Southeast Real Estate Business and Shopping Center Business recently held their third combined Southeast Retail Roundtable in Atlanta. Attendees represented developers, brokers and retailers from throughout the Southeast. They were: Sarah Kendall, Cadillac Fairview; Kevin DiBona, Coastal Capital Partners; Charles Moore, Coastal Capital Partners; Caldwell Zimmerman, Colliers Cauble; Warren Maurer, EBSCO Properties; Harriett Edwards, Forest City Enterprises; Bruce Feuer, Grubb & Ellis; John Lambert, JDN Realty; Bernie Haddigan, Marcus & Millichap; Buddy McClinton, McClinton & Company; Don Kelly Jr., The Mitchell Company; Allen O’Brien, NetFunding.com; Gary Saykaly, NewBridge Retail Advisors; Maury Stead, Noro Management; Jeff Fuqua, The Sembler Company; Ruth Coan, The Shopping Center Group; Katherine Isakson, Spectrum Cauble Management; Philip Shumny, Divaris Real Estate; Brad Cox, Key Commercial Real Estate; Brian Leary, Atlantic Station LLC; and Kathy Thirolf, Wheeler Kolb.

SREB: What development activity do you see taking place in and around the Atlanta area?

Fuqua: We’re active in most of the submarkets, but we’re usually following our tenants. I’m not sure that any particular market is hot, but there are holes in most of the markets for certain tenants. We have managed to work on or have deals in most of the submarkets in Atlanta – Midtown, north, south, east and west. We’re developing the Atlanta Gas Light property near Midtown. I can’t talk much about that right now, but it’s very exciting; it’s mixed-use and it’s big.

Stead: We’re looking for some grocery-anchored sites. So we’re actively after some sites, grocery-anchored type centers.

Coan: On a positive note, Jeff [Fuqua] made the comment that he was working on the mixed-use project, and that’s the wave of new projects — at least in terms of the Midtown, downtown area mixed-use — that’s really where the exploration is. The effort to try to meld the residential with the retail with the office and multifamily is an exciting product. You’re seeing all kinds of efforts, particularly in Midtown, with Kim King’s project, and with some of the things that Jeff [Fuqua] is exploring with Atlantic Station.

SREB: How are the investment community and people wanting to buy real estate, particularly retail, looking at Atlanta and the Southeast?

Saykaly: On a macro level, we’re definitely in a product-short capital market position where there’s more capital than available product. And that’s for the grocery and the well-anchored centers, but there’s also a spillover effect into the B and C centers that we’re selling. Atlanta, Greater D.C., South Florida, we’re seeing those as hot zones where cap rates are approaching record levels, sub-8. In Atlanta, WoodLawn Point and Abbotts Village sold in the low-8 to sub-8 range. In South Florida, there was a center that Terranova had on the market that had Publix on a ground lease and a drug store on a ground lease that ended up selling sub-8, close to $200 per square foot. So, there’s clearly a lot of pressure on the buy-side and the big question that we’re asking is, ‘It can’t go any lower, can it?’ Well, never say never, because there’s still a lot of demand pushing the price.

Haddigan: I see more of the same. The market is extremely hot. Calendar year 2001, at a national level velocity, was off quite a bit from the previous year; I think velocity was up a lot this year. And I think in terms of the market, there’s a big imbalance, a significant amount of money chasing product. You also need to segment the market by product type and quality. On the high-quality properties, cap rates are falling like crazy. You’ve got investment-grade; you’ve got best location. We’re seeing sub-8 caps. If you’ve got investment-grade single-tenant, such as Wal-Mart, Home Depot, etc., we’re selling those properties right now in the 7.8, 7.9, sub-8 caps. On the West Coast, we just sold a Home Depot, at low sevens to 7.1. We’re selling ground leases in the sixes. It’s madness compared to what it was 12 to 24 months ago. And I agree with Gary [Sakaly], it’s hard to know where it’s going to go. There’s a lot of capital chasing the high-end, best quality on your private party type product, which is your $1 million to $10 million market. There’s excessive exchange money in the marketplace, and there is conventional capital that’s always been out there. You’ve also got people that are looking at real estate as an alternative to Wall Street. When you do segment it, your best of class centers is where prices have really gone up. Your B or C or add-value product, there’s still a lot of capital, but it’s a different business. There’s still a lot of interest in it, but on the high end of the cap rate analysis, on the low end of the market, it’s really more of a price-it’s-worth-rate analysis.

