Every year Southeast Real Estate Business and Shopping Center Business hold a Southeast Retail Roundtable in Atlanta. We invite members of the industry to talk about the state of the market, including discussion about new development and the investment climate. Attendees at the 2003 retail roundtable were: Van Barron, NewBridge Retail Advisors; John Beam Jr., GMAC; Marcus Bruchis, Bayer Properties; Mark Carter, TVS; Ruth Coan, The Shopping Center Group; Bernard Haddigan, Marcus & Millichap; Brian Leary, Atlantic Station LLC; Tina Marshall, Edens & Avant; Buddy McClinton, McClinton & Company; Joe Montgomery, Spectrum Realty Advisors; and Gary Saykaly, NewBridge Retail Advisors.

SREB: Let’s start by looking at the investment climate. Bernie [Haddigan], please tell us about how the market is looking with regard to investments in the retail sector.

Haddigan: It’s probably the most active investment market I’ve ever seen. I work out of Atlanta, but I’m responsible for Marcus & Millichap’s retail brokerage unit nationwide. We’re closing about 100 transactions a month right now between single-tenant and multi-tenant.

On a national perspective, it’s a hot market and people want to be in it. The Southeast in general is perceived to be very desirable. I think it’s simply linked to population growth or anticipated population growth.

In terms of values, cap rates are one of the main indicators people use to place value on investments. Cap rates in the short run are going back up, but over the last 24 months they’ve probably dropped 150 basis points, which is huge in terms of value.

I don’t know that the fundamentals of the properties have really improved greatly — meaning, when you’re buying property, you’re buying current net income and potential net income. And your perception of value is going to affect how you assess risk and establish a cap rate. I don’t know that properties are poised for significant rental growth. If anything, I’d say over the next 5 years you’re going to have flat NOIs because you’ve got growing expenses with generally at-market rents. At the same time, people are paying premiums for those deals. We almost cannot keep inventory. Any decent product we bring to market moves immediately — there’s so much money chasing deals. Capital gains changed recently, but we’ve not seen a big impact in terms of slowing down exchanges in the market. I read a lot of press in terms of the exchange buyer phenomenon, but there’s still a lot of after-tax capital chasing deals besides exchange buyers that are out there. I think the retail product is the healthiest of all product types nationwide; you look at multifamily, office, retail and other, it’s probably the least overbuilt. In the last development cycle, retail largely tracked tenant expansion; it was more of a demand-based building cycle as opposed to speculative building that went on.

SREB: When you talk about product available, are the investors only wanting to buy “A” properties, or is there any market for “B” and “C” properties?

Haddigan: You’ve got people who are looking for Main & Main — premium real estate — and will pay premiums for it. But you’ve also got a whole contingent of bottom-fishers, and what we call add-value kind of guys, that are looking to buy property and do something to it, enhance the earnings, create value and try to resell it. So, there’s a hierarchy of sophistication, there’s a wide range of motivations that people have, and there’s a lot of capital. There’s more money in the market than I’ve ever seen.

Saykaly: Because of the sophistication of the investors out there and the different investment vehicles there are a lot of investors who are pricing real estate based on comparable returns and alternative public market investments. As a result, you witness very aggressive cap rates being paid — one, because of a lack of supply, but also because of the lack of alternative investment returns that are out there, either on the buy market or the securities market side.

Financial engineering has taken over the pricing of real estate for many leverage buyers. With all the structured programs out there and the different layers that you can put on, whether it’s conventional, floating, preferred equity, mezzanine, what have you, an investor can basically engineer any type of return he wants to see. And when Treasury rates hit the 45-year low recently, Treasuries went down to the low 3s. With the spread that is the S-market, somebody could buy a deal at a 7-cap and still get a double-digit key leverage return. With the lack of product it just drove that.

Bernie mentioned a really good point, that any quality deal that comes to market does get snapped up pretty quickly. I think that any grocery-anchored or new power center we’ve brought to market, we got committed days before it actually went to market by pre-emptive buyers who came in and were willing to offer 50 basis points off the cap rate lower than what the seller was even looking for. On the other hand, there are certain assets that are having problems in the marketplace in terms of trade, such as grocery-anchored centers. Secondary location sales have been on a downtrend. The problem is that the sellers are saying ‘Look at the Class A stuff, cap rates have dropped 100 to 150 basis points.’ [Buyers think] on the B and C properties it should be doing the same thing. But it’s not really doing that, unless it’s in a great location.

Haddigan: Largely price per foot and cap rates have been the measures people have used to measure value, but when interest rates have dropped so much, and looking at the credit, you can pay $400 a square foot for a property that gives you a double-digit cash-on-cash. And as a broker, we’re focusing the investor on the yield, they’re buying the yield, but if that tenant were ever to go bust, you’ve got to pay on sticks and bricks that are probably worth 25 to 40 percent of what they paid for it.

Coan: Are you concerned about a boom-to-bust economy because these people are buying so aggressively at such great caps? When the interest rates go up, there will be no buyers to replace these people who are trying to sell?

Haddigan: What will be interesting 5, 7, 10 years from now is how [well] did these tenants survive? If some of these tenants start exploding, you’re going to have owners that overpaid for the assets and that are not going to be able to replace the income streams. They are going to have problems refinancing.

Beam: What we’re seeing right now, especially on the floater as well as the fixed-rate, is some sort of parody between debt service coverage and cap rates. All floaters that we deal with have to have a capital markets exit, which means they have to be underwritten in the future for a loan, say in 3 years, based on today’s interest rates, as a conduit would underwrite it today, with very little increase in revenues or expenses.

As far as interest rates, they’ve gone up 80 to 100 basis points, as you know — 10-years are up around 4.4, 4.5 [percent] right now. The residential or multifamily side has been driving spreads up a little bit for a while and they’ve come back down again, but they’re also driving rates up a little bit. So, we think that the 10-year Treasuries are going to stay above 4 percent. We don’t see much movement right now; they’ve been staying in the same band for the last couple of weeks.

Saykaly: But historically, they still look really good.

Beam: Oh, they’re great. But it was an artificial low, we thought. You’d go into work every day and think they can’t go any lower. Then all of a sudden, within a 2-week span, it shot up maybe 80 basis points. So that, of course, caused us to re-underwrite all our loans. It didn’t make as big of a difference in dollars because we were at the time loan-to-value constrained; now we’re starting to get back into the situation where you can be loan-to-value and debt-service constrained.

McClinton: I have a question for the money guys. For a developer who has done conduit loans in the past, what kind of strategy should I anticipate as these conduit loans come due? For example, I have a couple of centers that I did in the ‘93-’94 range, that in a couple of years I’m going to be coming up on time to do something with them — sell or refinance or whatever. I’m fine right now, but the question is, in 2 or 3 years from now, if rates really move, what are we going to be faced with when we have to go in to refinance, especially when you had most of your anchors at 10-year terms?

Beam: We have a fairly large servicing portfolio, about $220 billion, so that question is posed a lot. Until about 2 weeks ago, we were seeing a lot of people prepay. And because they were older loans they were deal-maintenance types of things so they were cleaner and easier to figure out.

Montgomery: John [Beam], to clarify, when a property with a maturing anchor tenant lease comes up and rolls over as in Buddy [McClinton]’s example — the existing loan is on a 25-year amortization schedule — [the lenders] are not coming back with a 10- or 15-year amortization schedule, they’re maintaining that 20-, 25-year, maybe 30-year amortization schedule but they’re looking for a large contingency fund to be in place at the event of a potential rollover.

Beam: You have to actually look at the particular real estate before you answer that question because the first thing that any lender is going to ask is what the sales look like. And if the sales are above the benchmark sales for the particular retailer, then the lender will feel that the lease will be extended. If they’re below that, then there’s a problem. The second question is, ‘Where’s the Wal-Mart? And is there one planned in the area?’ Because they’re seeing that sales go down as much as one-third when a Wal-Mart shows up within a couple of miles. So you’ve got to look at the individual piece of real estate. The capital markets or the conduits will tend to finance shorter-term leases with groceries or anchor tenants. In other words, they’ll finance with a shorter term than the term of the mortgage. They don’t like to finance something that is maturing — that the lease is expiring at the same time that the mortgage is maturing because they want to know who the tenant is or give an extension on it. If the sales are good, they will do a deal in which there are 3 or 4 years left on the lease. If you have a really good center today, long-term lease, you’re probably in the 150 range — you’re going to go wider than that.

Montgomery: Why will CMBS lenders not recognize the income in place of a dark Wal-Mart that has maybe 5, in some cases 10, years left to run?

Beam: It’s really about what’s going to happen to the other tenants without that anchor. And also the co-tenancy provisions — a lot of them can move out if Wal-Mart moves out. So they’re going to look at those things. It’s not to say that they won’t accept some of the things that you’re talking about. There’s this whole new term called cash sweep in which they pretty much take all the money and put it into a reserve. If you build up enough of a reserve, and they feel comfortable enough that you can bring in a new tenant, then you can get financing.

SREB: Tina [Marshall], Edens & Avant has substantial dollars behind it. How has your company found the market as far as making acquisitions and being able to grow your portfolio?

Marshall: You’re not going to see Edens & Avant paying 6 percent cap on grocery-anchored shopping centers. You’re not going to see probably 7 percent cap, even if that’s the market rate. With our investors being pension funds, we are not really high-debt players, we’re very low leverage. The strategy that we’re implementing is more of development and redevelopment. That’s not to say we won’t do some one-on-one acquisitions — we just made a pretty big acquisition on seven Giant-anchored shopping centers in very strategic areas of the Mid-Atlantic, which will be very beneficial for us. But we can’t compete with 7 percent cap buyers. Our yields won’t let us do it with our debt the way it is. So we have 25 redevelopments going on right now and 17 new developments, and that’s how we are deploying our capital.

SREB: Do you find in this market that it’s an opportunity for you to sell off some of your properties or redirect some of that money?

Marshall: You hit the nail on the head. We are definitely doing that right now. You’ll see quite a few of our centers on the market. We are taking advantage of that — who wouldn’t take advantage of it right now? We are a very strategic company. We are always looking at geographic diversity, anchor diversity. We are always looking at each individual market, whether it’s a high-growth, a high-populated or high-income area. Our investors keep us honest, and every single day we are looking at our allocation of assets and asking, ‘How can we better position the company for the future?’

SREB: Buddy [McClinton], how do you find the investment community looking at smaller markets? Are people coming to you, wanting to buy your properties? And are you a seller if the price is right?

McClinton: Ten phone calls a day. Bernie [Haddigan] and Gary [Saykaly] are right — it’s unbelievable if you have any quality product. I’m clearly a B/C market in the smaller communities — probably 10 years ago there was very little interest in those markets.

SREB: What markets are we talking about?

McClinton: Prattville, Alabama, near Montgomery; Decatur, Alabama, right outside of Huntsville; places like that. Buyers are beating our door down. I’ve been tempted, and I’m not a seller. I did sell one center at the end of last year, and that’s the first time I’ve ever sold, and I’ve been in business for myself 13 years. It just got to a point where there were some circumstances involved and the rates were so attractive that I decided to re-deploy those assets — I did a 1031 exchange. It’s hard to just turn a deaf ear to the cap rates that are out there right now.

SREB: What about single-tenant properties? Is that still a hot commodity?

