Colorado-Real-Estate-Journal_372210

Page 10 — Retail Properties Quarterly — November 2023 www.crej.com ACQUISITIONS 3615–3625 W. Bowles Ave. Littleton, CO 80123 1,500 – 3,000 SF Available Peter Kapuranis ext. 103 Columbine Valley Shopping Center 8410 Wadsworth Blvd Arvada, CO 80003 1,000 SF Available Great Visibility High Traf c Counts Matt Landes ext. 101 Wadsworth Arbor Shoppette Union Exchange Building 8933 E Union Ave Greenwood Village, CO 80111 550 to 1,200 sf of of ce available 1,200 sf of retail space available Peter Kapuranis ext. 103 4575 Joliet Street Denver, CO 80239 9,835 SF Available Newly Remodeled Secured and Fenced Yard Heavy Power Drive-in and Dock High Loading Matt Landes ext. 101 Westlake Plaza 1479 W. Eisenhower Blvd Loveland, CO 80538 1,800 - 2,181 SF Available Anchored by Safeway Matt Landes ext. 101 Alameda Square 12790 – 12792 W. Alameda Parkway 1,200 – 2,500 SF Available Below Market Rents Peter Kapuranis ext. 103 J & B Building Company Call 303.741.6343 ext. 100 or visit our website: www.jandbbuilding.com I was talking with a friend who happens to run retail acquisition teams across the country this week. I spoke with him about writing this article, and he joked, “You should write about when we are finally going to start seeing the good deals!” For those new to the indus- try, the “good deals” he refers to are distressed assets bought from banks or owners at extreme discounts due to external pressures like rising debt costs and a declining net operating income. I took out my crystal ball and asked it to tell me when we would see the good deals and the damn thing didn’t say anything back – must be broken again! Since starting my career in leasing, I have often looked at the activity and viability of the tenants in the market- place as a harbinger. Tenants are the foundation of investment real estate, and every tenant broker in town is struggling to find space for their cli- ents. Vacancy on the Front Range is currently 4.3%, and rents are up 2.3%, per CoStar. Perhaps most importantly, consumer expectations are relatively flat, and as inflation has dipped a bit in the third quarter, consumer spend- ing has increased slightly, according to McKinsey & Co.’s Oct. 5 report. As long as these patterns continue, they will fuel demand in the tenant sphere, and landlords will continue to operate their assets at or above historical leas- ing trends. This results in the possible scenario of a stunning retail stabiliza- tion in the face of high refinancing costs, causing property owners to hold on to their assets. Yet, nobody seems to be asking, “What happens if con- sumer demand falls and tenants slow or stop expansion?” I believe this is not a question of if but when. Everyone who has taken Econ 101 knows the saying, “You can’t fight the Fed.” Jerome Powell has been clear that he is on a mission to bring inflation to 2%, with progress being measured by increased unem- ployment and reduced consumer spending. The data suggests we are losing ground on the mission due to static low unemploy- ment rates, continued consumer spending, and gross domestic product growth. We are beginning to see some red flags with the consumer. Credit card balances are at an all-time high, student loan payments are resum- ing at an average of roughly $300 per month, and as of Oct. 21, subprime auto loan delinquencies are at a record high, according to Business Insider. While these red flags are insufficient to justify the Federal Reserve chang- ing its “higher for longer” mandate, it will eventually impact the popula- tion’s spending habits. Powell has said, “Inflation is still too high, and lower economic growth is likely needed to bring it down.” As the benchmark rate increases and student loans negatively impact consumers, we should see purchasing power decrease, especially among the coveted millennial demo- graphic. The business implications of inevitable consumer spending decel- eration are what scare me most. I have reviewed the financials of a lot of “mom and pop” and franchise operators over the years. I can tell you they don't have the staying power for another down cycle. Many of these businesses started with a shoestring budget, but even if they were flush with cash initially, COVID-19-related economic impacts and rising operat- ing costs have depleted many of their cash reserves. A notable amount of tenants are struggling to stay afloat. The lack of cash and increased debt costs significantly increased vacancy for Class B and C shopping centers marketwide. While many people in the retail world have been happy or even sur- prised with the resiliency of their tenant base, it is pretty clear there is a storm brewing for owners. My sug- gestions for clients in the marketplace are simple: 1. If you have a vacancy, get it leased up. It is easier to work through a downturn with tenants than to try to find them when business isn’t grow- ing. 2. Invest in your property. Most of the centers in the B and C categories need a face-lift: Clean up the landscaping and prepare to stand out to the active tenants looking to relocate or open new businesses. 3. Invest in your tenants. Have a new junior box or box tenant? Work with it to have a grand opening. Get everyone involved so they can participate in advertising and promotion. 4. Security. Have a problem with crime? People experiencing homeless- ness? Get on-site security. 5. Debt. If you have debt maturing in the next 24 months, consider selling to free up cash. There will be many owners out there who don’t subscribe to the issues we are facing. Many of them will not take a defensive strategy to combat the environment, and these owners will have increasing pressure to sell as time progresses and debt maturities increase. At this point, we just might begin to see the “good deals.” s Ediesch@pinnaclerea.com Good deals may be on the horizon for retail buyers Eric R. Diesch Vice president, Pinnacle Real Estate Advisors