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Business Review Western MI
Business Review Western MI
It's the biggest show in retail
(2008-05-07)
(wgvu) - Can retail get lucky?


May 8, 2008

By B. Candace Beeke
candaceb@mbusinessreview.com

It's the biggest show in retail.

Every year tens of thousands gather from around the country in Las
Vegas, just for the chance to get in front of some of the nation's
largest retailers. The International Council of Shopping Centers annual
spring conference, RECon, will draw hundreds from Michigan May 19-21,
including developers, brokers, lawyers, bankers, builders, marketing
professionals and more.

They spend months preparing for the conference, and those exhibiting
spend thousands of dollars for the opportunity to do so. But this year,
the anticipation is heightened for some and edged with anxiety as
experts question the future of retail in Michigan.

The odds on retail
Retail has been one of the top-performing categories in commercial real
estate in Michigan but is on the decline, following the pain in the
housing market.

Residential usually drives the need for retail, noted Jodi Milks,
managing director of Grubb & Ellis|Paramount Commerce's Kalamazoo
office. The less residential we have, the less retail we have.

Retail for the past several years has been generally very strong and
growing aggressively, added Rick DeKam, founder of Midwest Realty
Group, a development company in Portage. Retail only started to slow
down about six to eight months ago, which has largely matched the
tightening housing market.

The retail industry has been at the top of an extended up-cycle for
the past 10 to 15 years now, he continued. Every industry segment
will cycle, and retail has only recently started to indicate that it
has, at least to a degree, hit a saturation point in many markets.

Retail vacancies in western Michigan grew slightly to 9 percent in the
first quarter, according to CoStar Inc.

You'll probably see some downsizing from square footage in some
categories of retail, Milks said, such as video stores or
furniture-rental businesses merging.

I think there will be a decline in the number of new concepts to the
area, she continued. We'll still see some slower expansion and
existing concepts that are here, for instance Papa Murphy's and Jimmy
John's. We're not going to see a lot of high-priced
restaurant(s).

James Fielder, vice president of acquisitions and marketing at Robert
B. Aikens, a development company based in Birmingham with a lifestyle
center set to rise on East Beltline in Grand Rapids, also expects a
lackluster 2008.

Retail generally is pretty flat this year. I don't think you're
going to find tremendous swings one way or another. We've already seen
the impact of most of the job losses in the auto industry, he said.

But some of the stagnation is not due to Michigan's unique economic
situation. National retailers have scaled back expansions in light of a
slowing national economy.

WalMart put a big freeze on the number of their stores months
ago, said Bob Lotzar, retail adviser at C.B. Richard Ellis|Martin
in Grand Rapids. They stopped a bunch of deals in Ohio, Indiana and
Michigan.

Starbucks also froze expansions, said Jason Kildea, CBRE senior
associate in East Lansing.

They've probably been one you could rely on for the last three
years, Kildea said. They would pretty much come out (strong) and
pay a good solid rent.

A national slowdown could actually benefit Michigan, several said.

The rest of the country was booming while we were sitting here in
this lull, Kildea said. That's not the case anymore. The fact
that we have been in this downturn in the state for years, and now that
has transcended to the national level, it may give Michigan an
advantage.

It helps level the playing field and gives us a shot of getting
their ear and bringing them back to Michigan, Lotzar agreed.

All bets are off
A level playing field nationally, even coupled with tightened expansion
plans from retailers, could yield more interest than Michigan has seen
in the last couple of years.

I've been to the altar three or four times with a couple of
big-box national retailers who pulled the plug at the last minute while
finishing lease negotiations, Lotzar said. They were pulled
because they pulled 60 across the country. Those are deals I'm getting
back.

One of the greatest challenges western Michigan brokers faced in
attracting retailers has been differentiating the area from Detroit's
struggles, they say.

Several retailers I've talked to are seeing the light, Lotzar
said. Our biggest challenge is just breaking away from the fact
there's a lot more to Michigan than the east side of the state.

Meanwhile national restaurant chains continue to populate the west side
of the state.

Johnny's Lunch, a hot dog and burger restaurant based in Toledo,
Ohio, is set to open on 28th Street in Grand Rapids, as well as several
other western Michigan locations. In Lansing, Tim Hortons a Canadian
fast-food restaurant built six stores, Kildea said.

Chipotle's has been looking at some sites in town, said Dave
Zeemering, partner at NAI West Michigan in Grand Rapids.

Chipotle Mexican Grill, based in Denver, ranked 11th on the Hot 100
Retailers list by AllianceData. On that list are several companies
that have yet to come out strong in Michigan, and those may be potential
prospects for brokers and developers as they head west to pitch
Michigan.

The sure thing
Some 50,000 industry professionals cruise onto the Vegas strip in May
to pound two million square feet of convention space, and this year will
be no different, ICSC said, despite predictions RECon would fall in
attendance.

Contrary to what people may think, we are actually on pace with last
year, said Erin Hershkowitz, media relations for ICSC, based in New
York City. So even with the slowdown in the economy, we are not
seeing a decline in attendance. This shows just how important this
conference is to the industry.

It's an opportunity, in a very short period of time, to put ideas
in front of a very large number of people, said Fielder, of Robert B.
Aikens. We'll probably have on average 25 to 30 meetings a person
over the period, so a couple hundred meetings in two to three days of
the show.

Certainly all retailers pretty much are represented there on a
national basis.

Affiliate companies also look to RECon for an opportunity to meet
potential clients.

Doug Brown, business development at ASTI Environmental, based in
Brighton with an office in Grand Rapids, landed one deal at last
year's event. This year, he aims for two.

And Rockford Construction, based in Grand Rapids, will exhibit there
this year for the first time, setting up a booth in the convention's
Green Zone to tout its sustainable building.
Forty to 60 percent on average of our business is retail, said
Tom McGovern at Rockford. We build for Meijer and Family Video.

Rockford hopes to gain the interest of five to 10 national or regional
retailers, he said.

But many say the idea that deals will be signed in Vegas is
misleading.

It's more relationships, said Bill Tyson, a partner at NAI West
Michigan.

Retailers entertain a non-stop flow of brokers and developers, added
NAI's Zeemering.

They're reluctant to sign anything that week, he said. Your
goal is to set as many meetings as you can.

It is a deals event, Fielder said. In today's marketplace,
with the committee systems they have, and the financial scrutiny most
national retailers go through, the chance of closing a deal is not as
great as it once was, when it was a little more opportunity-driven.

At the same time, to structure a deal and get an understanding of
what the economics are and put a deal together where it would go into
the approval pipeline, certainly takes place.
And, for some with deals in the works, Vegas will be the place to
close.

RECon provides the opportunity to meet face-to-face with our tenant
partners and finalize deals that have been brewing, said Terry
Patterson, agent at Treystar, a developer in Portage.
Tricia Foster, director of operations at CBRE, agrees.

A significant number of 2008-09 transactions will be finalized
during this one week in Vegas.

To follow RECon, visit the Square Footage blog at
mlive.com/business for B. Candace Beeke's coverage from Las Vegas, May
19-22.

West Michigan companies exhibiting at RECon 2008
Evergreen Properties, Caledonia
Geenen DeKock Properties, Holland
Meyer C. Weiner Co., Portage
Rockford Construction Co. Inc., Grand Rapids
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