stores offer Los Angeles is a strange land filled with Fairey tocorporations design and install a mural on theor line three-story parking anonymous and products more than a single product celebrities, fantasies, garage. plastics, organics, Ŕ be contemporary Ŕ build on heritage The Logo The Attributes of unknown origin, a brand with of products, they offer a designed highways, and deserts. By embracing -" #3&" Ŕ EXPERIENCE The reflects the vision of La the artistic and historymural has a distinct advantage: The experience and Brea provide alland the the obscure, La creative Brea can develop a Ŕ be understated Ŕ be eclectic consumers trust. associated accouterments. unique personality and stand out above • Contemporary the chatter. landscape of Ŕ be bespoke Ŕ the be neighborhood. oblique •The Understated La Brea Experience should... • • • •

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CONTEMPORARY The new modern is decidedly smooth and cool. Elegance and craft take priority over graphical fluff. Modern is simple but charts its own path.

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EVENTS

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FEATURE — Urban Retail

The Wharf | Washington, DC

The Rise of Urban Retail By David Brainerd and Daniel McCahan

n the heels of the financial crisis and the subsequent Great Recession in 2008, the previously ceaseless expansion of retailers came to an abrupt halt. With the housing crisis, came a halt to the boundless development of new residential communities on the periphery of the country’s metropolitan areas — along with the willingness of retailers to commit to new greenfield locations in anticipation of residential growth. When retailers began to look for growth opportunities again, they took a new tack that focused on driving growth through higher store productivity instead of just adding new units — and turned toward urban and in-fill locations, with their dense base of potential customers and less competition. To tap these markets, and to drive store productivity, retailers reinvented their formats — the big box shrank, and retailers got flexible in order to accommodate the demands of urban locations. As once sprawling centers with acres of parking and roadways morphed into vertically

stacked buildings in high-density city neighborhoods, the Targets, Walmarts and Staples did more with less. At the same time, a demographic shift — the emergence of the Gen-Y set in the housing market, along with the transition of Baby Boomers toward empty nesters — has driven meaningful new demand for housing in urban and infill locations. These new urban dwellers have an active lifestyle where work and free time blend, where social interactions are central, and where transportation and everything they need is right outside their door. These twin trends have remained prevalent, with larger format tenants seeking to reinvent themselves as smaller more streamlined prototypes to fit into and adapt to new urban cultural/residential and retail centers. Urban markets have been substantially underserved by both chain retailers and by mixed use developers and now the demand is strong. As many of these retailers and developers seek out premium infill locations, they

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Urban Retail — FEATURE

also have to rethink design and amenities — with a focus on smart merchandising and an emphasis on customer service and convenient amenities. In the case of urban waterfront developments such as The Wharf, Hoffman Madison Waterfront’s planned mixed-use development in Southwest Washington, D.C., it will be essential to provide elements that create a complete urban neighborhood that will be recognized as a premium destination. Public spaces, popular and unique dining and shopping, cultural and entertainment offerings, accessible public transportation and ample parking are all important components for success. The Wharf will feature all these and more, with year-round activities, two waterfront piers and an iconic seafood market. Other similar projects currently in development include Boston’s Seaport District, and Madison Marquette’s ongoing redevelopment of the Asbury Park, NJ waterfront.

ing numbers of “metro-oriented” Targets with similar “fresh local” food, in-store Starbucks cafes and household supplies. Another trend in the urban grocery retail category is the rise of the mini-organic market, usually smaller than 10,000 square feet, including Washington D.C.’s popular YES! Organic Market and Maryland and Virginia’s fast-expanding MOM’s Organic Market. Urban retail has renewed its focus on the expanded needs of busy working couples — many of whom must shop or exercise during lunch hours or after work. This focus has spawned a growing category of “necessity retail” — retail that specifically serves the needs of business people — whose one chance to visit CVS or Duane Reade or to complete their workout

at LA Fitness may come sandwiched between downtown meetings or after Wall Street’s closing bell. The high density of urban commercial neighborhoods has made it possible for the drug store chains, fitness centers and other personal service retail to compete vigorously for customer share without fear of location redundancy. G David Brainerd is Managing Director at Madison Marquette Property Investments and is located in the Washington, D.C. office. Daniel McCahan is Senior Vice President, Project Management at Madison Marquette Property Investments and is located in the Washington, D.C. office.

The reversal of years of population decline in many American cities is also impacting the resurgence of big box and mixed use retail in urban areas. Cities which once were languishing have enjoyed a tremendous resurgence with the tech boom attracting young and moneyed professionals to inner cities where they can live, work, socialize and play. These are sophisticated consumers, many of whom shop online, but are also drawn to neighborhood stores and eateries where they can enjoy a singular buying, dining or entertainment experience. Target has now opened its “C” store concept in Chicago, Los Angeles, Seattle and Washington, D.C., and is planning more for cities across the country. Brilliantly branded in design and inventory to accommodate the urban consumers’ preference for up-model labels (Missoni, Alessi, and pop-up designers throughout the year), Target has also been sensitive to the apartment dwellers’ small dimension needs. At Target in Washington, D.C., for instance, the store is promoting a folding bicycle as part of a special collaboration with Lauren Bush and her FEED organization. The folding bike will be on sale in early summer. The store also prominently features furnishings suitable for apartment or condominium balconies.

I Photo Courtesy of Target

Conventional grocery stores, such as the Southeast chain Harris Teeter, have also taken their place alongside big box and mixed-use projects searching for smaller urban locations. Several national retailers not previously known for their grocery offerings are taking advantage of the new demand for urban organic and healthful market baskets. Examples include Walmart Neighborhood Markets, with over 170 smaller format grocery-centric stores that have opened in urban locations across the country, and burgeon-

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CityTarget | Chicago, IL Chicago’s CityTarget illustrates how big box retailers are adapting to the urban format.

FEATURE — E-Commerce

Competing Successfully with E-Commerce By John-david W. Franklin

hen it comes to the growth of e-commerce and competition from the online marketplace, the retail real estate industry has a tendency towards a Chicken Little “the sky is falling” perspective. Much of this worry is warranted. Since the economic downturn in 2008/2009, we’ve seen increasing vacancies and a decreasing universe of retailers to fill them. In 2011, we saw the bankruptcies of 35 major retailers, two of which (Borders and Blockbuster) returned nearly 30 million square feet of retail space to the market according to Chainlinks Retail Advisors U.S. National Retail Report.

Understanding the Challenge: Consumer behavior and the competition

These trends are creating more distressed assets, and much of the blame can be assigned to the increased competition that brick and mortar retail is facing from the online marketplace, led most noticeably by Amazon.com. While online retail competition is fierce and is having a marked impact on the industry, the death knell should not be sounded for shopping centers. E-commerce sales have risen steadily for the last decade, but according to the latest U.S. Census Bureau reports still only comprised 5.2 percent of total retail sales in 2012.

Online competition is real and more consumers are turning to online vendors each year. It would be difficult to find anyone under the age of 40 who has not purchased something online. We are now seeing a growing number of consumers over the age of 50 increasing their online shopping habits. In fact, Gen X and the Boomer generation are more likely to shop online than Gen Y, with the highest online shopping activity coming from ages 35 to 54 (Nielson, 2011).

Brick and mortar retail remains a crucial and necessary component of our economy. National retailers and shopping centers that continue to thrive have adapted to the e-commerce market and have demonstrated it is possible to compete with the online marketplace.

While e-commerce still accounts for only a fraction of total retail sales, that fraction is growing steadily. Online sales accounted for only 1.6 percent of total sales in 2003; that number climbed to 5.2 percent in 2012. Most notably, online behemoth Amazon’s sales have increased more than 1200 percent since 2003. This competition has hit some industries harder than others including electronics and books whose brick and mortar presence has been decimated by online retailers.

Reason for optimism can be found in the fact that many consumers may turn to the Internet to research products, compare prices and read reviews, but in turn go to a brick and mortar location to make the actual purchase.

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E-Commerce — FEATURE Fighting Back: Offering what the competition cannot

Brick and mortar retail offers one advantage that online competition will never be able to replicate — the experience of shopping or dining and the sense of community that comes along with that experience. Successful retail is an organic process — it is ever-changing and evolving. Retailers and shopping centers will need to continue to evolve to create a dynamic, experiential environment that consumers want to visit. Creating a place that attracts consumers, welcomes the community and offers an unparalleled experience will drive sales and add value to any asset. These intangibles will keep brick and mortar shopping centers relevant as online competitors simply cannot match the experience. Creating an atmosphere that appeals to today’s consumer is not easy, but it is necessary to survive the scourge of online competition. It takes market and consumer knowledge, strategic leasing, strong property management and tenant relations and creative marketing. Whether it is by increasing the dining and entertainment offerings, developing compelling community programming and events, incubating local and independent retailers, renovating and improving the look, feel and flow

of a center, or all of the above, consumers can be brought back to the brick and mortar retail center.

Leveling the Playing Field: Online sales tax legislation

Collection of sales tax by out of state Internet retailers has been an issue since the dawn of Internet retailers, but there has been a movement over the last few years to remedy this sales tax “loophole” through marketplace fairness legislation. Business advocates and industry groups such as the International Council of Shopping Centers have been working tirelessly on the state and Federal level to advocate for fairly taxing all retailers. The tide is finally turning and at the time of this writing the Senate has passed the Marketplace Fairness Act, which will next be considered in the House of Representatives. This legislation would give states the authority to require out-of-state online retailers to collect sales tax. Regardless of Federal law, numerous states, including California, Pennsylvania and Texas, have enacted their own laws and are already collecting this important revenue from online merchants. While this may not have a lasting impact in changing shopping behavior, it does even the playing

field by eliminating what is perceived by consumers as an automatic discount for online shopping. In the face of numerous and serious challenges to our industry, the rise of e-commerce and competition from online retailers is one of the most significant. As is often the case when presented with such challenges, it also presents numerous opportunities. Those who capture those opportunities can still thrive in this market. Brick and mortar retail is here to stay. Despite some of the more dire statistics and predictions, consumers continue to seek that shopping experience that can only be achieved at your neighborhood mall, outdoor market or suburban lifestyle center. It is part of the consumer DNA to want to touch and feel what they’re buying, and to enjoy the experience created through a day of shopping and dining. Brick and mortar retailers and shopping centers are part of American consumerism. No amount of competition can eliminate that desire as long as we continue to create one-of-a-kind places with no virtual equivalent. G John-david W. Franklin is Senior Vice President of Leasing at Madison Marquette Retail Services and is located in the Philadelphia office.

Estimated Quarterly U.S. Retail E-commerce Sales as a Percent of Total Quarterly Retail Sales February 2013 (Source: U.S. Census Bureau)

6.8 6.4 6.0 5.6 5.2 4.8 4.4 4.0 3.6 3.2 2.8 2.4 2.0 1.6 1.2 0.8

Not Adjusted

Adjusted

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

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FEATURE — Foreign Investment

Foreign Investment in U.S. Real Estate C By Stephen Muller

ontinuing a decades-long trend, the United States remains the premier “safe haven” for foreign investment in real estate. Despite the rising appeal of emerging markets in countries such as Brazil, Turkey and China, foreign investors are still turning to the United States to acquire real estate properties, particularly in gateway cities like San Francisco, New York, Los Angeles, Washington, Boston and Miami.

Forecasting with any specificity the type of property foreign investors will favor in 2013 — retail, multi-family, industrial, hotel or office — is more difficult. With the entry of the Norwegian fund NORGES (the world’s largest sovereign wealth fund) into the U.S. market, office property remains a top contender amongst foreign investors, with retail close behind. NORGES made its first U.S. purchase this year, paying approximately $600 million for a 49.9 percent stake in a portfolio of assets in New York, Washington and Boston. Managers of the fund noted that they are considering further investments in retail centers — investments they would make through real estate investment trusts (REITs). While interest in office and retail are expected to grow, multifamily has been the number one magnet for foreign investors in U.S. real estate. Surveys by the Association of Foreign Investors in Real Estate (AFIRE) have listed multi-family as the top target for foreign funds for the last three years. Such interest bodes well for projects with large multi-family components, such as

The Wharf, the Hoffman Madison Waterfront development in Southwest Washington that has been generating substantial interest both domestically and abroad. With its variety of components and iconic location, The Wharf is a prime example for the type of multi-family assets on the radars of foreign investors. It is a $2 billion world-class, mixeduse waterfront project located on the historic Washington Channel. Adjacent to the National Mall, The Wharf stretches across 27 acres of land and 24 acres of water from the Municipal Fish Market to Fort McNair. When complete, it will feature approximately 3 million square feet of new residential, office, hotel, retail, cultural and public uses including waterfront promenades, parks, piers and docks. Hoffman Madison Waterfront exclusively retained The Greenwich Group International in May of 2012 to raise capital for this brilliant property. Not surprisingly, Canada is currently leading the way with foreign investments in U.S. real estate. Having survived the economic downturn with less damage than was experienced in the states or abroad, and with restricted real estate opportunities at home, our neighbors to the north have been increasingly looking south of the border for real estate investment opportunities. Since 2010, Canadian pension funds have funneled over $9 billion into commercial real estate and are on track to lead foreign investment again in 2013. As with many of their foreign investor counterparts, the Canadians have been heavily focused on coastal markets such as Seattle,

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Foreign Investment — FEATURE Foreign Net Real Estate Investments in the United States by Buyer Region

In addition to Canada and Europe, it would be remiss not to mention the rise of Chinese investment in the U.S. So far Chinese real estate investments have been mostly limited to luxury vacation homes but real estate companies and banks are increasingly positioning themselves to promote commercial real estate projects to the Chinese. As the Yuan rises, and as wealthy Chinese find themselves limited in top grade investment properties at home, rising levels of interest among Chinese investors is expected for all types of real estate assets in the U.S.

Note: Net capital flows from second-quarter 2011 through second-quarter 2012. All dollars in millions.

$7,000

$5,000

Australia

$1,000

–$7,000

Other

Americas, excluding Canada

–$5,000

United Kingdom

–$3,000

Europe, excluding the U.K. and Germany

Middle East

Germany

–$1,000

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$0 Canada

Millions of dollars

$3,000

–$9,000 (Source: Real Capital Analytics) Chart courtesy of ULI

Los Angeles, Southern California, and Florida, with preferences for multifamily, hotel and retail. According to CoSTAR Group, some of the largest recent Canadian deals in the U.S. include Torontobased Brookfield Asset Management’s acquisition of 19 apartment portfolios with nearly 5,000 units from Babcock & Brown Residential, a firm with multifamily holdings in North Carolina, South Carolina and Virginia. The transaction brought $414 million into the U.S. The Vancouver-based American Hotel Income Properties REIT also recently closed on a major transaction acquiring Lodging Enterprises’ U.S. portfolio of 32 hotel properties, with more than 2,500 rooms in 19 states. The deal brought close to $130 million into the U.S. In a recent study conducted by the Urban Land Institute, Europe as a whole stood as the third largest

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foreign investor in U.S. real estate. Office buildings have been predominantly preferred by European investors, followed by retail and to a lesser degree multi-family assets. Different regions, however, appear to have varied appetites for asset classes. UK investments in the U.S. remain primarily focused on office, while Germany is spread between office and multi-family investments, with a slowly emerging interest in retail and hotel. Asia is the second largest investor in U.S. real estate (just ahead of Europe), with the Middle East positioned as the fourth largest investor group. Both Asian and Middle Eastern investment groups are equally divided in their asset preferences with increasing interest to invest in all five property types. Latin American investors interested in U.S. real estate are emerging as possible significant players, however their interest has been largely confined to the South Florida or New York multi-family markets.

While foreign investment in U.S. real estate has been growing steadily over the last 12 quarters, international investors are still experiencing barriers to entry in the market. Primary among them is the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA). The bill, which created significant tax barriers acting as disincentives to cross-border equity investment in U.S. real estate, has been the target of reform efforts in the last two years. Legislation to reform the bill in order to increase foreign investment activity is pending in both houses of Congress, and the expectation is strong that some relief will be enacted this year. Advocacy in support of reform has been spearheaded here by the National Association of Real Estate Investment Trusts. As we go to press with this issue of PLACES, reform efforts have been strengthened by a speech and proposal presented by President Obama on March 29, 2013, that would “put foreign pension funds on an approximately equal footing: exempting their gains from the disposition of U.S. real property interests, including infrastructure and real estate assets from U.S. tax under FIRPTA.” With the United States economy continuing to improve, the U.S. can expect to see continued interest in international investment in real estate in 2013. As offshore pension funds and sovereign wealth funds continue to seek safe havens for their investing activity, opportunities in the U.S. continue to beckon. Top quality mixed use developments such as The Wharf, as well as solidly leased office and retail centers, are sure to draw attention from savvy global investors. This also is great news for companies like Madison Marquette, with its expanding portfolio of top tier, high end retail properties, office and mixed use projects, in some of the most prized markets in the United States. G Stephen Muller is Managing Director at Greenwich Group International and is located in New York City.

Q&A

Q&A with Patrick Walmsley

Investment Strategy

Interview with Patrick Walmsley PLACES sat down with Patrick Walmsley to chat about key issues affecting investments and notable trends impacting retail projects.

Q: What are some of the current key issues affecting both your owned and advised properties? PW: As Madison’s focus is on retail and mixed-use

Patrick Walmsley, Managing Director, Madison Marquette Property Investments

real estate, the consumer is the cornerstone of our business and it is imperative for us to identify and address changes impacting the consumer dynamic with respect to retail. Key demographic shifts are beginning to show themselves and will continue to shape the retail landscape moving forward. The Baby Boomer generation, which fueled record consumption during the past decade and beyond, is beginning to retire and will continue to recede as consumers. The types of goods and services purchased and utilized will continue to change as they age, as will their discretionary spending levels. Bypassing Gen-X, Gen-Y, also known as the Millennial Generation, is almost as large as the Baby Boomer generation and will be the key demographic group going forward. As consumers, they are both brand and quality conscious, however, their definition of quality encompasses a much broader spectrum of pricepoints—from discount retailers to haute couture. The Millennials are very well-educated, concerned about social and environmental issues, at this point in their lives will choose urban living over homeownership, and are technologically savvy and well-connected to their “networks.” Gen-Y is the first demographic group who will thoroughly demonstrate the impact of technology on lifestyle going forward. As such, retailers and owners must effectively integrate technology into their marketing and real estate strategies. For instance, at the

property and retailer level, niche marketing through a tailored social media strategy will continue to be a larger part of an overall marketing campaign. We typically employ a host of social media platforms (Facebook, Instagram, Foursquare, popular blogs, Pinterest, etc) at our properties to reach a variety of target customers. The rapid development and popularity of new platforms such as Pinterest, which features a very strong conversion rate, must also be continually monitored and incorporated into a property or retailer’s social media strategy to ensure effectiveness. E-Commerce is another area that must also be continually assessed, with the playing fields between traditional brick and mortar retailers and online commerce merging with increasing frequency. For example, we are monitoring Walmart’s recent offering of same day delivery and watching to see how Amazon and other merchants respond. Other developments that bear watching include the Marketplace Fairness Act and the California Franchise Tax Board’s recent “notices” to taxpayers regarding Use Tax. The impact of changes in technology and consumer spending habits (and capacity) can also be seen in the divide between specialty and commodity retail. Commodity retailers face tremendous pressure from both e-commerce and their brick and mortar competitors, often being able to compete solely on price because of a lack of originality in merchandise, experience or service associated with their offerings. We are concerned that this effect can be the same on shopping centers, particularly as levels of discretionary spending have been ratcheted back and consumers increasingly turn to e-commerce for their shopping – retail centers are also essentially falling into a “Specialty” or “Commodity” classification. Madison has always been a strong believer in place-making, merchandising and activation efforts aimed at making our projects a true center for their

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Q&A with Patrick Walmsley design for retail (whether involving parking, vapor barriers, general access, etc) will have a positive effect on other components and (2) we have found that the pricing for a mixeduse property, particularly in the current investment markets, is often slightly better than if you acquired the respective components separately.

community — a “specialty project.” You need to give consumers a reason to come to a center and/or an individual retailer— whether it be for a sense of lifestyle, service, a unique environment, entertainment, other events or just plain old “retail therapy.”

Q: What types of investments and investment markets seem most promising?

Q: Are there any particularly notable recent trends in terms of capital flows?

PW: Our investment principles remain the

same as they have for the past 20-plus years — focus on dense, affluent infill markets offering significant population strength, daytime employment and well-educated, brand-conscious consumers with significant discretionary funds. One key refinement in our investment strategy is a heightened focus on mixed-use projects featuring a retail component. This is for two reasons: (1) we have found that a dynamic retail component can create a pricing premium on other parts of a mixed-use project — retail creates the all-important “sense of place” and quality

PW: For our markets, which are the major coastal

markets, it has been encouraging to see the heightened interest from a variety of international investors, including groups from Europe, the Middle East and Asia. The United States remains a desirable investment market and many investors (domestic and off-shore) are under-allocated to retail. In addition, the influence of a variety of economic and political events abroad should continue to favor the U.S. investment markets. The sustained amount and comfort of capital flows to and

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PW: We are starting to see heightened interest in

our development projects from both equity and debt sources. While we can only speak for our projects, which benefit from major market locations, the increased interest from capital may be attributed in part to the search for yield and lack of depth in the investment sales market. We are also benefiting from the tremendous amounts of capital supply but the timing is also coinciding with increased leasing momentum, primarily from retailers versus office users.

Specialized public relations service for the commercial real estate industry Ein Communications provides a full public relations services to achieve all of your communications goals.

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Q: Are there any other notable trends you have noticed?

range of customized and strategic

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from China, the economic conditions and state of certain European financial markets, the increasing flow of capital from Southeast Asia as well as the effects of the recent quantitative easing in Japan are examples of factors that we are continuing to monitor.

www.eincomm.com | 202.775.0200

Q&A

Q&A with Merle Brann and Tad Templeton

Mixed Use Properties

Interview with Merle Brann and Tad Templeton Mixed use properties across America hold tremendous appeal for retailers and consumers alike. PLACES reached out to Merle Brann and Tad Templeton for a lively exchange on how these properties are evolving and what mixed use may look like in the future.

Q: Are mixed use developments still popular for consumers and developers? MB: I think they are as long as they are the right Merle Brann, Director of Investments, Madison Marquette Property Investments

location. Mixed use properties do best in well populated, well served areas. Developers are still looking towards mixed use properties but are focusing on projects in desirable locations such as New York City, Washington, D.C., San Francisco, Seattle and Miami. Mixed use properties in these areas remain desirable for developers. On the consumer front, we’ve seen fortress malls remain strong performers, but mixed use properties are providing an alternative to mid-level regional malls. Consumers enjoy the pleasant atmosphere of mixed use centers and these centers continue to attract high end retailers, which in turn drive traffic.

TT: Yes, especially in today’s world where we are

Tad Templeton, Vice President of Leasing, Madison Marquette Retail Services

seeing cyclical market trends where certain components may be up while others are down and still others are treading water. It’s the old adage, “Don’t put all your eggs in one basket.” The mixed use model can mitigate that risk from a developer’s perspective and ensure from the consumer’s perspective that

if not every component is hitting on all cylinders there is at least some positive activity being generated from others.

Q: What components are needed to ensure success for mixed use centers? MB: Mixed use properties are a perfect atmo-

sphere to foster the restaurant and entertainment component that is so crucial to competing in today’s market. Another crucial component for mixed use properties is a strong anchor that draws traffic. This could include traditional anchor tenants as well as a strong grocery tenant that appeals to today’s consumer, such as Whole Foods. The experiential component is key and mixed use properties allow for a dynamic mix of retail, dining and entertainment that today’s shoppers are seeking.

TT: First of all I believe it’s a question of criti-

cal mass. There has to be enough going on between the different uses to create a destination. Each scenario has to be looked at on an individual basis. Obviously a purely new development in a cornfield is a different scale than one that is weaving itself into the fabric of an existing urban core. The components also need to respond to the market. The menu should include — though not be limited to — such choices as residential, retail, office, hotel, governmental, performing arts, museum, sporting venues, parks, schools and universities, and production facilities.

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Q&A with Merle Brann and Tad Templeton Q: Are mixed use centers adapting to new retail and entertainment trends? MB:

Yes, many are adapting well. Most of the well-performing centers have evolved to incorporate and foster the restaurant and entertainment component, capitalizing on events such as concerts, doggie happy hours or holiday contests that drive consumers to the center. The experiential component is a big traffic driver in today’s market and mixed use properties offer that experience.

think future centers will be very entertainment and restaurant focused. Those are the components that you can’t buy online. You have to have things that draw people out, contain new technologies and attract customers. Centers must provide good quality entertainment, dining and services that create the experiential component that attracts the customers.

TT: If done correctly, I think the future is

promising. With the menu of potential components that can be incorporated into mixed-use properties, it’s hard to predict an exact model for what the future holds. Mixed use potential is only limited by one’s creativity and such centers are insulated from the degree of risk that is inherent in a single use project.

TT: I believe they are, just given the nature of the

beast. It’s the beauty of the model to be able to adapt to changing market conditions and uses.

Q: How do developers for each element of the property (residential, retail, office, etc.) need to collaborate to make centers successful? MB: The most important component to success

is to ensure that each component of the property is on the same page as far as quality and target audience. They must be designed with the same customer in mind and reflect the same level of quality. The retail customers need to be the people that would look towards the residential component and vice a versa. On the office side the retail component must include amenities that the office dwellers want and need. That may include a strong mix of fast casual lunch options as well as fine dining options for client dinners and meetings.

Mercato | Naples, FL

TT: They need to understand each other’s op-

portunities and constraints. For a project to be successful this has to occur in the initial design charrette with each component represented in those initial design and program meetings. Successful projects work because each of the components feed off of and support each other rather than work independently of each other. Everyone can still have their own identity, but there must be a seamless integration of function.

Q: What does the future hold for mixed use centers? MB: As with any format, the opportunities are very dependent on location. However, I

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Q&A

Q&A with Bob Steiner and Anne Williams

Enclosed Malls

Interview with Bob Steiner and Anne Williams Bob Steiner and Anne Williams spent time with PLACES to discuss how enclosed malls can stay competitive and relevant in today’s marketplace.

Bob Steiner, Senior Vice President, Portfolio Management, Madison Marquette Retail Services

Q: How do enclosed malls compete with lifestyle, mixed use and waterfront properties in today’s marketplace?

Q: What tenants, services or other elements contribute most to the success of enclosed malls and help them compete with the online marketplace?

BS: The success of the format is largely dictated

BS: First and foremost there is no one-size-

by the market and especially by climate. Enclosed malls are better suited for certain climates and demographics, and in those areas where they are better suited they compete successfully. If traffic is dependent on weather, enclosed malls will always hold a distinct advantage, especially in the Northeast and Midwest regions. With the highest concentration of purchases occurring during the last few months of the year, the weather can have a huge impact on annual sales and again give enclosed malls the edge. What it comes down to is not the type of format but whether you’re meeting the market’s needs. Whichever center has the better positioning, strongest retailers and creates the most appealing atmosphere will win out over competition regardless of the format.

AW: Many may say that lifestyle centers have the Anne Williams, Vice President of Property Management, Madison Marquette Retail Services

more so than the format of the center. People want an experience; a sense of place.

advantage but a big part of that advantage, I believe, comes from the “newness” of lifestyle centers. New enclosed malls have an advantage over older enclosed malls as well. It’s about creating a dynamic and engaging atmosphere that appeals to the demographic

fits-all-approach and no formula to dictate success. The biggest factor will always come down to attracting the right retailers, restaurants and additional services for your shoppers. Successful malls are those that have the experience to identify the best tenant mix and the resources to go out and attract the retailers to achieve that mix. In today’s market, the very high end luxury retailers and the everyday low price retailers, such as Target, are driving the most traffic and revenues, while the mid-price point retailers continue to be squeezed. Malls that cater to these needs are performing better, but it is important to monitor consumer spending and trends and ensure you are catering to the demographic on an ongoing basis.

AW: I think it was Sex and the City’s Carrie Brad-

shaw that said “shopping is my cardio.” And that really rings true. We like the experience of shopping. We like to go and walk the mall and see what’s new. We like to touch and feel what we’re buying, which you can’t do online. As long as retail centers allow us to do this, we will always have a place in the retail world.

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Q&A with Bob Steiner and Anne Williams Q: How can older enclosed malls be repositioned and refreshed?

to cost effectively communicate and engage with customers in a way that was never possible before. Malls must participate in these

forums to stay relevant today, and therefore marketing is playing an even more crucial role than in past years.

BS: Malls must stay relevant and appealing but,

again, what is needed largely depends on the location of the center and the competition in the market. Property managers need to determine if, based on their market and competition, the center needs to be completely repositioned, redeveloped or simply refreshed. Carefully planned strategy should be created to meet the center’s goals. Whether it’s improvements to the appearance of the mall — new flooring, fresh paint, updated décor — or an entire repositioning of the center, the key element is to have a story. Why should retailers open at the mall? Why should consumers visit the mall? Those are the most important questions and you need to ensure that story is conveyed in the look, feel and position of the entire mall.

AW: There also are cost effective steps malls can

take to improve the atmosphere that can still make a significant difference. We see many of our properties regain market share by better establishing their place in the community. Fewer and fewer communities today have active town centers, which creates a huge opportunity for malls to serve that purpose. Malls can offer more community events and programming, such as children’s clubs, holiday events or farmers markets, to drive traffic. Some malls even have community meeting rooms. Events and programs enliven the property and bolster its sense of community.

University Mall | Chapel Hill, NC

Q: What role does marketing play in driving traffic to enclosed malls? BS: There has always been a challenge in quanti-

fying the success of marketing, so in the current economic environment where budgets are being cut the importance of marketing can be overlooked. What mall managers and owners need to remember is that marketing is an integral component to the overall success of the mall.

AW: Activating a mall and engaging consum-

ers is the best tactic to compete with the online marketplace, and marketing plays a major role in this process. In addition to the traditional marketing of events, programs, and specials, social media has enabled malls

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Bayfair Center | San Leandro, CA

Q&A

Q&A with Candace Nelson

Retail Spotlight

Cupcake Queen Candace Nelson Dishes on Launching a Global Trend With America’s love affair with cupcakes continuing at high speed, PLACES asked Candace Nelson to discuss retail success stories. Sprinkles, launched in 2005 in Beverly Hills, fostered the cupcake craze and was first to introduce the gourmet cupcake concept to the United States.

Q: How did you conceive of the gourmet cupcake bakery? CN: I left my job in investment banking to pur-

Candace Nelson, Founder, Sprinkles Cupcakes

sue my passion for baking. I attended Tante Marie’s Professional Pastry Program in San Francisco and began a custom cake business out of my house. I soon came to realize that special occasion cakes are, by definition, reserved for special occasions. Raised in the tradition that dessert should be a daily indulgence, I conceived the idea of Sprinkles Cupcakes.

