Shopping Center Business and Southeast Real Estate Business recently held their second combined Southeast Retail Roundtable in Atlanta. The roundtable was hosted by Jones Lang LaSalle and Lend Lease Real Estate Investments. Attendees represented developers, brokers and retailers from around the Southeast. They were: Thomas Aschmeyer, Column Financial; Ruth Coan, The Shopping Center Group; Harriett Edwards, Forest City Enterprises; John Featherston, Chick-fil-A International; Bernie Haddigan, Marcus & Millichap; Doug Healy, Lend Lease Real Estate Investments; Stewart Jacobs, Marcus & Millichap; Jim Jacoby, Jacoby Development; Russ Kellogg, Cadillac Fairview; Don Kelly, The Mitchell Company; Gregory Maloney, Jones Lang LaSalle; Mike Mayer, Grubb & Ellis; Buddy McClinton, McClinton & Company; Joe Montgomery, Spectrum Realty Advisors; Charles Moore, CB Richard Ellis Retail Investment Advisors; Joel Murphy, Cousins Properties; Bill Read, Developers Diversified; Gary Saykaly, CB Richard Ellis Retail Investment Advisors; Vijay Shah, Advantis; David Silverstein, Bayer Properties; Maury Stead, Noro Management; Jeff Weil, Aronov Realty Management; Larry Wheeler, Edens & Avant; Caldwell Zimmerman, Colliers Cauble; and Eric Zimmermann, Trammell Crow Company.

SERB: There is a major development taking place in Midtown Atlanta that I think we should discuss first, since it is one of the largest projects being developed in the Southeast. That is Atlantic Station, formerly known as Atlantic Steel. Jim [Jacoby], could you give us an update on your project?

Jacoby: From our perspective, the project is going great. We had been working with The Mills for a few years on the retail, but they have scaled back their development. We felt that the retail component should be the heart of Atlantic Steel. The total project is 15 million square feet, and we are looking at about 1 million square feet of retail for a fashion/town center concept. We are dealing with four major department stores that have an interest in the project. Two of them are not in Atlanta yet. We have a letter of intent for an 18-screen all-stadium seating theater. We have letters of intent from many national and local restaurants. We are planning on opening in September 2003. About 3 million square feet will open then, including about 1 million square feet of retail. A 500-room convention hotel will also open then as will a 300,000-square-foot office building. We are also under contract for a 1,200-unit apartment complex to be built.

SERB: John [Featherston], as a retailer, how do you look at the Atlanta market?

Featherston: Atlanta is one of the most dynamic markets where we operate. As a retailer, we are doing in-fill locations. We have done three deals in Atlanta over the past two years that have been very complex. These spaces had to be created; they weren1t part of an overall project. They were all in-fill locations in Atlanta and they all have superior performance. It takes a great deal of creativity, patience and perseverance to get those kinds of deals done.

SERB: Ruth [Coan], do you have any reading on the retail development in the urban areas of Atlanta?

Coan: There are a lot of retailers who are excited about the opportunity that [the urban areas] present. They have been trying to find locations and there have been small projects over the years, but they haven1t had the significant mass that' necessary or that makes big box retailers comfortable to enter the market. They don1t want to be stand-alone, they want to have an aggregation of retail. Atlantic Station is being looked at very carefully by both soft goods and big boxes who are interested in having a presence in the Midtown, downtown and Buckhead markets. There are two other significant projects which have some of the same objectives. Lindbergh Station and Lindbergh Plaza will also offer great opportunities for retailers. [Editor' note: Lindbergh Station' retail component is being developed by Federal Realty and Lindbergh Plaza is being redeveloped by Noro Management].

SERB: Is the on-street retail in downtown Atlanta growing?

Coan: If you look at the population density of the city, that is one of the most underserved areas. There are a lot of multifamily, condo and loft projects that have affluent residents downtown that are not being served by retailers. They need grocery stores and amenities that are not there.

SERB: Joel [Murphy], Cousins has been very successful with its two Avenue projects in Atlanta. Do you see any additional areas for the development of these centers?

Murphy: A lot of the development we are doing with the Avenues is outside the Atlanta market. There are two opportunities which we are working on that are too early to talk about. These deals are labors of love. They take a long time to put together. They are not like grocery store-anchored centers where one can go on every corner. I do think there are a few select opportunities in Atlanta. I think [lifestyle centers] are something that retailers like. It is an alternative to them but it is not an attack on the malls. I think it coexists nicely with the malls.

SERB: Tom [Aschmeyer], as someone who deals with retail lenders, what is the impression of the Atlanta market on financiers?

Aschmeyer: If you are in the market you have a different perception than if you are out of the market. The good thing is that Atlanta has growth. The bad thing is that we have plenty of land and plenty of developers. Capital is certainly available; it is not hard to finance a deal in Atlanta. Good, fundamental real estate will go quickly. The toughest challenge for the financing market today for retail is lifestyle centers. They are a tough sell to the financial players. For good, fundamental real estate today, debt is very cheap today.

SERB: Bernie [Haddigan], what are the buyers feeling about properties in Atlanta?

Haddigan: Very positive. Stewart [Jacobs] could probably comment on that better.

Jacobs: The product most desired in this market is neighborhood-anchored, dominant supermarkets, preferably on the north side of Atlanta.

Aschmeyer: Would you say that the buy side has changed?

Jacobs: Most of our buyers are individual buyers as opposed to institutional buyers.

Haddigan: Single-tenant properties are white hot. There has been such an appreciation of values across the market of values in the United States over the past several years that virtually every seller becomes a buyer.

SERB: Which tenants in Atlanta are the ones to have?

Haddigan: Restaurants, video stores, drug stores, Wal-Marts. There are all product types. Price point is very relevant. In the $2 million-plus range, we can1t keep an inventory. We are probably marketing 300-plus single-tenant deals around the country, of which 75 to 100 are in the Southeast. The Southeast is very desirable for these buyers, especially Florida because of the tax structure.

Mayer: Bernie, what is the appetite for the second-tier grocery-anchored center?

Haddigan: It is a cap rate deal. On the new product, people are largely looking at the lease. Once the leases start getting shorter -- about 15 years or less -- the next thing to look at is the real estate. At 10 years, it becomes the property and not the lease.

SERB: Let' talk about the latest mall to open in Atlanta, The Mall at Stonecrest.

Kellogg: We are excited about the momentum that we have going with Stonecrest. The development sits on 1,100 acres. The regional mall is 1.3 million square feet and will open on October 22. Anchors of the mall are Parisian, Rich', Sears, JC Penney and Dillard'. There is also a Megastar movie theater. We have 175 acres of peripheral development under contract, including a large power center and two hotels. We are working on a 30-acre entertainment/lifestyle center. We hope to be under construction next year with the office and residential components of the project. Potentially, there could be a few million square feet of office space.

Edwards: We have about 120 retailers lined up for The Mall at Stonecrest. We are 87 percent leased and project to open the center at 85 percent.

SERB: What do you project as the primary trade area?

Edwards: We project our primary trade area to be about 10 miles in each direction. Within that 10-mile radius, there are about 400,000 people. That' a very conservative definition, considering there' nothing between Stonecrest and Augusta. We1ve received letters and e-mails from people in Oconee County and Covington that are excited about the mall coming -- this is going to be their mall too. Of course, Rockdale and DeKalb Counties are the prime trade area.

SERB: Have you gotten a good reaction from the community?

Edwards: Absolutely. You know, I1ve been in this business 20 years now, and I1ve never seen the type of welcome that we1ve received.

C. Zimmermann: The growth in South Atlanta is fueled in large part by available labor and affordable housing. There is a huge amount of employment moving down there. Between Clayton, Henry, Coweta and Fayette Counties there are more than 500,000 people. The airport is also there, which represents a lot of opportunity. Over the next decade, I think we will see a rebirth of the South Atlanta market.

Jacoby: We are working on a couple of southside deals. Wal-Mart is interested in coming inside the perimeter.

C. Zimmermann: There is a high density area between Midtown and Decatur that is underserved. There has been some development there, most notably what Sembler built across from City Hall East. If you could find more sites and build them so that the economics will work for the retailer, it would be a great development.

Coan: One of the real difficulties for the retailer is the land cost. The land is so expensive that it warrants a complex project. The Cascade area is one where everyone has kicked the tires. The land is so expensive that when you balance the costs of the land versus what the retailers can pay, you have to struggle to make a project viable.

Stead: We1ve managed Lindbergh Plaza for 20 years for our Dutch investors so we feel it will be very successful. We1ve brought in Sembler to redevelop the center. The renovation is in the early planning stages. It will be a large, mixed-use development that will follow along with the cityscape pedestrian district created by our new neighbor, Lindbergh Station.

Montgomery: One other area is Vinings. It is an active commuter artery. The Chattahoochee Industrial area has also become an avant garde alternative retail format environment.

Stead: Just a comment on the Atlanta area in general: as the economy has slowed down some we1ve seen that the sales from some of the anchor tenants have been less than expected. Of course, we1ve seen some bankruptcies in the market. Theaters are restructuring as well. Some are starting to close stores and the challenge for us to is to fill those spaces. There are some tenants moving into the markets.

Saykaly: Ruth [Coan], how do larger tenants get their hands around a mixed demographic area like Southwest Atlanta?

Coan: Our biggest problem is that the demographics are not updated. Some of the most critical aspects of those demographics are missing. For example, education levels. The error rate between what the demographic is saying and what is actually there is large because the market is so dynamic. The retailers interested in those areas are spending time -- more than they normally would -- driving the markets and seeing for themselves.

SERB: Are there any new retailers entering the Atlanta market? [Attendees mentioned several retailers who are active or interested in the market, including: Kohl', Ross, Baja Fresh, Fry' Electronics, BJ' Warehouse, Dick' Sporting Goods, and Wal-Mart Supercenter.]

Murphy: As developers, we have been very spoiled by growth in Atlanta. I remember in 1989 I had to beg retailers to think about North Point. There were no people there. Now, retailers would take any space there.

Coan: The Mall of Georgia area is the area that is similar to that now. Most of the developers who are working out there are employing helicopters to show retailers the growth in that market. The growth is so new that it is not on paper yet.

SERB: Gary [Saykaly], what do buyers and sellers think about the Southeast as an area of investment?

Saykaly: What Atlanta has going for it in this economic slowdown is a move by the investors to the secondary and tertiary markets to provide more yield over the past few years. With the slowdown, we saw a pullback from that with more focus going to the primary markets. Most investors now are concerned with their exit strategies, and the primary markets offer an easier sell. In the different asset classes, grocery-anchored is popular. The trouble here is to get your hands around the consolidation of the grocers. We have seen a lot of centers where, at one time, the grocer was the dominant player in the area, but because of infiltration from other grocers and cannibalization from their other stores, the sales are plummeting. The lenders and buyers are focused on the grocers and how they are positioned. On the mall side, the middle market malls have been off for the past 18 months. We are now seeing renewed interest in that with a focus on primary markets. Right now, South DeKalb Mall, Shannon Mall and Greenbrier Mall are all in play. All three are seeing interest.

Mayer: We are working on the North side of Atlanta, especially Forsyth County. We are working on Alpharetta Highway and in the Georgia [Highway] 400 area. Both Rouse and Taubman are looking [separately] in that area for a high-end specialty mall. That is the next area of opportunity.

Coan: There are two substantial projects in Georgia outside the Atlanta area. Both are in the planning stages but will happen. Ben Carter & Associates is planning an 800,000-square-foot project in Columbus. Trammell Crow is developing a power center in Macon. In the next tier are markets like Rome, Cartersville, Valdosta and Tifton. More and more, retailers that are coming to Atlanta want to see the rest of Georgia.

SERB: Is Atlanta a two grocery store market now?

Aschmeyer: It is a tough one to digest. Kroger and Publix are dominant, but Winn-Dixie and Ingles are still in play. As a lender, what do we do? Wal-Mart will be the dominant grocer in a few years in the outlying areas.

Read: Why are supermarket-anchored centers the hot trend? I1ve heard it from Wall Street that these are hot, but then I look around Atlanta and see that Publix is opening new stores, Wal-Mart continues to open.

Aschmeyer: A well-located grocery store is not going to be dominated by a Wal-Mart coming into the marketplace.

Read: In Florida, Publix has had a new strategy of relocating almost every store that has been impacted by a Wal-Mart Supercenter. This could impact the price of some centers.

Saykaly: I think that is why the assessment of any price now, from an investor' perspective, goes down to location. They are getting away from the focus on the tenant and looking at the location. Who knows what will happen with the grocers in the next few years? Wal-Mart is putting significant pressure on grocers throughout the Southeast. Bi-Lo has ramped up on the development side just to try and take a defensive posture in the Carolinas. Every developer we are talking to in the Carolinas is running with Bi-Lo on some site.

SERB: Doug [Healy], as a company that represents investors, how do you look at the Southeast? Healy: We look at the Southeast more favorably than the rest of the country. If you look at the underlying economics, the Southeast is slowing down less than the rest of the country. From a retail standpoint, the velocity of capital is still pretty good. Debt is readily available and lenders are comfortable with retail relative to other property types. On the equity side, things are more defensive, at least institutionally. Everyone is chasing grocery-anchored community centers, but yields are being pushed down to levels that are difficult for most financial institutions who are looking to match up long-term liability. It is getting very pricey. They look elsewhere in retail. You see some activity on the really good malls, but not a lot of activity. Of the properties with sales of $450 per square foot and better there is demand. In Columbus, Georgia, we have a center called Peachtree Mall that we renovated and expanded over the past few years. We are adding a Rich' in a former Montgomery Ward'. It is a great opportunity. The institutions, however, are skittish on the best mall in a secondary market. I think it is an unexploited opportunity.

SERB: Greg [Maloney], how do you see retail in the Southeast, as one who manages retail properties?

Maloney: Retail has had 2 to 3 percent growth this year. The opportunities and the growth seem to be in the tertiary markets. Individuals are buying shopping centers.

SERB: Switching to one of the other major markets in the Southeast, David [Silverstein], your company, Bayer Properties, is continuing to develop The Summit in Birmingham.

Silverstein: Birmingham continues to receive a lot of attention from retailers looking at the market for the first time. It is a direct result of the strength of the retail market here in Atlanta. Retailers have seen Atlanta become successful and with Birmingham just two hours away, it is a natural expansion for them. On a big box level, Target just opened their first store in Birmingham. Best Buy and Cost Plus are new retailers who are entering Birmingham for the first time. With respect to The Summit, we are excited about our third phase in late September that will bring the center to 800,000 square feet. Saks Fifth Avenue will open their first Alabama store in phase three. Other stores like Tommy Bahama, BCBG, are also entering the market in this phase. For years, the leakage from Birmingham to Atlanta has been astounding with people driving over and shopping. Birmingham has good growth with a lot of disposable income. About 85 percent of the retailers at The Summit are new to the Birmingham market. It shows that Birmingham is an untapped area.

SERB: What economic activity is taking place in Birmingham that is spurring growth?

Silverstein: Mercedes-Benz opened its first North American plant 30 miles southwest of Birmingham and Honda is opening a major plant 20 miles east of Birmingham. Birmingham has a challenge in that it is not blessed with a beltway; we have a semi-circle around the southern half of the city.

SERB: That runs by the Summit.

Silverstein: Correct!

Read: The Summit is a great property. We own a 500,000-square-foot center two miles down the street, Brook Highland, and I think you have helped to raise our rents. Wal-Mart is leaving us to go in a space behind us, and we have had no fall out. The market is so strong. Rents are escalating.

Silverstein: That whole corridor is very active. There are plans for a Northern Beltway to be built, and I expect a similar explosion of retail will take place then. The University of Alabama at Birmingham, which is our dominant employer, has just announced a $200 million facility in city center. We are very excited about being in Birmingham. Atlanta has changed the way the world looks at the South, and it has really helped Birmingham as well. We find that if we can get a retailer to visit, we can sell him.

SERB: Aronov is another developer very active in the Southeast. What are some of the projects that you are working on?

Weil: Most of what we are doing is outside of our home state of Alabama. We have two grocery-anchored centers under development in Georgia; one in Newnan and one in Lake Oconee. We are developing a lifestyle project in Jackson, Mississippi.

SERB: Where does your company see opportunities?

Weil: I think most of them lie outside Alabama. We are anchor driven so we are not focused on the core markets of Montgomery and Birmingham.

McClinton: The state of Alabama, as a whole, has been very healthy. We are like most of the Southeast. With retailers, it starts in the Southeast with Atlanta. If retailers are successful there, then they start looking at Alabama. The first place they look is Birmingham. Until they come to Birmingham, they are not coming to Montgomery. I can1t tell you how many times we1ve had the perfect situation for a store, but if they are not in Birmingham, they are not coming to Montgomery first. One of the things that Aronov and Bayer Properties have done is bring a lot of retailers to Alabama for the first time. Now that they are in Birmingham, they will look at the other metropolitan areas like Huntsville, Montgomery and Mobile. There is, however, a lot of activity in the secondary and tertiary markets of the state as it relates to Wal-Mart, Target and The Home Depot. There is a lot of opportunity in those secondary and tertiary markets for a developer like me, who is in the power center and lifestyle center business.

Montgomery: I was in Huntsville yesterday. I brought a Northeastern investor with me. At the end of the day, the reaction he gave me was extremely favorable. It is a delightful town with a nice economic story now. We have five properties in Alabama that are meat-and-potatoes centers. Investors would like to see more product in Huntsville, Birmingham and Montgomery.

Kelly: We' based in Mobile and most of our new developments are in Florida. We are active in the Huntsville market as well. Mobile is a pretty stable market with several new retailers entering. There is also a new office building being built downtown.

SERB: Are there other cities in Alabama where retail development is taking place?

Kelly: Huntsville is still growing. CBL and Colonial have renovated Parkway Mall. Colonial has Brookwood Mall in Birmingham which has substantial renovation and redevelopment going on. Tuscaloosa benefits from Birmingham' growth and the University [of Alabama].

McClinton: Dothan is a great market. I built Wildgrass Mall there in 1983. When we were doing that center, no one wanted to talk to us. We couldn1t even get the department stores that were in town to move. But there are 350,000 people in the trade area -- some have to go over an hour and 20 minutes to shop anywhere else. Once you convince the retailer of that. Dothan is one of the few cities of its size that will end up having three Wal-Mart Supercenters.

Weil: Every retailer looks at Dothan.

McClinton: We advise retailers to check restaurant sales because this is a good indicator of traffic.

SERB: Advantis is strong in retail in the Carolinas and Virginia. What is your perception of those markets?

Shah: Our three strongest markets for retail are Norfolk/Virginia Beach, Raleigh-Durham, Florida and we are gaining strength in Atlanta. We have a lot of investor interest in the Southeast, especially in grocery-anchored properties. Raleigh-Durham has a lot of pent-up demand and it is a very hot market. There is a lot of new residential growth planned there.

Featherston: The three major metros in North Carolina will be completing substantial sections of highway over the next few years. In Raleigh, Greensboro and Charlotte, new retail areas will open up because residential areas that were hard to access will be suddenly convenient.

SERB: Larry [Wheeler], Edens & Avant has been active in acquiring in the Southeast for the past few years. Maybe you could give us an overview of some of the areas you are active?

Wheeler: We are looking primarily in Florida and the Mid-Atlantic. We own properties in Atlanta. It is hard to find properties in Atlanta. In South Carolina, the situation is very similar to Birmingham. We are dependent on retailers coming to Atlanta. Like Atlanta, Harris Teeter recently left the South Carolina market, selling stores to Bi-Lo and Piggly Wiggly. Edens & Avant is staying loyal to grocery-anchored shopping centers.

Haddigan: For the owners that are publicly traded, are you getting any pressure from Wall Street to direct your portfolios in any particular way?

Read: There is an education that we constantly do from our CEO to Wall Street as far as the definition of a power center. A power center, right now, is generating higher per square foot sales than a neighborhood shopping center with a supermarket. Yet, Wall Street is looking at neighborhood shopping centers as an investment vehicle.

Murphy: We have been public for a long time. We also have office and retail, so we are diversified. When NewMarket joined Cousins in 1992, Cousins was 98 percent office. For a four- or five-year period, [the retail division] was 70 or 80 percent of the company' growth until that ratio was 60 percent office to 40 percent retail. Over the last three years, we have moved it again so that we are 80 percent office, 20 percent retail. You will see it change again. Since we are multi-product type, we' directed by what we think the market will do. Wall Street looks for what they think is the way to run a real estate company. The last time I checked, none of them were running real estate companies.

Wheeler: We are privately held, however, we do have two institutional pension fund owners. They want us to remain focused on grocery anchored centers and not stray from that. They are very pleased with the results of our product type in good economic times and bad.

SERB: Charles [Moore], are there any new trends in the investment side?

Moore: A lot of the institutional investors are still focused on the major markets of the Southeast. Yet there is a lot of product that is available in the secondary markets. If you can get the investor to the market and get them to look at the market, not just look at demographic reports, that can make a world of difference. Some of the product that has been overlooked in the secondary and tertiary markets are good opportunities. Some of the second-tier malls, especially those that draw from extended trade areas, are overlooked.

Saykaly: With regard to power centers, that asset has been out of favor with investors. We1ve seen a rebound of interest with power centers. For those with price tags of $20 million and below, we1ve seen a flood of 1031 money looking at those. That' money that would1ve gone to freestanding assets. We were recently able to sell a power center in Hilton Head, South Carolina, for an aggressive cap rate. Lend Lease, I think, has seen some renewed interest from some of your clients.

Healy: Renewed being the key word. A year ago, we were deaf when it came to power centers. Now we are seeing a real focus on current returns. Power centers offer a rent roll that is 50 to 70 percent credit tenant with good current returns.

Read: They are also less risk, in some ways. If you have a power center across from a mall, and a 50,000-square-foot tenant goes out, it is always going to be good real estate. It will take 12 to 13 months to re-lease, but compare that to a supermarket space in a secondary center in a secondary market. It is harder to replace that 30,000 or 40,000 square feet.

Saykaly: A few developers are looking at condominiumizing the boxes and selling the boxes off individually to 1031 buyers.

McClinton: We represent Wal-Mart on their excess properties; we have about 30 or so. Wal-Mart is a great real estate operator. If they leave a store in a small market, nine times out of 10 their real estate is in strong demand.

Saykaly: There are a lot of community-developer relationships happening to push town center concepts around the Southeast. Oak Ridge, Tennessee, near Knoxville, has developed a masterplanned town center. They are working to incorporate Oak Ridge Mall as one of the nucleus pieces of that redevelopment.

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