PLACES: Issue 5 by Madison Marquette

A Publication of Madison Marquette

places–magazine.com | 2014

PLACES | 2014

Trending:

places–magazine.com | 2014

What Does Your Generation Say About You?

Rise of the Creative Office

5 Tips for New Mall Owners

Benefits of Reform to the U.S. Economy Evolution of the Grocery Anchor

Attracting Global Capital

A Publication of Madison Marquette

Welcoming PLACES

2014

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ver the last six years, retail real estate has undergone tremendous change – and each edition of PLACES has sought to capture rapidly evolving trends as well as provide counsel on the various challenges and opportunities in our industry. Since the magazine’s inception in 2008, our founder, Amer Hammour, has steered PLACES in the direction of the industry’s most important innovations and as President, I am delighted to do the same in this new issue. After twenty-two years, Madison Marquette remains dedicated to providing exceptional service and value creation for our investors, partners and clients. This mission is exemplified in the 2014 issue where we focus on urban gateway cities (Market Watch: Seattle and Brooklyn) and the strength of urbanization and its tech-savvy employment base (Features: Rise of the Creative Office). We also take a look at the future of traditional regional malls, how social Trending: media and omni-channel retailing have affected our What Does Your Generation industry and we present insights into how different Say About You? generations think and transact in the marketplace. Investors and users are trending toward next5 Tips for generation mixed-use environments located in urban New Mall Owners settings like Seattle and San Francisco. Our foreign partners are drawn to opportunities in the U.S. due Benefits of to the safety and transparency of our markets. Their Reform to the U.S. Economy readiness to conduct business here is a reflection of the strength of our economy and our robust employment sector. Given the complexity of partnering with foreign entities, we have addressed the issues surrounding the Foreign Investment in Real Property Tax Act (FIRPTA) and the substantial roadblocks it presents for foreign investment. I hope that PLACES readers will join with the senior real estate organizations and Members of Congress who are pressing for its reform — and take time to read our articles about FIRPTA in this issue by U.S. Senator Robert Menendez (D-NJ) and the Real Estate Roundtable’s Clifton (Chip) Rodgers, Jr. Finally, I want to applaud my colleagues – many of whom have shared their expertise and industry wisdom in these pages. Year after year, they bring a dedicated spirit of excellence to all the work that we do. It is on their behalf and with great pleasure that I present to you the 5th issue of PLACES magazine.

Publisher Thomas Gilmore President, MMRS

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

A Publication of Madison Marquette

places–magazine.com

| 2014

Rise of the Creative Office

Design Hung Nguyen, NuenDesign

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

EDITORIAL BOARD Bill Coleman Valerie Cope Tracy Caswell

Meredith L. McCreary Rachel Sanford Pam White

A Publication

Madison Marquette Evolution of of the Grocery Anchor

Attracting Global Capital

Eric Hohmann, President Madison Marquette

MADISON MARQUETTE LEADERSHIP Amer Hammour

Chief Executive Officer

Gary Mottola Senior Managing Director & President, MMREF

PLACES MAGAZINE

Eric Hohmann President

Peter Jun

Chief Operating Officer

David Brainerd Cheif Investment Officer

Phil Akins

Chief Financial Officer

Thomas Gilmore President, MMRS

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

Philadelphia 1067 West Baltimore Pike Media, PA 19103 267-295-0209

Charlotte 532 Governor Morrison Street Suite 200 Charlotte, NC 28211 704-362-5628

San Francisco 909 Montgomery Street Suite 200 San Francisco, CA 94133 415-277-6800

Ft. Lauderdale 100 S.E. 3rd Avenue Suite 2208 Ft. Lauderdale, FL 33394 561-807-1000

San Diego 6949 El Camino Real Suite C201A Carlsbad, CA 92009 858-876-1167

Los Angeles 11111 Santa Monica Boulevard Suite 950 Los Angeles, CA 90025 323-602-5300

Seattle 401 Broadway East Suite 223 Seattle, WA 98102 206-322-1610

New York 461 Fifth Avenue 12th Floor New York, NY 10017 212-255-2900

Washington, D.C. 2001 Pennsylvania Avenue, N.W. 10th Floor Washington, DC 20006 202-741-3800

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

Q&A

Property Management

Interview With Lori Coleman and Krista Wilson

The Evolution of the Grocery Anchor By Merle Brann and Bill Coleman

34 Investment Trends

Interview With Chad Eisenbud and Patrick Walmsley

Attracting Global Capital to Invest in U.S. Real Estate By Peter Jun

36 Regional Mall Forum

Interview With Robert Steiner and John Lanham

38 Global Retail Spotlight

Interview With Jessica Trevino

40 Retail Spotlight

Interview With Charlie Chanaratsopon

Understanding Generational Trends

FIRPTA: Legislative Spotlight

By Whitney Livingston and Alan McKeon

By Clifton E. (Chip) Rodgers, Jr.

04 STARTING PLACES 16 Crystal Ball

With Nick Egelanian

18 Case Study — Mercato

By Denise Browning and Chuck Taylor

28 Benefits of Reform to the U.S. Economy

42 PLACES

CONTRIBUTORS

Rise of the Creative Office By Eric Hohmann

By United States Senator Robert Menendez

Toolbox

06 Hot Trends in Leasing and Property Management

By Cheryl Beckel and Tory Glossip

08 Crisis Response: Getting Ahead of the Bad News Curve

By Marina Ein and Robyn Marano

By John-david W. Franklin

10 5 Tips for New Mall Owners 2

44 Retail

Trailblazers

By Alex Peker

MARKET WATCH

The Northwestern Boomtown

By Shipra Bhardwaj

By Arvind Bajaj and Katie Shaw

14 The Brooklyn Opportunity Marketing & Social Media Pulse

41 In 2014 Being “Liked” Isn’t Enough

By COHN, Inc.

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Do Do you you know know how how omni-channel omni-channel is is impacting impacting your your shoppers shoppers and and your your center? center? WHY WHYDO DOCUSTOMERS CUSTOMERS BEHAVE BEHAVEAS ASTHEY THEYDO? DO? Attitudes, Attitudes,Psychology, Psychology, Motivations, Motivations,Influencers, Influencers, Brand BrandPerceptions Perceptions

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Market MarketData, Data,Digital DigitalFootprint, Footprint, Household HouseholdSpending, Spending, Shopper ShopperBehavior, Behavior, Proprietary ProprietaryDatabases Databases

Demographics, Demographics,Site SiteSelection, Selection, Retail RetailNetworks, Networks,Competition, Competition, Most MostProductive ProductiveShopper Shopper

ALEXANDER ALEXANDERBABBAGE BABBAGEleverages leveragesand andintegrates integratesthree threedifferent differentdisciplines disciplinesto toprovide provide unparralleled unparralleledresearch researchand andstrategic strategicrecommendations recommendationsfor forshopping shoppingcenters. centers. Shopper Shopperinsights insightsfrom fromALEXANDER ALEXANDERBABBAGE BABBAGEwill willhelp helpdrive driveyour your sales, sales,leasing leasingand andmarketing marketingstrategies strategiesto tosuccess. success. CONTACT CONTACT Charlotte CharlotteSykes Sykes

VP VPClient ClientInsights Insights- -Shopping ShoppingCenters Centersand andRetail Retail csykes@alexanderbabbage.com csykes@alexanderbabbage.com 404.961.7600 404.961.7600

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 Federal Online Sales Tax Remains Stalled

Last year’s PLACES examined the growing competition between online retailers and brick-and-mortar stores. Amid a rapidly changing economic climate, online shopping remains one of the threats to the retail industry. As the article “Competing Successfully with eCommerce” noted, one piece of legislation seeks to level the playing field: the Marketplace Fairness Act, which would require online retailers to collect sales tax on all online purchases. When the last issue of PLACES was published, the Senate had passed the Marketplace Fairness Act (April 2013), but the bill has still not cleared the House. In December 2013 the Supreme Court refused to hear a related case. The federal government has thus far chosen not to regulate the issue. While the legislation remains stalled at the federal level, state governments are increasingly taking action. Currently, 19 states require Amazon to collect sales tax on purchases, including California, New York, and Virginia. These are states in which Amazon has a physical presence, including warehouses, offices, and affiliated operations. As Amazon continues to expand its operations more states are expected to pass legislation requiring the company to pay up. The effects of such legislation on consumer habits remain to be seen, but any new legislation would be a step forward in leveling the sales tax playing field. And as the last issue of PLACES predicted, brick-and-mortar stores will continue to find opportunities to remain competitive in the marketplace. In fact, many retailers (including Sears and Nordstrom) are fusing the online and in-person shopping experience using digital and social media techniques to complement physical sales.

Market Update

The last issue of PLACES focused on three actively growing markets — San Francisco, Dallas and New York City. Needless to say, we were interested to see how these markets lined up a year later. The news is in and as predicted by previous authors, these markets remain extremely solid. San Francisco is ranked the number one investment market for 2014 in Urban Land Institute’s (ULI) annual survey. Analysts point to San Francisco’s continuing job growth – particularly in the technology sector – as well as supply constraints in both residential and commercial real estate as drivers for investment interest. Dallas jumped up four spots in the ULI survey to number four in the top ten investment markets in the U.S. Factors propelling Dallas’ strength include expanding home-building activity throughout the metropolitan area, increasing technology start-ups and established businesses and sustained presence of major corporate headquarters. Dallas also offers highly competitive cost-of-living and business ratios that appeal to real estate investors. While New York City slipped from the number-two position to the number four position, opportunities remain strong. Investors worried about prices rising so steeply as to forestall growth in key areas including net residential migration and jobs. However, investors still “like” the Big Apple and there was substantial investment interest in rental apartments and hotels. 2014 is estimated to be a good one for the city and by 2015, New York may recover its near-the-top ranking.

Downtown San Francisco | San Francisco, CA

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Starting PLACES

What the Industry is Reading Luxury Brands in Emerging Markets

Edited by Glyn Atwal and Douglas Bryson As luxury companies continue to expand their global reach, they must continually assess how their business strategies are delivering competitive advantages. This book looks at the way in which luxury brands have deployed around the world – “decoding” luxury markets and the brand strategies that have been effective in driving consumer interest and loyalty. For all those retail real estate experts who are interested in how “luxury” remains an object of desire for customers around the world, this is a must read.

Global and Multinational Advertising

Edited by Basil G. Englis Marketing is the discipline through which retail experts attempt to showcase their understanding of modern consumer psychology. Chapters in this thoughtful exploratory volume look at how advertising campaigns are organized, thought through and executed – aided by investigations of cultural and social values. The content will be of great interest to consumer psychologists as well as to marketing specialists in all aspects of retail.

24/7: Late Capitalism and the Ends of Sleep

By Jonathan Crary The ubiquitous nature of consumerism – with our 24/7 access to material goods – is explored in this brilliant snapshot into our increasingly retail-driven universe. The book also looks into the format and tempo of contemporary cultures and how varying aspects of global cultures affect our buying habits. As the title suggests, Crary is also focused on how sleep deprivation affects our decision-making capabilities.

What’s the Future of Business: Changing the Way Businesses Create Experiences

By Brian Solis Probing how business leadership can improve business performance, engagement and relationships to attract a new generation of consumers, this book uses “real world” experiences versus “user experiences” as examples of how products, services, mobile and social media and commerce depend increasingly on a network of shared experience and expectations. This book is a vital tool for all those interested in making retail omni-channel and experiential.

PLACES MAGAZINE

Coming to America 2013 and 2014 have seen an extraordinary influx of foreign retail brands new to the United States. The strengthening economy and America’s position as the number-one consumer market in the world have both contributed to our magnet effect on foreign-owned retailers’ electing to open outposts on our shores. Below is a listing of some of the more notable new arrivals:

Just Arrived

Swiss-German lingerie retailer Triumph International opened its first two stores on Long Island in August 2013. The company, which appeals to boomers and millennials in Europe, has plans to expand into other major urban markets in 2014. Helena Christensen is the spokesmodel. TopShop, the UK chain owned by Philip Green’s Arcadia fashion group, has been operating a small number of independent stores in the United States with a flagship in downtown New York City. In addition to these, TopShop operates in select Nordstrom stores, and the brand will soon be introducing its TopMan concept here as well. A new freestanding TopShop is set to open in Springfield (VA) Town Center in 2015. Massimo Dutti, the popular Italian sportswear house for men and women, opened in the United States recently. Their Georgetown (Washington, D.C.) boutique, which debuted in 2013, offers lively and stylish competition to nearby Zara and H&M as well as to more purely American brands such as Ralph Lauren and Billy Reid. The Dutch-owned Maison Scotch, a womenswear offshoot of the wellreceived men’s brand, Scotch & Soda, is also a recent new foreign arrival. With boutiques in New York, D.C. and Las Vegas, the brand offers a twist on preppy dressing at competitive prices.

En Route

COS, or Collection of Style, a sister brand to H&M, will be opening its first store in the United States in New York City in Fall 2014. The highquality workwear that COS offers is sure to be as big a hit in America as it has been in Europe. Daniel Cremieux, an iconic French sportswear brand for men and women, will open its first store in the United States in New York’s Soho neighborhood in Spring 2014. Although the brand had entered into an exclusive licensing agreement with Dillard’s fourteen years ago, the Soho store will carry a broader inventory of menswear exclusively in some 700 square feet on Mercer Street. British coffee chain Caffe Nero is coming to Boston’s Downtown Crossing in Spring 2014. The coffee shop, known for its Italian espresso, will be adding drip coffee to its Boston store as well as sandwiches, salads, cakes, cookies and pastries from local bakeries. The chain operates more than 650 specialty coffee shops in six countries. German discounter Lidl has its eyes set on an American entry as well. The chain, similar to Big Lots and Aldi, is said to be headed our way with a wish list of 100 stores to open on the East Coast by 2015.

TOOLBOX

Hot Trends

in Leasing and Property Management

s competition for consumer loyalty grows stronger each year, retail centers must make every effort to stay relevant with their tenant mix and marketing platforms. Leasing and property management teams must work together to assess consumer needs to provide retail, entertainment, dining and service offerings shoppers desire. They must also create an appealing environment to enhance shoppers’ experiences — one that fits within the local community’s specific culture. While there is no exact formula for leasing and property management success, this article will explore some of today’s most popular retail and service concepts and the increasing demand for environmental sustainability.