Q: What distinguishes Sprinkles from the competition? CN: Sprinkles was the world’s first cupcake

bakery. When we opened in Beverly Hills in April 2005, low carb mania was at its peak and the idea of a cupcakes-only bakery in the middle of “thin city” seemed like an unlikely success story! What made us special was we focused on doing one thing well. We bake our cupcakes fresh from scratch daily, throughout the day, with the finest

ingredients including sweet cream butter, bittersweet Belgian chocolate, pure Madagascar Bourbon vanilla, fresh bananas and carrots, real strawberries and natural citrus zests. Additionally, Sprinkles is committed to giving back to the communities in which we operate. We are proud to have donated over $4.3 million in cash and cupcakes to charities.

Q: What are your expansion plans? CN: We are very excited to expand Sprinkles

Cupcakes, Sprinkles Ice Cream and Cupcake ATMs to every major metropolitan city in the U.S. and around the world. In the next year, we will be opening in Atlanta, New York, Dallas, Newport Beach and Las Vegas. We also recently entered into a franchise agreement to open 34 locations in the Middle East – our first bakery began baking this past February in Kuwait!

Q: What advice would you give to entrepreneurs seeking to launch a new concept in these times? CN: Take calculated risks and start small.

It took me a while to take the risk of starting my own business and really following my passion. I say “calculated” because I believe that large risks should be well planned out!

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Q&A

Q&A with Richard Altuna

Design Spotlight

Interview with Richard Altuna the French Quarter in New Orleans and Marais in Paris. These neighborhoods have a unique, and in some cases, historic character that is truly magical.

PLACES caught up with the man who arguably has done more to reshape the look and feel of retail real estate than any other architect working today. Richard Altuna, who calls Los Angeles home, is truly a citizen of the world as his work for clients in the US, Saudi Arabia and currently China can attest. From retail design for Nike, Gap, Pottery Barn, Restoration Hardware, SONY and Pepsi to the Houston Rockets Arena, Richard Altuna has left an indelible mark of elegance and experiential design on a myriad of projects too numerous to list in their entirety. We were thrilled to spend some quality time with this master of the built environment.

Q: How do you work — alone or with a team? RA: For some years, I headed up my own office with architects

and designers on staff. And, frankly, I disliked the experience, disliked managing an office and dealing with administrative details. Some time ago, a client suggested that I forego this approach and simply do creative work — using other architecQ: What projects are you working on tural firms to staff the projects I designed. I have been worknow that excite you? ing this way ever since and love it. I have probably worked Richard Altuna with every architectural firm in the US and abroad — both RA: I am designing two major projects in China — one in Beijing and large firms and smaller ones. In addition to freeing me up one in Chengdu. The Beijing project is located on Chang’an Boulevard, the same to do what I love, this arrangement has also given me a unique perspective on how street on which Tiananmen Square, the Forbidden City and many international firms work and how process oriented they tend to be. When we collaborate, I hotels are found. The project is conceptualized as a large open area which will be believe that process needs to be as formative as any other aspect of the assignment. used for entertainment, retail and hospitality while conserving open space. I am therefore building from ground-level down so that the depressed, open space at ground level will appear similar to what visitors might see in St. Mark’s Square. Q: Do you incorporate art and sculpture into your We will have roof terraces at ground level above the retail tenants below and where work? major events can be staged — fashion shows, car shows, concerts or the Cirque du Soleil. There will be year-round activities and energy in this place, almost serving as RA: I frequently have worked with well-known artists and sculptors. When I was deBeijing’s living room. My other project in China, in the city of Chengdu, is a one signing the new Houston Arena, the owners came to me and said they wanted my million square foot retail destination that will resemble the arts districts of iconic help in creating new logos and uniforms for the Houston Rockets. I immediately cities. Over twelve city blocks will showcase eight to 10 office towers and 16 resireferenced a Japanese designer Eiko Ishioka whose portfolio I had admired for a dential towers in a pedestrian friendly art zone. I think of it as Soho in Chengdu. long time — a woman who had never done any sports-related work. It took some convincing but she finally agreed to help and the results were absolutely brilliant. I think it is critical to think freely and without constraints when it comes time Q: Your designs are brilliant and unique and to make design decisions — and this was an example of how such thinking can capture both the imagination and the benefit a design challenge. experiential yearning people have. How do you

go about achieving this?

RA: I don’t have a formula for anything that I have done or am working on now.

I bring my personal sensibility to every project — and by that I mean that I try to be in touch with the world around me and try to conceptualize what I like and what others might like. The hard part is not the imagining — it is the “getting it done.” Meeting budgets and business plans is infinitely more difficult than invention.

Q: Are there “special places” that inspire and inform your work? RA: Of course.

I love St. Mark’s Square in Venice, Covent Garden in London, Soho in New York and London. These are all distinctive urban environments. I love

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Q: Are there any clients that have surprised you? RA: Working for Francis Ford Coppola was an amazing experience because he is, of

course, an artist himself. He had asked me to design his winery in California. I would talk concept with him and he immediately grasped what I was imagining. He was involved at a different level than I usually encounter and that I very much enjoyed.

Q: Are you a cupcake or a pie man? RA: Both.