Haddigan: Very active. It correlates to a couple of things. One is, we’ve seen huge appreciation in the markets across the U.S. over the last 6 or 7 years. Part of our business model is to understand velocity in every market we’re in. And we’ve got our own estimates in terms of estimating the amount of turnover there will be in any product type in a geographic area, because then we look at market share and do some revenue assumptions and come up with a business model for us to be successful. We operate with the assumption that every property trades on average once every 8 years. If you bought real estate across the U.S. between 1991 and 1997, and then held it for an 8-year period, you start selling between 1999 and 2005. Virtually everyone selling in that window as it moves forward is selling an asset that has appreciated significantly. So we’re kind of in a moving window where virtually every seller has such large gains that if they don’t exchange they’re going to face significant capital gains, so everyone’s an exchanger. I think that momentum will continue for another couple years, but it feeds into the single-tenant business. With low interest rates, coming out of an exchange, I’m going to stretch to buy that CVS or Publix, but if you can put in debt that allows for double-digit cash flow, you exchange out of your heavily appreciated deal and hopefully enjoy the cash flow. That trend has been out there. On a smaller level, virtually every single-tenant box you’ve seen built over the last cycle — I’d say 90 percent of the buildings — have sold in the private equity market.

SREB: Do you think the people selling today are going to have the same opportunity 10 years from now?

Haddigan: No. From 1991 to 1997, the market was relatively flat. So if you were buying in that period, and you held long enough, the market started to turn probably in 1997 or 1998. Since then, it’s basically gone straight up like a rocket. I think in this market, if you’re buying new product in 2003 that’s fully priced on your rent, 8 years from now you’re going to see serious appreciation. I think we’ll see decent growth, but not like we saw in the last cycle.

Saykaly: It’s all a domino effect from the standpoint that you’ve got all these 1031 exchange sellers who want to do a 1031 exchange and can’t find an exchange, so they look for alternatives. The financing market has created an alternative and that creates shortage of product, which drives prices even more. There are more 1031 syndicators than ticks that are coming out there to try to address the need. The difficulty is, a lot of them are still in the infancy stage, and it’s going to take a while for them to work themselves out and get the real estate market to come full with those vehicles. Right now, buyers and sellers can do a reverse exchange…

Haddigan: Do you see many reverse exchanges?

Saykaly: We hear people talking about them, but in reality they’re hard to pull off. With the TIC [tenant-in-common] program, I haven’t spoken to one seller who has actually done a TIC. The biggest difficulty with the TICs up until now has been from the lenders’ side because in those programs, the 1031/tenant-in-common partners come in and out of the deal continuously, so in reality you’re having a sale happening, which triggers something in the loan documents according to how they’re written today.

SREB: Ruth [Coan], you deal in all areas of the shopping center industry. How are you finding the investment climate, and how are retailers looking at the Atlanta market?

Coan: Retailers are looking at the Atlanta market with caution, in part because many of them have already saturated the Atlanta market. So, they’re looking at different markets and smaller markets, and that has necessitated their downsizing as well. I think you’re seeing more and more retailers thinking that they can do smaller boxes in smaller communities. They need to reposition themselves so they can continue to expand. And they need to show increasing sales, so they are looking for these new methodologies to allow them to expand.

Malls are functioning differently in this market and certainly other markets as well; they are really blurring the product types. You are no longer seeing the traditional anchors in malls, and with the B and C malls losing some of their anchors, those mall owners need to find different ways to backfill. Those backfill methodologies are really yielding very different types of tenants from those that you would have seen traditionally in malls.

I also want to talk about a couple of new trends that I’m seeing. One is the proliferation of banks. Throughout metro Atlanta, in particular, you’re seeing, for example, Washington Mutual, one after another. Thinking about what’s going to happen with the next bump, and the thought that there are so many banks out there, it may be the same thing as with some of these drug stores that are vacating — next fall, [we may] we see a lot of vacant banks.

SREB: What do you think the impact of Bloomingdale’s will have in this market?

Coan: I think most people are pretty excited about it. I think it’s interesting, though, that they’ve chosen two malls that are so close together. Probably, if the vacancy had occurred later in North Point Mall, it might have looked a little bit more spread between those two locations. If you note, Macy’s closed in multiple locations throughout metro, but they selected the stronger malls for Bloomingdales. The B and C malls will have continued pressure on them to redefine who they are and to redefine what they can do with those vacancies. They are more apt to look at, for example, Costco or Target.

