Colorado-Real-Estate-Journal_461156

Dear retailers: It’s time to lea $ e up INSIDE Plenty of capital is available now, and borrowers can get it while it’s still “hot" Looming tariffs Staying on budget without sacrificing quality requires early GC involvement Construction PAGE 13 May 2025 PAGE 8 A long-running, high-profile legal battle over a 100-year, $10-per-year lease signed in 1991 ended at the close of April 2025 when the Supreme Court declined to hear a case encompassing the Mall of America and Transform Holdco, an investment group led by for- mer Sears CEO Eddie Lampert. The scuffle began when Lampert’s group secured the legacy lease terms for the vacated three-story, 160,000-square-foot space as part of Sears’ bankruptcy settlement. Certainly, the Sears lease terms are as extraordinary in 2025 as they were in 1991, but at a time when the nation’s largest shopping spec- tacle opened, it was critical for the Mall of America to secure high-pro- file anchors, which included Sears, Macy’s, Nordstrom and Blooming- dale’s. Of course, it’s still critical to pre- lease the best con- temporary anchors as a go-to strategy to secure funding for new construc- tion, and to begin developing a thoughtful retail mix. But for retailers looking for new centers with their associated desir- able, high-traffic locations, the days of low-cost leases are over. For retailers and their representa- tives who may have missed a morn- ing caffeine boost, please awaken to this new reality: If you want to expand your locations to new builds within today’s tight retail market, you can choose from new devel- opments at higher lease rates or secure space at lower rates for older properties or less desirable loca- tions. This forceful suggestion might appear tone-deaf to retailers already facing a long list of challenges. Few people want to experience higher lease rates when they’re struggling with other challenges, ranging from the increased costs of goods and labor to the logistics of securing inventory in uncertain economic times. Lease rates can feel expen- sive in the short-term but can be very rewarding over time based on site selection and developer sup- port. But while we focus on pushing lease rates for new construction, it might be instructive to examine some retail realities. A quick review of price trends for the aforemen- tioned morning caffeine boost reveals that one fancy-fueling drink increased 32% from 2014 to 2024 – $3.75 to $4.95 – and then, in just the last 12 months, the same cuppa rose another 40% – $4.95 to $6.95, yielding an 11-year shift of +85%. n Developer challenges: Low delivery plus limited financing. There’s a chal- lenging new reality for developers, too. The way projects pencil out today, lenders will not support new construction under the leasing rates retailers secured a decade ago when they first signed elsewhere. Currently, expansion-minded retailers are managing incremen- tal lease bumps at reinvestment properties. With so little new con- struction now and in the near term, these redeveloping centers with proven locations are attrac- tive and immediate, though limited and competitive. In an August 2024 interview with ICSC, one real estate developer reported that the average rent spread between old and new leases in his 64 million-sf portfo- lio of open-air assets was 39% in first-quarter 2024, advantaged by its business policy to implement low- rent-basis leases. And despite the competition for Denver’s low vacancies (about 4.7% at the close of 2024), rents in 2024 were up only 2.7%. While it’s coun- terintuitive to the usual logic of supply and demand, it may be all about the (low) quality of the avail- able space. As an overlay, CoStar reported that only 188,000 sf of new retail space was under construction in Denver at the start of 2025 (repre- senting just 0.1% of the market’s total inventory). Nationally, con- Please see Balafas, Page 17 Unanchored strip centers offer investors a low risk profile and strong returns Strip centers PAGE 9 Jimmy Balafas Co-founder/ managing partner, Kentro Group LOCUST STREET WH WH FULL MOVEMENT FULL MOVEMENT FULL MOVEMENT RI/RO RI/RO RI/RO INDUSTRIAL MULTI-FAMILY RESIDENTIAL LOT13 ~2.57ACRES LOT12 ~1.46ACRES LOT14 ~7.97ACRES LOT11 ~1.46ACRES LOT10 ~1.10ACRES LOT9 ~1.10ACRES LOT6 ~1.24ACRES LOT5 ~1.23ACRES LOT4 ~1.48ACRES LOT15 ~10.62ACRES 30,000ADT QUEBEC STREET 7,814ADT 144TH AVENUE MULTI-TENANT SHOPS&DRIVE-THRU LOT8 ~1.55ACRES LOT7 ~1.45ACRES LOT2 ~1.82ACRES LOT3 ~2.76ACRES LOT1 ~10.84ACRES Preliminary Site Plan