Local Brews, Specialized Fitness Spell Success By Cheryl Beckel

Effective leasing strategies continue to require careful attention to local markets and their demographics. While consumer preferences differ across the country, there are universal tenant choices that make sense whether in California, Texas or New York. There is a sustained interest in craft breweries and localized eateries in all our centers – from gastropubs and craft-beer bars to an array of specialty fitness centers. When these are matched with centers that

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TOOLBOX offer creative community events and programming, there is strong potential to maximize the center’s strength in the community. According to The Wall Street Journal, “in the early days of craft brewing, a couple of decades ago, bottle shares were informal gatherings of home brewers and collectors.” Today, of course, there has been an explosion of interest in craft brewing and in the restaurants, pubs and bars where they are available. Placing craft brew stores in a center optimizes high customer traffic and a loyal clientele educated on the advantages of buying local, farm-to-table and quality beverages, food and retail. Additionally, the conventional gym of decades past has made way for a proliferation of boutique fitness stores and chains. Many of these focus on newer approaches to cardio, strength training and core conditioning. Soul Cycle is the hottest trend in spinning; Melt and Bikram Yoga are “hot” yoga chains that are predicated on the detox and muscle-warming advantages their system emphasizes; Orange Theory centers on the philosophy of high-intensity interval training using individual heart monitors; and REI’s training walls for rock climbers are all attracting a wide array of fitness needs. Along with the heightened appeal of these fitness centers, specialized health and beauty services provide unique experiences that differentiate them from competitors. These include makeup and blow-dry bars; skincare experts such as Skin Laundry and Pucker in New York City; and countless chain tanning, nail and micro massage salons. Concierge cinemas like Silverspot and iPic have become a sought-after tenants for regional malls, mixed-use centers and urban infill projects. With their platinumlevel amenities including oversize leather seats, dining options and reserved seating, these theaters appeal to young and old alike. Consumers today want to live and work near where they grocery-shop, work out and dine. Centers are therefore increasingly looking at alternative ways to drive traffic such as next-generation fitness and personal service options to meet demand. Finally, centers that have developed active and strategic community events and organizational tie-ins retain superior customer loyalty and satisfaction. Whether with children’s events during the holidays, live bands on weekends or charity drives that benefit local philanthropies, centers can remain top of mind with a grateful and appreciative local audience and clientele.

are smaller ways to move toward the greening of centers beyond the large scale. According to Entrepreneur, using greener, less toxic cleaning products, switching to energy-efficient LED or CFL lighting, foregoing the excess of a shopping bag for every purchase and keeping lights and other electronic devices on timers (to reduce electrical usage)—are all small steps toward greening the retail space. According to Shopping Centers Today, landlords are finding ways to conserve water and reduce waste by re-crafting green roofs, (which filter storm water and lower HVAC costs) and installing resource efficient plumbing fixtures. Senior water attorney for the National Defense Council Larry Levine says, “Not only does investing in efficient water systems serve the public interest through conservation and pollutant remove, it adds to property value.” The U.S. Department of Energy released data that commercial buildings account for 35 percent of electricity consumption in the U.S. and 40 percent globally. These numbers fuel an even greater need for an overhaul in environmental strategies for both chain and independent retail. President Obama’s Better Building Initiative, which seeks to reduce energy consumption by 20 percent a year through tax incentives, has created an inducement for building owners to engage in sustainable retrofits and encourages landlords and property managers to be creative in running the logistics of such measures. California has passed legislation mandating the disclosure of building performance to new tenants and buyers in an effort to increase efficiency metrics of existing buildings through retrofits. More and more communities are requiring recycling programs, which provide an even stronger platform for local outreach, participation and education into the benefits of green living habits, both privately and commercially. By capitalizing on green technology and including green leasing requirements, properties can envision sustainable growth for the future of their business. G Cheryl Beckel is Vice President of Leasing at Madison Marquette Retail Services located in Irvine, CA. Tory Glossip is Senior General Manager at Madison Marquette Retail Services located in Seattle, WA.

Retail Centers Make the Environment a Priority By Tory Glossip

Sustainability is a mainstay as recycling, upcycling and reducing natural resource consumption becomes increasingly embedded in our daily routine. Retail centers and leasing management firms are hyper-aware of the need to create an environmentally sound practice, which requires commitment and cooperation of both tenants and property managers. “Green leasing” is becoming conventional as more and more centers are seeing environmental clauses built into their building agreements. With the operational cost savings, marketability and need to be on trend with developments in environmental standards, a higher number of property managers recognize the direct link green practice has in competing in the national and global marketplace. There are myriad ways landlords are instituting environmental savvy with their properties, from adding in requirements and specifications to lease agreements to value-engineering and retrofitting older centers to make way for more modern materials and engineering, including solar panels and green roofs. And there

PLACES MAGAZINE

Del Mar Plaza | Del Mar, CA

TOOLBOX

N.J Governor Chris Christie and Madison Marquette’s Gary Mottola, Asbury Park, NJ

Asbury Park Boardwalk | Asbury Park, NJ

Crisis Response

Getting Ahead of the Bad News Curve By Marina Ein and Robyn Marano

s shopping centers are increasingly seen as integral parts of their respective communities, center owners and property management teams must work collaboratively and proactively to prepare for emergencies and crises. Whether the problem is an act of nature, a national or global tragedy, a criminal act or an unpredictable accident, centers need to get into the “first news cycle” with consistent and responsible messaging intended to reassure their customers, tenants and employees. Many center owners and managers have developed crisis communications manuals that spell out specific response protocols in the event of a disaster or incident. Such a response is prudent given the vast array of eventualities that centers need to anticipate. Hurricane Sandy, for instance, knocked many East Coast centers out of business for days – and by keeping customers and local media informed on re-opening details, centers that communicated often and well with the public were able to minimize lost shopping and restaurant traffic. A Madison Marquette managed center, Marketfair was impacted by Hurricane Sandy but managed to stay partially open — allowing area shoppers and visitors to access a facility that offered electricity, clean restrooms, well-lit and comfortable seating areas and Wi-Fi when much of the surrounding community was adversely affected. Marketfair reached out to its customer base via a range of onsite announcements and social media — a tool that has become increasingly important to centers across the country (see sidebar). While centers today have superb security personnel in place, there are many communities where crime has unfortunately been on

the rise. Thefts, assaults and gang violence occur more often than in years past — and centers must be equipped to communicate with the public (and to cooperate with local law enforcement) when bad things happen. Because crime can occur at any time, it is prudent for centers to have a clearly delineated chain of command for who can be a designated spokesperson, who can return calls to media and who will be the face of the center in a crisis. In addition, many centers have developed “holding statements” that have been approved ahead of time and can be adapted depending on the circumstances. Having these statements archived can allow centers to be proactive with up-to-date reactive information. Most centers in the United States encourage their leadership staff to work closely with local media. For the most part, this allows centers to enjoy strong relationships with press covering their properties — while nurturing these relationships in case of crisis. However, dealing with media when the news is good can be significantly different than dealing with media when an emergency occurs. Thus, it is useful for any center staff that may work with press to undergo media training. This process helps strengthen the management’s comfort level in speaking with media — it provides management with a list of dos and don’ts in media interactions and reinforces the need to keep communications open even when it is most difficult or counterintuitive. Recent studies have also shown centers that maintain close relationships with local law enforcement and first responders emerge from crises with less damage than centers that do not. Inviting local police and fire crews to tour center premises, study entrance and exit points

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TOOLBOX and familiarize themselves with center layouts vastly improves their abilities to locate and disable assailants expeditiously. Most police and fire personnel are grateful for invitational walk-throughs with center management and to be informed of special events or promotions that may attract large crowds.

• In the event of a major crisis, make certain that center staff instantaneously notify and consult with corporate leadership • Be ready to update public and media audiences via all communication channels, including social media

In our variegated society, many points of view exist on subjects as diverse as religion, politics and our natural environment. While freedom of expression is a critical pillar of our nation, it is also an opportunity for activists to take on almost any cause — including ones that may embroil a shopping center. Holiday displays, ecologic deficiencies, funding (or lack thereof ) for center-based community events can bring out picketers and protesters. Center management needs to be trained to deal with such groups with courtesy and firmness while upholding private property rights and public safety.

While it is unfortunate that centers must arm themselves to deal with accidents, crime and natural disasters, the art of preparation ensures that collateral damage from any untoward event is held to a minimum. Taking proactive steps before disaster strikes is an important part of owning and managing a shopping center in this postmillennial world. G

Having touched upon the many ways in which centers may be called on to respond to crises, it is critical for centers to have their “crisis checklist” available in advance. • Establish a clear chain of command on who is empowered to speak with the public and with the media • Media-train spokespeople • Maintain close and cordial working relationships with media, local law enforcement and emergency responders • Prepare holding statements and ensure they can be adapted quickly and effectively • Identify satellite locations where, if necessary, center staff and corporate executives can meet with press and emergency responders • Keep copies of all crisis-related materials (emergency preparedness guides, holding statements, contact sheets, etc.) outside the office to ensure you always have access

Marina Ein is Founder and President of Ein Communications and is located in Washington, D.C. Robyn Marano is Vice President of Marketing for Madison Marquette Retail Services located in Philadelphia, PA.

@Kenneth Cole

Kenneth Cole

Millions are in upro ar in #Cairo. Rumor is they heard our new spring collection is now available online at http://bit.ly/KCairo -KC

2 hours ago via Twitt

er for Blackberry®

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@Kenneth Cole

Kenneth Cole

Re Egypt tweet: we we ren’t intending to make light of a serio us situation. We understand the sens itivity of this historic moment -KC

Social Media During a Crisis

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It would be impossible to touch on crisis response in 2014 and not address social media as a crucial part of the Crisis Management Toolbox. Social media allows centers to quickly disseminate information directly to the general public and key audiences. It can be incorporated into the communication strategy during crises when a center needs to provide the public with timely updates and wants to demonstrate its response to and handling of a situation. However, there are a few basic “dos” and “don’ts” when considering social media posts during crises:

Don’t

• Coordinate with property and corporate communications teams to ensure social media messaging aligns with overall corporate or business communications plan • Identify any social media policies held by mall ownership and ensure that there is full compliance with such policies and procedures • Use social media channels to keep customers and the community updated on the center’s status during crises involving closures, damage, traffic or parking reconfigurations • Turn off pre-scheduled or auto posts as they could relay incorrect information or be seen as insensitive during the crisis • Delete any recent posts that may be insensitive in light of the crisis situation

• Post any information without ensuring its absolute accuracy • Post reactively--while center management is encouraged to respond quickly during normal operations, response during a crisis situation should be carefully considered • Use slang or abbreviations • Use stock photos or photos taken from other websites • Use religious or politically oriented language

It is always important to recognize the power of social media and its related ability to become immediately viral. Because of this omni-channel reality, social media outreach should be approached with measure and focus during times of crisis.

PLACES MAGAZINE

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s t er p x e e s U . 5 w e i 2. Interv 3. Review

5 Tips

for New Mall Owners By John-david W. Franklin

ike many industries today, the shopping center world is experiencing a generational shift in its labor force and leadership. Baby boomers are reaching retirement age – or opting to retire earlier. The exit of America’s largest generation from the workforce is shaping up to have a significant impact across a range of industries. And in the shopping center market, the impact is at the ownership level. As shopping center owners begin to retire, the scope of the business will transition along with its new generation of owners. In addition to this generational transfer, the recession introduced many new shopping center owners. While the titans of retail real estate investment held off on new purchases and offloaded assets following the economic collapse in 2008, new players saw an investment opportunity to buy when the market was low. There are a number of factors that can dictate the success or failure of retail real estate assets. Below are five key factors all mall owners should understand as they enter the evolving and challenging retail investment market. G

Know what your land is worth

Most opportunities to acquire malls for smaller, independent mall owners fall into the regional mall category, including older enclosed malls. Accordingly, knowing what your land is worth can help you make tough choices when it comes to your investment. The question of what to do with these malls is one the entire industry is facing and knowing the value of the land your mall sits on can help you answer that question. Owners should determine what the land is worth and what is permitted to exist on the land and may even consider what alternatives could exist on the property. Such questions may lead you to realize the value the mall has and reinforce its potential, regardless of its class. However, you may also find — coupled with a thorough review of the financial health of the asset and the local economy — that it would be more beneficial to transform the enclosed mall for another use. This could include redevelopment to create an open-air lifestyle center or adding more out-facing shops. You may also find the land is more valuable without the mall. Either way, this is an important determination to make at the start.

John-david W. Franklin is Senior Vice President of Leasing for Madison Marquette Retail Services, and is located in Philadelphia, PA.

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Interview your tenants Getting to know all tenants and understanding their performance, needs and deficiencies is crucial to understanding the property and maximizing its potential. Tenant interviews should start with the anchor store managers and should be conducted in a one-on-one, in-person basis. This will not only aid in building a relationship with your tenant constituency, but is the best way to learn about the center — straight from the people on the ground. Gathering information on a tenant’s performance both regionally and nationally, and what products and departments are their best and worst selling, is key to evaluating the health of the center. For department store anchors, it is critical to identify their best performing departments as this most often reflects a deficiency in the merchandising mix throughout the center. For example,

5 PLACES MAGAZINE

Review your leases While the information gathering sessions described above are invaluable, you will need to review all current leases for a complete picture of the center’s operations and finances. This review should determine your current tenants’ lease terms, clauses and cash flow. It should also track and chart tenant renewal dates. Carefully reviewing leases, or having them professionally abstracted, can help identify disconcerting trends so that you can be prepared with a strategy to keep vacancy low and your merchandise mix on target.

if the anchor’s best performing department is women’s shoes, you will most likely notice that you are lacking adequate shoe retailers in the rest of the mall and that presents a great opportunity for the leasing team. While these discussions can help identify opportunities, it is also important to listen to the tenants’ needs. You need to be prepared, as tenants will see this as an opportunity to share complaints that they may have been harboring for years. However, those complaints can be just as valuable as the performance insights. This feedback can help identify issues that are hindering the success of the center, including parking issues, maintenance concerns, signage needs, etc. Whether hearing positive or negative feedback, these tenant interviews are one of the best ways to truly understand the center.

Reach out to your representatives As a new mall owner, you are also now a major employer, taxpayer and economic driver in your municipality and therefore you should develop relationships with your local, state and federal representatives. Request an in-person meeting to introduce yourself and share details on your center, encourage partnerships, and highlight its impact on the local economy. Creating a fact sheet that includes background on the center, including employment numbers, can be useful. You’ll also want to educate the representative on any center needs and how various policies impact the center (and in turn the local economy). Moving forward, it is also a good idea to invite the mayor and any other relevant municipal employees to significant mall events such as ribbon-cuttings or ground-breakings. This reinforces the relationship and demonstrates the importance of the center to the local community.

When in doubt, bring in the experts Those who are completely new to the retail real estate industry, or have been primarily focused on the investment side with minimal property management experience, should consider seeking expert services. Shopping center management, particularly in today’s environment, is complex. Understanding the intricacies of leasing,

property management, accounting and marketing – and how they are all integrated– is vital to success. If you don’t have the right background, bringing in a third-party service provider can help you move up the learning curve at your own pace, while adding value to your investment from the start.

MARKET WATCH

Downtown Seattle | Seattle, WA

The Northwestern

Boomtown By Shipra Bhardwaj

uilding upon several years of strong growth, Seattle is again among the U.S. cities serving as a top-tier destination for real estate investment and development. With its low unemployment rate of 5.3 percent, a consistently expanding population of recently graduated college students, and growing popularity as a destination of choice for both domestic and international travelers, the Urban Land Institute ranked it the fourth “Top Investment Market” in the country.

Famous for its iconic Space Needle, Mount Rainier, coffee culture, and the grunge rock movement, the town known as the Emerald City has also gained a reputation for being a vital center of business and commerce. Microsoft, Starbucks, Nordstrom, Amazon and Expeditors International all are headquartered in the Greater Seattle area, along with hundreds of other research and technology companies and startups. The University of Washington also plays a large role in the strength of the city’s economy, with a substantial part of the campus dedicated to medicine and health sciences. Despite the diversity of its businesses, it is the technology-driven companies that have had the greatest impact on the local economy. Dubbed the “Next Silicon Valley” or, as a recent USA Today article put it, the “Silicon Forest” (a play off the city’s surrounding wilderness), Seattle has become a thriving technology scene, adding new jobs at a faster pace than San Francisco. Seattle’s position as a commercial powerhouse has created a domino effect for the city. Because of the boom it has experienced in the business community – specifically in lucrative tech-based industries – the city has seen a dramatic drop in its unemployment rate since the peak of the recession. This increase in employment can be partly attributed to the flood of recent graduates flocking to Seattle for jobs. Its solid employment market coupled with the ongoing migration of countless young professionals has led to increased demand for new real estate infrastructure in all sectors – commercial, retail and residential.

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MARKET WATCH EXHIBIT 3-9

U.S.Industrial/Distribution Industrial/Distribution Property U.S. Property Buy/Hold/Sell Recommendations Buy/Hold/Sell Recommendations

The city’s blossoming tourism sector has also been a driving force behind hospitality, retail and other related real estate investments and development. Due to its geographic location and its ties to the Asian community, Seattle has become a favored destination for international tourists, especially the Chinese. According to Seattle’s KOMO News, revised travel requirements to the United States and China’s own economic growth has led to a 90 percent increase in Chinese tourism to Seattle over the last two years. Domestic tourism has also seen a boost in activity due to popular landmarks such as the Space Needle, Pike Place Market and shopping neighborhoods like Fremont, Queen Anne and Ballard – which attract a steady stream of visitors.

Investment

According to the U.S. Census Bureau and a 2013 economic report from the National Association of Realtors, Seattle was the only major U.S. metropolitan market (of the top 25 markets) to be ranked in the top five for lowest vacancy rates within the office, retail and industrial real estate categories. Low vacancy rates have also placed added pressures on residential real estate and have caused rent prices to soar. In an August 2013 study done by Reis, a commercial real estate data-mining firm, the average asking price for rent in Seattle had jumped 6 percent over the previous 12 months, outpacing more than 81 other major metropolitan markets in the United States. Both U.S. and foreign investors are flocking to Seattle searching for a wide variety of investment opportunities. Prominent Seattle residents such as Amazon’s founder and CEO, Jeff Bezos, and Microsoft’s founder, Bill Gates, are just a few of the names leading the pack of many U.S.-based investors flexing their financial muscle in Seattle. Amazon has invested hundreds of millions of dollars in office space and other facilities related to its operations. A company with ties to Bill Gates recently purchased three apartment buildings for a price tag of $48.5 million just blocks away from the University of Washington’s campus. Investors from Canada and Asia are staking claims in Seattle as well. According to Seattle Business, a $450 million development project funded by the Canadian-based Bosa Development Corp. is planning to build more than 700 condo units, which was the first project to break ground in downtown Seattle in more than five years. Madison Marquette has recognized Seattle’s appeal, closing in 2013 on a substantial acquisition in the Seattle suburb of Bellevue, Washington. Bellevue Gal-

PLACES MAGAZINE

Buy Hold Sell Miami 60.82

32.99

6.19

59.62

29.81

10.58

Seattle 58.33

33.33

8.33

Los Angeles 57.26

34.68

8.06

Houston

Dallas 54.81

35.58

9.62

54.72

38.68

6.60

37.29

8.47

New York City

San Francisco 54.24 Denver 51.64

39.34

Chicago 49.45

35.16

Atlanta 48.21 Phoenix

15.38

41.96

43.93

9.82

46.73

Boston 43.14

9.35

41.18

San Diego 42.42

15.69

50.51

Philadelphia 37.0

7.07

46.0

Washington, D.C. 31.73 0%

9.02

17.0

51.92 20%

40%

60%

16.35 80%

100%

Source: Emerging Trends in Real Estate 2014 survey. Courtesy of Urban Land Institute.

Source: Emerging Trends in Real Estate 2014 survey.

leria is a mixed-use project that is 97 percent leased, with some 202,000 square feet of retail and creative office space along with a 794-space parking garage. The project highlights Madison Marquette’s strategy of focusing on infill developments in dense, affluent markets with significant momentum and upside.

Development

Another indicator of Seattle’s market strength is its ground-up development in numerous real estate sectors. In November 2013, the city approved a 30-story residential tower in downtown Seattle and developers Goodman Real Estate and Mack Urban announced the start of two projects that would bring both a 16-story and a seven-story residential building to the city’s waterfront. The University of Washington also has plans to redevelop a prime strip of its downtown campus with an estimated market value of over $600 million. The University is also committed to the construction of a number of new office buildings and other revenue-generating properties.

ture. Two examples of public work projects geared toward improving Seattle’s quality of life are the $3 billion “Big Bertha” tunnel project near the city’s waterfront, and concerted improvements to the public transportation system to make it more “green.” In modernizing its functionality, Seattle has been able to work toward accomplishing both the goals of improving the lives of its citizens while also increasing its appeal to investors. Seattle is poised to quickly top the ranks of most U.S. targeted cities for investment and development. There are no signs of a slowdown in the job market, and its business, innovation and tourism markets continue to grow. In addition, the momentum created by the Seattle Seahawks commanding victory in the 2014 Super Bowl has contributed to Seattle’s perception as one of America’s “winning” cities. G Shipra Bhardwaj is Director of Asset Management for Madison Marquette Property Investments and is located in San Francisco, CA.

The city has also undertaken publicly funded projects to update and improve upon its existing infrastruc-

MARKET WATCH

The Edge | Brooklyn, NY

The Brooklyn

Opportunity I

nvestors continue to clamor for New York City real estate. While core Manhattan locations are expensive, Brooklyn and the remaining boroughs still offer attractive relative value. Madison Marquette’s first two New York City acquisitions have been in Long Island City (The Center Building, acquired in December 2012) and Williamsburg (The Edge Retail, acquired in January 2014). We envision Long Island City being to Queens the equivalent of what Williamsburg has become to Brooklyn. Brooklyn offers better “bang for your buck” not only for residential, office and retail tenants, but for investors as well. Brooklyn is becoming the place to live, work, and play, with many workers choosing the “Brooklyn to Brooklyn commute” – wanting to both live and work in the borough. Several key factors create a strong basis for real estate investment in Brooklyn. These include a growing population of professionals, including artists and creative fields; low vacancy; a public transportation infrastructure that allows easy access; and opportunities for development and re-development. Downtown Brooklyn – and Williamsburg in particular – are adjacent to one of the largest and most expensive central business districts in the world – Manhattan. As we discussed in the last issue of PLACES in the article “New York: Still the King of Opportunity,” finance is becoming less dominant an industry in New York City. In recent years, high-tech, media and creative companies have

By Arvind Bajaj and Katie Shaw

become major contributors in New York City, which is again being referred to as “Silicon Alley.” Brooklyn’s “Tech Triangle” is at the center of the New York tech boom. The area encompasses DUMBO, downtown Brooklyn, and the Brooklyn Navy Yard. A recent study by Urbanomics showed 523 creative and tech firms were located in Brooklyn in 2012. This number is expected to jump to 639 by 2015. Even more significant, the tech and creative industries had a collective $3 billion impact on Brooklyn’s GDP in 2012. A few examples of media and tech firms located in this area include Steiner Studios (a production factory), Etsy (an e-commerce website focused on handmade or vintage items), and Makerbot (a producer of 3D printers). Due to the rapid growth and the desirability of key districts within Brooklyn, there has been increasing demand for real estate product along with rising prices. Commercial, retail and residential rents continue to rise while vacancy diminishes. According to Crain’s New York, Brooklyn’s office availability rate – space that is vacant or scheduled to become empty within 12 months – dropped to 7.8 percent at the end of June 2013, from 13.4 percent one year earlier. This is due to inexpensive, spacious offices as well as “visions of waterfront warehouses” within walking or biking distance for their young workforces. Demand for retail space in Brooklyn has caused many national retailers that previously had no representation there to consider its appeal. Nordstrom Rack, Sephora, Vitamin Shoppe, J. Crew, AX Armani Exchange, Century 21, Shake Shack, H&M, T.J. Maxx and Gap

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MARKET WATCH

Brooklyn at a glance

Brooklyn’s Industrial Evolution

Brooklyn Demographics

By Tyson Pitzer

6 Second Most Densely Populated County in the U.S. (Behind Manhattan)

Brooklyn remains a very

6 Size (Sq. Miles): 71

strong market for

6 Population Per Square Mile: 35,369

commercial, residential

6 Population: 2,532,645 (Larger Than Queens, Slightly Less Than Chicago and Larger Than the population of 17 U.S. States)

and retail real estate in

6 Median Household Income: $43,567 6 Annual Retail Sales Per Square Mile: $218 Million 6 Driving Time From East to West: 24 Minutes

Brooklyn Navy Yard, dry dock No.

4. circa 1910.

2014. On the demand side, tech firms and smaller start-ups (which are driving

6 Driving Time North to South: 28 Minutes

much of the commercial

6 11 Colleges

market demand) have very little, if any, need to be in traditional

Brooklyn’s “Tech Triangle”

commercial office districts such as midtown or downtown Manhattan. In fact, these companies prefer the lower-scale, more diverse and

DUMBO

culturally rich areas of lower midtown New York such as Chelsea and Flatiron but are also increasingly drawn to Brooklyn for its lower cost and unique amenities.

Downtown Brooklyn

Brooklyn Navy Yard

Today, Brooklyn benefits from its long and distinguished past as a manufacturing and production hub for New York business giants. Spaces that are being converted into creative office and open loft-style living quarters

have all recently secured locations on Fulton Street in downtown Brooklyn, where ground-floor rents have risen by over 30 percent in the last eighteen months. In Williamsburg, Whole Foods and Urban Outfitters are under construction. Young fashion brands like Sandro and GANT have recently opened stores. Rents on Bedford Avenue (the longest street in Brooklyn) have nearly tripled on certain blocks in the last three years. In the trendy Cobble Hill area, Trader Joe’s, Barneys, Moscot Eyewear, and Intermix have joined local retailers and eateries. As Brooklyn continues to become a “live, work, play” borough, the need for residential units will increase dramatically. According to Crain’s New York, there are currently 11,000 residential units in the development pipeline in greater downtown Brooklyn. Some notable projects include the $2 billion Domino Sugar Plant redevelopment project in Williamsburg; the Lightstone Group’s 77 Commercial Street – a 12 story, 700 unit tower along the Gowanus Canal; and Greenpoint Landing – the Park Tower Group’s megaproject, which will accommodate at least 15,000 residents upon completion. The residents of these exciting projects will further drive the market for retail and amenities for each of these neighborhoods. G Arvind Bajaj is Managing Director of Madison Marquette Property Investments and heads up the New York office. Additional research was conducted by Katie Shaw, an investment Assistant from Madison Marquette in New York, NY.

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derive from the industrial and warehouse space that dominated Brooklyn’s landscape for much of the 19th and even 20th centuries. Pfizer Pharmaceuticals, for example, started in Brooklyn in 1849 and went on to become the primary producer of penicillin through WWII. Other less famed Brooklyn businesses include J.A.R. Elliot (earplugs), Brooklyn Brush Manufacturers, Well Made Gloves and the iconic Abraham & Straus department store. Deindustrialization of Brooklyn began in the 1940s but was largely a “stalled effort” until much more recently — when the creative class injected new life, dynamism and popularity into living and working in the borough. It is important to note that Brooklyn’s streamlined live-work lifestyle offers a unique dimension to its burgeoning tech sector, with companies that, according to Business Insider, “choose to populate reclaimed factories, shared work spaces, incubators and creative office buildings.” These abound in Brooklyn neighborhoods along with cheaper rents and creative community-supported events (DUMBO Arts Festival, Innovation Square, Brooklyn Flea and the R&B Festival) that attract millennials and other young professionals to this once forgotten borough. Tyson Pitzer is Director of Investments of Madison Marquette Property Investments and is located in New York, NY.

Crystal Ball

Insights into the Future of Retail With Nick Egelanian Last year, PLACES Crystal Ball featured Nick Egelanian’s expert take on the future of retail and real estate from the perspective of an industry insider. This year, he answers questions on omni-channel marketing, the fate of the department anchor and the future of new mall construction in America. Nick Egelanian is president and founder of SiteWorks, a retail real estate services provider.

Many malls are functioning as community centers across the country. Is this a trend with staying power and how does the “community event schedule” impact retail? Nick Egelanian, President & Founder, SiteWorks

NE: I do not believe this will change much in the

future. While the primary purpose of malls is to offer well merchandised shopping options, malls have long served many other purposes, from providing avenues for “mall

walking” to functioning as informal community gathering places. Programming community events there serves the dual purpose of facilitating the public’s interest while also driving foot traffic and sales in these centers. However, as the mall format, along with the function and purpose of general merchandise department stores, continues to decline, other specialty retail venues, including openair lifestyle centers and mixed-use centers, will play an increasingly important role as social gathering places.

Retail experts say that centers are increasingly turning to “omnichannel” approaches to drive traffic to centers. Do you think technology has been an effective driver and how will it evolve into the future for these conventional malls? NE: The use of technology in retail centers really

mimics the role of technology in society as a whole. For

Crystal Ball two thirds of the remaining general merchandise department stores over the next two decades.

example, I recently boarded an airplane using an electronic boarding pass sent to me by pdf on my phone. Later that same day, I was touring a shopping center and saw a woman present a coupon in the same way at Michaelâ&#x20AC;&#x2122;s and then watched a gentleman purchase a latte using an electronic image at Starbucks.

Will we see new ground-up mall projects taking shape in the next several years? If so, what can you tell us about design and tenant mix for these centers?

Still, shopping center owners should be careful to not overshoot what people want from technology in their centers. A couple strolling through Kierland Commons in North Scottsdale may find that the imposition of too much technology inadvertently interferes with the refuge they may be seeking there from the fast pace of day-to-day life.

In this issue of PLACES, we note that in-demand mall anchors have changed over from conventional department stores to specialty grocery stores and other less intuitive types of tenants. Do you think the trend away from conventional department store anchors is here to stay, even in suburban locations? NE: Conventional department stores like J.C. Pen-

ney, Macyâ&#x20AC;&#x2122;s and Sears have been declining in purpose for the last three decades, as most of what they

NE: I share the view of many retail and develop-

ment executives that there should be no new malls built in the United States anchored by only general merchandise department stores. Having said that, however, as many conventional malls cease operations in the coming decades, the need for well conceptualized specialty retail venues will increase, substituting food, entertainment, and attractions for department stores and enhancing the overall experience by offering great places.

originally sold is now offered in more convenient and cost-effective formats ranging from low-cost WalMart stores to big box retailers and warehouses. This trend will continue and likely eliminate up to

One of the great challenges of our urban planners and the shopping center industry in general is to distinguish the simple time and cost-effective formats that consumers want in everyday commodity retail shopping venues (like grocery and power centers) from the more complex specialty retail venues that are replacing malls as the places where consumers spend their discretionary time and income.

CASE STUDY — Mercato

Mercato

The Evolution of Post-Recession Merchandising By Denise Browning and Chuck Taylor

aples, Florida, is considered a jewel on Florida’s Gulf Coast. With an airport that services private jets and the newly rebuilt Fort Myers international airport less than 30 minutes from downtown, the resort caters to an affluent global mix of Canadians, Americans, South Americans and Europeans who flock there in winter for the tropical weather and highend array of top-tier attractions set in a relaxed cosmopolitan atmosphere. Forbes magazine recently listed Collier County (where Naples resides) as the top destination for the wealthiest families in the United States. It is also one of the major resort markets drawing from the Midwest. The ranking also noted that Naples-Marco Island ranked third in the country for its personal income, with average resident incomes three times that of other counties across the country. With an affluent and discerning population, Naples also boasts low unemployment, skilled labor force, a business-friendly tax structure and a strong probusiness environment. Pristine beaches, world-class golf and recreation ameni-

ties and a highly evolved variety of entertainment and cultural offerings have made it one of the fastest-growing resort communities in the United States. Following the recession, however, Naples was hard hit. Many of its second-home “snowbirds” were forced into real estate de-accessioning. A substantial decrease in tourism had a confluent ripple effect that forced restaurants and stores to subsequently close. Launching in the midst of tough times, Mercato was unable to close on key tenant leases. Despite an inviting and beautifully designed village footprint, the center opened with only 25 percent of its retail space leased. In 2011, when Madison Marquette was brought in as an investment and management partner for Mercato, the center was not fully leased and sought to attract robust national chain tenants as well as independent retailers with a strong following in the Naples market. At that time, top center tenants included Sur La Table, Books-A-Million, Ulta and Silverspot Cinema. There was a clear need to move swiftly to add quality tenants and to strengthen marketing and social media outreach in support of Mercato.

The Situation In 2011, Madison Marquette Retail Services (MMRS) was tasked with providing retail leasing, managing and advisory services for Mercato, a mixed-use property with 350,000 square feet of grocery-anchored (Whole Foods) retail space in addition to over 100,000 square feet of office space and a 92-unit luxury condominium. In 2011, the center was only 76 percent leased, condominium sales were lagging and the center lacked energy and excitement. Despite this, MMRS saw compelling upside opportunity for the center — with its convenient location, strong demographics and recession recovery signs on a positive track.

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Mercato — CASE STUDY

The Challenges Mercato opened in challenging times and was failing to attract tenants that would drive restaurant and retail traffic to the center. The center was seen as “flat,” with condominium sales well below target levels and diminishing interest from the community. The center was also competing with newly opened mega-center Coconut Point, which became host to a number of popular national retailers and restaurants. Tourism declines during the recession also reduced the number of visitors interested in shopping and dining in the Naples area.

The Vision Armed with statistical and demographic data, MMRS moved aggressively to transform Mercato into the area’s premier “eatertainment” destination rooted in a forward-thinking retail strategy. Twelve leases in as many months brought in ten outstanding restaurant and informal dining tenants, including a wine bar and a specialty coffee shop that had been on the top of the center survey’s wish list. The center was also recast as a dynamic lifestyle experience. It featured a constant round of community and cultural events from film and craft beer festivals to concerts and holiday exhibitions — including a tree lighting for the largest tree in Southwest Florida. With the addition in 2013 of the first Nordstrom Rack on the Gulf Coast, Mercato became one of the most popular and heavily retailed centers in the Naples region.

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The Results Understanding that Mercato needed to be reconfigured as a distinct and sophisticated “eatertainment” destination allowed MMRS to focus on top-tier restaurants and appealing specialty dining tenants. With an emphasis on hospitality opportunities, Mercato was also repositioned as a magnet for platinum-level personal service tenants (Aveda, Yoga Loft and Stylista Salon) along with the conciergelevel Silverspot Cinema. Named the “Best Theater” in the Naples area by the Naples Daily News, Silverspot added significantly to its space in 2013. In early 2014, Mercato was nearly 90 percent leased with an expectation of additional leases being signed later in the year. Benefiting from the renewed excitement at the center, condominium sales rebounded. The residences are nearly sold out, with only two units remaining. The center continues to benefit from collaboration across a variety of retail real estate skill sets — marketing, property management, development and leasing — and Mercato tenants have seen double-digit sales increases. The center is now one of the most popular destinations in the entire Naples area: Nordstrom Rack draws over eleven thousand customers a week; Whole Foods pulls in over ten thousand shoppers a week; and close to 200,000 visitors a week visit Mercato during the months of November through February.

FEATURE — Grocery Anchor Evolution

Glen Eagle Square | Chadds Ford, PA

The Evolution of the

Grocery Anchor By Merle Brann and Bill Coleman

etail developers and owners from around the country are increasingly eager to have their shopping destinations anchored by experience-oriented, specialty grocery stores. With their excellent credit-worthiness an added bonus, these stores are now growing in demand throughout the United States. Once an afterthought among retailers, these modern grocery stores are now able to provide shopping centers and other mixed-used properties with a solid traffic driver that has remained resilient even during challenging economic conditions. These stores have been adept at understanding local market tastes and trends – expanding the grocery shopping experience by incorporating conventional retail themes such as entertainment, luxury and casual dining. The past 20 years have ushered in many dramatic changes to the way grocery stores do business. What were once straightforward, no-frill stores people went to on a weekly basis out of necessity have transformed into more frequented destinations, not only for routine shopping, but also a memorable, personalized experience. Whether it’s checking out the oyster bar, tasting new products, or enjoying live entertainment and cooking classes, customers are now able to enjoy a number of amenities that had previously not been available to them. Grocery stores weren’t immune to the financial crisis in 2008. As consumers cut back on all aspects of their budgets, they also spent less money on food shopping.

According to a recent report by the United States Department of Agriculture (USDA), consumer spending on food dropped by more than 5 percent from 2006 – 2009. However, it is also quite evident that grocery stores were among the sectors that not only recovered quickly, but also rapidly adapted to accommodate an emerging consumer interested in organic food, artisanal baked goods, pre-prepared meals and freshly roasted and sourced coffees and tea. When the economy started to improve, Americans flocked to specialty food chains that provided a higher level of service with more gourmet and specialty options. Hard economic data gives further insight into why grocery anchored shopping centers have become so successful. First, today’s shoppers visit their local grocers on average of around two and a half times per week, making for a weekly return rate most shopping center retailers would envy. They also offer retailers a successful blueprint that has demonstrated a low susceptibility to the always looming downwardoriented business cycle. In turn, this has made them more attractive co-tenants for other retailers, who may conversely be more vulnerable to these cycles and who are seeking to benefit from the grocery’s guaranteed foot traffic. Specialty grocery stores – as well as larger “traditional” grocers – have been quick to fine-tune their offerings according to geography and demographics. At Madison Marquette’s Mercato, a platinum-level mixed-use center in Naples, Florida, a Whole Foods anchor has incorporated an international olive bar selection, expansive wine

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Grocery Anchor Evolution — FEATURE and beer options, and an extensive delicatessen, grill and bakery popular with many center residents and area shoppers. Numerous specialty grocery anchors also offer high-end household goods and an array of “order ahead” services typically unavailable at more conventional food markets. Other specialty grocery anchors cater more specifically to niche food shoppers who are seeking organic products or value-driven “fresh and local” produce, meats and, fish. The future for grocery store anchors in the world of retail suggests continued success with one important caveat. As shoppers continue to exhibit some fickleness in their preferences, it will be important for these stores to continue tracking tastes and trends and to modify their offerings and physical environment as necessary. Brick-and-mortar stores, as well as their online counterparts, are constantly looking for new ways to become more attractive destinations for consumers. Grocery stores are no exception. Increasing demand for more experiential shopping opportunities will continue to play an influential role for retail strategists. Today, perhaps more than at any time in our past, it’s not just about what the shoppers are buying, it’s also about the time they spend doing so. Because of this, specialty grocery stores are now working toward redesigning their physical spaces, improving upon aesthetics, adding state-ofthe-art shopping baskets, and hosting special events like cooking classes, wine tastings, cookouts and even the occasional concert. To complement these in-house improvements, grocery stores have also made it a top priority to become more active within their local neighborhoods. By hosting charity events, donating food to local food banks and working with local schools to fundraise for student activities, many grocery stores have confirmed their commitment to improving their communities.

The differing needs of specific markets are of foremost concern when deciding what kind of grocery anchor is best suited to draw in customers. Income levels, taste, demand for variety and demographics are just a few of the variables to consider when identifying an appropriate grocery tenant. In areas with affluent populations, smaller specialty grocery stores may be the most appealing options, offering high-end items like organic produce, in-store butchers, gourmet cheeses, and craft bakeries. In areas that are more culturally diverse, however, an international grocery store may serve as the better option. Rising to the challenge of meeting the needs of customers not only helps to cement the viability of grocery anchors, but also plays a pivotal role in increasing the overall value of shopping centers and mixed-used properties. The ability of anchor stores to attract a high volume of retail traffic is inherently crucial to evaluating these locations’ worth as appealing investment opportunities. When these grocery stores are positioned to meet and satisfy specific market needs, they can provide investors with generous returns and dramatically increase the overall valuation of centers as a whole. G Merle Brann is Director of Investments for Madison Marquette Property Investments located in Washington, D.C. Bill Coleman is Regional Vice President for Madison Marquette Retail Services and located in Fort Lauderdale, FL.

The Impact of Today’s Grocery Anchors

While specialty grocery stores seem foolproof for centers looking to drive traffic, they do face some stiff competition from discount mass grocers like Walmart and Target, who offer customers the ability to grocery shop on a budget as well as shop for other goods most specialty food chains do not offer. Additionally, the ever-burgeoning presence of the Internet – where people are now looking to save time and buy their groceries – may be a future source of competition for grocers. Grocery stores, however, have not been vulnerable to the internet at this point.

In 2011, Madison Marquette Retail Services (MMRS) brought in specialty grocery anchor Whole Foods to replace the more traditional Genuardi’s anchor at its open-air specialty center Glen Eagle Square, located in affluent Chadds Ford, PA. This move has had a significant impact on the co-tenancy of the center.

Before:

After:

These challenges will require strategic thinking and ingenuity, but the innovative minds behind Whole Foods, Fresh Market, Central Market, Trader Joe’s, Wegmans, and many others, have proven their keen retail aptitude.

Grocery Anchor: Genuardi’s

Grocery Anchor: Whole Foods

Co-Tenants: Rite Aid Honey Baked Ham Lindt Chocolate

Co-Tenants: White House | Black Market Francesca’s Collection Athleta Gap/Gap Kids

It is critically important for centers with grocery stores to shape business strategies that will sustain positive growth.

Glen Eagle Square:

MMRS’ Issaquah Commons – a specialty mixed-use center in the fast-growing Seattle suburb of Issaquah – added a Trader Joe’s in 2012 and has seen similar results.

Issaquah Commons Before:

After:

Grocery Anchor: Safeway

Grocery Anchor: Trader Joe’s and Safeway

Co-Tenants: Display & Costume Supply Blockbuster Soundsations Kit’s Camera

Co-Tenants: WildFin American Grill Five Guys Burgers & Fries Suburban Soul Sleep Country

Issaquah Commons | Seattle, WA

PLACES MAGAZINE

FEATURE — Attracting Global Capital

The Wharf | Washington, D.C.

Attracting Global Capital to

Invest in U.S. Real Estate By Peter Jun

ver since Peter Minuit bought Manhattan from the Native Americans in 1626 for goods worth 60 Dutch guilders (widely known today as the equivalent of $24), foreign investors have shown a lively interest in American real estate. That interest has brought both global funds and an international flair in city design and streetscapes. Gateway cities such as San Francisco, Miami, Washington, New York and Boston are reflections of European, Hispanic and Asian influences and of the foreign funding and architecture that shaped entire neighborhoods. For centuries, this influence was seen as a substantially positive force, but American attitudes began to change around 25 years ago. At that time, Japan — armed with a high-flying stock market and low capital costs — began acquiring some of America’s most iconic real estate ranging from Rockefeller Center to Pebble Beach Golf Links. Alarm bells by protectionists started to sound and some critics even denounced these deals as selling a part of America’s soul. Simultaneously, Japanese government officials reportedly expressed concerns, albeit quietly, about a potential backlash against Japan from such high-profile purchases. The climate of mutual suspicion laid the groundwork for the passage of the Foreign Investment in Real Property Tax Act (FIRPTA), an attempt by Congress to hinder major foreign purchases of important American properties. The real estate collapse of the 1990s sent Japanese and other foreign investors fleeing, but not before FIRPTA had been enacted.

In the 2008 recession after the housing bubble collapsed, lessons similar to those learned in the 1990s became evident again to American and foreign investors. Real estate continues to be a cyclical business, following the patterns of economic and employment fluctuations, and the gradual recovery since 2008 has created an increasingly dynamic real estate market in America today.

Attraction of U.S. Real Estate

The U.S. continues to attract more global capital for real estate investments than any other country in the world in absolute dollar terms, strengthening the economy and providing pockets of value creation and appreciation opportunity across many asset classes for various investors. Canada in recent years has been the most active global investor in U.S. real estate, measured by total capital invested, but Asian countries like China, South Korea and Singapore, equipped with some of the world’s largest pension funds and Fortune Global 500 companies, are actively hunting for unique real estate opportunities here as well. Some of the large acquisitions in the past year alone exemplify this trend: One Chase Manhattan Plaza and the General Motors Building in New York, U.S. Bank Tower in Los Angeles and The Washington Harbour in D.C. These foreign private groups and pension funds, along with sovereign wealth funds from various continents aren’t just looking for solid cash flow and yield; many of them are seeking unique, irreplaceable assets not only to diversify the risk profile of their real estate portfolio, but also to strengthen their brand and footprint in the most visible cities around the world.

New York is not the only city in the U.S. that is attracting significant foreign capital. Washington, D.C., home to Madison Marquette’s headquarters, is ranked fifth most desirable city in the world for real estate investment in Association of Foreign Investors in Real Estate (AFIRE)’s recent survey (after London, New York, San Francisco and Houston). According to Washington Business Journal, of the roughly $2.6 billion in commercial real estate sales in 2013, 58.1 percent were driven by foreign capital. Even a ground-up development project like The Wharf, a 3.2 million square foot master-planned, mixeduse portfolio along one mile of waterfront in the southwest section of Washington, D.C., is also partly funded by foreign capital. When its two phases are fully completed, it will be one of the most significant new signature developments to have been built in any major metropolitan market in the United States. Washington, D.C. Deputy Mayor for Planning and Economic Development Victor Hoskins, with support from Mayor Vincent Gray, realized early the appeal of international networking and made substantial efforts to encourage Chinese investors to consider investing in the nation’s capital. By utilizing the D.C. sister-city status with Beijing, he made trips to China to woo investors and pursue other meaningful exchange opportunities. In a recent speech, Hoskins said, “The nation’s capital is one of the top world markets for foreign investments. Foreign investors are attracted to D.C. by our real estate, as an entry port to the U.S. market, our international assets and increasingly as a residential destination. Investors from countries such as Korea, China, Germany and Saudi Arabia as well as several Middle Eastern

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Attracting Global Capital — FEATURE sovereign wealth funds in Abu Dhabi and Qatar have invested in D.C. We expect interest from investors to continue because of the high potential return on investment achievable with a D.C. presence.”

Accelerating the Inflow of Global Capital

A majority of institutional investors believe the U.S. is currently in an attractive stage of the real estate cycle. Combined with the U.S.’s long-term economic and political stability compared to the rest of the world, especially on a risk-adjusted basis, America offers highly attractive investment opportunities across various real estate sectors and risk spectrum. Not everything is in our favor, however, especially against other real estate opportunities around the world. Many investors are already wary of the rising level of competition in key U.S. markets, the sophistication of competing bidders, and most importantly, the current U.S. tax structure. Finding a good American investment or development partner is not easy for new foreign entrants, either. While there are internationally recognized U.S.-based private equity groups and developers that already have multiple foreign investment partners, many domestic real estate specialists or regional developers lack the industry knowledge and resources to seek global capital or foreign strategic partners effectively.

In addition to important factors like investment track record, history and reputation, foreign investors are seeking additional expertise and support from their U.S. partners, such as project execution and value creation capabilities, cultural understanding, local government relations and cross-border communication. Additionally, they often want more sophisticated understanding of important elements such as international corporate structuring, U.S. taxation of foreign entities and governments and complex financial structuring. All of these can be a highly differentiating skill set for a company that is seeking foreign capital. Above all, the single most effective and transformative way to accelerate the inflow of global capital to the U.S. real estate as a whole may be to reform the FIRPTA law.

FIRPTA

The Foreign Investment in Real Property Tax Act (FIRPTA) continues to present a major challenge for foreign real estate investment and development in the United States. As briefly mentioned earlier, FIRPTA, enacted in 1980, actively sought to limit what was then seen as aggressive purchases of iconic properties in the U.S. by foreign investors. The taxes imposed by FIRPTA dramatically reduced these foreign investments, but three decades later there is consensus that FIRPTA has also constrained development and job

creation, downgraded capital flow and challenged the industry FIRPTA sought to protect. Today, there is a new groundswell of support for reversing FIRPTA legislation such that the United States can once again be seen as a magnet for global investors. Movements in both the Senate, headed by Senators Robert Menendez (D-NJ) and Mike Enzi (R-WY), and the House of Representatives, led by Kevin Brady (R-TX) and Joseph Crowley (D-NY), show there is bipartisan support for overhauling FIRPTA. Along with these lawmakers, a myriad of other affected business groups and real estate organizations have made a push to overhaul the antiquated legislation. Their success will surely define how serious America is about growing its economy and providing the thousands of jobs that derive from a flourishing real estate investment market. We look forward to seeing more significant global capital inflow into U.S. real estate investment and development in the next few years. We invite you to read the following views on FIRPTA’s future, provided exclusively to PLACES by Senator Robert Menendez (D-NJ) and Clifton E. Rodgers, Jr., Senior Vice President of the Real Estate Round Table. G Peter Jun is Chief Operating Officer of Madison Marquette located in Washington, D.C.

FEATURE — Generational Trends

Understanding

Generational Trends By Whitney Livingston and Alan McKeon

aby boomers are retiring, Generation X is mid-career and millennials are entering the workforce, the first generation to grow up fully immersed in the digital age. The retail industry is going through the biggest generational shift since the baby boom, marking an important time to understand each age group. How does the era in which we are born shape our consumer habits? Our purchasing power? Our interests? Do we want designer labels or a nest egg? To understand more about what defines each group, we analyzed who they are, what they value, and how they engage technology in their consumer habits.

Millennial spending power, the “jeans” concept and the grocery evolution

Women’s Wear Daily, in partnership with Berglass + Associates, conducted a retail study determining that millennials’ annual spending power in the United States is $200 billion. They are expected to outspend baby boomers by 2017 and are influenced by online brand advertising more than keeping up with their friends’ consumer habits. When it comes to dealing with money, baby boomers were traditionally known to spend, while Generation X saved. Generation Y combines characteristics of both—they “earn to spend,” as they value time and work-life balance over the workaholic boomer generation, inventors of the 50-hour work week. We can trace the evolution of shopping, branding and psychology through the ways in which each generation purchases clothing

and groceries. Boomers will buy seven pairs of jeans because they value acquisition and quantity, while their children value quality. Generation X saw the onset of boutique brands sprouting up with price tags and exclusivity far beyond the stalwart household names like Gap and Levi’s. They became more attracted to the likes of 7 for All Mankind and Citizens of Humanity as a means to differentiate themselves from their peers. Meanwhile Generation Y relies on style to make a statement — vintage, pre-washed or skinny. Similarly, grocery stores went from selling the same Kraft and Oscar Mayer packaged goods and frozen dinners during the boomer era, to touting hundreds of small-scale, locally sourced organic lines of pressed juice, kale chips, soy milk and beyond. Generation X and millennials are health-focused and willing to pay a premium for seasonal boutique brands and farmer’s market goods over the convenience foods of their parent’s generation. While baby boomers valued the suburbs and the convenience of a Sam’s Club or big box retailer, Generation X and Y are trending toward urban environs and are more interested in a greener, lighter footprint on the environment and their utility bills. Over time, the shopper’s environment has shifted from enclosed malls of the boomer generation to the open-air centers with entertainment and lifestyle options of today. According to a survey conducted by the Urban Land Institute, Generation Y spends more time researching products, price comparing and scrolling through online clothing and retail sites as opposed to the impulse shopping of prior generations.

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Generational Trends — FEATURE At the same time, discount department stores reign supreme for Generation Y, and pop-up shops, limited-edition clothing lines and exciting, young designers control their interest. Problematic centers with traditional anchor stores will have difficulty maintaining applicability for a generation of Amazon.com and online J.Crew shoppers; however, both gen X and Y continue to frequent shopping centers (predominantly those centrally located in neighborhoods or communities) at least once a week.

Economy, Employment and the Digital Age

What does the evolution of the economy and the work environment say about each generation? The career paths of Generation X and Y have evolved from that of boomers, where an employee stayed in one job for forty years, collected a pension, a 401K and retired. The paved road to a lifelong position with one employer has developed into a fragmented career at multiple companies. According to the Bureau of Labor Statistics, the average employee today stays at one job for 4.4 years. Generation X is a smaller population than either the boomers or Gen-Y and largely better at saving than its predecessors, valuing smaller homes, cars and fewer consumer goods than their parents. For this reason, many retailers have largely ignored this group and are marketing to the larger, more demographically mixed Generation Y, the future of spending power. Millennials were the first generation to grow up completely embedded in digital technology and social media. While Generation X was calling their friends in high school and college, millennials were texting, Tweeting and Instagramming their lives for public consumption. They face a society vigorously designed for the individual. No longer a one size fits all, television programming, music, sports, clothing, food and entertainment are all fragmented to gear toward niche, personality-driven consumers with open access. The seven TV stations of the boomer generation have made way for 700+ channels, customized toward individual preference in a way that speaks directly to their audience by mirroring their interests and emotions on the screen. Online advertising, inbound marketing, tiered business development and personalized service have both complicated and leveraged the multitude of opportunities to reach end users in today’s consumer marketplace. Retailers and marketers are racing against one another to reach a new generation with limitless capabilities and significant spending power. They have more platforms on which to do so than ever before, through Pinterest, Twitter, Tumblr and Facebook. It’s never been easier to reach an intended audience, but by nature of these millions of options, it’s also never been more challenging. According to Tumblr’s most recent press report, it hosts over 178.4 million blogs (and growing) with an average of 92.9 million posts per day. Pinterest is adding paid advertising and news agencies, travel companies, clothing brands and bloggers are all competing for market share on the success of such a visual platform to showcase their products and services. It turns out we raised more questions than we could answer, as each generation has overlap and cultural factors that make it more or less like its predecessor. One thing that remains fixed: Each generation rebels against their parent’s era, endeavoring to make their own lives more fulfilling and balanced. Boomers still want to have cool gadgets and clothes, while segments of Generation Y are buying bulk at Sam’s Club. Retailers and marketers need to tap into the enormous influence each generation has on one another to understand the core impact their environment and age group have on the marketplace. They need to recognize that each generation is distinctive and that successfully selling to a consumer today requires understanding in detail who the target consumer is, what drives them and why. G Whitney Livingston is Senior Vice President of Management and Marketing Services for Madison Marquette Retail Services and is located in Dallas, TX. Alan McKeon is President and CEO of Alexander Babbage, an Atlanta-based consumer insights firm.

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Generations at a Glance Generations Baby Boomer

Generation X

Generation Y

Birth Years 1946-1964

1965-1980

1981-2000

Current Age 50-68

34-49

14-33

Other Names “Me” Gen X, Xers, Millennials, Generation Post Boomers Generation Next, Echo Boomers Population

80 million

51 Million

Iconic Meryl Streep, Figures Bill Clinton

75 million

Sarah Jessica Mark Parker, Zuckerberg, Jimmy Fallon Beyonce

MASH, All in MTV, Reality TV, Cultural The Simpsons, smart Phenomenon the Family, the Cold Friends, Phones, War, Roe v. the Brat Pack, post-9/11 Wade, dial-up internet, generation, Raiders of the Jurassic Park, Twitter, Lost Ark, Pearl Jam, the green the Beatles, Madonna revolution, The Rolling Harry Potter, Stones Taylor Swift, Justin Timberlake

Where Gen Y is Choosing to Shop for Fresh Groceries* Supermarket

61%

Discount Department Stores (Target, Walmart, Kmart)

49%

Specialty Grocer (Whole Foods, Trader Joe’s)

18%

Small Neighborhood Grocery or Food Store Warehouse Club (Costco, Sam’s Club)

17% 16%

Green Grocer or Farmers Market

16% 0%

10%

20%

30%

40%

50%

60%

70%

Courtesy of Urban Land Institute.

Where Gen Y is Choosing to Shop for Non-Perishable Groceries* Discount Department Stores (Target, Walmart, Kmart)

63% 56%

Supermarket Warehouse Club (Costco, Sam’s Club) Discount Suppermarket (Aldi, Food 4 Less)

25% 20%

Small Neighborhood Grocery or Food Store

17% 5%

Drugstore

Online 0%

10%

20%

30%

40%

50%

60%

70%

Courtesy of Urban Land Institute.

FEATURE — Legislative Spotlight

Firpta Needs to Be Dismantled Clifton E. (Chip) Rodgers, Jr.

he Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) is a discriminatory and punitive tax regime that discourages investment in U.S. property to the detriment of the overall economy. The foreign equity component of a U.S. real estate transaction is often an indispensable factor in the completion of large, capital-intensive real estate projects. Foreign investment facilitates new construction, property upgrades and the thousands of jobs that flow from real estate activity. How is FIRPTA affecting foreign capital flows? In 2013, Asian funds invested $15.8 billion into London alone; however, they only invested $8 billion in the U.S. This discrepancy is illustrative of the problems caused by FIRPTA in today’s market. Why was FIRPTA enacted? In the early 1980s, responding to fears that foreigners would buy up Midwest farmland and to sensational publicity surrounding purchases, or attempted purchases, by foreign investors of certain urban “trophy properties,” Congress enacted FIRPTA to limit

foreign acquisition of U.S. real estate. FIRPTA treats foreign investment in real property differently than foreign investment in any other U.S. asset class. For example, when a non-U.S. investor sells U.S. stock, the investor is generally only taxed in its country of residence (the same is true for a U.S. investor in a non-U.S. corporation). Under FIRPTA, a foreign investor who realizes a capital gain from the sale of property is subject to U.S. tax and withholding. Thirty years later, in a very different economy with very different issues, members of Congress on both sides of the aisle, economists, policy experts, property owners, property managers and real estate professionals view FIRPTA from a different perspective. There is now broad recognition that aspects of FIRPTA unnecessarily restrict beneficial job-creating foreign investment in U.S. real estate. Foreign investment in U.S. real estate leads to more vibrant markets and job creation. Properties controlled by foreign owners are generally managed by U.S. companies, leased by U.S. companies, serviced

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Legislative Spotlight — FEATURE by U.S. companies and produce tax revenue paid to U.S. municipalities. Further, approximately $1.4 trillion of U.S. commercial real estate debt will come due in the next three years. This debt will need to be restructured and refinanced, and foreign equity investments in U.S. real estate could help commercial real estate owners restructure, refinance or sell their properties. The U.S. is the only developed country that specifically taxes real estate transactions made by foreign investors while letting them exit other types of investments tax-free. As a result, FIRPTA distorts both foreign investment flows into the United States and the allocation of capital between different industries. Between 1981 and 2011, the U.S. real estate sector’s share of total inward foreign direct investment declined from more than 8.2 percent to less than 1.9 percent. Last year, foreigners poured more into money into London real estate than they did in New York and Paris combined. Accordingly, organizations that represent real estate interests, including The Real Estate Roundtable [RER], the National Association of Real Estate Investment Trusts [NAREIT], the International Council of Shopping Centers (ICSC), The International Union of Painters and Allied Trades, Westfield Group, the Real Estate Board of New York and Brookfield are working with the Leadership of both political parties in Congress to promote bipartisan legislation to reform FIRPTA. Momentum for change is considerable and coalition members are growing more optimistic that 2014 will be the year they succeed.