Saykaly: In a traditional mall, you basically have department stores with the idea that they will draw shoppers through the mall. And now that you’re putting in [stores like] Target and Kohl’s, which basically bring in shoppers that might just drive up to that retailer and drive away. Do you see any of that occurring?

Coan: Probably so, but I think that the savvy mall owner is trying to still make it profitable to have that cross-shopping experience. And the savvy mall operator is saying, ‘How can I take that big box and position it in such a way that the shopper is not only going access that big box but will go into the mall?’ Again, I reference Costco, which has begun to explore this opportunity — if they want to get into the more desirable communities, the in-town communities, there is very little land.

Bruchis: We had a mall that had a Wal-Mart Supercenter and did phenomenal volume. Without a doubt, it did better than the mall. It was ideal for the walk-through traffic that you needed. Slowly, what you have to do, is look at de-malling it. You can do that easier in the smaller markets. I don’t know how you could do that in a nice, two-level Atlanta mall.

McClinton: It’s really survival. I hear what Ruth [Coan] is saying; I don’t know that it works. I’ve done several redevelopments. You have to divorce yourself from thinking ‘How can I save the mall?’ and what you say is, ‘How can I save the investment?’ The three that I did, I completely ignored the fact that they were malls. They basically ended up being open-air type shopping centers that had covered walkways. The bottom line was, the numbers were there, the rent was there, and the investment went from being worth maybe $7 million or $8 million with an anchor-less mall, to $18 million or $20 million with the new rent streams.

Marshall: I think a Target versus a Wal-Mart is a big distinction. Look at Charleston, South Carolina, when The Jacobs Group put the Target in Citadel Mall [Editor’s note: Citadel Mall is now owned by CBL & Associates Properties]. I think that helped that center a great deal because Target is more of a fashion discount store as opposed to a Wal-Mart or a Costco that would have food goods, where you would have to go directly home after you’ve purchased your goods.

Leary: Going along with what Buddy [McClinton] and Ruth [Coan] said, the way department store deals got done before is they were given land and then given an enormous amount of money to build their store. Obviously, developers aren’t giving those deals anymore. We talked to a number of department stores for Atlantic Station, and one would love to come down if we wrote them a check for $40 million. Well, because we have great real estate, we don’t think we need to make that deal.

On the other side, the developers’ perspective, how many malls out there have expansion anchor capabilities? Phipps is about to have more expansion capabilities once Lord & Taylor goes dark. So, not only is it the Targets and the Costcos, but what we’re seeing is some of these new centers, like Desert Ridge in Phoenix, are more Gen-Y focused. A little more active type of environment.

We have an emerging product, but with kind of a late 20th century financial structure in terms of co-tenancy. With the economy starting to pick back up, we’re seeing deals from people who weren’t interested 5 years ago.

SREB: Who are your base retailers now? How is the overall development at Atlantic Station filling in?

Leary: Things are filling in very well, particularly in the last 30 days. Our anchors are Dillard’s and Publix, so this is more than a mall without a roof. It has this great, in-town district of shopping. The movie theaters, restaurants — restaurants are key, but we’re trying to get a range. We’re real focused on fashion, with stores like Gap. The last time we were here we talked about the aquarium; it’s going to be a quarter-mile down the street, so we’ll get the benefit of the proximity.

SREB: What is the time frame of Atlantic Station?

Leary: We’ll have people moving into the Beazer townhomes this fall. They’ve met with great success. They had more than 500 people on a waiting list before they even went to market. The Lane Company is doing the multifamily at Atlantic Station; there are 200 people on the waiting list for rental apartments.

SREB: What kind of population are you bringing to the project that will support the retail?

