CD Supplemental Chapter Retail Property Analysis

Major Topics “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner  Retail Property Types  Typical key retail lease terms  Factors in Retail Property Demand and Supply  The Evolution of Malls and Retail Formats  The Relationship Between Sales and Rents  The Impact of E-commerce on Shopping Centers

Introduction “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner  Retail is the most dynamic of the property types  Demand for retail is a function of local household purchasing power  Retail space growth has been much more than population growth in USA  Retail space in an area will roughly approximate the annual growth in population plus the growth in income

Capital Pushed Supply instead of Demand Pulled “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner  Indicators of demand  Sometimes in retail sector the local market analysis is ignored in favor of fulfilling capital market commitments – “Wall Street Push”  Capital pushed supply is based on demand generated by a funded tenant

Retail Property Types “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner 1. Strip Centers 2. Community or Neighborhood Center 3. Regional Malls 4. Super Regional Malls 5. Lifestyle Centers 6. Specialty Centers 7. Power Centers 8. Factory Outlets

Key Retail Property Lease Terms “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner  Base Rent  Percentage Rent  Break Point  Pass Through Expenses

Sales Vs. Occupancy Expenses “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner  What a tenant can pay to occupy space per square foot is a function of:  Total Sales per square foot  Profit Margin on each sale

General Retail Trends “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner 1. Consolidation of retail tenants and importance of “brands” 2. Economies of scale that have eliminated the local “Mom and Pop” tenants 3. The growth of lifestyle centers 4. The growth of e-commerce

The Web Supply Side of Retail “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner  Products which are well suited to web initiated distribution:  Brand names and with known quality  Homogeneous products  Unique products  Highly customized products  Products benefiting from disintermediation

Mall vs. Warehouse “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner  What is the advantage of physical compared to virtual space?  Instant consumer gratification  The introduction of new products  Visual presentation  Consumer examination and testing product quality  Relationship building  Consumer profile information collection  Cross marketing  “Back room” or kiosk sales  Information assistance in locating product

The Traditional Rent Model “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner  Higher rent too risky for tenant  Landlord gets incentives that align with tenants interest  Base rents are lower for tenants with higher % rents

END “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner