FEATURE ARTICLE, OCTOBER 2006

SOUTHEAST RETAIL ROUNDTABLE
An in-depth discussion with experts of Southeast retail.
Moderated by Jerrold France, Randall Shearin, Chris Thorn and Daniel Beaird

Southeast Real Estate Business recently held their annual Southeast Retail Roundtable in the offices of Arnall Golden Gregory at Atlantic Station in Midtown Atlanta. This year’s roundtable included a variety of sources from all over the Southeast. This was a true Southeast roundtable with representatives from the investment side, lending community and from the property side of the business.

Attendees this year were: Tom Aschmeyer, RBS Greenwich Capital; John Beam, Capmark; Hazel Dennis, Fickling & Company; Bernie Haddigan, Marcus & Millichap; Whitney Knoll, Trammell Crow; Brian Leary, Atlantic Station; Richard Levine, BridgePointe Advisors; Peggy McCormick, Atlanta Development Authority; Joe Montgomery, Colliers Spectrum Cauble; David Oliver, Stafford Properties; Peter Pelt, Equity One; Mark Rowell, BridgePointe Advisors; Gary Saykaly, BridgePointe Advisors; Abe Schear, Arnall Golden Gregory; Bob Shapiro, Teavana Corporation; Eric Snyder, CBL & Associates; Marc Weinberg, The Shopping Center Group; Liz Whiteside, Staubach; and Bob Wordes, First Fidelity Companies.  

SREB: Bernie [Haddigan], can you give us an overview of the Southeast and how it compares to the rest of the nation right now in terms of performance?

Bernie Haddigan: My perspective is that of a broker selling properties for private clients including multi-tenants and single tenants. There are two big things that really stand out from last year. From 2006 to 2005, I would guess that the first and second quarter is probably down 0.5 percent. We are seeing the markets start to change over the last 6 weeks. We are starting to see buyer activity increasing and offers increasing. We have seen a bit of velocity slowing down. Another interesting point from last year to now is quality. We have seen product over the last 5 years on which we couldn’t build virtually anything with income stream coming through regardless of credit or location. Earlier this year, that pretty much stopped. The secondary and tertiary markets, the low-credit quality deals, cap rates probably jumped up 150 basis points in no time at all in the low end of the market. The single tenant side of the business has been extremely active nationally. We just built one in the last 30 days in Florida for a 10.1 cap. That would have been an 8.2 cap 12 months ago. On the flip side, we just built a Publix in Gainesville [Georgia], a brand new beautiful property and put it on the market, and within 72 hours we had a non-contingent offer from an exchange buyer from New York on a 6.25 cap with $2 million up. For your best quality, people are still chasing that in a big way. All the information that I’ve read earlier in the year points to a significant disruption; I don’t think that is going to be the case. I think the end of year, 2006 over 2005, overall velocity and the space we are pursuing, I would guess, is down 15 percent. Real estate investors are looking for an opportunity, when it’s always smooth sailing; it’s kind of hard to find an opportunity to outperform the market. There has been enough disruption this year that there is opportunity.

SREB: Do you think it will carry through 2007?

Haddigan: Yes, I think it will. The 10-year treasury is clearly a key indicator in terms of the pricing for financing on retail. It’s started moving up, but it is probably down 30 to 40 basis points from what is was 6 weeks ago and I think that gives people a lot of confidence. They are rushing to lock in long-term, affordable financing or what they perceive to be affordable financing. The amount of capital in the market hasn’t changed at all. I think the selection process is where I’ve seen more change. But, there is still a lot of money on the equity side.

SREB: Gary [Saykaly], what is the investment climate and what are the hot markets?

Left to right: Pelt, Knoll, Aschmeyer, Weinberg, Snyder, Saykaly and Dennis.

Mark Rowell: I would say, Gary, what you’re finding is that cost of junior financing is coming down, we are seeing a lot of pension funds and so forth coming into the market and offering leverage, and looking for rates below 10 percent, which has been a big change in the last year or so. The other thing that we are seeing is lenders like Greenwich Capital are starting to underwrite more aggressively on acquisitions. But, they are going in debt coverage ratios to preserve leverage and make sure the capital increment from the senior side, which is the cheapest part of the capital stack, is maximized because there has been a little imbalance between cap rates and loan constants. So, even though a lender says they can do 80 percent financing, they’ve had a hard time getting to 80 percent just because of the low cap rates. They’ve been bringing the debt coverages down, pushing the seniors up, and then stacking on top of that some junior financing, either taking that to 90 percent or selling it. It still can generate a pretty high leverage and low cost capital status.

SREB: Whitney [Knoll], do you want to comment on the property types?

Whitney Knoll

SREB: Peter [Pelt], as a buyer in the Southeast, where do you see this market tracking?

Peter Pelt: We are trying to dispose of tertiary markets. As Whitney said, we are still in that neighborhood, grocery-anchored metro Southeast type area. We feel it’s a very strong market although it’s very competitive. We just bought a Publix-anchored center. The trouble we are having now is on the ground-up side, finding the number of deals. I haven’t seen a significant decline in land cost at all, particularly in the metropolitan market. We’ve had to go to a more diverse approach, larger land plays – we are buying 100-acre tracts now versus 10-acre tracts, going to mixed-use, something that our competitors have done. We are having to really look at different areas and opportunities to grow the portfolio, in addition to mergers and acquisitions. I think you’ll see a further consolidation of the REIT market.

SREB: You mentioned the tertiary market. Hazel [Dennis], you cover middle Georgia, what are seeing in terms of investment activity there and also leasing interest?

Hazel Dennis: The cap rates are greater for 1031 exchanges and the transaction itself is a little bit shorter for the smaller companies. They are having to go look for value-added properties to acquire, while the larger companies, who have all the cash, are getting Class A properties. We deal a lot with the Class B and C properties, and our strongest client base is looking for properties where they can add value.

SREB: Who is your client base?

Dennis: We have a database of individuals that have capital that they want to invest. We have mostly private investors.

SREB: David [Oliver], you are investing in smaller markets. Are you still looking to acquire and build more?

David Oliver: Development is our primary focus. We are not a real competitive buyer in grocery anchors and small markets. We typically look for a value-added opportunity, the biggest shift since I first got into the business. The property values have escalated to the point that owners have the expectation that every property is a Class A property. It shifts down to the expectations of the land owners, so we are seeing land prices that have gone up astronomically. Our particular business is kind of trending towards mixed-use. We are primarily a strip center owner and developer throughout the Southeast. We are from Atlanta, we are based in Atlanta, but we have stuff all over South Carolina, South Georgia and Florida. Lately we have trended towards mixed-use in part due to the shifting in retail. We are doing a project in Buckhead [Atlanta] where we paid $40 per square foot for the dirt in 2002 and we bought the site across the street in April for $170 per square foot. We are looking at two other pieces in Buckhead right now that are $220 per square foot.

Saykaly: We are seeing a proliferation of a joint venture structure because land prices are getting pretty outrageous. With the rise in construction costs and the return on cost for the developer, we are now seeing a big increase where landowners, because of the high prices, are now just entering into joint ventures with qualified development partners. They are contributing their land or redevelopment project into the joint ventures. A lot of those out there right now are being developed into mixed-use or master-planned projects that go retail and residential. We are actually working on one in Huntsville, Alabama, where the landowner of 400 acres came to us and asked us to find a joint venture partner to develop it.

SREB: Liz [Whiteside], you are doing a lot of land deals. Who are you representing?

Rowell, Whiteside and Haddigan.

SREB:  For some of the developers in the room, what are some of the bigger projects you are involved with in the Southeast?

Eric Snyder: I’m with CBL & Associates and we have a large open-air center in Burlington, North Carolina, between Raleigh and Greensboro. It is called Alamance Crossing. It’s a mall without a roof anchored by Dillard’s, Belk, JC Penney, Barnes & Noble, Chico’s, and Coldwater Creek. That center is about 850,000 square feet. We have several sites around Atlanta that we are working on. One is Gateway at Riverstone up I-575 in Canton. That one is a little bit further out. We have been in the acquisition arena now over the past 10 years; we have 80 malls, and of those we have acquired 54. CBL is a developer, but we became very active in acquisitions. Last year we bought about $1 billion in real estate, seven large centers. The only one in the Southeast was Triangle Town Center [in Raleigh, North Carolina]. Another comment was made about joint ventures: we actually only bought about half of Triangle Town Center from The Richard E. Jacobs Group and took over the management and leasing of the center. The joint venture was an opportunity for us to get half of a project; we couldn’t get it all. We feel like it is a good acquisition with upside potential. The Jacobs Group has been very important to us and we are using them on the development side as well.

Left to right: Peggy McCormick, Brian Leary and Peter Pelt

Snyder: Yes, we are looking at all those opportunities, and we have quite a big pipeline. We are doing between $300 million and $500 million in development per year. Projected out 3 and 4 years, we do not have a mall planned, and we would gladly do one. The public sector today, the retailers and everyone else, are expecting open-air type developments and so we have gone with the flow. At some point in the future we will do some more malls, but projected out we have none.

Marc Weinberg: I view that as a function of convenience, not a function of concept. You are still getting a mall environment with more convenient access because without the roof, parking is more convenient and you don’t have the same kind of environment, and that’s what’s driving is convenience of access and location. You just can’t find mall opportunities in certain areas.

Snyder: The mixed-use concept doesn’t really lend itself to a mall. The new version of a mixed-use development is much more directed towards open-air.

Weinberg: You’ve got two different versions: you’ve got an urban version of mixed-use and you’ve got a suburban version. The idealistic town center mixed-use is a very different model from the urban mixed-use like Atlantic Station.

Leary: You know, it’s interesting Marc, you mentioned it’s a function of convenience and not necessarily concept, but I would argue that it is also part of concept. I think the public is kind of rediscovering the joys of sidewalk shopping. In Atlanta particularly. I think the Southeast is a place where we have driven to where we walk, and if I would say ‘let’s go for a walk’, we would all pile in the car and drive to Virginia Highlands or Vinings. A part of that is a reaction to the control of a single area of malls in some extent, and being reinforced of the pop culture mainstay of the different shows. I speak for myself: as a kid I was reinforced that the suburban mall was where everything took place. Leave It to Beaver, Happy Days, Family Ties, they all were based in a suburban environment. Now, all the shows are showing an urban lifestyle whether it’s Friends, Seinfeld or Sex and the City. It will be interesting to see if it’s not just convenience, if it becomes kind of a quality of concept.

Snyder: We are also looking to put streetscape concepts at the mall and try to do all things for all people.

Saykaly: We’ve been tracking a lot of what’s been going on with the malls’ inventory. If you look at a lot of the expansions and repositionings being done, a lot of it is taking existing malls that are performing and adding a lifestyle component to it on the perimeter, or basically taking malls that are somewhat obsolete or stressed and repositioning them. Gulfside Development has acquired Greenville Mall [in Greenville, South Carolina] with Canyon-Johnson and they are redeveloping that project. Hendon Properties bought Greenbriar Mall [in Atlanta] in a joint venture structure. They are going to be repositioning that with the help of the city of Atlanta, so there are a lot of trends that are pushing existing properties and new properties to that open-air style.

SREB: A good example that is coming online this year in Atlanta. Cumberland Mall is adding a lifestyle wing that will have restaurants and retail.

Weinberg: An important factor in all of these mixed-use projects is that they are all designed for a particular age group. It is that 25 to 35, maybe 40 year old, single and couples. They are also designed for empty nesters. No one has figured out family-oriented mixed-use projects with residential components. So, the model that everyone is looking at with the urban setting, how does that transition to a family and where is the next step?

Leary: It’s coming in very small doses. Just living in the city, it’s changed, you are seeing more and more kids, schools are getting better in the city.

Weinberg: But there is not a product, there is not a residential product design, and that just highlights the fact that families need to be included in the design.

Saykaly: I think what’s great about the urban area is that cities are becoming very proactive in trying to enhance or redevelop areas. I think that Peggy [McCormick] and her group [the Atlanta Development Authority] have done an amazing job at ICSC. You guys went out there as a combined force, Midtown, Buckhead, and Downtown.

Left to right: Brian Leary, Philip Skinner (observer) and Peggy McCormick.

SREB: We’ve traveled around the country quite a bit, we’ve gone to a lot of the cities, and one common theme from the developers is how difficult it is to work with cities. Every city in the country that we deal with, almost all, wants development in their downtown areas. Is the city of Atlanta going to make it easier for development to take place?

McCormick: I don’t think its ever going to be easy, and I think we just need to take that off the table. We’re talking about intown, we’re not just talking about downtown, but it needs to be fair and we need to send signals to the developers about what we want. Our job is to open the door and say come tell us what changes you want, and we are doing that on September 8.

Left to right: Gary Saykaly, Hazel Dennis and Abe Schear.

McCormick: The city is very mindful and very concerned about the growth. Atlanta is growing and it is going to grow substantially in the near future. As you all know, residential is booming. Residential is the most expensive consumer of services, and so the basic things need to be done.

SREB: How does Macon deal with developers? Do they have a program in place? How is Macon growing and projecting its growth?

Dennis: Macon does have some incentives in place. They do have the typical tax maintenance. They have a lot of support from the local banking industry providing money and so forth, but they are very aggressive in researching new uses for existing inventory vacancies. They travel internationally and nationally. Brown & Williamson closed and that was the largest loss of jobs in that area. Macon has already filled the 2,000 jobs that were lost. They were filled with jobs that were not up to that salary level because Brown & Williamson had been there for years. Macon is very aggressive and innovative.

SREB: The reason I asked the question is because when we go to the bigger cities, the urban development and on-street retail is a very significant part of the growth of the city. You get smaller cities like Macon or Savannah that try to take these stressed buildings and turn them into retail. The city of Atlanta has great opportunity for on-street retail and cafes and so on in downtown.

Leary: There were no people downtown [in Atlanta] previously. There are people now; there are people in Midtown, there are people in Atlantic Station. The malls always went where the people were. The bedroom community of Buckhead served Atlanta and that’s where the mall went. The bedroom community of Dunwoody served Atlanta and that’s where the mall went. Now that the people are actually showing up and living there and increasing the density, retail will show up downtown.

Weinberg: You also had most of the architectural design in the city take place in the 1960s. I don’t want to pick on anyone, but that was not designed to be pedestrian friendly. It was created to be that fortress-like safety issue that it ended up creating and it’s hard to get rid of a couple of blocks of concrete.

Oliver: Atlanta has one of the best climates in the country and we have external sky bridges connecting buildings to other buildings like we are in Minneapolis.

Leary: A lot has been said about the 24-hour city and we aspire to be a 24-hour city. If you look around the traditional markets where that is a reality, and there are geographic considerations. These are cities like San Francisco, Chicago, and Boston. And there is also transportation; we don’t have any heritage in Atlanta nor do we have those geographic restrictors that force pedestrian travel. It is interesting to see what’s going on in Atlanta, the density and the efficiency that’s resulted in this new modern era. How does an established, entrenched mall owner, view the innovation that is in the market? Retail real estate is completely different, the success of the tenants rides on the physical structure, and the curtain lines are always going up and always going down.

Snyder: All of the retail, whether its city, suburban, urban, is all competition, and so as an owner of malls we are very aware that we need to keep our physical plan as up-to-date as possible. We are trying to maintain a 10-year remodel cycle, we certainly look to upgrade the physical plan, even to the extent of putting a play area inside a mall to attract a family. We have an initiative in every one of our malls to include a play area just because it’s a positive experience. Obviously, we are adding restaurants, which is what the city has all over. Malls typically haven’t had quality restaurants, so we are trying to put the P.F. Chang’s, Maggiano’s, whoever at the mall, and not near the street at the end, but bring them up against the mall. We found department stores that used to be totally opposed to giving up space and parking and the convenience of their customers, now they are saying we want the restaurants at our door. It’s a complete 180, but we think its very positive, and we are trying not to abuse it, but we are still aggressively seeking the restaurants. The more positive experiences keep people there longer.

Weinberg: We’ve talked about these tenants and streetscape retail. We can’t forget that retailers evolve. They evolve in the merchandise plan, they evolve in the merchandise that they carry, they evolve in the structure that they’ve existed. As the population moves, it will dictate what the retailers will do, and that’s in terms of who the retailer is, you get evolution. You know Kmart ain’t what it used to be. You don’t know who it will be, you just know it will be.

Whiteside: We always have to evolve.

Weinberg: Right, I’m not worried about whether we will have the retailers, it’s a matter of finding that retailer that does it.

Whiteside: Right, and we look at a site plan completely different.

Wordes, Levine and Shapiro.

SREB: John [Beam], do you want to talk about the lending climate in the Southeast as compared to the rest of the U.S.?

John Beam and Mark Rowell

Rowell: Along those lines, a lot of innovation is coming because lenders are trying to manage their pipeline. There is so much capital out there. The innovation is coming from offering construction, non-recourse construction loans. Lenders are trying to capture the business way ahead of time. They are doing fairly priced forward commitments where there used to be a pretty good premium on forward commitments. Now it’s 1 basis point a month and they are going out a year or more. Construction loans and bridge loans, there is a bigger push to get business way ahead of time doing pretty aggressive banking, doing things they wouldn’t have done before, to take a lot of servicing power and administrative power to hold that business so it sets up well and to execute the securitized loans sometime in the future.

Beam: We are a fairly large platform, we are probably one of the largest in the country, and our attitude has changed radically in the last few years. We now have actually, many of our loans are in a fringe platform. The reason why we do that is that a fringe platform cannot only collect every year rather than one time, but you manage the funds you can put into this platform. You can mix debt and you can come up with some positive turns for the investor and this debt can move in and out. We’ve done land loans, we’ve done retail land loans, we can do pretty much any type of real estate today as long as we can get a certain yield for it. The riskier stuff is probably 250, 225 basis points over LIBOR.

Tom Aschmeyer and Marc Weinberg

Joe Montgomery: Cap rates in relationship to fixed interest in commercial lending have never been tighter and I think that’s the reason why the participation of the public market, we’ve never had a sustainable and such a consistent abundance of capital in this business in my 23 years.

SREB: With the amount of capital out there, are marginal deals being done?

Aschmeyer: A marginal deal 8 years ago is an easy deal today.

Bob Wordes: But with the increase in cap rates, are we starting to see some perception that exists, particularly leverage buyers. They are now saying I can’t compete on the Class A stuff, with the all equity guys so I’ll play in the Class B and C product or in the tertiary markets, and cap rates have moved in that regard.

Aschmeyer: I think everyone is in the grind right now, whether you are making loans, selling properties, buying properties, or developing deals. It is a kind of unexciting, okay, I’m in the business, I’ve got to justify my existence, let’s go at it.

Haddigan: With all the efficiencies driven into the capital markets over the last 10 years, the CMBS, the things you referenced, is this a cyclical shift, is it a secular shift? I recognize that you don’t have a crystal ball, but do you think some of the efficiencies will be long lasting?

Aschmeyer: I think if your mindset has not changed from a 10 cap valuation, you’re not in the game. It is here to stay. I read an article that said the total capitalization of real estate with debt equity, securitized debt equity reached $1 trillion last year, that is one-third of the perceived value of the real estate market. So securitized through equity and REITs or the CMBS industry on the debt side, that is a huge number. Ten years ago it wasn’t that way. It is a big market, and more importantly, as the boomers age and with all the investment products out there, people need that fixed income investment and the CMBS is a great product that a portfolio manager can provide. It will continue to expand.

Beam: I think one thing that is happening, too, is people, this is in the debt area, are not as focused on cap rates, its really cash on cash.

Aschmeyer: I’m curious as to what buyers, guys who put money in the real estate market, the country club money, the 1031 guys, everything else, will do when they wake up, and they realize they bought average property, and they really get depressed and go why did I do that? This is a very unexciting, kind of a lackluster return, and if the stock market ever gets any feet, where does that second-guessing come into play? At that point does it just hold on to the 86 syndicated deals that just kind of take on a whole life for 10 or 15 years, or do they go back into the marketplace and say I just want to get something out of it?

Saykaly: What’s happened is that a lot of the investors who invested a couple of years ago with the country club money, a lot of the products have slipped twice or even three times in the last couple of years just because of that lowering cap rate. You’ve seen a lot of the country club money getting the returns, the checks in the mail saying this is exciting. But the guys getting in it now, what happens in the next couple of years, who knows? I remember in the early 1990s when somebody would ask me what the best cap rate for a grocery deal was, the best cap rate for a power center deal, and you would say maybe 8.75 or 9, it was that standard plus or minus a basis point, now real estate is so impacted by the public market so it’s really going to trading at some spread over alternative investment vehicles. Whatever that investment vehicle is, who knows, but it’s going to be some relationship to that and the debt markets. On the equity side we are seeing more and more broker/dealers of all things out of the traditional brokerage shops, and even ourselves are going to set up a broker/dealer to raise private equity through the high net worth market on more of a structured basis. With lowering equity expectations and compressing the CMBS spread, there is still a lot of drive to the pricing. Somebody here had mentioned marginal financing activity. The question I would have is what do you do with a sponsor or landowner who might not have a great sponsorship resume and he’s trying to do a development or redevelopment? Is there financing money out there?

Richard Levine: There are a lot of deals like Tom mentioned that wouldn’t have happened a few years ago, what is interesting about overbuilding is that it’s always been debt-based, now it’s equity-based.

Rowell: Yeah, we are working on a number of deals where you kind of borrow a resume, you borrow a guarantee, you borrow some equity to kind of put different little pieces to virtually create a developer.

Wordes: I’d like to address your question. The initial deal or two, I think these developers overwhelm them with equity. They go out to the country club and they raise a ton of equity and they have a lower loan, a safer loan, and then once they get a little track record going, they pick up momentum.

Weinberg: But you are seeing the teamwork of that happening. We are seeing people come to our leasing department and saying ‘you’re part of our team that helps pitch the strength of this project, you’re going to be able to lease it up.’ The strength of what you’ve been able to do in the past is added to the resume, the landowner, the person who wants to do whatever, so it’s again creating specialty niches in the real estate industry that didn’t exist 5 years ago.

Aschmeyer: It’s interesting that you bring that up. About 3 to 5 years ago we were looking at a project and you guys [The Shopping Center Group] were hooked up with it and it added legitimacy to what they were saying because it was like, oh, The Shopping Center Group said that and they know what they are doing.

SREB: David [Oliver], do you see a lot of development opportunities still in and around the Atlanta area?

Oliver: We have been looking intown more than out, we’ve done two or three. We are being opportunistic. We’re not on a certain tract with anchored centers. We’ll do unanchored retail, we’ll do a land deal, we’ll do multifamily, it’s pretty diverse. I think the general trend with people migrating to the Southeast, Atlanta is the place to be.

Haddigan: If you are sitting on land in Atlanta today, do you sell it or hold it?

Weinberg: You keep it. I see it from the retail component of office buildings, the retail component of residential, the retail component of retail projects, it’s unbelievable the amount of development that’s going on in the city.

Wordes: I’d say our clients ask themselves that question and what they want is to own some, but they want to take advantage of some aggressive valuations that exist today. They go through their portfolio as it evolves and they sell some and they put permanent debt on some. They try to build as strong a portfolio as possible.

Leary: There is probably more in the region on the horizon than there has been in years. You look at Fort McPherson [being closed under BRAC].  There’s something that’s going to land in Henry County. Cousins has five more Avenues in the pipeline. There’s also the [recently closed] General Motors Doraville plant that is going to be a major redevelopment project.

Schear: I wanted to comment about how fluid the market is and what has happened in the last year. It seemed that last year we talked about Atlantic Station all the time. Now open on the west side of Interstate 75 is a very big project called the Brickworks on Howell Mill and Marietta Street. There is a big development that is going on at 14th Street and Howell Mill. This side of the Interstate is not so much developed right now and there is a lot vacant. There is certainly a lot of development in the suburbs, but when we say Atlanta, it’s all Atlanta. On the west side, where we are, it is really remarkable as far as what’s going to happen. Atlantic Station is almost an old story, but there is a tremendous amount of growth that is going to happen over here in the next number of years. For so many people it’s going to be retail, it’s huge residential and services will follow.

Leary: And then if you keep going west to Marietta Boulevard, which turns into Atlanta Road at the river, Ivy Walk is a small retail project out there. At 40,000 square feet, it’s fantastic. If you took this entire swath of land from Atlantic Station down to Centennial Olympic Park and cut out some of these smaller neighborhoods, you basically have Atlantic Station, Turner, Georgia Tech and Coca-Cola. Now, if you wanted to represent that same swath of property on the east side, you could not get in this room. You would have to take the Georgia Dome to get everyone in this room, so there are some interesting things that the Georgia Tech campus can do. Things are migrating west.

SREB: How do you see the area of Buckhead where all the bars are, now that they are not renewing the leases and they are trying to bring in restaurants and other retail? How do you see that evolving?

Leary: To be honest, it’s competitive. Buckhead has been fantastic with what they are doing. Buckhead Village mixes people, yet people surrounding it with all their complaints and concerns raised a level of interest that actually addressed it. When you start adding residential density like the St. Regis and Ovation at West Paces, that will make a huge difference. Getting the quality up, you could go there and there would be a different tenant there every week, so it’s got good bones and a great location. I think capacity from the village up through the Piedmont and Peachtree intersection is going to be the challenge.

Weinberg: I think the problem has been that there has been so many individual property owners that they haven’t been able to consolidate it to create a plan similar to what Midtown Atlanta put together. What has happened in the past 4 to 5 years with the rezoning ordinances, people have gone in and bought up property and consolidated ownership and are now working on plans with developers. Everything you saw in Buckhead Village 10 years ago is history. We are talking about what it’s going to be like in the next 10 years and how things are going to be. It’s now the St. Regis level of stuff and Trammell Crow’s level of stuff, and the Whole Foods that has opened.

Beam: Let me bring up student housing, that is something that has been growing in the city. We’ve got 55,000 students in the downtown universities and we maybe have housing for 15,000 students. We’ve got off-campus housing starting now, with projects like The Flats and Metropoint. You’ve got 2,000 bids going up for dorm rooms at Georgia State, and Georgia State has plans for a lot more. That seems to be kind of an overlooked population of shoppers.

Leary: John, parents have been buying condominiums for their kids.

Beam: That is the echo market of that, what impact is that going to have on retailers and the type of retailers?

SREB: Atlanta is seeing a little bit of that on 5th Street with Georgia Tech’s Centergy Project with Barnes & Noble, American Apparel and restaurants like Starbucks, The Globe and others there.

Leary: We are seeing it too in Atlantic Station. If you look at the demographic changes, and the generation of 18 years old and younger is larger than the Baby Boomer generation, so they are all coming. A lot of them are going to be going to college, so this boom in college enrollment will be on the horizon for at least another 15 years. We are seeing a lot of students moving into parent-owned condominiums that may be their gift for graduation. You can be off campus and you get a pool, a gameroom, and a private bedroom.

Beam: Georgia Tech just hit the papers a couple of weeks ago with trying to cram three into a dorm room. I think that the universities’ budgets are not meant for housing, so I think off-campus housing is going to continue, and the demand is going to go up.

Levine: That’s been an interesting movement in the last few years; the acceptance of private student housing as an investment vehicle. Cap rates a few years ago on student housing were very high, now they are very tight to a point.

Aschmeyer: How did the old Howard Johnson/hospital conversion to student housing for Georgia Tech and Georgia State University do, does anybody know?

Beam: They stayed 95 percent occupied.

Leary: Cramming three people into one room means even marginal locations are going to continue to fill.

Saykaly: In terms of demographic changes, you talk about student housing, another one is with wireless and virtual office. You don’t have to be in the downtown anymore. The retirement community, the aging population, we are seeing a huge push to the coastal towns and also lake communities in terms of investor interest and developer interest. From Savannah to Virginia there is a lot of activity. Look at Lake Oconee and Reynolds Plantation [in Greene and Morgan Counties, Georgia], who would have thought that this area would have the best performing rural risk in the country? Now you have Home Depot going in there, the whole demographic change, the aging population, the retirement sector and the virtual office has really pushed things that way.

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