I never turn down dessert.

Contributors

Richard Altuna

David Brainerd

Arvind Bajaj

Shipra Bhardwaj

Merle Brann

Denise Browning

Angel Cicerone

Nick Egelanian

Marina Ein

John-david Franklin

Tom Gilmore

Amer Hammour

Executive Vice President MMRS Thomas.Gilmore@ MadisonMarquette.com

Chief Executive Officer Madison Marquette Amer.Hammour@ MadisonMarquette.com

Robyn Marano

Russ Matthews

Daniel McCahan

Founder Tenant Mentorship angel@ tenantmentorship.com

Eric Hohmann

Senior Managing Director MMPI Eric.Hohmann@ MadisonMarquette.com

Managing Director MMPI David.Brainerd@ MadisonMarquette.com

President & Founder SiteWorks negelanian@ siteworksretail.com

Whitney Livingston

Senior Vice President, Management & Marketing Services MMRS Whitney.Livingston@ madisonmarquette.com

Managing Director MMPI Arvind.Bajaj@ MadisonMarquette.com

President, Ein Communications mein@eincomm.com

Kelley Maher

Senior Vice President, Leasing MMRS Kelley.Maher@ MadisonMarquette.com

Director, Asset Management MMPI Shipra.Bhardwaj@ MadisonMarquette.com

Senior Vice President, Leasing MMRS John-davidW.Franklin@ MadisonMarquette.com

Vice President, Marketing MMRS Robyn.Marano@ MadisonMarquette.com

Director, Investments MMPI Merle.Brann@ MadisonMarquette.com

Senior Vice President, Leasing MMRS Denise.Browning@ MadisonMarquette.com

Director, Graphic Design MMRS Russ.Matthews@ MadisonMarquette.com

Senior Vice President, Project Management MMPI Daniel.McCahan@ MadisonMarquette.com

places-magazine.com

Contributors

Stephen Muller

Candace Nelson

Bob Steiner

Aaron Stephenson

Chuck Taylor

Tad Templeton

Partner Retail Street Advisors Aaron@ retailstreetadvisors.com

Senior Vice President, Portfolio Management MMRS Chuck.Taylor@ MadisonMarquette.com

Hedy Veverka

Patrick Walmsley

Anne Williams

Director, New York The Greenwich Group International stephen.muller@ greenwichgrp.com

Senior Vice President, Leasing MMRS Hedy.Veverka@ MadisonMarquette.com

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Founder Sprinkles Cupcakes eat@sprinkles.com

Managing Director MMPI Patrick.Walmsley@ MadisonMarquette.com

Senior Vice President, Portfolio Management MMRS Robert.Steiner@ MadisonMarquette.com

Vice President, Leasing MMRS Tad.Templeton@ MadisonMarquette.com

Vice President, Property Management MMRS Anne.Williams@ MadisonMarquette.com

Retail Trailblazers

Next Generation Retailers MMRS Leasing Expert Hedy Veverka Identifies Retail Trailblazers

Evolution Fresh by Starbucks

Drybar is a unique and affordable concept with a flat-rate, blow out-only format. As its slogan states, “No cuts. No color. Just blowouts.” The blowout chain has locations in California, Arizona, New York City, Georgia, Texas and Washington D.C.

Evolution Fresh, which was founded in Santa Monica more than 30 years ago, was acquired by Starbucks in 2011. With the goal of making the highly nutritious pure juices and natural foods widely accessible, Evolution Fresh now has retail locations in Bellevue and Seattle, Wash., and San Francisco, Calif. Starbucks also has increased distribution of Evolution Fresh products to additional locations nationwide.

www.thedrybar.com

www.evolutionfresh.com

CityTarget This New York-based lifestyle retailer offers women a broad array of quality apparel, accessories and home decor products at competitive. C. Wonder has stores in California, Georgia, New York, Massachusetts, New Jersey, Pennsylvania and Virginia.

Target’s small-format stores cater to the needs of urban residents who are looking for convenience and affordable style. This newly revamped model, designed specifically for urban areas, has locations in Los Angeles, Chicago and San Francisco. The company plans to open additional CityTarget locations in 2013.

www.cwonder.com

www.target.com

C. Wonder

Drybar

SoulCycle

Surrounding the launch of various new products, Samsung has begun establishing pop up shops dubbed “Mobile PIN” locations. These glassenclosed pop-ups are fully staffed and allow customers to view, test and purchase a range of Samsung products.

The indoor studio-cycling club SoulCycle offers indoor cycling classes by candlelight and instructors who provide “inspirational coaching” along with the workouts. Attracting the masses and celebrities alike, the concept is building on its New York stronghold by expanding to the West Coast. New locations are planned in New York and California throughout 2013.

www.samsung.com

www.soul-cycle.com

Photo by Samsung

Lorna Jane

Made for active women by active women, Lorna Jane is an iconic Australian brand and a global leader when it comes to intelligent active apparel. With over 130 stores worldwide, Lorna Jane inspires women globally to live an active life with their move nourish believe philosophy. www.lornajane.com

Samsung

Uniqlo

Launched in Japan in 1984, Uniqlo now has locations throughout Asia, France, Russia, the UK and the US. The unique clothing company seeks to provide simple, universal designs that are accessible to all. www.uniqlo.com

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