Leary: We’ll have about 10,000 people living on the property. A lot of empty nesters, who are ready to come back to the city, are moving in. We’re seeing a lot of Gen-Xers, young professionals, even some with children. We’ll have the full range from affordable housing, which will be sprinkled throughout, all the way up to the highest end.

The 17th Street bridge will open in January; the residential will be occupied in the spring, some in the fall. The office tower, which will be home to SouthTrust Bank and Arnall, Golden & Gregory, will be occupied in April of next year. The retail will start construction this fall, and the earliest we’ll deliver will be October of ‘04; depending on how construction goes, it could be as late as March of ‘05.

SREB: Mark [Carter], you’ve heard about the investment market and new development opportunities. As an architect, you hear a lot of things that other people don’t hear because you’re sort of working under the radar a lot of times on new developments. What is your take on all of this?

Carter: I think what Brian [Leary] at Atlantic Station is having to deal with is really understanding the demographics of who his customer is. As you look at repositioning centers, that goes to expanding the mix. The mix is changing. Everyone recognizes that the old formula fashion department store as the true anchor and only anchor for a mall has to change. What we’re trying to do is get developers to really understand who their customer is and bring in an anchor — it could be a Target or Costco — that really meets their lifestyle. And that’s going to change the mix. It’s not just going to be fashion first, it’s going to be a much broader mix. That gets down to really understanding if it’s Gen-X or Gen-Y, boomer, empty nester. Those have different needs, different values, different shopping habits. So I think, as you reposition a center in Prattville, you really need to look at what those customers need and what makes sense. They’ve got to really retool the center to meet the demographics of the customer that they’re serving. That may be a much narrower niche now than it used to be, but if you’re going to be successful, you better find something that works for that customer. I think it’s that sort of rethinking the mix that’s going to be absolutely instrumental into reviving some of these different centers.

Leary: Publix specifically did that at Atlantic Station. The shopper at a Publix in an urban location is not the shopper at the Lawrenceville [Georgia] store. The shopper in a typical suburban location is coming once or twice a week and filling up the car. The ones in town are coming every day or every other day and buying for each day. So they’re reformatting a new urban prototype. They’re actually looking to provide locations inside the store where they lease out space to a vendor, like a sushi vendor.

SREB: Mark [Carter], we were talking about tying in a Target or Costco into a mall. How has that changed your thinking in regard to the design of a property, and are you looking for the possibility of these kind of changes taking place in that type of a property?

Carter: You do have to carefully consider pedestrian flow and understand how people are going to be pulled from one place to the other. The old formula of thinking the fashion anchors are going to pull you through an internal circuit is going to have to change. I think forcing that kind of flow is part of the problem. People are much more convenience-oriented now. They do want to drive up and be able to get in and out. If they’re going to invest their time to shop, they’re going to want a really good experience because of that. So, the ability to drive up, shop and leave if they want is a great option. Most everything we’re looking at today is open-air. That’s a recognition and response to what they think the customer is asking for right now. Not an internal environment, so that’s absolutely changing the design.

Leary: Lifestyle centers are outperforming the sales per square foot in a lot of places — like The Summit [in Birmingham].

Marshall: The occupancy costs are a lot better, too.

Bruchis: It really doesn’t compare as far as the sales per square foot.

SREB: Marcus [Bruchis], you’re expanding The Summit again, right?

Bruchis: We’re now leasing our final phase, the fourth phase. Actually, we just signed a first for Alabama: The Cheesecake Factory. That will be opening this spring. We’ll have that and about 85,000 to 100,000 square feet of small shop, all retail, to open in ‘05.

SREB: Are you seeing more retailers that were mall-oriented going to the open-air centers?

Bruchis: Absolutely.

Leary: Look at places like the Streets at Southpoint in Durham, North Carolina, that are indoor and outdoor, and see what tenants chose to be outside. Flatiron Crossing in Denver — Pottery Barn and stores like that, they don’t want to be under the roof necessarily, because the action is outside. So we’re seeing that; obviously, we’re completely out of the mall.

Bruchis: One of the most positive things we get from our customers is being able to drive up to the retailers.