Legislation Introduced — “Real Estate Investment and Jobs Act”

Last year, Senate Finance Committee members Senators Robert Menendez (D-NJ) and Michael Enzi (R-WY) introduced S. 1181, the “Real Estate Investment and Jobs Act of 2013.” This legislation, which is similar to a proposal they introduced in the 112th Congress, currently has 37 bipartisan co-sponsors, including 75 percent of the Senate Finance Committee. At the same time, House Ways and Means Committee members Representatives Kevin Brady (R-TX) and Joseph Crowley (D-NY), who also sponsored comparable legislation in the 112th Congress, introduced H.R. 2870, the companion bill to S. 1811. This bill has garnered the support of 25 bipartisan co-sponsors. Both bills would allow foreign investors to take a greater ownership position in publicly traded U.S. real estate investment trusts (REITs) without trig-

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gering FIRPTA. In 2004, Congress created a safe harbor rule that permits foreign investors to hold up to 5 percent of a publicly traded REIT without imposing FIRPTA’s discriminatory tax rules. The bill would increase the ownership safe harbor threshold from 5 percent to 10 percent. The legislation would also reverse an interpretative decision by the Internal Revenue Service (IRS) that further drove foreign investment out of the U.S. real estate market. Before 2007, redemptions and liquidating distributions of privately held, domestically controlled REITs were treated the same as sales of stock, and thus did not generate tax liability for the foreign investor. In 2007, the IRS issued Notice 2007-55 (2007 IRS Notice), which concluded that such distributions should be treated as sales of real estate and therefore subject to FIRPTA and possibly branch profits tax.

Administration Action Pursued — Repeal IRS Notice

The coalition of real estate stakeholders has also pursued efforts with the Obama Administration to urge the reversal of the 2007 IRS Notice, which would significantly reduce the overall cost of the legislative proposal and would dramatically lessen the need for the bill’s sponsors to identify ways to offset the budgetary cost of the bill. The bill’s sponsors would therefore be in a better position to move forward the remaining proposal – increasing the current “portfolio investor” exception for sales of stock and capital gains dividends of listed REITs from 5 to 10 percent – in Congress (a proposal that passed the House by an overwhelming vote of 402-11 in 2010). Conversations on this administrative course of action continue. In a hearing on March 4, 2014, on the Administration’s FY 2015 Budget proposal, Senator Robert Menendez (D-NJ) questioned Secretary Lew about this urging the Treasury Department to “take positive action” on the 2007 IRS Notice, noting that prior to the notice, a foreign pension fund could invest in a domestic REIT and have their shares treated similarly to a domestic pension fund. Senator Mark Warner (D-VA) echoed Menendez’s remarks.

Obama FY 2015 Budget — FIRPTA Proposal Included

Noting the discriminatory nature of current FIRPTA rules, [both] the President’s FY 2014 and FY 2015 Budgets included a $2.1 billion proposal to stimulate investment in U.S. infrastructure by exempting the disposition of U.S. real property interests by foreign pension funds from FIRPTA tax. This concept is a positive, though slightly different, approach to FIRPTA reform than the legislative proposals that have been promoted in Congress.

Outlook

Enacting the Real Estate Investment and Jobs Act is increasingly being viewed as critical to continued recovery from the financial crisis in the U.S. Without FIRPTA relief, foreign institutional investors and sovereign funds---which increase their portfolio shares of global real estate each year--will direct their investments exclusively in foreign jurisdictions. G Clifton E. (Chip) Rodgers, Jr. is Senior Vice President of The Real Estate Roundtable and Executive Director of the Real Estate Information Sharing and Analysis Center. With more than 15 years experience in the real estate and financial services sector, Chip has successfully represented real estate’s interests in Washington for nearly two decades. He has lead staff responsibility for developing and implementing The Real Estate Roundtable’s legislative and regulatory initiatives in a variety of key issue areas – credit and capital, homeland security, sustainability and tax. Rodgers also served in the Administration of George H.W. Bush, where he directed the U.S. Treasury Department’s office of business liaison. The Roundtable (www.rer.org) represents the leaders of America’s top publicly held and privately owned real estate entities and 17 national real estate trade associations.

The legislation would also reverse an interpretative decision by the Internal Revenue Service (IRS) that further drove foreign investment out of the U.S. real estate market.

FEATURE â&#x20AC;&#x201D; Legislative Spotlight

Benefits of Reform to the

U.S. Economy By United States Senator Robert Menendez

hile the idea of reforming Foreign Investment in Real Property Tax Act (FIRPTA) laws sounds complex and technical, the potential benefits of reform to the U.S. economy and job creation are quite clear. By increasing investment in commercial real estate, reform will jumpstart construction and real estate modernization projects and generate a need to build up surrounding infrastructure, including new sidewalks, roads and light rail projects. It will create a virtual cycle, creating American jobs not just for investments in the real estate sector but also business operations and surrounding infrastructure. There is no significant job creation proposal that I

know of in this Congress with stronger bipartisan support. Unfortunately, only in Washington is it difficult to act even on an idea that has widespread support. But with the help of businesses and communities all across the country, we can forge success on this common sense proposal. By 2018, more than $2 trillion in commercial real estate loans will mature. Because of the significant drop in property values in recent years, many of the loans on these properties are underwater and will require more equity to be refinanced. Ignoring the problem would mean less investment, more underutilized and vacant storefronts, fewer jobs, lower tax

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Legislative Spotlight — FEATURE

revenues, and a deeper economic hole for communities to dig themselves out of – absolutely the last thing this economy needs right now. Given these loan values, the commercial real estate industry has an equity problem simply too large for domestic investment alone to solve. Unfortunately, FIRPTA tax rules – most of which were drafted 30 years ago, before the current crisis could be foreseen – impose significant penalties on foreign investments in domestic real estate. These rules freeze out foreign investment in our real estate markets by imposing an arbitrary withholding tax on the gains realized by overseas capital invested in domestic properties. At a time of fierce global competition for capital investment, we are still living by rules which penalize overseas investors for investing in U.S. real estate. It makes little sense to dissuade capital investment in our real estate market when it is sorely needed. I have written legislation with Senator Enzi from Wyoming called the Real Estate Investment and Jobs Act, which will implement efficient and meaningful reform of these tax rules to encourage more equity

investment in U.S. real estate. This bill has attracted the support of close to half of the United States Senate, including 20 out of 24 members of the Senate Finance Committee, the committee with jurisdiction over the tax-writing process. The previous chairman of the committee included a number of our reforms in his proposals to reform elements of the tax code.

increase investment and create jobs almost immediately simply by repealing the relevant parts of a Bush administration IRS Notice which scared away foreign investment while Congress works on the rest of the issue. I have even told the President that moving a significant piece of a bipartisan jobs bill administratively is both good policy and good politics.

The House of Representatives has introduced similar legislation with bipartisan support, and the sponsors there have been productive partners in working to get this proposal to the finish line. And just last year, I was pleased to see the administration’s infrastructure investment plan calling for reform of FIRPTA laws to increase investment in the U.S. and create jobs. It is rare to have the President and a bipartisan coalition of Congress agree on anything, which tells me reforming FIRPTA is simply common sense.

This being Washington, nothing is as easy as it seems. But with the support of families and businesses in communities across America, we have created a powerful coalition that will continue to push reforms to FIRPTA laws to improve the U.S. economy. There is broad agreement that FIRPTA as currently drafted discourages foreign investment, and agreement that reforming these laws will create jobs and investment, so once there is a legislative opportunity we will take action. G

Given the current political climate in Congress, I have been pushing the Department of the Treasury to use their current authority to begin reforming FIRPTA rules now, rather than waiting for a proposal to wind its way through the legislative process. We can

Senator Robert Menendez is the senior Democratic Senator from New Jersey. He is the Chairman of the Senate Committee on Foreign Relations.

SOMETIMES BEING “LIKED” JUST ISN’T ENOUGH. In the rapidly growing landscape of social media, navigating the ins and outs takes a partner. A company that knows how to strategically build your brand and your property’s visibility online and off. And these days, a “Like” or a “Tweet” is simply not enough. COHN’s team of digital strategists, brand experts and public relations advisors are ready to help you manage through the complexities of marketing today. We’re real estate specialists and work across the spectrum of property types, from urban destinations to suburban centers to transit-oriented developments. As a marketing agency partner to Madison Marquette, we’re ready to help you and your properties get “Likes,” “Tweets,” and other valuable digital communications to build customer engagement at every touch point. Let the COHN team help you maximize your online exposure and brand.

A “LIKE” OR A “TWEET” IS SIMPLY NOT ENOUGH.

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4/2/14 3:18 PM

FEATURE — Rise of the Creative Office

La Brea | Los Angeles, CA

Rise of the Creative Office

Creative office space helps mixed-use properties target millennials, tech and design By Eric Hohmann

ixed-use properties have long thrived in part because they are carefully tailored to the demographics of their market and their consumers. This strategy remains crucial but as the workforce demographics and culture shift in major markets across the country, mixed-used properties must be more flexible than ever before in meeting the needs of not only consumers, but also of tenants and local business owners. In urban areas, industries such as entertainment, design, publishing and technology – as well as the workforce of young professionals they attract – are shaping the office real estate scene. As a result, there is one major emerging trend that has demonstrated strong and growing appeal for mixed-use properties in city neighborhoods: the creative office. Creative office spaces have long been popular within the technology and innovation sectors. Companies like Google, Facebook, and Apple occupy notoriously sprawling campuses featuring open floor plans, creative design, and on-site amenities like gyms, game rooms and catering services for employees. In fact, the creative office has become synonymous with the culture of the growing technology/innovation world: laid-back, open and consistently modern.

So it’s is no surprise that the creative office concept is now branching far beyond Silicon Valley. Technology companies and smaller technology-based startups are moving into city centers across the country with an especially strong presence in Seattle, Los Angeles, San Francisco, Austin and New York. In these cities (and others), technology entrepreneurs attract hoards of young, urban employees, many of whom enjoy significant disposable incomes. Incorporating creative office space into a mixed-use retail property can create significant buzz around a center and also attract high-value tenants who understand that convenient retail, dining and entertainment options increase their space’s desirability. As a further sign of creative office popularity, The New York Times recently estimated that “virtually all American workers now spend time on teams and some 70 percent inhabit open-plan offices, in which no one has a room of one’s own.” One of Madison Marquette’s most recent acquisitions, the Bellevue Galleria, exemplifies a synergy between office and retail offerings. Located just outside Seattle, the Bellevue Galleria features 30,000 square feet of creative office space. This space has been leased to gaming company Bungie, once

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Rise of the Creative Office — FEATURE

a Microsoft-owned start-up, now independent and the creator of the popular video game Halo. Other anchors include LA Fitness, Gene Juarez Salon, Men’s Wearhouse and Rock Bottom Brewery. These businesses provide appealing amenities and entertainment options for not only the creative office tenants but also for scores of other young professionals in the area. The Bellevue Galleria plays to the Seattle changing demographics. According to a 2013 Forbes article, the Seattle metro area has experienced a 45 percent growth in technology employment over the past decade – a trend that shows no sign of slowing. Bellevue itself is already home to several internet and gaming companies, friendly competitors of Halo, not to mention branches of HTC and Microsoft. The area is fostering larger numbers of start-up technology companies while established companies like Amazon, Groupon and eBay are expanding their presence in the area. Creative office-centered projects can also help revitalize waterfront neighborhoods or energize urban infill projects. In Brooklyn, previously empty “warehouse” space on the Hudson River has been transformed into loft offices, condominiums and street front retail with extraordinary success. Creative office projects such as 1000 Dean, the Domino Sugar Factory and Industry Warehouse have made the previously sleepy borough into one of the hottest real estate markets in the country. Brooklyn has 2.5 million residents and is increasingly pulling tenants from surrounding boroughs as it provides innovative shopping, working and entertainment space. The same is true for San Francisco’s Mid-Market neighborhood. In 2012, Twitter announced it was leasing office space in the dormant Market Square. Other companies soon flocked to the area, including music-streaming service Spotify and popular mobile payment company Square. In addition, a flurry of retailers signed on to Twitter’s HQ and the adjacent buildings to capitalize on the sudden influx of young employees. This once-dormant section of San Francisco is now home to numerous technology companies, as well as over 30 mixed-use construction projects. Projects include apartment buildings, fitness chains, art groups, grocery stores and more – all anchored by the boom in technology companies leasing creative office space. As the profile of companies who tout the advantages of creative offices rises, so too does the demand – from employers and employees alike. Today, creative office leases are no longer limited to an elite group of technology and digital brands. Companies from more conventional industries have begun to embrace

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Photo by Marcin Wichary via Flickr, licensed under CC BY 2.0

Google Office | Chelsea Market, NY

the benefits of a creative office, including financial services, real estate and even law firms. A unique office can be seen as a statement of a company’s singular culture and can help companies remain competitive in recruiting.

hip, emerging retailers like Steven Alan, A+R home design, Gant, Bonobos, and SugarFish Sushi. The office and retail space capitalizes on the building’s natural properties, such as exposed brick and ceiling timbers.

In addition to the appealing environment required by these tenants, the utilization of space is much greater than for a traditional office. A typical open plan office will pack employees into 100 to 200 square feet, less than half the space typical 15 years ago. This increased density creates greater demands on restrooms, heating and ventilation systems, exiting and parking.

The La Brea project reflects the neighborhood surrounding it, an area heavily influenced by fashion and film. A mural by Shepard Fairey creates an outside aesthetic that reflects the modern and creative nature of the retailers, and events such as block parties and an annual Fashion’s Night Out event serve to further integrate the property into the community. Overall, the project’s many elements combine to create a unique destination that is much more than the sum of its parts.

Many arts and publishing organizations have also embraced the creative office. In addition to open floor plans, these companies may focus increasingly on striking design and artistic elements. As an added bonus, historic or unorthodox buildings have recently become popular among industries seeking alternative headquarters. Repurposed buildings such as railcar terminals, manufacturing buildings or postal facilities can give a distinct look and a prized historic feel to an office. Madison Marquette’s own La Brea project, which is located on the popular Los Angeles shopping thoroughfare, contains creative office space in restored buildings with eclectic and emerging local retailers. Thirty-thousand square feet of La Brea’s office space was leased to creative brand consulting agency Troika. The remainder of the building is leased primarily by

Clearly, we have entered a time when companies across multiple disciplines – from art and design to technology, research and blue chip professional services – are seeking competitive advantages to maximize efficiencies and quality of life. Creative office spaces provide optimal opportunities for businesses to thrive, for workforce collaboration and innovation to occur and for success in mixed-use environments where retail, dining and entertainment become an essential offshoot of the holistic work experience. G Eric Hohmann is President of Madison Marquette located in San Francisco, CA.

Q&A

Q&A with Lori Coleman and Krista Wilson

Property Management

Interview with Lori Coleman and Krista Wilson PLACES sat down with regional property managers Lori Coleman and Krista Wilson to discuss strategies to enhance consumer experience at shopping centers.