Saykaly: Especially on the private market side, it’s very leverage-driven. You’ve got Coastal Capital here; they’re private market buyers. You might want to ask them how they’re seeing the market.

SREB: Charles [Moore of Coastal Capital], someone who’s out there buying…

Moore: As these guys said, it’s a competitive market right now. What I think is interesting is that the trophy grocery-anchored properties are trading at record levels not only here in Atlanta, in a major market, but now we’re also seeing some of that trickle down to the secondary markets as well. In markets like Atlanta you’re starting to see product type that used to be out of favor trading at very strong levels. There are power centers and community centers that are being offered either un-priced or at very low cap rates. If we were to look back a year and a half ago, I think you would see that product as unfavored, in terms of investment standards. We are still finding a lot of product in terms of secondary and tertiary markets that make sense for us. I think a lot of this will cause some of the secondary markets to receive more attention, particularly from some of the larger, private players and institutional players. The debt markets right now, for a leveraged buyer, for a private-market buyer, it certainly impacts pricing. If you’re a yield-driven investor, and you’ve got interest rates in the sixes right now, that’s a tremendous differential from where we were only 4 or 5 months ago. And folks who are able to track those interest rates and can be aggressive on their pricing have got a buying advantage in the market.

SREB: How does Key Bank, as a lender, look at the Southeast as far as retail is concerned?
Cox: We look at it very positively. We just opened our office in Tampa about a year ago, and we’re predicting that our Tampa office, serving the Southeast, should be a big profit for 5 years. So we’re very pro on the Southeast. As far as property types, like any other lender, we’re looking at anchored retail, shadow-anchored, investment-grade, single-tenant. Sometimes the unanchored retail is a little tougher to do than some of the other product types, but overall we’re looking in all the markets in the Southeast very aggressively.

SREB: Brian [Leary], one of the biggest projects going on in Atlanta is Atlantic Station. There was a major announcement a couple of weeks ago that the aquarium will be built downtown instead of Atlantic Station.

Leary: We’ve come a long way from where we were in 1997. The good thing is that we had a strong plan in place before the aquarium was even announced. Where it’s going now is really a win-win for the city. As for where Atlantic Station is right now: from a leasing standpoint on straight retail, we’ve made some announcements. We’ve sold land to apartment developers, so now they own part of the dirt at Atlantic Station. They all plan on starting construction this fall. Beazer Homes has about 60 people on a waiting list, 10 to 15 have already written checks, sight unseen, no plans. Realty Development, a Lane company, also has a huge waiting list. The bridge [connecting the project to Midtown] is ahead of schedule. We’re looking to go for financing for construction on the main retail component, which is about 1 million square feet, some time this fall. Initial occupancy opening as early as fall 2003, but we’re really aiming for March 2004. A lot of the retailers actually were neutral on whether or not the aquarium would be there. We haven’t lost any tenants or gotten any negative comments on it. In fact, the office is actually glad that it’s going to be more downtown from a Class A office property standpoint.

Zimmerman: Brian, what’s the makeup of the retail? Is it more of an entertainment venue?

Leary: That’s a great question. I don’t know if I ever want to say entertainment only, because Atlanta has a legacy of entertainment projects not succeeding. You could almost say it’s lifestyle retail, but it’s at such a density that it isn’t a lifestyle center. It’s about 1 million square feet of retail and entertainment, the majority retail. We’re going to have close to a 4,000-seat, 16-screen, stadium style theater. It will be the Atlantic Theater by United Artists. We’ve had amazing demand for and interest from restaurants. We probably have about three restaurants for every spot, and we’ve tried to slow down the restaurant work right now to focus on key retailers. We’ll hopefully be able to announce the department store soon. We’re going to have a bookstore as one of the anchors. It won’t be that different from something like City Place in West Palm Beach. We’re really focusing on restaurants that are open for lunch and dinner, not just nighttime restaurants. It’s really about the 18-hour day. We think it will be a good mix between entertainment and retail.

SREB: What’s happening in the Stonecrest area? There has been a tremendous amount of development there.

Edwards: Absolutely. The mall opened last October at about 85 percent occupied. Since then, we’ve added a movie theater and other stores like Johnny Rockets and Starbucks. The peripheral property is on fire. North American Properties opened a 500,000-square-foot power center. We have about 10 restaurants that have either opened, are under construction or are under contract. Some of the restaurants on our peripheral are breaking records, actually. Several additional retailers are now open: Rooms To Go, Jared, Best Buy. The mall is continuing every month to do better.

Kendall: Traffic is really something that drives retail — how are you going to get the people to the stores, and once you get out of your car, what are you going to see? One of the reasons why it took Stonecrest 10 years to get off the ground was because of construction associated with traffic. I think some of the traffic that has driven a lot of these projects in the Buckhead area is a result of the fact that you’ve got all of these high-density areas. And the people who are going out there are high-end people, and to them, shopping is entertainment.

SREB: Katherine [Isakson], your firm is growing very fast in Atlanta. What activity do you see and what is your company involved in?

Isakson: We are primarily a leasing and management company; we’ve handled some sales as well. We had our first foreclosure come back to us about 3 weeks ago, Parkside Shops in Sandy Springs. We are positioned to take over properties of this nature, that need a little bit of picking up. That’s kind of what we specialize in: taking over properties, working through some issues that they may have and then hopefully selling them. That’s one project that we’re working on. We’re almost 8 million square feet of management now and have been growing very quickly. The Cauble Spectrum combination of the management companies has been a huge asset.

SREB: How is leasing going? What types of retailers are looking at the centers — are you getting a lot of locals, or are you getting a lot of interest from national retailers?

Isakson: Primarily locals at this point, and we’ve also marketed to retailers such as discount furniture stores, dollar stores, they’ve really made up a lot of the leasing of our properties.

SREB: Bruce [Feuer], tell us what Grubb & Ellis is doing in Atlanta.

Feuer: I just joined Grubb & Ellis a few months ago, and we’re really trying to establish a retail services division within Grubb & Ellis locally, and expand that on a national basis. From the retail side, we’re looking to focus on a full-service category of a management, leasing and transaction business, and hopefully we will grow that.

I did want to say one thing on the investment side that I’m seeing, because more and more non-investment properties seem to be coming into play. I see clients, especially prospective buyers, who are shocked at the cap rates today. I have people who are still looking for the 9.5 to 10 percent cap rate and still can’t believe that the rates are going south. There is a tremendous amount of money out there, I guess trying to stay away from the stock market.

SREB: Last year we had quite a bit of commentary from the participants from Alabama; the state seemed to be really hot with retail and some new developments. Last year Bayer Properties’ The Summit was the focal point of bringing some hot retail into the Birmingham area and trying to stem the outflow from Birmingham to Atlanta.

Maurer: The success of The Summit did open the door for retail. Tattersall Park is our mixed-use project that could end up being 1.6 million to 1.8 million square feet, with 750,000 to 800,000 square feet of retail. We kicked off the project at the Las Vegas ICSC Spring Convention in May. We have had a tremendous amount of activity and interest in the project. We’re looking at leasing that project to complementary retailers that are not in Birmingham at this point. We’re not looking to duplicate or replicate what The Summit’s got going on. We want this to be a mainstream mixed-use development with office space above retail and other components attached.

Kelly: To put it in perspective, south Alabama is a little bit different than the rest of the state and it is really not doing that well. What we’ve been through in the last 2 years has been a washout of two of our major supermarkets that have gone Chapter 11, so it’s kind of created a lot of vacant space. Most of the retail development that we’ve talked about in the last couple of years has come on line and opened, but as far as a lot of new development, it’s really not happening. We were trying to work with Publix in the Mobile area, but because of where their warehouses are, it is going to be a stretch for them to come that far.