SREB: When The Summit opened, Bayer was really the pioneer to bring retailers into the state of Alabama that had never been there. In the past year, how much has this opened up retailers to looking at Alabama?

McClinton: It’s dramatic. I give 99 percent of the credit to Bayer Properties and The Summit because, until you do something and prove that it works, nobody wants to believe it. And I can assure you that a lot of the other major shopping centers in Birmingham never dreamed that The Summit would approach the success that they’re having. But Jeffrey [Bayer] had the vision and the foresight to do it, and he got the retailers to agree to try it with him. And now others are copying him all over the country.

Bruchis: It has opened up retailers coming to other areas. I think in Montgomery, Jim Wilson & Associates did a fabulous job on their lifestyle center. Retailers will tell you that because of the success that they’re having in Birmingham, that opened up that avenue for [Wilson] to do what he did in Montgomery.

Montgomery: Maybe we’ve rediscovered the axiom about focusing on your customer. It happened because the American consumer deserves a salute that we’re all enjoying the type of environment that we are now where others in other segments of our industry — office, multifamily — have serious supply/demand imbalances. And we’re having our best year ever, and it’s because the consumer is continuing to consume. We’re here to put a roof over that consumption whatever facet we’re in.

SREB: Ruth [Coan], with the number of malls in this market, are they all faring well?

Coan: There are A malls, and there are B and C malls. Phipps and Lenox appear to be doing very well. Even some of the higher end malls have vacancies, but they seem able to continue to attract some of the strongest retailers, and I think that’s what makes them successful. The Bs and Cs — Cumberland Mall, for example, is repositioning itself. They’re looking at a very creative way of repositioning. The Mall of Georgia is doing much better, and as that area continues to mature, I think it will do better and better. I think it has a large trade area. It’s certainly impacting Athens as well as Gainesville. The trade area for some of the other malls is changing and shrinking because the Mall of Georgia is such a dominant player in that area.

Marshall: I wanted to ask others who are doing grocery-anchored shopping centers if they’re seeing this trend — routinely, when we buy a shopping center or when we redevelop one, we try to get an extension on the anchor lease. As a part of that we renegotiate the lease and try to get rent bumped, get them to remodel, etc. Whenever you do that, you usually end up negotiating parts of the anchor lease. One thing that we’re finding is that the use clauses in the anchor leases are just expanding to the point where we wonder who we can lease to in the rest of our center.

Coan: I think there are many developers who saw that trend and acknowledged that they were going to make many lawyers very wealthy with the negotiations. Some of those developers have gone to the give-none/get-none. And I think you’d be amazed at how many of the retailers really welcome that because they feel that it gives them an opportunity, they’re saving a tremendous amount on the front end, and there is a respect for the differ erent kinds of uses. The developer is certainly not going to want to have two duplicating uses. On the other hand, it became so onerous that I think you are seeing increasingly the attempt of landlords to just get away from it completely, and I would encourage you to do that.

SREB: What does a company like yours, which has so many grocery-anchored shopping centers, do when a Wal-Mart opens down the block?

Marshall: Everybody has to deal with the Wal-Mart issue. What you have seen us do over the last 7 years when our big acquisition thrust went into effect, is we try to buy the centers with the Number 1 or Number 2 grocer in the market. We try to go into high-growth, high-income and high-density areas. Barriers to entry are a big thing for us. That’s why we went into the Mid-Atlantic and the Northeast — the Wal-Mart factor is just not the issue it is there that it is in the Southeast. We just feel strongly about the sales and the performance of the Number 1 grocer, and we look at it market by market, store by store. It is the first question our investors ask, every single time the acquisition committee puts a project before them — Where is the Wal-Mart, or where could it be? We own quite a few Wal-Mart shadow centers, so we know the Wal-Mart factor is out there. But we also try to position not only the center but we look at the real estate, not just the income being generated today, we do look at alternative uses. We do try to think of the worst-case scenario.


©2003 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.