Q: What are some of the key strategies for driving traffic in today’s environment? LC: Customer experience is always an important

Lori Coleman Regional General Manager, Northern California, MMRS

factor in driving traffic. Parking should be easy to find (and paid for if required), a dynamic marketing and activities program including events that appeal to the community such as farmer’s markets and children’s programs, and a clean and well-maintained center are all important elements to creating a valued experience. It is also crucial to keep the community aware of new tenants and center enhancements, which can be done through advertising as well as marketing and public relations initiatives. Customers have a lot of options when it comes to making purchases, so owners and property managers must create a warm, inviting environment to attract attention and build and foster loyalty.

KW: In today’s tech-driven age, social media is also

Krista Willson Regional General Manager, Mid-Atlantic, MMRS

a key driver of traffic and in building customer loyalty. Of course having the right merchandising mix is integral as well. As Lori noted, it is always important to create an atmosphere where shoppers want to visit and stay. Creating that special experience for a shopper is the advantage a shopping center will always hold over online shopping. With the ever-changing,

fast-paced world we are now living in, we have to be quick to adjust to consumer needs on all levels to continue to provide that “experience” that shoppers crave.

Q: How has the millennial generation impacted the tenant mix, services and amenities offered at centers? LC: Customers today are extremely price sensitive and millennials desire information at their fingertips. Centers that offer mobile applications and social media incentives create a stronger brand which can help capture this new generation of consumers.

KW: The millennial generation is extremely

tech-savvy and is typically well-educated and ambitious, but they also want everything now. As shopping center managers, we have to take the instant-gratification desires of this generation into consideration when deciding on tenant mix and what retailers, restaurants and entertainment options we are making available at the center. How do we get millennials into the mall and how do we keep them coming back are questions that must be asked when determining center offerings. Amenities such as Wi-Fi, mobile apps, marketing campaigns, and promotions that include social media are an important part of reaching this generation. Engagement is key.

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Q&A with Lori Coleman and Krista Wilson Q: How do you enhance the shopping experience at your centers? LC:

I manage neighborhood shopping centers and there are a number of things we can do, even in the absence of a marketing budget. We enhance the customer experience by keeping the center clean at all times, providing beautiful landscaping that is constantly maintained, providing common area music, and ensuring tenants adhere to the center’s design and operating standards. The easiest thing a Property Manager can do is to ensure their vendors are performing their duties to the highest standards on a daily basis. Customers will often forgo shopping at a neglected center.

ally, property managers must work with their merchants to enhance offerings and possibly create cross-promotional opportunities among various retailers.

Q: What can centers do to stay relevant? LC: Today’s shopping centers must embrace

technology to stay relevant. At a minimum, shopping centers should offer Wi-Fi services as more and more customers rely upon an internet connection as an integral part of their shopping experience. Leasing plays a big role in merchandising the center. The merchandise mix and entertainment and

dining options must appeal to the local needs and therefore having an experienced, effective leasing team, and working together with that team is a vital component of keeping a center relevant.

KW: We must follow the trends and listen to our

customers. Whether through the center’s website, Twitter feed or Facebook page, property managers must make sure that we are engaging our customers and capitalizing on the viral nature of these outlets to tap into customers’ networks and appeal to broader audiences. These channels allow centers to promote sales, events, community involvement and foster engagement with the center, keeping it top of mind with consumers.

KW: Different kinds of properties require different

things to create an appealing experience. Events, merchandise and marketing must be tailored to the demographics and needs of the community. My centers are primarily mixeduse, community centers, which are unique in that they have to appeal to residents as well as customers from the surrounding neighborhoods and communities. I find that focusing on grassroots efforts can ensure we are meeting the needs of our customers and residents. This can include paying attention to shopping/visiting habits and monitoring social media for customer feedback. Addition-

With the ever-changing,

Beachcliff Market Square | Rocky River, OH

fast-paced world we are now living in, we have to be quick to adjust to consumer needs on all levels to continue to provide that “experience” that shoppers crave. Bell Tower | Ft. Myers, FL

PLACES MAGAZINE

Q&A

Q&A with Chad Eisenbud and Patrick Walmsley

Investment Trends

Interview with Chad Eisenbud and Patrick Walmsley PLACES sat down with Madison Marquette’s Chad Eisenbud and Patrick Walmsley to get an investment insider’s look on the state of commercial real estate trends for 2014.

Q: How is the real estate investment market faring today? CE: The investment market is extremely competi-

Chad Eisenbud Director of Investments, Madison Marquette Property Investments

tive, particularly for the gateway markets. Prices for institutional properties appear to be back at peak levels, driven by a combination of the attractive debt markets, the tremendous amount of available capital and the relatively constrained amount of retail and mixed-use investment sales inventory.

PW: I think what is particularly notable is the

Patrick Walmsley Managing Director, Madison Marquette Property Investments

amount of capital targeting real estate – in terms of the breadth of sources and overall level. Nearly every category of institutional investor is below their target allocation for real estate, and this targeted allocation is on the increase. There is clearly tremendous demand for retail properties from all major classes of investor as well. One trend that will be important to monitor is the inflow of international capital into U.S. real estate. Foreign capital represented a growing percentage of core acquisitions in 2013 and we believe this demand is on the rise as foreign investors remain attracted to the U.S. for its stability and attractive risk-adjusted returns.

Q: Where do you see the most interesting investment opportunities for 2014 and going forward? CE: One area that we think is very attractive is

opportunities aligned with centers for tech and creativity — the social media, gaming and other tech companies where urbanism, high-density populations and affluence are largely the demographic. In San Francisco and outlying areas such as Potrero Hill or recently revitalized neighborhoods such as mid-Market are growing rapidly due to Twitter and other impactful tech companies, and there is an opportunity to develop some significant retail around them. In Seattle you have the Amazon effect, where roughly 200 new employees are being added each week in South Lake Union.

PW: Significant opportunities can still be found

in good infill markets that have strong remaining upside while offering the density, affluence and overall cache that can attract the retailers and expanded consumer base we often target. For example, we recently acquired a property in the Williamsburg area of Brooklyn, an area that is strong but with tremendous additional long-term upside opportunity as it becomes fully gentrified. In addition to South Lake Union in Seattle, we believe Bellevue has tremendous upside given the significant commercial and residential development either underway or on the books. The Design District in Miami is another example.

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Q&A with Chad Eisenbud and Patrick Walmsley

CE: Recognizing these types of opportunities can

critical to differentiate between specialty and commodity retail and to continue to identify and work with innovative retailers and fashion-forward brands as part of merchandising strategy.

be facilitated by an established local presence. We believe that our regional offices in our core markets help to spot trends, identify investment opportunities and then execute our investment plan. We see a local integrated presence — ranging from investment to leasing, marketing and management capabilities — as a very important competitive advantage of Madison Marquette.

Understanding the impact of technology and social media – on both consumers and retailers. It is important to identify retailers in all categories who effectively embrace and use technology and a variety of social media platforms.

Q: What are some of the driving factors in smart real estate investment?

Overall, we think it is critical that our projects are not viewed as a commodity. They need to provide our customers unique and specialized products and services that can’t be replicated elsewhere.

PW: We think key factors are the following:

Ensuring upside in rents and cash flows – the current cap rate and pricing environment is very aggressive and we believe it is critical to have comfort on the ability to grow rents. Urban areas have seen tremendous general appreciation in rents recently, but we also focus on increasing rents through driving sales. Focusing on changing consumer retail spending patterns, including a particular focus on the Gen Y consumer. We believe it is

force in the economy, are retiring. Their living and expenditure patterns are changing and need to be considered. In addition, overall population and employment shifts merits monitoring. Right-to-work states and those featuring economic strength and a low individual and corporate tax base may become more attractive from an investment standpoint in our minds than in the past.

CE: Dynamic markets with a strong employment base are largely where affluent, tech-savvy,

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

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PW: Boomers, who were the major consumer

Q: How are demographics influencing retail real estate decision-making — including property types and tenant mix preferences?

te Me orpora

creative millennials are migrating. Blue chip companies like Boeing, Amazon and Microsoft are drivers for retail and restaurants, and tech is driving employment right now. Monitoring the continued migration patterns of the millennials will be key.

www.eincomm.com | 202.775.0200

Q&A

Q&A with Robert Steiner and John Lanham

Regional Malls

Regional Mall Forum: Weighing the Opportunities and Risks Regional malls are keeping pace with today’s evolving consumer needs and digital options. PLACES sat down with SVP Portfolio Management, Robert Steiner, and SVP Development, Design and Construction, John Lanham, to discuss the future of regional malls and what is essential to compete in today’s retail climate.

Q: Can enclosed regional malls survive and if so, how? RS: Absolutely. Some malls will close, but this is Robert Steiner Senior Vice President, Portfolio Management, Madison Marquette Retail Services

largely a result of the landlord not keeping the center relevant to its primary and secondary trade areas. Maintaining relevance to its market through merchandising, marketing and community event programming is essential. As retailers start to expand again postrecession, there’s an opportunity to repurpose the space through accretive remerchandising.

JL: They can if their underlying real estate is in

the right place. If a better use of that land is available, developers envisioning a greater investment could easily repurpose it. Ultimately, it’s all about location. If you are in an irreplaceable spot and can afford to put the capital in, there’s an opportunity for growth. The malls in poor locations won’t make it and will be scrapped and re-purposed as something else.

John Lanham Senior Vice President, Development, Design and Construction, Madison Marquette Retail Services

Q: What external factors impact the success or failure of regional malls? RS: An important factor is the strength of the

local economy in the primary markets the

center serves. If there is high unemployment, this will have an adverse impact on mall productivity. The proximity of your competition cannot be overlooked. The strength of the local competition will determine if you are the donut or the donut hole. What is the public perception of the center? The uptick of social media is important, but the ability to spread information through word of mouth is still one of the most powerful tools to employ.

JL: The critical factor by far is location. When

you look at Lenox Square outside of Atlanta – if that mall was in Macon, it wouldn’t have made it. But because it was in a high density, central location, you have the right demographics to support sales volume and foot traffic. People need to care about the center in order for it to remain an integral part of their community.

Q: What internal factors impact the success or failure of regional malls? RS: The physical attributes of the center need to

be representative of the community it serves and appealing to those who visit. If you don’t provide the proper upkeep, the center will lose its popularity and become stale. Landlords that did not or could not spend money over the past few years are now paying the price of this inaction. Tenant mix always plays a critical role in the center’s relevancy. Determining whether a tenant is additive, negative or neutral in the shoppers it draws is vital. Owners must be ahead of their competition, and property managers must ensure safety standards that comply with federal regulations. These internal factors

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Q&A with Robert Steiner and John Lanham should work in tandem for a regional mall’s long-term success.

JL: 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 effectively 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.

Q: What role does marketing play in driving traffic to enclosed malls? RS: 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.

JL: You need to have something you can’t get

with a click. It’s more about the experience now than anything else. Why would I get in a car and drive 15-20 minutes for something I can order over the Internet and have delivered to my door? The tenant mix is not inconsequential. You have to have stores people want to go to, but it’s more about the experience and the community engagement that you can’t get by shopping online.

offer, particularly over the competition? If it’s not high-end retail, does it have community events or services for everyday needs? Understand the market and where your story fits into it. Once you have this narrative, you have more leverage to acquire better retailers and improve the merchandise mix. Having strong tenant relations and recognizing potential issues in advance like low stock, poorly designed window displays and late rent payments are all critical to the overall health of the center.

JL: Events, community engagement, happy

hours, more restaurants—these are the social elements that retain customer loyalty and provide an integrated experience that can’t be found elsewhere. People go in to Best Buy to scan an item and find out where they can then get the best deal somewhere else. The shopping experience has shifted, and retailers need to be nimble enough to keep up with the consumer and the competition. If you have an abundant capital budget there’s no limit to what you can do. We’ve seen major redevelopments that have made the difference but have also meant $50 million in renovations. From a management perspective, we can add value at less cost. Structure lease terms around the individual tenant’s needs, go space by space looking at sales, and then look at the overall performance of the tenant’s category within the center.

Q: What strategies have been effective in improving a regional mall’s appeal? Has that translated to a rise in traffic and leasing?

Q: Are regional malls’ successes linked to the success of major department stores? If so, how can department stores and mall owners/managers work together to maximize the mall and store’s potential?

RS: Try to reverse the frequency of visits to

RS: Retail has changed sig-

competitive centers through innovative merchandising, personal services and more “eatertainment.” It won’t eliminate the competition, but it can draw people in for other day-to-day needs, building the traffic you need to begin repositioning your center. If you don’t have a good story to tell, you need to create one. What does your center have to

PLACES MAGAZINE

nificantly from decades past. Over the past 15-20 years, everyone became vertically integrated. Department stores had a hold on certain brands, but now they’ve become homogenized so everyone has similar merchandise. They aren’t

seeing as much revenue as years past—their sales and traffic are down. Therefore, they are no longer the foremost destinations they once were. The question becomes, what can be done to bring back the strength of the anchor store? The death knell for the regional mall happens every year in the news, but they have soldiered on. Shopping centers will maintain relevance, as people will always long for interaction.

JL: From an ownership perspective we immedi-

ately look at value. If there’s no link, you run the risk of a department store leaving. This has a significant impact on the value of the center. Property managers watch department stores closely because the success of the center is linked to the anchors. The model for department stores of yesterday has past. Today, a collection of restaurants can be an anchor, like International Mall in Tampa, Florida. “Eatertainment” concepts are emerging, which can include luxury bowling alleys, comedy clubs and concierge theaters. An Apple store can be considered an anchor—the sales there are incredible compared to its square footage. The definition of “anchor store” has shifted dramatically from ten years ago.

University Mall | Chapel Hill, NC

Q&A

Q&A with Jessica Trevino

Global Retail Spotlight

The Future of Retail in China Q: China represents one of the largest retail markets in the world. Can brickand-mortar stores compete there with online shopping? JT: We all know China’s e-commerce market

is big. So big, in fact, that some analysts, including the Boston Consulting Group, believe that it will soon be the world’s largest.

Jessica Trevino CEO, Cloud Mall

Brick-and-mortar retail are being influenced by e-commerce consumption growth year by year, but they still have their special role in China. When I say influenced, I mean it in a positive light. At Cloud Mall, we believe the Internet is making a smarter consumer — especially in brand awareness, driving consumption both online and in brick-and-mortar retail. Shopping preferences vary in group age, gender, income, localization and needs. According to iResearch China, a Beijing based research consulting company, “digital goods, books, food, sportswear, apparel and cosmetics are highly purchased online.” Apparel products are very popular in the offline market. Cloud Mall conducted a study in 2013 with men and women age 25-40 from Beijing and Shanghai, and the results showed that most women see offline shopping as entertaining, associating it with social networking and even physical exercise. In a blind study, traditional shopping will never be 100 percent substituted by e-commerce. However, Chinese men seem to consider traditional shopping boring, time-consuming and tiring. They are more willing to replace physical shopping for a more comfortable way to shop such as online.

Shopping malls are usually located in convenient areas. They offer seasonal discounts, selective brands and additional conveniences to attract people to the mall from hair salons, gyms, and restaurants. To the average Chinese consumer, price sensitivity seems to be most important, unless they find something they really want because of status or need. Then they will purchase on the spot. Typically, the average consumer will take the time and compare online and offline pricing before making a final decision. It is very popular for Chinese to navigate the web, and pictures have a big influence in online shopping in China. Studies show that many people are compelled toward impulse purchases even though their initial searches were for online leisure activities.

Q: In the United States, different age groups approach shopping differently. Is the same true in China? JT: I think the situation is pretty much the

same in China. In terms of offline shopping, different age groups seek different shopping experiences. In big cities in China such as Beijing, Shanghai and Guangzhou, there are a lot of luxury and high-end shopping areas but also other segmented shopping locations for specific age groups and income levels. You can find diverse shopping malls distinctly offering electronics or clothing or home supplies, outlet stores, etc. For online shopping, like in any other society, the older generations are less likely to shop online than young people.

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Q&A with Jessica Trevino Q: Where does the Chinese shopper get his information on fashion and brands? JT: As in most societies around the world, China has many different channels: TV, movies, fashion magazines, billboard advertisements and word of mouth. Cloud Mall has found that Internet and social media applications such as Weibo and Weixin are extremely important. Chinese people are also easily influenced by the opinion of friends or family. Mobile platforms with social networking can spread word of discounts, deals and brands quite quickly.

Q: In the United States, shopping centers are increasingly offering luxury amenities like Wi-Fi access, concierge service and high-end dining and entertainment options. Is this a trend in China as well? JT: Modern and high-end shopping centers

in China offer great services including free Wi-Fi, large food courts, coffee shops, bars, supermarkets, convenience stores. These additional services are premium, comfortable and convenient.

Q: Do shopping malls in China rely on social media and digital marketing to drive retail traffic, or are they more reliant on conventional advertising? JT: Both. People in China spend a considerable

amount of time every day surfing the Internet and social media direct from PC and mobile platforms. However, basic TV time is always indispensable in an average personâ&#x20AC;&#x2122;s daily life.

Q: Are global brands facing tax or tariff hurdles to enter the Chinese market? JT: In China, there are 15 free trade zones

(FTZ); these special zones provide excep-

PLACES MAGAZINE

Shanghai, China

tions to the usual customs procedures and allow for preferential tariff and tax treatment. All forms of trade conducted between companies in FTZs and areas in China outside the zones are subject to the usual rules that would apply to imports into China. Importing to China generally involves three types of taxes: Value-added tax Consumption tax Customs duties Tax rates vary between different types of goods, country of origin or methodology and type of company that is receiving the importation of goods. Cosmetics and watches require a value-added tax plus consumption tax in addition to custom duties.

confiscation of the goods or even criminal detention. Since 2010, the Chinese government has taken different large-scale actions against the counterfeit trade, both online and offline. Many markets originally at the center of the counterfeit trade are increasingly moving away from counterfeit goods, such as Silk Street in Beijing. With the continuous increase of income of Chinese citizens, the trend to purchase counterfeit products is decreasing, due to the quality issue and the image of the person. Both European and American Embassies have Intellectual Property Right (IPR) call-in lines set up in China, and together with the Chinese government are devoting themselves to stamp out counterfeit issues.

Q: What is China doing to curb the counterfeit trade, which impacts brand integrity both inside China and globally? JT: Counterfeit trade in China is illegal by law.

Passing through Chinese customs with counterfeits, the traveler may face a big fine, the

Q&A

Q&A with Charlie Chanaratsopon

Retail Spotlight with Charlie Chanaratsopon

Charming Charlie Founder PLACES spoke with the founder of jewelry retailer Charming Charlie to learn about the brandâ&#x20AC;&#x2122;s inception, style and expansion plans for the future.

Q: Charming Charlie has been a case study for success. Are there further expansion plans?

Q: How did you conceive of the Charming Charlie concept?

CC: Yes. We currently have over 290 stores in the

CC: There was unwavering need in the market-

place for a curated fashion brand specializing in accessible, on-trend fashion jewelry and accessories.

Charlie Chanaratsopon Founder and CEO of Charming Charlie

Q: What is unique about Charming Charlie? CC: Charming Charlie offers accessible in-

dulgences that cross all trends, styles and categories. Our brand/stores are organized by color and trend tables which offer a unique and easy-to-navigate shopping experience.

U.S., and we plan to open approximately 50 more locations in 2014. We are also building flagship stores, which is really exciting! They will be located at Fashion Show Mall in Las Vegas and on Fifth Avenue in Manhattan. Looking beyond the U.S. market, our first Canadian store will open this fall, and we are considering expansion in Latin America, Europe and the Middle East.

Q: What are your Charming Charlie favorites? CC: I love our Sandblast collection, infinity

scarves, statement necklaces, whimsical tech accessories and boyfriend watches.

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Marketing and Social Media Pulse

In 2014 Being

“Liked” Isn’t Enough How social media advertising killed organic content By COHN, Inc. Social media is like survival of the fittest -- brands that don’t adapt risk falling behind. Social networking platforms are multi-pronged, iterative, and have become integrated into almost every feature of our daily lives. What may have been a successful outreach campaign last year has already become stale, a reflection that the most “current” practices in the social media jungle are changing every day. Corporate brands, emerging businesses and news agencies source the latest trends in brand engagement and inbound marketing on the market. As the “new” rules shift with technology’s rapidly evolving pace, brands must conform their messaging, outreach and awareness toward social media’s most current platforms and advertising opportunities. Once relegated to banner ads easily ignored on the side of the screen, advertising has become a seamless part of the social experience, wedging itself directly between Facebook newsfeeds and status updates. Any company with a few dollars to spare can “boost” their content on Facebook to reach targeted users by selecting categories and topics they may be interested in that reflect the brand’s messaging. Brands are blurring the line between organic and paid content, with sponsored posts adopting the characteristics of organic content to great effect — but not without cost.

The new reality

According to a recent study by Social@Ogilvy, the consumer reach of strictly organic brand content has declined to 6 percent. For larger brands, that number falls to 2 percent. It’s expected that brands will soon be facing a negligible reach for organic content, meaning that years of efforts to earn “Likes” and “Followers” won’t mean much without help. Driving this trend, today’s average consumer is exposed to more than 3,000 marketing messages per day; there is simply too much competition for every message to achieve visibility. Those who want to succeed must adopt strategies that push their content ahead of the pack.

The modern advertisement

Ads masquerading as organic content have been around for years — a practice pioneered by search engines that placed paid-for links right at the top of results. Today’s advertisers are able to identify target audiences by a number of factors: location, interests, education, age and more. Algorithms then select ads that are likely to appeal to a consumer’s personal taste — a far more effective strategy than the blanket advertising of the past. Social platforms take this concept a step further, integrating ads into feeds previously reserved for organic-only content.

PLACES MAGAZINE

A few highlights

• Twitter’s “Promoted Tweets” fit seamlessly into the organic construct of the social experience and don’t get buried in a fast-moving content stream. Users can also be provided “suggestions” of whom to follow or hashtags to use based on interest. • Facebook and LinkedIn encourage use of Newsfeed ads, which boosts engagement by using the names of a consumer’s friends as endorsements. • New ad units at Instagram and Pinterest are designed to blend into the natural landscape of the user’s social feed. The result is that casual consumers — particularly those on mobile devices — are often unable to distinguish between paid and unpaid content, leading to significantly higher brand engagement.

The cost

Fortunately, a brand doesn’t need to be a Fortune 500 company to purchase social advertising. Advertisers are able to customize their budgets, through monitoring an ad’s performance to see how well it engages consumers. They can then redirect or restructure funds if necessary. Settings also allow advertisers to control daily spend, total spend and length of time, to ensure ads don’t exceed budget.

So, consider this the memo This trend is only going to grow in 2014.

Facebook has conceded that Page Likes are now more important for driving advertising than organic content, and the company has even gone so far as to suppress organic content to effectively force brands to advertise if they want to be seen. Fortunately, advertising could be a way to save organic content, at least in the short term. If users engage with a paid post, they will start to see that brand’s organic posts in their newsfeed for approximately two to three months. However, if they don’t engage with those organic posts, then impressions will decline. It is imperative to continue creating interesting and engaging organic brand content, but it can’t be relied upon to drive your message. Advertising has become an inescapable reality for any business that wants to grow via social media. In the digital era, the right combination of advertising and organic content increases reach and brand engagement. Those willing to pay to play now have a distinct advantage.

Contributors

Cheryl Beckel

Arvind Bajaj

Vice President, Leasing MMRS Cheryl.Beckel@ MadisonMarquette.com

Managing Director MMPI Arvind.Bajaj@ MadisonMarquette.com

Bill Coleman

Lori Coleman

Regional Vice President, Ft. Lauderdale MMRS Bill.Coleman@ MadisonMarquette.com

Regional General Manager, Northern California MMRS Lori.Coleman@ MadisonMarquette.com

Tom Gilmore

Tory Glossip

President MMRS Thomas.Gilmore@ MadisonMarquette.com

Regional General Manager, Northwest MMRS Tory.Glossip@ MadisonMarquette.com

Shipra Bhardwaj

Merle Brann

Denise Browning

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

Director, Investments MMPI Merle.Brann@ MadisonMarquette.com

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

Chad Eisenbud

Nick Egelanian

Marina Ein

Director of Investments MMPI Chad.Eisenbud@ MadisonMarquette.com

Eric Hohmann

President Madison Marquette Eric.Hohmann@ MadisonMarquette.com

President & Founder SiteWorks negelanian@ siteworksretail.com

Peter Jun

Chief Operating Officer Madison Marquette Peter.Jun@ MadisonMarquette.com

President, Ein Communications mein@eincomm.com

John Lanham

Senior Vice President Development, Design and Construction, MMRS John.Lanham@ MadisonMarquette.com

Charlie Chanaratsopon Founder and CEO of Charming Charlie

John-david W. Franklin

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

Alan McKeon

President and CEO of Alexander Babbage

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Contributors

Whitney Livingston

Robyn Marano

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

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

Alex Peker

Tyson Pitzer

Clifton E. (Chip) Rodgers, Jr.

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

Senior Vice President, Leasing MMRS Alex.Peker@ MadisonMarquette.com

Chuck Taylor

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

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Director, Investments MMPI Tyson.Pitzer@ MadisonMarquette.com

Jessica Trevino CEO, Cloud Mall

Russ Matthews

Senior Vice President of the Real Estate Roundtable

Patrick Walmsley

Managing Director MMPI Patrick.Walmsley@ MadisonMarquette.com

Senator Robert Menendez U.S. Senator, D-NJ

Robert Steiner

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

Krista Wilson

Regional General Manager, Mid-Atlantic MMRS Krista.Wilson@ MadisonMarquette.com

Retail Trailblazers

Retail Trends, Collaborations, Pop-Ups and Capsule Collections for 2014

MMRS leasing expert Alex Peker identifies retail’s most exciting trends Pop-up shops, “fleas,” designer capsule collections and brand collaborations continue to thrive in the 2014 retail landscape, as consumers are eager for a diverse, limited production boutique experience. We’ve listed some of the most compelling collections launching this year.

Opening Ceremony

in NYC hosted a monthlong pop-up shop in December for COS, currently sold only in the European market. The sale served as a preview for the brand’s launch in the U.S. and was so popular a second one is scheduled for April 2014.

Sarah Jessica Parker

launched her pop-up shoe shop in New York City in February 2014. Her shoe collection for Nordstrom will feature a mix of influences from her life, her Sex and the City wardrobe and her favorite fashion trends from the 60’s and 70’s.

Courtesy of NIKE

Courtesy of Thomas Schauer

Courtesy of Nordstrom

Courtesy of Will Crakes

Barneys New York

in the Grove hosted a Cronut pop-up shop, featuring an appearance by New York creator Dominique Ansel. Fans camped out in front of the store the night before the opening, and at five dollars a pop, the popular confections were a sell-out.

Shipley & Halmos,

Riccardo Tisci

the contemporary men’s fashion duo, recently opened a popup showcasing their Spring 2014 collection of menswear and accessories. The shop opened its doors for an exclusive three-week period in February in Lower Manhattan.

collaborated with Nike to design the iconic Air Force 1 collection. The Italian-born designer’s partnership with the athletic giant – aptly named Nike + R.T. produced a collection of four unique shoe styles that were available for a three day period in late March 2014.

Capsule Collections

fashion designers and co-founders of the ecofashion EVER Manifesto magazine Alexia Niedzielski and Elizabeth von Guttman rolled out their line of high-quality, environmentally aware clothing in partnership with H&M in April.

Peter Pilotto for Target In February, the

award-winning design pair Peter Pilotto and Christopher De Vos unveiled their capsule collection for Target with party dresses, swimwear and other accessories, all sharing their distinctive kaleidoscope pattern. The line offers shoppers an affordable collection of summer attire, perfect for fans of Pilotto and De Vos designs.

Courtesy of of Kohl’s

Conscious Exclusive for H&M London-based

Courtesy of of Target

Courtesy of of H&M

AG Jeans has recently opened a string of pop-up shops around greater Los Angeles. In a recent announcement, the brand said their Westwood Village location would remain open throughout the summer with potential permanent locations in the works.

Elie Tahari for Kohl’s Renowned

men’s and women’s luxury fashion designer Elie Tahari has been chosen to produce Kohl’s fifth installment of their limited-edition DesigNation clothing line. The capsule collection will harness New York’s fashion culture and will be available to shoppers in Fall 2014.

Eva Mendes for New York & Company

Eva Mendes launched her new collaboration for New York & Company’s Spring 2014 collection with a pop-up shop at the Grove, featuring a look consisting of coral dresses and jackets paired with neutral basics.

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For more than 50 years, KDC has helped develop new corporate headquarter and campus facilities for the nations top corporations. Our experience doesnâ&#x20AC;&#x2122;t stop there, as featured in our 186-acre CityLine mixed-use development currently underway in Dallas/Fort Worth. This visionary, creative, transit-oriented development is what the work force of today is seeking and residents and visitors expect. CityLine will offer everything from office to entertainment in a very inviting and pedestrian-friendly environment.

Visit us at www.KDC.com

We turn eyeballs into feet.

Turning online browsers into real-world foot traffic is what we do best. And, data shows our approach is right on. 89% of consumers research products online before they purchase in a store.* It’s a trend so hot that it has its own name: ROBO, short for “Research Online/Buy On-premise.” At PlaceWise Media, we drive ROBO foot traffic to more than 500 shopping centers every day with the nation’s largest purpose-built shopper marketing network. To learn more about how we can bring best-in-class marketing thinking to your team, call Guy M. Frizell at 720.259.4795.

*Social Media Today, June 2013