As far as what’s happening today, Wal-Mart has come in with the neighborhood markets. We’ve got two older centers with existing markets. Super Target opened back in the fall. We’ve got two fairly new Wal-Mart Supercenters; Best Buy came in; there was an older mall that’s basically been converted to a large strip center and it’s done well.

For the most part, Mobile is fairly stable. Unfortunately, except for about three or four restaurants that have gone dark, there’s been a lot of shakedown in our market. I don’t think it’s that different from a lot of third-tier markets. When we go to Montgomery and Birmingham, we see a lot of good things happening, but at this particular point, they haven’t begun in Mobile. Whether or not we can attract those specialty retailers that are in Birmingham and Montgomery to Mobile, we’re really not sure. It would probably take another year or two to determine that. Our company builds apartments, houses and office developments, and so the mixed-use development part of it, that’s taken a lead. What we can do with retail is going to be hard to tell. Mobile also has Baldwin County, Daphne, Fairhope — there’s been a good bit of activity over there — but again, most of those projects have now opened. There’s a lifestyle mall being developed in the eastern part of Mobile.

McClinton: Alabama is behind Atlanta about a decade, the best I can tell [laughing]. But seriously, the suburbs of Atlanta have done such a wonderful job of developing. We have not been able to do that in Alabama until recently; now we’re starting to move out from the core cities. Really, that’s only occurred in the last 5 years. Birmingham, Montgomery, Huntsville and Mobile are the major cities in Alabama, and after that you’re really not getting a lot of development. There’s so much going on in those communities that it’s spilling over.

Decatur, Alabama, is a good example as a spin-off city from Huntsville because Huntsville is just so hot. If you were to talk to somebody about Decatur 5 years ago, they wouldn’t have given you the time of day, and now all of a sudden Decatur is a hot market.

Montgomery is starting to develop just in the last 2 or 3 years the way we all hoped it would develop many years ago. A lot of folks are coming to Alabama that were not there, and they are aggressively looking at the metropolitan Montgomery area. And that spins off out into the suburbs. When you look at a Montgomery, a lot of stores may see it as a one-store market or maybe a two-store market, but then they see these surrounding communities that have 40, 50, 60,000 people that are 15 to 20 minutes from Montgomery. And you’re getting a lot of retailers looking at their second locations and third locations in these outlying communities — and you never would have gotten that 5 years ago.

SREB: Bernie [Haddigan], as someone who deals with investors, do you have any thoughts on Alabama? What’s the interest level?

Haddigan: There’s interest everywhere because ultimately, it’s somewhat of a pricing matrix. What are your yield expectations? What kind of risk are you looking at (property size, property location, overall management density)? So Alabama absolutely fits into the equation. We’re probably doing more single-tenant business in Alabama and it’s not as hot as other states we’re involved in, but there’s clearly activity.

Saykaly: From a transaction volume standpoint, Alabama doesn’t have what the rest of the Southeast has. But from an institutional standpoint, Heritage Property Investment Trust just bought a center down in Montgomery, which illustrates the willingness of REITs to go into the Alabama market. Birmingham is definitely on the radar screen. But from a private market standpoint, I agree with Bernie, it’s all a matter of risk return.

Haddigan: The private buying client side absolutely will look at all of Alabama. I’d say from an institutional side, Birmingham is going to be the market to really receive the focus right now.

Moore: We’ve seen a lot of the older Bruno centers on the market now, and they’re a big player in the Alabama market.

McClinton: We haven’t had any problem as far as institutional interest on the part of properties. I think everybody that has any development in the state of Alabama would quickly tell you that attracting funds, whether it’s private or institutional, is not a problem.

I think the issue for Alabama, as a whole, has been primarily that — and it is changing right now — in the past 25 or 30 years, you’ve really had, and Mitchell being one of them, a small group of development companies that have controlled the state as far as commercial development is concerned. Those companies have retained all their properties, so there’s not a lot of product that is for sale. But let me assure you, if you have a property for sale in the state of Alabama, you have incredible interest.

Saykaly: Inland is getting started in Alabama as well, in Huntsville and elsewhere.

Haddigan: I would add that new construction and retail investment sales velocity are not necessarily the same issues. Typically, new construction is going to be your higher quality, better located projects, which is going to be much more institutional feeling. Buddy [McClinton] is absolutely right in what he’s saying. From my perspective and maybe some of the investment sales guys, much of the velocity that we see across the United States is not necessarily investing great. As a matter of fact, if you studied the markets over a historical period, typically you’re looking at 75 to 80 percent of your transactions are really non-investment-grade transactions to transactions with wealthy individuals and institutions. So my bias is that the average investor is absolutely interested in Alabama, but still they’re going to make a yield adjustment for that non-institutional-grade property because it’s Alabama. The same way they would do a yield adjustment for, say, Illinois or California. On a national level, Florida, Texas and California are the three states that come up more than any other states when people are requesting product.

SREB: Are any retailers entering Alabama?

McClinton: I don’t think there’s any question about it. We all have to take our hats off to Jeffrey Bayer because when Jeffrey was planning The Summit, there was a lot of skepticism whether he would be able to put that project together with the quality level that he clearly did. And it is a premier project in every sense of the word. The volumes of the stores are truly outstanding per square foot. The Number 1 theatre in Alabama is at The Summit. He brought a lot of retailers that are represented by brokers who are now looking actively throughout the state. They’re looking at the primary cities, and they’ll spin off into the secondary markets like Decatur.

SREB: Maury [Stead], you are working with foreign owners. How do they see the Southeast?
Stead: From a foreign investment standpoint, Atlanta is very high on the radar for most of our clients, although they are starting to look in other areas. We have an office in Florida now. Although at this point, there’s not a whole lot out there. The Dutch, the Germans and the Swiss all like Atlanta. Florida is very high on the list, too.

Saykaly: A couple of years ago the Germans were in Atlanta and other major cities and were some of the most aggressive buyers out there. Now with the institutional market and also interest in the private market sector, they can’t compete with the domestic private market groups who did below 8. I think a lot of them now are starting to say, ‘Okay, we can’t get the grocery component at those rates,’ and they’re now starting to re-look at power center components to try to get that type of risk adjustment return. There’s no telling how low cap rates can go. The troubling part to me is that a lot of these groups that are buying at these low cap rates are looking at it more as a financial vehicle than a business. At the end of the day, regardless of how poor an asset is right now, a shopping center is a living, breathing business that in 3 years could lose a major anchor.

Haddigan: Something that might be a concern down the road is that there’s a handful of entities that are raising bucketfuls of money on the broker/dealer network level that are buying real estate like there’s no tomorrow. From my awareness, for every dollar they raise, the net adjustment allowed is 82 or 84 cents because of cost of capital, because of the fees that are driven into it, etc. So if you’re paying an 8-cap for what would be a quality deal today, the reality is you got a loan on that for 17 or 18 percent. The perception of the Southeast is very positive. On a national level or even internationally, if you’re looking at real estate from the future’s point of view, the future is on track with population growth. The Southeast and the Sunbelt states are on everyone’s radar screen. If you’re looking at quality real estate as a whole, I’d say Florida is the Southeast’s Number 1 target. But Atlanta is very popular. People want to be here. It’s perceived as a city that has nothing but upside in the long term. On a local basis, we may complain about traffic and growth, but from an investor’s point-of-view, that’s a good thing.

O’Brien: In Atlanta, office vacancies have gone up, rent is going down and the cap rates are going down too. There are a lot of vacancies — Atlanta has some built in protection against long-term loss of jobs, and that’s just going to be a rebound effect for the next 3 years. We’re seeing cap rates on office buildings that have increasing vacancies and rates going down, better trading flow. So we’re seeing a buyer come up for financing and they’re buying properties aggressively and the lenders are kind of looking at the structures, looking at the pricing and it’s their equity. Part of that equation is the dead anchor component.

SREB: As far as Key Bank is concerned, what markets do you look at in the Southeast that you think are strong, and what markets are you watching from distance?

Cox: As far as retail, we’re looking at all markets. I don’t think we view any market as where we’re going to rule it out. We’re in Tampa, so obviously Florida is our backyard now. Any coastal area is a home run. There is just enormous population growth in Florida right now. Prices are going crazy, and everybody is interested in Florida. I’ve looked at a lot of deals down there, and the only reservation we would have on a deal is if there was a center where there were a lot of leases turning over where we couldn’t structure the adequate reserves for the borrower. Then it wouldn’t be our deal. Some of the investment-grade, single-tenant deals have raised an eyebrow, but we still continue to do them because the prices, the cap rates are being driven down. We think it’s primarily because of the 1031 exchanges that have sort of an artificial price included in the deal.

Haddigan: With the 1031 phenomenon, don’t you find that your average exchange buyer is not necessarily a leveraged buyer? So from an appraisal point-of-view, they should quote out pretty well.
Cox: I would say that the last four or five Walgreens that we’ve done have been leveraged to the hilt, and they’ve been 1031 exchanges.

SREB: I’d like to ask Caldwell [Zimmerman], getting back to Atlanta retail, what’s going on in the Roswell Road corridor? It seems like it’s on the verge of happening.

Zimmerman: Katherine [Isakson] might be able to give you a better profile with Parkside. I don’t have any personal experience, but I read about how the communities — municipalities and civic leaders — are trying to mobilize and do streetscapes. If you go to any part of Atlanta, the city planners want to turn every part of Atlanta into Williamsburg. Katherine, have you had much feedback from that Sandy Springs area?

Isakson: Yes. Sandy Springs is going through a revitalization right now. There’s a Sandy Springs Business Association as well as a Sandy Springs Revitalization Committee that have really come together. They’re working on the area of Roswell Road from I-285 to Abernathy Road. They have big plans for the streetscape with all the lighting, sidewalks, very pedestrian friendly and are working with all of the property owners on both sides of Roswell Road to conform signage and other things to make it look like a unified area. And there are a lot of older buildings that are being purchased and renovated as well. So we see an opportunity with Parkside to take advantage of the revitalization that’s going on there.

Leary: We’re not involved at all on the development on Roswell Road, but the national trend toward a sense of place — there’s no sense of place between I-285 and the end of Roswell except for downtown Roswell, and I think that’s what Sandy Springs is trying to do. I see a national trend for areas outside the perimeter highways around cities as being a gold mine because population is still there, the demographics are still there.

SREB: Does anyone have a take on downtown Atlanta? It seems to be missing something. Ruth, do you know of anything that’s going on in downtown?

Coan: Actually, at Centennial Park there are several good things that are happening, not only the aquarium, but you have a children’s museum planned in the area as well. I believe that Selig is in the end-planning phase of a fairly significant mixed-use project that will be fronting right on Centennial Park as well. Growth is moving very gradually, slowly, southerly, from Midtown to downtown. Kim King’s project near Georgia Tech is taking off very successfully. It’s only a mile to Centennial Park. So I think it’s only a matter of a very short amount of time before you see some of that exciting residential growth.

SREB: Along those lines, what are some of the projects in Atlanta or the Southeast that are producing a lot of activity?

Thirolf: Stonecrest, in particular, is a project that took 10 years to happen. And the beautiful thing about waiting so long is it gives you a long window and view of how far development will play out. About 1.2 million square feet of space has been added since the mall opened in October of last year. They’ve decided to do an entertainment area that will be open air. And they will also try to do 200 acres of office/business type development. Office will be slanted toward medical/technology tenants. Natural amenities will be built into entertainment area.

Coan: Camp Creek Marketplace is turning out to be quite a successful project and they’re talking about doing an additional phase. That speaks very well to going into some of more inner-city areas. The West End is another project that seems to be gaining momentum. It’s a credit to these areas that really have been sleepers and are being acknowledged because of the tremendous amount of buying power.

Leary: Look at what’s happening over at the Westside Village on Howell Mill Road around Baccanalia and the funky retail like Belvedere — furniture spaces and creative small shops. Then, in Midtown, at 5th Street, this is a sophistication of retail that Atlanta has not really had. In fact, coming back to what those guys in Alabama were saying, looking at the way Atlanta and its suburbs have gone, we talked to a lot of different, very sophisticated local retailers that have really earned their stripes, done very well and are now looking to take it on the road. Same with the ones in Charleston, South Carolina, which is a sophisticated market for local retailers.

Saykaly: Looking at other parts of the Southeast, there’s a new concept of retail that’s opening up: revitalizing downtown areas, such as Raleigh, as well as outlying suburbs. If you look at Raleigh, you’ve got Triangle Town Center on the north side, that’s creating a new retail pocket and the retailers are swarming to it. In Durham, there is the Streets at Southpoint that’s creating a new pocket. In downtown Raleigh there is Cameron Village. Throughout the Southeast there is this ongoing example of downtown revitalization projects and outlying suburban projects that are creating new opportunities for retailers.

Leary: Orlando is very busy right now with the Mall at Millenia.

Cox: In Sarasota, they’re bringing café-type restaurants and making people want to come downtown.
Coan: Retailers are looking at the value of their stock and they have to do something to grow. What’s happening is a lot of them are re-inventing themselves. For a while everybody was 15,000 square feet, then everybody jumped from 25,000 to 50,000. Now they are filling in with smaller stores. Borders, for example, was at 27,000 and 25,000 and they realized in order to expand that they needed to be 18,000. And you have Michaels, which has re-invented itself to about 12,000, and Bed Bath & Beyond. That is enabling them to get into some of these second- and third-tier markets.

Saykaly: What’s going on in the Tidewater and Richmond, Virginia, areas?

DiBona: In the Tidewater area we’re seeing these same trends. Virginia Beach is finally getting their downtown. Certainly the greater Washington, D.C., market is hot and competition is so fierce that, as a private buyer, you can’t even get near it. I think the Wal-Mart Supercenter component is going to certainly continue to grow, not only in our market, but across the Southeast, and it will continue to have an impact on all of us.

Saykaly: John [Lambert], your company has a lot of experience with discounters and Wal-Marts. From the grocery side, what’s JDN’s take on the Wal-Mart impact on supermarkets?

Lambert: Clearly, cap rates are getting lower and the values are there, but you can’t discount Wal-Mart. They’re clearly going to take on more market shares. From the articles we’ve been reading, they can undercut the Krogers and the Safeways by 20 percent-plus on pricing. And of course they’re trying to set themselves to the Krogers and the Safeways and Publixes at different levels, but price is a pretty important factor. At JDN, we want to have a diversified portfolio: some grocery-anchored, some value-anchored.

DiBona: We look at a shadow-anchored Wal-Mart Supercenter development as a grocery-anchored development. We don’t own the grocery component, but our shop space benefits from the grocery component. We have traffic flow, and as long as the shop space that was developed has at least 60 to 65 percent investment-grade tenants. I think it’s a fairly conservative investment.

McClinton: That’s a brand-new concept because, until really, right now, if you didn’t have a supermarket-anchored type setup, everybody said, ‘No, we’re not interested.’ Of course JDN and I both have Wal-Mart developments. I have shopping centers shadow-anchored by the best retailer in the country, who clearly has decided that they can be the best grocery. They’re having a tremendous impact across the country, and they bring people in and they bring the grocery shoppers.

Saykaly: You’re going to see more people having an easier time underwriting the shadow-anchored centers. In Tennessee, for example, it’s rare that you see a Kroger center where Kroger doesn’t own their own store.

SREB: Philip, what were you going to say about back filling?

Shumny: In Columbia, Mississippi — the whole county only has 25,000 people — Wal-Mart is co-anchoring with Winn-Dixie. I’m trying to help a landlord who had a center anchored by Kmart and Delchamps, and no one will touch it.

McClinton: Between Wal-Mart Supercenters and neighborhood centers, they are targeting Winn-Dixie customers. We’ve had a real shake down over the last several years in Alabama with Delchamps and Bruno’s. And Winn-Dixie used to be so aggressive — if they even heard that Publix or Kroger or somebody was looking at a market, they would go build a store. They absolutely defended their territory everywhere. Publix is looking hard at Alabama right now. I think the super centers probably have the lock on the grocery business going forward, at least in the metro markets. I don’t think we’ve seen the impact Wal-Mart and Target are going to have on the grocery business, going forward.

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