COVER STORY, OCTOBER 2004

THE INVESTMENT FAVORITE
Retail continues to be one of the darlings of commercial real estate investors in the Southeast.
Roundtable chaired by Jerrold France, Randall Shearin and Katie Foxworth

Because the Southeast is such a vibrant marketplace, Southeast Real Estate Business and Shopping Center Business hold a Southeast Retail Roundtable every year in Atlanta. Numerous retailers, developers and investors around the country look at the Southeast as a great opportunity for their various ventures. This year’s roundtable contains a healthy cross-section of experts; representatives from development and brokerage companies, cities, lenders and many others shared their insight.

Attendees at the 2004 retail roundtable were: Abe Schear, Arnall Golden Gregory; Steve Tart, senior vice president with Ben Carter Properties in Atlanta; Brian Neltner, senior vice president – retail division with Colonial Properties Trust in Birmingham, Alabama; Bill Read, assistant vice president of leasing – Southeast region with Developers Diversified Realty in Atlanta; Michael Cohn, senior managing director of Southeast retail development with Faison in Atlanta; David Piasecki, Highland Equity Group; John Leonard, regional manager in Marcus & Millichap’s Atlanta office; Gary Saykaly, NewBridge Retail Advisors; Jon Wheeler, president and chief operating officer of Perrine & Wheeler Investment Real Estate in Norfolk, Virginia; Tom Aschmeyer, RBS/Greenwich Capital; Leonardo McClarty, economic development director with Roswell, Georgia, Community Development; Amy McConnell, director of real estate with The Sembler Company in Atlanta; Ruth Coan, The Shopping Center Group; Armen Grigorian, Sperry Van Ness; and Whitney Knoll, principal/director of investment services with Trammell Crow Company in Atlanta.

Investment Climate

(left to right): Michael Cohn, Armen Grigorian, Tom Aschmeyer, Leonardo McClarty and Whitney Knoll.

SREB: Let’s start out by talking about the investment climate in the Southeast and the Atlanta area in particular. Tom [Aschmeyer], you do a lot of financing with RBS/Greenwich Capital and you’re working all over the Southeast. How do you see the climate in the Southeast and in the Atlanta area for retail?

Aschmeyer: It’s competitive. Whatever your discipline — development, leasing, management, investment sales, financing — there’s a lot of everything and everybody wants in. There’s plenty of money out there. The Southeast is an easy market because there are plenty of things going on, and it’s a difficult market because there’s so much competition in every aspect.

SREB: How do the lenders look at the Southeast as an area for placing their money?

Aschmeyer: It’s the place to be. Our biggest challenge with, for example, grocery-anchored shopping centers is the fact that we’re in the market where there’s always another location. I’ve lived in Atlanta for 30 years; what used to be a good area isn’t necessarily a good area 5 or 10 years down the road. How do you deal with the whole Winn-Dixie issue? We’ve been up and down that roller coaster now for 2 years. So it’s kind of a bifurcated market — you have the really good stuff that nobody asks questions about, and then you’ve got the other stuff that’s like, “What do we do with it now? Kmart is out, Winn-Dixie is out, and we’ve got a big box in the middle of Gwinnett County [Georgia] — what do we do?” We try not to get picked off in our markets; that’s why we’re local. There’s probably always somebody wanting to bid a deal at some level just because there’s so much capital out there.

SREB: David [Piasecki, Highland Equity Group], you’re a buyer. How do you see the climate in the Southeast? While I know you’re looking all over the country, the Southeast has got to be something you’re very focused on.

Piasecki: Right — we kind of have two businesses. It’s a nationwide business, and then a Southeast/Atlanta-oriented business. It’s very competitive. Certainly everybody has the Southeast in its target. With the growth in Florida, the Carolinas, Atlanta and Georgia, it’s very competitive. And there’s a lot of money through direct investment, private companies such as ourselves, intermediaries, the REITs, private REITs, etc.; there’s just a tremendous amount of capital going into real estate. I think things are probably being done that don’t need to be done relative to some construction and whatnot, but money will cause deals to happen.

SREB: John [Leonard, Marcus & Millichap], investment properties are your forte. How do you see the investment climate not only in Atlanta, but also throughout the Southeast?

Brian Neltner (left) and John Leonard.

Leonard: It’s robust. The sales volume this year is about 50 percent ahead of where we were last year. It’s extremely active, and we’re seeing capital move from the West Coast into the Southeast. The West Coast is even more aggressive and competitive.

Aschmeyer: We’ve seen that, too. A lot of California buyers coming into the Carolinas — warehouse, single-tenant deals…

SREB: Jon [Wheeler, Perrine & Wheeler Investment Real Estate], you’re from Virginia…

Wheeler: Fortunately, we have a good perspective from Florida up to New York now. I think our biggest problem is unsophisticated dollars, meaning more of the 1031 dollars. There seems to be a lot of rolling right now with investments or investors, like you said, coming out of California. We’ve been in business now for 5 years, as Perrine & Wheeler, and we probably looked at over 2,000 deals and we’ve bought 26. It’s a lot of the hairy deals, the ugly ducklings, that we’re passing up on for various reasons. The term’s too short, or sales are flat. But our biggest problem now is not the big boys, but more the unsophisticated dollars that are driving down the cap rates and driving up the prices. We’re seeing it not just in Virginia, we’re seeing it up and down the East Coast.

SREB: Speaking of the big boys, I know you’re always looking for product. Bill [Read, Developers Diversified Realty], how do you, as one of the leaders in this business, look at buying properties? Are you buying one-offs, or are you trying to buy full portfolios? How difficult is it in the Southeast?

Read: Buying whole portfolios has its benefits as far as acquisition cost. But it’s a good time to be a manufacturer of real estate right now. The prices are so high, the interest rates are so low, that I think we would rather develop product and reposition existing product to add value to an existing portfolio. And either look at each asset as whether we keep it or sell it, and you can add a lot of value that way. We certainly build; we have a very large pipeline. We’re building centers in Apex, North Carolina, and Miami, Florida.

SREB: Amy [McConnell, The Sembler Company], speaking of developers…

McConnell: The demand for finished product is incredible right now. We’re always looking very actively. We have about 10 centers under construction at this point in time in the Southeast — not including Florida. We’re most active in the Atlanta market. We have quite a few projects in South Florida as well. We’re interested in the Carolinas. We will go anywhere that it makes sense to do a project.SREB: Gary [Saykaly, NewBridge Retail Advisors], as one who represents sellers and buyers, how do you see the investment climate?

Gary Saykaly

Saykaly: I know Whitney [Knoll, Trammell Crow Company] will agree with me: it’s an amazing time right now to be on the transaction side. A year ago, there were a lot of buyers who decided to sit on the sidelines. Here we are, a year later, and there doesn’t seem to be any pressure on the buy-side market to ease up on the cap rates. We’re still seeing record cap rates being broken. Grocery-anchored deals going sub-7 on the cap rate basis; power centers going high-6s to mid-7s; unanchored strip centers going in the 8s; Class B and C, middle-market malls are going in the 9 caps. We haven’t seen anything like this and it just continues to go. There still is a pretty substantial liquidity bubble in the marketplace from a debt and equity standpoint. Buyers continue to be driven by the leverage in the market. You can still buy a deal in a 7.5-cap and 30-year amortization, and basically a high-leveraged loan and get low double-digit returns. And that’s what is driving the market. The competition still pushes buyers to buy more aggressively than they would on their own. Every day we’re seeing a new benchmark set.

SREB: Who are the active buyers?

Saykaly: I would say the two most active buying groups are the privates, that are leverage-driven, and the REIT side. We haven’t seen a lot from the pension fund side because typically they are very IRR-driven and it’s hard to buy and compete with someone who is first-year cash-on-cash-driven. On the REIT side, New Plan and Inland are very aggressive. But on the other side, the private guys are stepping up to the larger projects that, a couple years ago, they might not have.

SREB: Has there been any activity from foreign investors looking for retail in this area?

Leonard: We’ve seen German money, especially in the Southeast, with a couple of pension fund advisors. We’re also seeing TIC-fund investors become extremely aggressive on all product types.

(left to right): Brian Neltner, John Leonard, David Piasecki, Ruth Coan, Jon Wheeler, Bill Read and Amy McConnell.

Knoll: Like Gary, we haven’t seen much of the pension funds directly, but they’ve got so much money they’re trying to get their IRRs by partnering up. We saw several people in Chicago and New York recently, and there isn’t a single pension fund that doesn’t have $2 billion to get out. And they’re having a hard time — properties are too small. So they’re having to look at people to get their money out for them. I know people are pairing up again, and of course we know the Australians are bringing their money over and they’re not doing it directly, but they’ve got some great partnerships with great operators. The money is everywhere. It’s how you get your money out. The REITs are in a great position because they can buy themselves or they can buy with their partners, and they’re such great operators that the pension funds say, “Here’s all our money, go do what you want, but get me into real estate, and get me into retail.” And I don’t see the money going away for at least 18 months for retail or anything. No one’s slowed down.

Economic Development

SREB: Leonardo [McClarty, Roswell Community Development], how do you and the city of Roswell work with investors? Do you promote growth in your city as far as retail is concerned, and how do you work with developers?

(left to right): Armen Grigorian, Tom Aschmeyer and Leonardo McClarty.

McClarty: We are in a unique situation. In the mid-80s to early 90s, our city was growing like gangbusters. As such, we had a lot of development come our way. Then, in the latter part of the 90s, retailers changed their prototypes and more product was built, now our focus is not on so much trying to get more retail but actually trying to do away with some retail. Because we’ve actually gone from being “the” destination on the northern side, now you have North Point Mall, an outlet center in Forsyth, The Forum in Norcross, and Perimeter Mall has constantly been reinventing itself. And now we have a lot of dark spaces, so we’re trying to look at some of these shopping centers from a redevelopment standpoint as opposed to bringing on new product. We’re trying to get developers and others to do something with existing product.

Saykaly: We’ve spent a lot of time going through the primary and secondary markets of the Southeast, talking to a lot of city planners to understand what they’re doing. There are a number of cities where the city planners and economic development officers are getting very proactive in terms of what they’re trying to do with the empty spaces — they have people dedicated, in-house, to go out and try to lease space in vacant buildings. They’ve identified redevelopment centers; they’re proactively going out and trying to procure developers. That’s a pretty neat trend in terms of being proactive in cities.

McClarty: I think it’s something that you’re going to continue to see because, when you look at Roswell, which I would define as one of those first or second suburban areas, you continue to see sprawl and growth go further out. You now have all of these areas such as Roswell, certain parts of [Highway] 78 in Gwinnett, parts of Clayton County — almost each county in the Atlanta metro area has a commercial corridor that they can point to that was highly developed and that really grew in the 80s and 90s. It’s struggling right now. You’re going to constantly see local governments trying to work with the development community and be more proactive.

SREB: Are the dark spaces based on the fact that the retailers were not good, competition is eating them up, or is it based on too many centers?

McClarty: I think it’s probably a little bit of everything. For instance, in Roswell, there was a study done in-house about 3 years ago. Our square footage per person is about twice the average of what the Atlanta metro area is. So we had a lot of product built. Then when you look at some of these other companies that have pulled out of the market — or for whatever reason they’ve gone under — you name it, we’ve had it. We’ve had Cub Foods, Drug Emporium, A&P, Harris Teeter, Kmart.

Saykaly: You could go to every city in the Southeast and find a dead mall or dying mall that takes up 80 to 100 acres of land.

New Retailers & Retailer Activity

SREB: Speaking of malls, Brian [Neltner, Colonial Properties Trust] — what kind of retailers are now coming into the major cities in the Southeast?

Neltner: In Birmingham and throughout Alabama we’ve had Kohl’s come in, and Target continues to expand. We see the sporting goods chains coming in and starting to expand through much of the Southeast — Dick’s [Clothing & Sporting Goods] coming down from Pittsburgh, and now they’re purchasing Galyan’s, which is very exciting. You also have a lot of the casual dining and also restaurants with the casual-themed fast foods like Mama Fu’s. That seems to be a very active growth vehicle as well.

Attendees listen as Steve Tart (far right) speaks.

Coan: Another category would be electronics. Particularly in metro Atlanta, that’s been an extremely successful and aggressive category. BrandsMart is opening up a 120,000-square-foot property on Interstate 285 near Buford Highway and Peachtree Industrial. In addition, they have two other locations that are on the drawing boards. And you have Circuit City with multiple locations that are on the drawing boards or opening shortly, or are under construction. H.H. Gregg has been a new entrant, and again, they are very aggressive in this market and have opened multiple locations. So electronics seems to be a very active category.

Another category of significance is furniture. A couple years ago, we were looking at all of the furniture operators that were closing. Now you have a whole new generation of furniture operators that are coming in and replacing those. So you have American Signature, which has been very active and is locating not only in some of the outlying areas but they’re even locating in the Buckhead area. And you have Bassett, Thomasville and IKEA. IKEA is a significant coup it seems to me, not only for Atlantic Station, but for this market because they’ve been very selective in the number of locations that they’ve taken.

SREB: Is downtown Atlanta gaining any ground on retail?

Coan: I believe that downtown Atlanta is going to be a very active market. We can now look at the intersection of Ellis and Peachtree Street, which is the closed Macy’s, and there are 25,000 people who live within a 1-mile radius of that Macy’s. That speaks well to the potential now for some additional retail coming into that market. In the next 3 years, that general area of the city is projecting 8,000 new home units. You can identify not only the university housing that is scheduled to open or will be under construction, but also all of the condo and multifamily development — the high-density, the higher-end, and the housing that’s targeting the population of 25 to 35, the yuppie who has money and is looking for a little more exciting kind of venue.

So, with all of that occurring, I see that there is also a strong opportunity for good retail in the metro area. You have Sixth and Spring in Midtown, where there is a 60,000-square-foot Barnes & Noble. That was targeting, predominantly, Georgia Tech, but it was also focusing on that higher geographic area, intending to serve it, not just with a school bookstore but with a bookstore. You have L.A. Fitness, which chose to cannibalize another location that they had, but which saw the opportunity, again, for retail and went into that area of Spring, which was really a very undeveloped area until just a few years ago.

SREB: Sembler has done a phenomenal job in Midtown with its Midtown Place project. Amy [McConnell, The Sembler Company], do you see more opportunities in the Midtown area or do you think downtown is the next opportunity?

McConnell: We’ve actually looked at the Macy’s building and it’s too difficult to physically develop. With Edgewood, and doing Lindbergh, the last large tracts of land appear to be gone. But then again, you never know what might transform itself or an opportunity presents itself to do another location. We’ll always be looking. I think it will be a little while ’til the market and the tenants accept something downtown. But we all thought that about Midtown 10 years ago and look at what’s happened.

Cohn: For downtown, at this point in time, success needs to breed success. I think before large, national retailers commit to doing something in downtown Atlanta, the core of 25,000 people who are living there need to support a grocery store that’s successful — that sends a message to other retailers that you can do it, [that] the city’s committed to it.

Specialty Retailers

SREB: It seems like Whole Foods and Fresh Markets are aggressively moving into this market. Fresh Market has just opened in Dunwoody. Do you see more of this activity — moving around the Atlanta area? Do you see opportunities throughout the Southeast for this type of retailer?

Cohn: I think that specialty grocers will find there is significantly more market in Atlanta than they may have initially thought there was. There are areas like Snellville, where there is extraordinary income and far more density than people may imagine. When you start drawing trade areas for specialty grocers, like Whole Foods, I think there probably are a lot more submarkets over time than were initially thought for what people considered an urban grocer.

Read: We just opened a Fresh Market in Chattanooga near Hamilton Place Mall, and it’s done extremely well.

McConnell: Whole Foods is very aggressively expanding, so they’re looking at a lot of locations. It’s not so specialty anymore. But they like a larger trade area than a Publix or Kroger.

Coan: Then you have the success of Eatzi’s, which, for many years, probably had one location in metro [Atlanta] and now you have Perimeter.

Aschmeyer: I have a question about Whole Foods. It’s a great place to go for those specialty items, but when you have to pick up the other stuff, it’s so expensive. Are they just taking advantage of the market at the moment, or do they really need those margins and those items to make it a go for business? If there’s pressure on them, do they bring those prices back and make it up on the other items?

Wheeler: As we all know, there is a direct relationship to rent. So when these guys are going into more of the urban or infill locations… when I lived in D.C., a Fresh Fields would pay $20 a foot, triple net, where a typical Giant Food would never dream of that — they were $8, $9, $10, maybe $12 a foot at that time. Of course, the Whole Foods and Fresh Fields are taking 10,000- to 20,000-square-foot stores to get into that market, or potentially taking a two-level store. So I think there’s a direct relationship between rents and sales and margins, where they have to have that mark-up to shore up or be able to support those rents.

Piasecki: It’s a paradigm for all retail, really. The same person buying a $6 organic tomato prides him or herself on going to Costco or Wal-Mart Supercenter and getting the best deal on a 36-pack of paper towels. You see all kinds of conflicted things here. You’ll see a Fresh Market, Wal-Mart Supercenter and BJ’s Wholesale Club all appealing to the same demographic ring. Shopping is an adventure — it’s the people who are caught in the middle right now that don’t appeal to one of those or the other that really have issues. And I think that cuts across all aspects of retail.

SREB: Steve [Tart, Ben Carter Properties], you’re doing a big center in Jacksonville. Are you trying to get a specialty grocer in that project?

Tart: We’ve talked to several retailers, and some of them feel that it’s too big and there’s not enough density in the residential market. Although we’re geographically located for a regional draw. But we have had some interest from more traditional users.

Abe Schear

Schear: In Atlanta, we’re finding that specialty retailers are willing to come into the more urban environment and Atlantic Station is a good example. There are lots of quality, specialty retailers that would never consider being in Atlanta 5 or 10 years ago because there wasn’t sufficient density and economic justification for them to be there. I think that it’s pretty likely that Atlantic Station is probably going to be where downtown wanted to be. Specialty retailers are going to be between Georgia Tech and Atlantic Station, but they’re going to be high-end tenants that otherwise wouldn’t have been there because there is a lot of population there. Atlanta has become so vertical; people are living in high-rises, like Novare Group’s Metropolis. The tenants that serve those people are real excited about coming in. The deals are horrifyingly complex to do, but the tenants are willing to do it because of the sales they are going to get.

Urban Retail

Coan: Also, there is a new community that is being created. It’s serving a downtown dense area or Midtown dense area, but it’s a new creation. It offers logic. It’s able to provide the parking in a reasonably convenient mechanism and the mixture is in a logical format.

Schear: This goes back to what we talked about in Roswell. What happened in Atlantic Station happens in other communities in the Southeast: you really do get a fair amount of cooperation from the government in order to get it properly done. Utilities, taxes, the layout of the property, heights. There are some problems that are inherently more complex, and there are some that are much easier. This property [Atlantic Station] was able to get a bridge that it needed because it had a lot of federal, state and local help in order to get it. It’s just much more difficult to be able to do that in a small community.

Tart: Going back to the infill situation, one of the things I think is a very big challenge for traditional retailers is that urban doesn’t fit into their model. Retailers have models. They’re going to go to a real estate committee to get something approved, and it’s outside that model. And when it’s outside that model, you’ve got a 50/50 going in on how they’re going to do it unless you, as the developer or broker, have done an exceptional job identifying everything on who their customer is, where their customers are coming from, how that customer is going to get from their home to them and back in a convenient way. It doesn’t fit in the box — it’s way outside the box for Atlanta. It’s not for Manhattan, it’s not for Chicago, it’s not for Boston. But for Atlanta, it is still a challenge. The people in Atlanta haven’t learned how to live an urban lifestyle. They say they want that, but then they’re not willing to do what it takes to get to that.

Aschmeyer: It also starts with the 25-year-olds buying the Novare properties like The Biltmore and growing up with that.

SREB: You also have a lot of people moving here from areas like New York, Chicago and California that are used to urban living.

Aschmeyer: But that’s urban living with a different way of transportation.SREB: Atlanta has done a good job to this point with transportation, but there are cities around the country that are doing very little and keep fighting it, like Houston and Dallas. So we have to give Atlanta some credit for getting MARTA [Metropolitan Atlanta Rapid Transit Authority]. It’s better than what a lot of newer cities have.

Coan: Wal-Mart is really committing to an in-town location. They will make considerable concessions in order to locate in a lower level where there’s going to be retail over them. So there is that effort: Wal-Mart is finally saying there’s opportunity inside of I-285 and they want to grab onto it.

Grigorian: A major force in this particular sector of property groups is the capital. I remember 2 or 3 years ago, you would speak to 90 percent of institutional lenders and they would shy away from mixed-use or anything vertical, especially in Atlanta. It was not a proven product type. About 12 months ago, we started to finance a project in Syracuse, New York, and it took about 12 months to close the deal because it had a rental basis from municipality for paperwork. I would call senior and mezzanine lenders, and after 12 months suddenly they’re calling me back. I think large, national ones have learned you can duplicate the success from Manhattan and Chicago in Atlanta. The regional and smaller lenders have got a competitive squeeze from larger peers, and we’ve also seen a lot of Western Europeans, mainly German and Dutch, provide funding because they already know how the product works.

Read: I think you’re right — they’ve learned that they can make money in those markets. We’re doing a Target in downtown Miami; we did a Wal-Mart in Long Beach, California; and it’s a very successful concept getting to that type of density. They’re both going with non-prototypical stores and parking garages, things that maybe 5 or 6 years ago they wouldn’t think of.

Cohn: From a big box/value retailer standpoint, I think what’s happening here is a symbol of what’s happening all over the country. That is, big box retailers are figuring out how to do urban stores. I think they’re run by bright people, and most have figured out that if they can find the right spot and do one store and do a $75 million volume and capture your trade area, that’s a whole lot better than doing four suburban stores whose collective volume doesn’t equal that. Conversely, for the lifestyle component, they can’t take the roof off fast enough and head out to the suburbs. There’s really a dichotomy that’s happening because lifestyle retailers, traditional mall-based retailers, had their first growth explosion in more urban malls and they’re now within suburbs that may not be able to support a mall but can support a lifestyle center. Value retailers, traditionally suburban retailers, are now looking inward, so their paths are somewhat crossing as lifestyle retailers head to the suburbs and value retailers head in town.

McClarty: Also, outside of the fact that some of the retailers want to be in certain areas, I think to a certain degree local governments are almost forcing them to think a little bit differently. For instance, in Roswell, we just enacted a big box ordinance, which limits some of the actual prototypical, new big boxes. In Nashville, Tennessee, they’re looking at a similar type of ordinance — as opposed to going out, making the big boxes go vertical.

Cohn: With regard to the big box ordinance and Peachtree City — because we were the ones who were fighting it — it seems like a lot of municipalities’ immediate answer to the perceived plight of vacant spaces is “Let’s adopt a big box ordinance,” which is probably more problematic in the long run than anything you can do to your community. Because, while they don’t allow the one monster you really don’t want, but it also doesn’t allow the electronics store, high-end department store, any kind of large-scale fashion. So you may end up doing more damage to your immediate trade area and your tax base by adopting a big box ordinance and by trying to figure out a way to redevelop properly. There are a lot of communities in metro Atlanta that are right in the midst of doing that, and long-term, it’s suicide. Deals

SREB: With the competitiveness in the market with shopping centers and everybody’s trying to lease up their properties, Abe [Schear, Arnall Golden Gregory], what are you seeing when retailers and developers are coming to you, how difficult are the deals getting as far as the leasing? What are the developers expecting, and what are the retailers expecting?

Schear: I think that the sophisticated tenants, in particular, are expecting more than they every have. So many tenants are not going into the malls and they are dealing now with smaller, more local or regional developers and candidly, they have a leg up on them in some cases. They’re using very sophisticated letters of intent that are well beyond the thought process of the lease that is being used. It’s making the tenants very comfortable in terms of their deals because they’ve got clauses in the leases that afford them much greater protection than they are used to getting in malls. In some cases, the landlords are finding that to be perfectly acceptable because their lenders, and ultimately the buyers of the property, take a look at what the credit rating is of the tenant and say, “We’ll do the deal,” notwithstanding perhaps they haven’t read the lease.

SREB: Abe, is your firm involved with Atlantic Station, outside of the fact that you’ll be locating there shortly?

Schear: Yes. It’s interesting for us in that we’re getting to do all of the retail work for the project right now. I think it’s really complicated, but it’s affording us an opportunity to see very creative deals with tenants that have never been in Atlanta or tenants that people would not have thought were going to be down there. A Regal Cinema theater is being built there. The residential component has been a success from the beginning. I think some people outside of the industry will be surprised at the tenants that will be in Atlantic Station. They are very high-end tenants. IKEA will be an unbelievable magnet to that property and Atlanta is going to wonder how we did without IKEA.

Coan: The size of IKEA is extraordinary in itself. We don’t have any other retailers that are of that size.

Schear: But there are other big box tenants that are back there. Atlantic Station is probably the biggest thing that Atlanta has done in 20 years. [Representatives from Atlantic Station were unable to attend SREB’s roundtable due to a groundbreaking ceremony at the same time.]

SREB: Do you see more opportunities in Atlanta, and do you see opportunities for similar types of mixed-use projects in other cities like Charlotte and Birmingham?

McConnell: Absolutely. There’s a blending very much of the residential with the retail; those go hand in hand. Quite a few of our projects now have a residential component. The office market itself isn’t in a great situation right now, so I’m not sure when that opportunity will present itself. But you can leave 1 acre for a future office tower within the center that you design.

SREB: Ruth [Coan, The Shopping Center Group], in the entertainment area of Buckhead, a lot of the buildings are being bought up by others and not opening as bars. This seems to be a great opportunity for developers and retailers in the not too distant future.

Coan: I called Sam Massell [president of the Buckhead Coalition] because we were looking for some specialty retail locations that we were attempting to find appropriate locations for our client. One of the issues that still needs to be addressed in order to really make that area more successful for retail is parking. That’s been such a difficult situation for the retailers because there’s such limited parking. There are some very high-profile projects just north of The Cheesecake Factory and on Paces Ferry which are combination retail and residential and office, and I think that’s going to positively change that area.

Tart: I think what the Aramore has done on Peachtree with the residential, they don’t have a lot of retail, but that’s a good example of quality retail and opportunity for retail and restaurant in a very high-profile area close to Piedmont Hospital. You can walk to get there, and then the redevelopment of what’s going across the street with Pier 1 and Office Depot.

SREB: Are there a lot of new restaurants coming into the market? That’s so important to the fabric of what makes everything work — bringing people in.

Coan: There are new concepts, but franchising has been occurring in various markets. The Raving Brands concepts [Moe’s Southwest Grill, Mama Fu’s] are expanding very ly. Carvel, Cold Stone Creamery — there is a proliferation of a lot of these small shop tenants that are also coming into the market.

New Development

SREB: Sandy Springs is trying to clean up their act down Roswell Road. Is that going to open up more opportunities for retail? The big center on the corner of Hammond and Roswell Road is being redeveloped and has made a big difference. Do you see more opportunity in that area, because it’s also a high-income area?

Coan: I favor Roswell Road in the respect that there is good residential behind it. However, with the influx of a significant amount of quality retail that’s already opening up in the Perimeter, I think that’s such a regional draw, that Roswell is going to suffer for a while.

Tart: I’m on the board for Sandy Springs revitalization, so I’m very familiar with what’s going on and spend a lot of time on that. There is a tremendous amount of focus. What Ruth said is true, but it’s also true that there is an incredible amount of income. We just invested over $6 million in streetscape and the work that has been done, and it won’t take any longer to fix that section of Roswell Road than it took to screw it up. So it’s not going to change overnight; it’s going to take time to get there. That has changed, there is a very detailed and sophisticated district that has been created that was written by myself and some people at Cooper Carry and an incredible team of experts and professionals in this field. You will see Roswell Road change, you will see Sandy Springs change, but it’s going to take time. It has taken 10 years to get this off the ground, but we’re getting GRTA [Georgia Regional Transportation Authority] support, Fulton County support, state support, federal matching money support for those areas. To me, Sandy Springs is the opportunity that Buckhead wanted to be. It doesn’t have all the bars and those kinds of things, but it already has the residential and density, and the density is continuing to increase.

There’s also incredible, quality multifamily. Maxwell Properties is doing a good job with City Walk at Sandy Springs, and The Shopping Center Group and their partners have done a good job with Parkside. Mimms has done a good job.

SREB: Amy, is The Sembler Company working on any new projects in Atlanta or other parts of the Southeast?

McConnell: Yes, we’re working on lots of new projects. In Canton, Georgia, we’re working on a power center. The Edgewood Retail District on Moreland Avenue will open in March ’05. It’s anchored by Lowe’s, Target, Kroger, Ross, Barnes & Noble — retail on the streets, a very exciting project. There are four residential components in that project. We tend to separate the residential and treat it almost as an outparcel to the shopping centers, so there are four different residential components within that. One is converting the existing shoe factory on the property to loft condominiums, and we’re going to work on that. We’re doing some condominium units over the retail.

Schear: The great thing about the Sembler project, and I think you’re seeing this more and more, pulling all the retail right up the street is really not a concession by the developer because it allows so much more creative building. It allows the property to look great from all sides. Ultimately, like all properties, each property is going to go through a life cycle. There are going to be pieces that are good and bad over time.

SREB: The Sembler Company tends to open their centers all leased. You seem to have a great formula for getting it all done and getting good retailers. Do you base that on having a good track record or a lot of hard work or both?

McConnell: Both. In the retail business, you have to have your tenants, at least your major anchors, when you go into your project. So by the time you’re closing on your project, you’re done with your major anchors or some combination thereof. The smaller retail and the specialty tenants will follow during the construction state. Usually by the time you’re open, you’re leased up.

SREB: Bill, what is DDR looking for in the Southeast? You’re very aggressive on what you buy. You bought JDN…

Read: We bought Benderson for $2.3 billion this year, so that’s $3 billion in 2 years. I’m sure we’re not done yet. In the Southeast we’re active as a developer, but I don’t think we’re that well known in Atlanta as a developer because we’re building 2 million square feet of property in the Southeast between Apex, North Carolina, downtown Miami and Jupiter, Florida, but none of it’s right here in the Atlanta market. We just finished two smaller developments in Atlanta — a Wal-Mart Supercenter, Lowe’s and 40,000 square feet of small space in McDonough, and a Bed Bath & Beyond, Toys “R” Us and Sam’s Club in Lithonia.

Wheeler: Our primary focus up to this point in time has been acquisitions. We’re in nine states now, still with the primary focus on the Southeast. We really love Georgia and Florida. We look at Florida almost as a foreign country because there are so many dynamics. But the problem in that, even though that’s our preferred market, and the Southeast as we all know, on existing product, either manufacturer product or the cap rates. As a buyer, we can’t afford to pay a 7 or sub-7, we can’t even afford to pay a sub-8. We’re stretching to pay an 8.25-cap rate on products, so that kind of boxes us out of the Publix and properties like that where some of the pension funds or the Dutch or European money is going after. Right now we have our hands around about 10 centers throughout the Southeast that we have either under contract or under proposal and going to contract. So the activity is there, but it’s interesting where we feel that we’ve found our niche, we may have to strive for a little bit older center, not necessarily a B-grade center but a center that maybe has the anchor leased and has 12 to 15 years left on the term, nothing less than 10. We feel very comfortable in that zone.

SREB: Brian, as a public company, I understand Colonial has a lot of changes in their retail division. What does Colonial have in the pipeline?

Neltner: Colonial is unique in that we are one of the few companies that have three very strong divisions — office, residential and retail. We’ve had projects such as Town Park in Orlando [Florida], which has more than 400 apartment units. It’s anchored by an Albertsons. It has some great local restaurants and shops. It has a theater component. We’ve also got several hundred thousand square feet of office space. And as in other developments, where this could take years, we’ve created it very quickly because we have such strong divisions.

Our retail division is a very diverse group. We have great relationships with mall-based tenants, which are beneficial for us going out into the lifestyle centers such as Turkey Creek that we’re building in Knoxville [Tennessee]. Our growth right now is very targeted on development; we have a very robust development pipeline. I find that some projects come to us primarily because of our extreme breadth and capabilities; there are very few developers that can do all of the things that we can do.

SREB: Do you bring together the different divisions to complement each other?

Neltner: Absolutely. We’re all right down the hall from each other, we’re all very involved and we understand the limitations of our divisions and bring in these people for the multifamily and office divisions and so on. That’s a real strength of ours. There aren’t many people that can build a 300,000- or 400,000-square-foot lifestyle center and, at the same time, build 500 apartment units and 500,000 square feet of office space — and know the tenants, know the developments and know the projects.

SREB: Outside of Jacksonville, is Ben Carter Properties active in building anything else in the Atlanta area?

Tart: We’re doing Phase II in Conyers. Belk is relocating there, and we’re going to have a couple of other mini-anchors, some shop space and an outparcel. That’s actually under construction and will open in March 2005. We’ve done a lot of redevelopment work in Roswell and Cumming. We’re looking around for different opportunities, and we’re probably going to do some more things in Florida.

SREB: Is anything new being created by Faison?

Cohn: Yes. We have regional offices in Bethesda, Charlotte, Orlando and Atlanta, and all are very active. We have two projects in the Southeast that are getting ready to break ground — a Target-anchored center in Peachtree City and a Costco-anchored center in Alpharetta. Trailing that, most of what we’re looking for is outside of Atlanta in what have been traditionally secondary markets. Also, markets like Nashville, Louisville, Knoxville, are all, at some point, in the learning and growth cycle, not that far behind Atlanta.

Malls & Big Box Retailers

SREB: What can be said about the malls around Atlanta and all of the changes they’ve gone through lately?

Coan: The malls are successfully replacing anchors that were leaving last year. We have two new Bloomingdale’s, we have a Norstrom that’s replacing the Lord & Taylor at Phipps Plaza. I see those as positive examples of the retail strength in this market and the acceptance from these mall areas.

I think you can also look at some of the smaller malls in struggling areas and see that they, too, are repositioning and hopefully succeeding. North DeKalb is restructuring and will have some good announcements in terms of new retail coming there. I look forward to hearing something good about Avondale Mall.

It’s interesting, if you think about the malls, almost every one has had something to overcome and most of them are successfully doing that. You’ve got Cumberland, which lost Macy’s, so there’s some repositioning there. Town Center is working on a new concept for their Macy’s.

I also see some morphing of the big box retailers that are trying to keep their base concept while recognizing that if they’re going to continue to expand and have value, they’re going to need to come up with new concepts. Bed Bath & Beyond has come up with a Christmas Tree Shop; they purchased that concept and it’s been very successful in a variety of markets. Marshalls and Mega Marshalls, Sears Grand, T.J. Maxx has a new concept called T.J. Maxx & More. I think that speaks well for some of the positive kinds of retail concepts that we can look forward to seeing in this market as well.

Piasecki: One area where we’re seeing a lot of activity is some of the big box national retailers going to a junior format in some smaller cities. We’re a single-tenant company, so that’s good opportunity for us because not everybody wants to do that. You see Best Buy’s 15,000-square-foot format going into smaller markets. We’re seeing that nationwide, not as much in the Southeast as we do nationwide, but I’m sure we’ll have it here.

Coan: JC Penney has come in with a smaller concept to try to address that and get into power centers.

Knoll: Although I’m not involved and I’m not a developer, what I’ve seen is a lot of time this adversarial confrontations, over the last 5 years, there are a lot more partnerships. These two guys are on the same team. The ICSC is really pushing the governmental alliances in Florida, and I think everywhere. As that moves along, it’s going to be a big change with some of the problems that we do have. Because now it’s like, “What do we do with the big boxes?” That’s a big change. Six years ago, you didn’t talk. Now at ICSC conventions, every city in Florida is represented with their own booth because they want to be part of the operations and I think that’s a huge step.

Grigorian: Another aspect on the investment sales side, over the past year I’ve noticed immense increasing interest from two international movers. I think it had to do with Atlanta breaking over $200 billion in so-called gross domestic product. We are seeing extremely liquid markets. I fell like a dry goods merchant in San Francisco during the gold rush! I was in Berlin at a real estate convention, and there was a Dutch company that sold 1.7 billion euros worth of stock on the Amsterdam stock exchange and their strategy is to buy property in Atlanta and North Carolina.

Saykaly: One of the most exciting things for our industry is the change and evolution of our industry being an accepted asset class for the private market. Regardless of where interest rates go — who knows whether they’re going to go up or down — but even if they go up, there’s definitely been a paradigm shift in terms of how quality real estate gets valued in the marketplace now that investors who move additional assets from the stock market into real estate price assets. Even if the stock market rebounds and goes to a bull market, there’s still going to be an increased allocation in commercial real estate.

SREB: Gary, is retail still the darling of the investment community?

Saykaly: It’s hot. Location and tenants sales are still major drivers and focus points. If you’re in an A location, a buyer can buy into poor sales. If you’re in a B or C location and the sales aren’t good, the liquidity for that asset type…

Aschmeyer: Which is terrible for a lender.

Tart: Having worked for an institution for a long time, one of the things that’s interesting is diversification of their portfolios. That’s why retail is always going to be a strong segment, and that’s why we’ve seen some cap rates that we’re seeing on the nice, low-end side. Because, when they’ve got to place that money they’re going to have to place that money where they know they’ve got a sold asset.

Faison Brings New Retail to Atlanta Area Anchored by Target, Kedron Village is a 280,000-square-foot shopping center developed by Faison in Peachtree City, Georgia. The Atlanta office of Faison Enterprises is expanding Kedron Village in Peachtree City, Georgia, by adding 280,000 square feet to the existing Kroger-anchored shopping center. Kedron Village is located within an upscale, master-planned community 30 miles from downtown Atlanta. The $35 million expansion project will be anchored by Target. The new development also includes three additional anchors, 50,000 square feet of small shop space and 14,800 square feet of second-floor office space. Construction is expected to begin in winter 2005 with opening scheduled for spring 2006. In Alpharetta, Georgia, Faison is developing Windward Crossing. Costco will anchor the 140,000-square-foot shopping center, which is located across the street from Lowe’s Home Improvement Warehouse, Kroger, Wal-Mart and The Home Depot. Opening is scheduled for spring 2005. — Julie F. Hunt

Greenberg Commercial Brings New Town Center to Maryland Greenberg Commercial Corp. has begun demolition of the former Parole Plaza Shopping Center in Owings Mill, Maryland, to make way for the new $400 million Annapolis Towne Centre at Parole. Greenberg Commercial Corporation has begun demolition of the former Parole Plaza Shopping Center in Owings Mill, Maryland, to make way for the new $400 million Annapolis Towne Centre at Parole. The property is located near the intersection of West Road, Riva Road and MD Route 2 near Annapolis. Greenberg Commercial, through a joint venture with Pennsylvania Real Estate Investors, purchased the property in May 2004. Developed in the late 1950s, but vacant for the past 12 years, the 33-acre site is recognized as the second oldest retail venue in the state of Maryland. It was originally developed as an open-air mall with major retailers. Plans for Annapolis Towne Centre at Parole include the creation of a mixed-use town center, complete with a mixture of local, regional and national retail uses; service and entertainment tenants; for-sale and rental residential units; office space; and a full-service hotel. Annapolis Towne Centre at Parole is the first project to be invited to apply for “Priority Places” status, a new program initiated by the state of Maryland that emphasizes the development of long-term solutions for community revitalization, resource conservation and refocused land use. — Julie F. Hunt

Crosland Brings Projects to the Carolinas Crosland is developing Austin Village, a mixed-use development in southeast Charlotte, North Carolina. Crosland has broken ground on The Shops at Greenridge in Greenville, South Carolina. The 600,000-square-foot regional center is the third largest shopping resource for Greenville and the first outdoor center of its kind. The center is expected to employ approximately 1,500. Lowe’s Home Improvement Warehouse recently closed on a 12.2-acre parcel. Other tenants announced to date include Best Buy, Total Wine & More, Dick’s Sporting Goods and Barnes & Noble. The first tenants are expected to open summer of 2005. In southeast Charlotte, North Carolina, Crosland is working on Austin Village, a mixed-use development totaling approximately 375,000 square feet. The center of the property will include a pedestrian-friendly village green with professional and medical offices as well as shops and restaurants. The first building, 80,000 square feet, is scheduled for completion by the end of this year. Kids R’ Kids was the first tenant to sign with the project and has plans to open next spring/summer. Crosland recently signed Harris Teeter to Blakeney, its mixed-use project in southwest Charlotte. Site work is underway on the 48,000-square-foot grocery store, which plans to open in late 2005 or early 2006. Blakeney consists of four parcels of land linking southern Mecklenburg and Union counties. Harris Teeter is part of the northwest parcel, zoned for a total of 495,000 square feet of retail space, which will consist of national and regional retailers, restaurants, and neighborhood shops and services. This parcel will also include a 2-acre community park, fronting a village area with specialty shops and restaurants. — Julie F. Hunt

LOUISIANA’S FIRST LIFESTYLE CENTER TAKES SHAPE Creekstone Companies is developing Louisiana’s first lifestyle center, Towne Center at Cedar Lodge, in Baton Rouge. Multiple national and regional tenants have committed to Towne Center at Cedar Lodge, Louisiana’s first lifestyle center, which Houston-based Creekstone Companies is developing in Baton Rouge. Whole Foods Market will anchor the project, and Carrabba’s Italian Grill, P.F. Chang’s China Bistro and Fleming’s Prime Steakhouse & Wine Bar are scheduled to open by the end of the year. The rest of the retail shops and restaurants will open next year — a 2005 grand opening is planned. Located on 48 acres of land bound by Jefferson Highway and Corporate Boulevard, Towne Center at Cedar Lodge will be a mixture of retail and office space totaling 440,400 square feet. It is located next to The Reserve at Cedar Lodge, an upscale apartment community, also developed by Creekstone Companies. — Julie F. Hunt

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