CD Supplemental Chapter Retail Property Analysis: CD Supplemental Chapter Retail Property Analysis


Major Topics: 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: 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: 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: Retail Property Types “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner Strip Centers Community or Neighborhood Center Regional Malls Super Regional Malls Lifestyle Centers Specialty Centers Power Centers Factory Outlets


Key Retail Property Lease Terms: 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: 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: 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: 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: 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: 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: END “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner