00:00:06 Karly Iacono
Welcome everybody to what's in store.
00:00:09 Karly Iacono
The show where we.
00:00:10 Karly Iacono
Discuss hot topics.
00:00:11 Karly Iacono
At the cross section of retail and real estate.
00:00:14 Karly Iacono
I'm Carly Icono, senior vice president at CBR E and I'm joined by Chris Rosa, the CEO of DLC.
00:00:23 Karly Iacono
Great to see you.
00:00:25 Chris Ressa
Good, happy summer.
00:00:28 Karly Iacono
It is officially the day after Memorial Day that we are filming this, so it is legit summer.
00:00:34 Karly Iacono
I hope you got some time to celebrate last weekend.
00:00:38 Chris Ressa
I did. I was down.
00:00:39 Chris Ressa
At the beach.
00:00:41 Karly Iacono
I was in the Hamptons.
00:00:42 Karly Iacono
It was gorgeous.
00:00:45 Chris Ressa
Or just weekend.
00:00:45 Chris Ressa
Yeah, for sure.
00:00:46 Karly Iacono
So we are talking about our top five takeaways from ICSC Las Vegas, which was just a few days ago.
00:00:56 Karly Iacono
It has been an insanely
00:00:57 Karly Iacono
Busy seven days, put it mildly, for those of you that didn't make it to ICS or maybe have never attended.
00:01:03 Karly Iacono
This is the retail industries Premier.
00:01:06 Karly Iacono
Global event happens once a year in Las Vegas.
00:01:11 Karly Iacono
Chris and I both had jam packed meeting schedules and we had very different conversations at the show based on our respective business lines.
00:01:19 Karly Iacono
So we're excited to come together today to tell you kind of what those conversations focused on and what the main themes were that we heard this year, Chris, overall, how was the energy of the show?
00:01:33 Chris Ressa
It was super positive.
00:01:35 Chris Ressa
You know, maybe cautiously optimistic, but.
00:01:38 Chris Ressa
It was, you know, given some of the earnings reports when, you know, going into the show.
00:01:44 Chris Ressa
I had suspected that maybe there would be some negativity as it relates to the fundamental real estate at the ground.
00:01:52 Chris Ressa
It was bullish positive and then obviously as it related to the.
00:01:58 Chris Ressa
Capital markets, you know, those are disrupted right now and a little bit more volatile.
00:02:04 Chris Ressa
And so it was a lot of uncertainty around that.
00:02:08 Karly Iacono
Very true. There were, I heard estimates anywhere from 25,000 to 40,000 people in attendance. I don't know.
00:02:15 Karly Iacono
I'm sure I see if he can comment on the video and tell us exactly how many people were there, but it was buzzing, definitely felt very, very busy.
00:02:23 Chris Ressa
It was super, super busy.
00:02:25 Karly Iacono
Yeah, exactly. OK, let's jump in. So in no particular order here, we're our top five takeaways. #1 labor is challenging, but not in the ways that you may think.
00:02:41 Karly Iacono
So, Chris, why don't you kick this off for us with your thoughts on the labor market as it pertains to retail?
00:02:48 Chris Ressa
I I I think when people think of the labor challenge they're thinking about and it relates to retail.
00:02:55 Chris Ressa
Restaurants not able to get wait staff and they're thinking about retailers not able to get people on the floor, but I heard some different commentary around.
00:03:09 Chris Ressa
The labor challenges, you know, call it the trouble in new primary care doctors coming out of college, less in the medical profession, less people coming into certain specific fields. Physical therapy. I heard challenge to get PT's. I heard about the.
00:03:32 Chris Ressa
Of, you know, growing leadership in retail organizations this this decade long run in tech jobs really making it challenging to hire great talent.
00:03:44 Chris Ressa
And I think retailers and and adjacent industries, not just retail are.
00:03:52 Chris Ressa
Starting to feel it and really looking for innovative ways to.
00:03:58 Karly Iacono
I think the interesting take away here is it's not the storyline we've been hearing for so many years that everybody is going to drive Uber instead of wanting to work an hourly retail ship, which is still still a thing, right?
00:04:11 Karly Iacono
But it's more systemic of a problem which you just brought out.
00:04:14 Karly Iacono
It's leadership, it's skilled jobs.
00:04:16 Karly Iacono
And I think I would add one more piece.
00:04:18 Karly Iacono
Here that the pay for warehouses warehousing jobs. I just read a stat is anywhere from 25 to 45% higher for the same skill level than similar retail forward face.
00:04:31 Karly Iacono
Jobs. So if you can apply for a job and at a warehouse or an industrial setting and make 25 to 45% more with the same skill set.
00:04:40 Karly Iacono
That's tough competition and I'm not sure how we we come around that.
00:04:46 Chris Ressa
I think clearly the answer to that that people are saying is.
00:04:55 Chris Ressa
I don't know if that is the answer, but that is what you're hearing at that level, but on.
00:04:59 Chris Ressa
The on the skilled lab.
00:05:02 Chris Ressa
Maybe one day you and I are replaced by robots.
00:05:05 Chris Ressa
I don't know, but.
00:05:08 Chris Ressa
But at the end of the day, I think we're far away from certain skilled laborers.
00:05:14 Chris Ressa
Being replaced by automation and robots and we need people in school trying to go into these professions.
00:05:25 Karly Iacono
And hopefully the cost of college will come down and make that a little bit easier.
00:05:29 Karly Iacono
I think that's a big piece of it too, right?
00:05:31 Chris Ressa
Don't hold your breath.
00:05:35 Karly Iacono
So labor, we don't really have any answers, sounds like, but that's something that a lot of retailers, a lot of companies are still struggling with at all levels.
00:05:45 Karly Iacono
Of the skill spectrum.
00:05:48 Chris Ressa
That was probably outside of the volatile.
00:05:53 Chris Ressa
Capital markets, that was the most.
00:05:57 Chris Ressa
That that was the biggest new challenge that I heard at the show.
00:06:02 Chris Ressa
Most of the other stuff.
00:06:04 Chris Ressa
Really correlated to the positive, that was one of the challenges that I really you know.
00:06:09 Chris Ressa
People were struggling with.
00:06:11 Karly Iacono
So we're getting all the negatives out of the way first. So let's move on to #2 and then I promise everybody listening, it is all positive 3-4 and five.
00:06:21 Karly Iacono
OK, so #2 is just the overall consensus on capital markets. There is a bit of positivity here and of course this is what all of my meetings were centered around because my goal and my job is to meet with owners and reads and everybody in the the ownership side of the business, so.
00:06:41 Karly Iacono
All of our conversations at the booth where we.
00:06:44 Karly Iacono
Want to buy? Which is.
00:06:46 Karly Iacono
There are buyers, everyone.
00:06:48 Karly Iacono
Wants to buy.
00:06:49 Karly Iacono
They want to put.
00:06:49 Karly Iacono
Money out and they believe in.
00:06:51 Karly Iacono
Retail the problem is the disparity between cap rates, interest rates and the constraints in the capital market.
00:06:58 Karly Iacono
So no huge surprise here.
00:07:01 Karly Iacono
But I do think that people are starting to feel the the covenants getting tighter from lending institutions due to the recent bank failures, the interest rates continuing to rise.
00:07:12 Karly Iacono
The the CAP rates not keeping up so.
00:07:15 Karly Iacono
Every conversation I had was how do we find value, add retail over A7 cap?
00:07:23 Karly Iacono
And and that's a really, really tough thing right now because the the centers are stabilized as you know, right, vacancies at a historic low.
00:07:32 Karly Iacono
How do you find value when the market from a retail landlord perspective is so tight because the tenants are doing so well, so how do we find opportunities that are financeable?
00:07:43 Karly Iacono
Because they have upside or they're being offered at a higher cap rate when there's very, very little low amounts of vacancy in the market.
00:07:55 Chris Ressa
You know, one of the things I like about.
00:07:59 Chris Ressa
Markets like this is that it comes back to the fundamentals of real estate.
00:08:05 Chris Ressa
It's a lot less financial engineering and deals right now and it's about how do I add value to the asset, right?
00:08:13 Chris Ressa
Just that first premise that the investors talked to you about right is how do I find?
00:08:19 Chris Ressa
Value add over A7 cap. The first thing they're focused on is the capital market, the valuation and it's not about right. That's different than saying, OK.
00:08:32 Chris Ressa
There are very few investors came to you or maybe.
00:08:36 Chris Ressa
I don't know.
00:08:37 Chris Ressa
Maybe they did, but what you said was an interesting point.
00:08:41 Chris Ressa
Because to me, if you're really on the value add side at the real estate level, not at the financial capital markets level, the conversation maybe is.
00:08:53 Chris Ressa
I want to find deals.
00:08:56 Chris Ressa
That have less than 10 years of lease term and market rents under, you know rents that are under 20% under market.
00:09:04 Chris Ressa
So then that's about the fundamental real estate level, right?
00:09:09 Chris Ressa
That's not about the capital markets.
00:09:10 Chris Ressa
So I still think that investors have this you know.
00:09:17 Chris Ressa
All of the last 10 years where money was super cheap and the people who were going to win are the people who add the value at the real estate level more than those who get the cheapest debt deal and, you know, creates some financial engineering.
00:09:35 Chris Ressa
All of that still matters.
00:09:37 Chris Ressa
All that still matters, but it's just the that comment that you made.
00:09:42 Chris Ressa
You know, resonated with me because, you know, they're talking about value add deals.
00:09:46 Chris Ressa
OK, well, you mean value add on the capital markets side, we're not, you know, they're trying to get the spread between cap rates and what they can borrow at.
00:09:54 Chris Ressa
That's what they're looking for in that positive leverage scenario.
00:09:59 Chris Ressa
What I didn't hear was the value add at the real estate level.
00:10:03 Karly Iacono
I think either and.
00:10:05 Karly Iacono
When you can't look at the assets from just a financial engineering perspective anymore, very rarely do they pencil in a positive leverage accreted.
00:10:14 Karly Iacono
Now then, you're forced to look at it from the real estate perspective, which is not bad, but that's a very challenging to find right now too, because rents have been rising, the vacancy is very low.
00:10:26 Karly Iacono
It's some it's just competitive to find opportunities right now because there are a lot of people trying to buy, which is positive.
00:10:34 Karly Iacono
That's the great news.
00:10:35 Karly Iacono
Right.
00:10:36 Karly Iacono
Everybody is very, very bullish on retail, but how?
00:10:40 Karly Iacono
Do we find?
00:10:40 Karly Iacono
The the assets.
00:10:42 Karly Iacono
With the real estate fundamentals that you can still juice and still work the properties more and I think.
00:10:46 Karly Iacono
That's where everyone's.
00:10:48 Karly Iacono
Focuses, which overtime will make the assets even stronger, right as landlords like yourself continue to turn tenants over, they continue to to work the properties, but finding them from an acquisition standpoint is especially difficult right now.
00:11:03 Chris Ressa
I don't, I don't disagree.
00:11:06 Chris Ressa
I think the way I would put it is I think the opportunities are out there.
00:11:12 Chris Ressa
They just might be more complicated to add the value.
00:11:16 Chris Ressa
Sometimes it's about densifying the asset, looking at it completely differently.
00:11:21 Chris Ressa
Sometimes it's about new government approvals.
00:11:25 Chris Ressa
But I believe that there's opportunities out there.
00:11:29 Chris Ressa
It's just less about how big is the spread between the cap rate and the interest rate.
00:11:34 Karly Iacono
Correct. Very different mindset, but the good take away is everyone is in the market trying to make deals work. So there there will be opportunity out there you just got.
00:11:45 Karly Iacono
To dig for it with the.
00:11:46 Karly Iacono
Take away. All right, let's move on to #3 now. This is 1. Based on your conversations with retailers, which I had less of.
00:11:56 Karly Iacono
So I'm excited to hear what you you have say on this, that the big retailers or mainstream brands, if you will, are continuing to innovate.
00:12:06 Karly Iacono
So why don't you kick us off?
00:12:07 Karly Iacono
By sharing a few.
00:12:08 Karly Iacono
Examples of what you've been hearing.
00:12:12 Chris Ressa
I I I think this is.
00:12:15 Chris Ressa
To me, pretty remarkable.
00:12:18 Chris Ressa
For years we have heard about all these new.
00:12:23 Chris Ressa
Brands opening stores, creating.
00:12:27 Chris Ressa
Creating e-commerce websites, you know, going direct to consumer and all these new things, I was excited to hear about the really big push from legacy mature retailers taking the next step in their evolution of their businesses which.
00:12:47 Chris Ressa
Is much more challenging because they're trying to move a battleship.
00:12:52 Chris Ressa
Versus, you know, coming out of the gates with a new concept and just.
00:12:56 Chris Ressa
Letting the fur fly.
00:12:58 Chris Ressa
So you know, if you, you know, if you haven't read, but it's been a lot of headline news.
00:13:04 Chris Ressa
Dick's Sporting Goods has this House of sports concept.
00:13:07 Chris Ressa
They have public lands, they are growing these exponentially and they haven't taken their foot off the brake on the the traditional Dick's Sporting Goods concept, so.
00:13:19 Chris Ressa
That was really interesting to talk to them about about, you know, such a legacy, mature retailer.
00:13:25 Chris Ressa
Growing at the pace that they want to grow, right, we're we're not thinking about these mature retailers as growth companies like a Warby Parker, but it was exciting to hear them, you know, talk about growing in the manner in which they were.
00:13:40 Karly Iacono
But one thing I want to jump in real.
00:13:42 Karly Iacono
Quick before we.
00:13:42 Karly Iacono
Move on from *****.
00:13:44 Karly Iacono
That's an important distinction.
00:13:45 Karly Iacono
They're not changing the the characteristics of their current stores.
00:13:50 Karly Iacono
It sounds like, right?
00:13:50 Karly Iacono
They're adding a new line that's experiential that's different.
00:13:54 Karly Iacono
So they're growing by addition, not through sort of upending the current.
00:13:59 Karly Iacono
And right, right.
00:14:01 Karly Iacono
So that's different than we're seeing from some other retailers that are changing prototypes, maybe going smaller, maybe moving locations, ***** is saying we love who we are and we think we.
00:14:11 Karly Iacono
Can also at XYZ.
00:14:13 Karly Iacono
To create more consumer loyalty or expand our brand image.
00:14:18 Chris Ressa
For sure, we're we're under construction on Dick's Sporting Goods in.
00:14:22 Chris Ressa
Ithaca, NY It's a what many would consider a traditional Dick's Sporting Goods store. However, it will be the newest version of their traditional store.
00:14:32 Chris Ressa
It's a 50,000 footer. They just had one open in South Bend IN this will be the second. So we're getting the newest decor package and all that stuff, but it's a tradition.
00:14:41
OK.
00:14:42 Chris Ressa
It's not a House of sports, it's not a public lands, it's a traditional Dick's Sporting Goods.
00:14:47 Karly Iacono
Love it, I know, Macy's.
00:14:49 Karly Iacono
Has a good bit of innovation going on.
00:14:52 Chris Ressa
I mean market by Macy's is.
00:14:56 Chris Ressa
Growing, they have a huge appetite.
00:14:58 Chris Ressa
Open it by and.
00:15:00 Chris Ressa
And this is just an interesting one like this is one of the most historic retailers in America that most would think they're in every market in the country that they need to be in.
00:15:12 Chris Ressa
And it's really about how do we increase the new same store sales at those locations?
00:15:18 Chris Ressa
How do we get the best product, but here Macy's is.
00:15:21 Chris Ressa
With a new concept, they had done a bunch of backstages. Now they're often really focused on this market by Macy's. That's going to be about a 40,000 footer. It's going to be.
00:15:37 Chris Ressa
Probably in power centers that are have a little bit of distance from the.
00:15:44 Chris Ressa
Department store Macy's, you know, but it's a Macy's shopper lives in that community, maybe the department store is not as convenient to get to.
00:15:53 Chris Ressa
One of the.
00:15:54 Chris Ressa
Largest e-commerce websites in America from a sales perspective, so they have so much data about their consumer and what they buy that I think them leveraging that.
00:16:06 Chris Ressa
To focus on site selection is going to be really interesting.
00:16:09 Chris Ressa
They have so much data as it relates to their consumer.
00:16:12 Karly Iacono
So how does the the market by Macy's compare to Macy's backstage?
00:16:16 Karly Iacono
Is it a different product mix?
00:16:17 Karly Iacono
I know backstage is meant to be more discount, right?
00:16:22 Chris Ressa
So backstage is an off price.
00:16:24 Chris Ressa
The concept, this is a full line department store, smaller version in the community.
00:16:25 Karly Iacono
Right.
00:16:31 Karly Iacono
So very different product offerings theoretically and shopping experience.
00:16:36 Karly Iacono
Good for that.
00:16:37 Karly Iacono
That's exciting to see.
00:16:38 Karly Iacono
The the smaller format now.
00:16:40 Karly Iacono
Are they closing that you've seen their their main on mall, the the anchor locations where this is additive as well?
00:16:48 Chris Ressa
It's additive. We'll get to the #5 soon, so.
00:16:52 Karly Iacono
OK, that sounds good.
00:16:54 Karly Iacono
Do you wanna touch on?
00:16:54 Karly Iacono
Best Buy before we move on.
00:16:56 Chris Ressa
Yeah, you know, Best Buy.
00:16:56 Karly Iacono
I know that we can either take.
00:16:58 Chris Ressa
Best Buy who?
00:17:00 Chris Ressa
I think over the years has done such a remarkable job.
00:17:04 Chris Ressa
As a retailer, because they've created this, you know, they were by headline news, so suspect to Amazon and they've just one time and time again whether it's with the Geek Squad, whether it's with the store in store, whether it's adding.
00:17:25 Chris Ressa
Appliances into the store.
00:17:28 Chris Ressa
You know, I think.
00:17:29 Chris Ressa
I think with Sears gone and with.
00:17:34 Chris Ressa
You know the product levels at other retailers.
00:17:38 Chris Ressa
There's a huge opportunity for the appliance market in retail.
00:17:43 Chris Ressa
Best Buy is poised to really they've already been kicking it up. Best Buy's poised to really get a lot of that market share that physical retail.
00:17:53 Chris Ressa
I don't think picked up in the manner in which it could be, but they're opening outlet stores, right?
00:18:00 Chris Ressa
They have some stores, so they're opening outlet stores to clear merchandise, which I think is going to be a really big success because at that price point, people are looking for deals.
00:18:13 Chris Ressa
Right.
00:18:13 Chris Ressa
What electronics is like such a deal oriented business, right?
00:18:18 Chris Ressa
People are constantly looking for a deal given.
00:18:23 Chris Ressa
The $5000 TV comes out and people are like, oh, should I do that? Or in six months, will it be 2500 dollars?
00:18:29 Chris Ressa
Right. So I think the outlet store is going to be a really successful move for them and then they have these new experienced stores that I think are going to be, I don't know, 150,000 feet. They're going to be multi level, they're going, they're only going to do a few of them, but they're going to be this.
00:18:46 Chris Ressa
Electronics experience that I don't think we've seen before.
00:18:50 Chris Ressa
So it was just so refreshing to hear these mature legacy retailers be in such a strong position to innovate and continue to grow.
00:19:03 Chris Ressa
You know, it was really remarkable to hear.
00:19:06 Karly Iacono
I think Best Buy does a really great job connecting to the consumer for some products that maybe there needs to be installation or there needs to be support.
00:19:15 Karly Iacono
Their total tech program, I think they're calling it going to go beyond even what Geek Squad was, is adding that service element, which Amazon does not do well or hasn't figured out how to do well in my.
00:19:27 Karly Iacono
My opinion so I.
00:19:28 Karly Iacono
Think that's kind of ingraining the customer into the brand even further, which is very smart in the appliance electronics space.
00:19:36 Karly Iacono
Yeah. Love to see it. All right, let's move on to #4. Your favorite chain may look different, so this ties back to something we've been talking about for the last two years, really. Which is the absurd level of construction costs and the difficulty to build ground.
00:19:56 Karly Iacono
Up so that is unfortunately still the case, although the pace of increase is subsiding, we are certainly still seeing extreme inflated construction costs.
00:20:09 Karly Iacono
So if you can't build, what do you do?
00:20:12 Karly Iacono
So how are you seeing retailers adapt to the current climate and change their prototypes?
00:20:23 Chris Ressa
Many retailers that are chains having a consistent floor plan throughout.
00:20:29 Chris Ressa
Is super efficient.
00:20:33 Chris Ressa
It enables them to order product in the you know, creates efficiencies on the supply chain, logistics, you name it, having like a consistent planogram, right, so that the, whatever your favorite store is, looks the same everywhere.
00:20:52 Chris Ressa
They're able to execute on in today's construction cost environment.
00:20:57 Chris Ressa
And the need for physical retail, I think you're finally and we've been talking about it for a while, going to start to see.
00:21:07 Chris Ressa
Potential deviations from that to access great real estate, and because the costs potentially from a construction perspective are prohibitive.
00:21:16 Chris Ressa
I'll give an example.
00:21:20 Chris Ressa
You have a bed bath box available right now.
00:21:24 Chris Ressa
And bed bath.
00:21:25 Chris Ressa
Let's just say the bathrooms were in the front, but your store prototype has the bathrooms in the back well.
00:21:33 Chris Ressa
That could be.
00:21:34 Chris Ressa
It could be upwards of 100 grand to move those bathrooms in the back right on a 40,000 foot store.
00:21:41 Chris Ressa
You know, things like that start to add up on cost.
00:21:44 Chris Ressa
Obviously if we're constantly you know we have to take this existing box and just retrofit it to make it exactly how my normal planogram works.
00:21:54 Chris Ressa
I'm finally starting to say or to see retailers go.
00:21:59 Chris Ressa
And work with their internal store planning and construction teams and go.
00:22:02 Chris Ressa
All right, let's just leave the bathrooms there. That'll save 100 grand and the retailers are either going to pay that out of pocket or potentially in more rent.
00:22:12 Chris Ressa
And while that?
00:22:13 Chris Ressa
Seems simple to do.
00:22:16 Chris Ressa
I would tell you that's a big step forward because.
00:22:18 Chris Ressa
It was hard.
00:22:19 Chris Ressa
For retailers to do that because of the efficiencies.
00:22:23 Chris Ressa
The game from.
00:22:25 Chris Ressa
Moving those bathrooms in the back and and the bathrooms are just an example.
00:22:28 Chris Ressa
There's a lot of different things in the store that people can do to value engineer and cut the cost and we're starting to see that at scale and I think that's going to help more retailers open that's going to help lower the CapEx spend by both parties and.
00:22:45 Chris Ressa
I think it's going to lead to more deals.
00:22:48 Karly Iacono
It sounds so simple, doesn't it?
00:22:49 Karly Iacono
Just leave the bathrooms here?
00:22:50 Karly Iacono
Well, let's continue with the example you gave, but when you really break that down, if the bathrooms are in a different place, then the whole store layout has to change to accommodate that.
00:22:59 Karly Iacono
Like, it's actually a pretty big shift for the retailer. Sounds simple to us listening when we're not in it day-to-day, but that's a big.
00:23:06 Karly Iacono
That's a big deal.
00:23:09 Karly Iacono
And are you seeing this more because the landlords are pushing back on the TI or tenants are unwilling to absorb it and it's kind of?
00:23:16 Karly Iacono
The stalemate that.
00:23:17 Karly Iacono
Both parties are saying.
00:23:18 Karly Iacono
Listen, we're we're maxed out here on TI dollars.
00:23:22 Karly Iacono
We're maxed out on rent.
00:23:23 Karly Iacono
So instead of just fighting back and forth for who's going to pay more?
00:23:28 Karly Iacono
We need to come together and figure.
00:23:29 Karly Iacono
Out how to make it cost?
00:23:31 Karly Iacono
Less are we at that inflection point.
00:23:33 Chris Ressa
Yeah, I think the way I think about it is.
00:23:38 Chris Ressa
Said simply yes to your question I.
00:23:41 Chris Ressa
The way I think about it is the overall cost for the landlord to install a tenant and the overall cost for a retailer to open a store and both of those have risen.
00:23:56 Chris Ressa
I think landlords and retailers have found of working on every creative way.
00:24:02 Chris Ressa
To lower those costs and we're at a point now where I think we've exhausted a lot of.
00:24:10 Chris Ressa
The landlords have the cost to install a tenant and the retailers have the cost to open their store.
00:24:14 Chris Ressa
That changing the store a bit is the thing that adds the biggest bang for the buck right now.
00:24:25 Karly Iacono
All right, let's move on to #5. This is, of course, extremely positive. Gotta end the show on a high note, but also very true. It is retailers are open for business, seems basic, but this is an overall sentiment.
00:24:43 Karly Iacono
Of retail industry, strength of tenants and just kind of where we are right now, retailers are open for business and they are trying very hard to.
00:24:52 Karly Iacono
Spanned and their stores are doing very.
00:24:55 Karly Iacono
Well, so I know you have a few examples we want to jump into.
00:24:58 Karly Iacono
Let's start with something we touched on in our last episode because I'd love an update on what you heard from CSE on the the buzz around the bed bath and beyond, boxes that are going to auction and everyone is fighting over.
00:25:12 Karly Iacono
So what is the latest that you heard on?
00:25:14 Karly Iacono
Bed bath and beyond and any of that space that might become available.
00:25:21 Chris Ressa
I think so.
00:25:22 Chris Ressa
This was probably the biggest topic of conversation.
00:25:25 Chris Ressa
Was the bed bath and beyond, at least for me that I had?
00:25:28 Chris Ressa
Was the bed bath and beyond bankruptcy auction and those leases going to auction.
00:25:35 Chris Ressa
I think right now.
00:25:38 Chris Ressa
Bed Bath is still in the part of the bankruptcy where they can try to sell the company.
00:25:45 Chris Ressa
And so I think that ends.
00:25:48 Chris Ressa
In the next couple of weeks, and once that ends, if there are no suitors for the entire business.
00:25:55 Chris Ressa
Then the leases will go to auction and I can tell you there's a lack of box space in America and retailers are salivating, I think.
00:26:07 Chris Ressa
There's there's already LOI's across the country for those spaces.
00:26:12 Chris Ressa
And I say for those spaces for many of the spaces, so some will go back to the landlord, but I think.
00:26:19 Chris Ressa
There will be.
00:26:22 Chris Ressa
An extraordinary amount of.
00:26:25 Chris Ressa
Retailers who show up to bankruptcy court to buy some of those leases at auction, and historically, I think.
00:26:37 Chris Ressa
You know what really drove that process?
00:26:42 Chris Ressa
Is there a spread between what that lease rate is versus market rent?
00:26:49 Chris Ressa
And and that will still play a.
00:26:50 Chris Ressa
Factor, but what?
00:26:52 Chris Ressa
I kept hearing was.
00:26:55 Chris Ressa
This is about access to great real estate.
00:26:58 Chris Ressa
You know, traditionally bed bath and beyond had great real estate.
00:27:01 Chris Ressa
They have pretty strong leases generally from a tenant perspective.
00:27:06 Chris Ressa
This is less about what is the spread between the lease rate and the market rate and how do I access great real estate.
00:27:16 Chris Ressa
Today, and I think that is really interesting, I can tell you from our own portfolio, we have two bed bath boxes, both have multiple letters of intent on those boxes, so.
00:27:30
And can you share?
00:27:30 Chris Ressa
There's a fight for this.
00:27:31 Karly Iacono
What kind of uses are bidding on this basis?
00:27:37 Chris Ressa
You know, I heard at the so the answer is in My Portfolio it's off price, it's apparel, it is furniture.
00:27:48 Chris Ressa
I've heard in I've heard those two categories, I've heard grocery.
00:27:55 Chris Ressa
I've heard the the closeout retailers there.
00:28:01 Chris Ressa
I think the list is going to be robust.
00:28:04 Chris Ressa
This is a retailer that had.
00:28:07 Chris Ressa
A lot of interesting.
00:28:12 Chris Ressa
Real estate, right, they they were in the suburbs and power centers.
00:28:15 Chris Ressa
They're in urban areas.
00:28:18 Chris Ressa
They're right that they have some iconic New York City real estate, right.
00:28:21 Chris Ressa
So I think this is going to be really unique bankruptcy auction.
00:28:26 Karly Iacono
It's funny, whoever thought we would be so excited about a retailer bankruptcy, but that feels like the the buzz around it, right?
00:28:34 Karly Iacono
Right.
00:28:35 Karly Iacono
Like what happens at that location?
00:28:37 Karly Iacono
This is great.
00:28:37 Karly Iacono
I wish it would hurry up.
00:28:38 Karly Iacono
What's what's this one going to be?
00:28:40 Karly Iacono
And who's going to win?
00:28:40 Karly Iacono
So you don't often think bankruptcy and excitement, but that is exactly the case.
00:28:46 Karly Iacono
Right now, sure.
00:28:48 Karly Iacono
There's a few other categories that we noted were really, really in focus from an expansion standpoint.
00:28:55 Karly Iacono
I'm sure your thoughts on these as well, it was the healthy fast food, fast casual and then specialty doughnuts or specialty suites seems a lot of conversation around Donuts, but I'm sure it's more expensive than that.
00:29:06 Karly Iacono
So food and beverage.
00:29:08 Karly Iacono
In the suburban centers, getting a lot more interesting from a concept perspective, what are your thoughts on that?
00:29:17 Chris Ressa
So DLC just put out a white paper, so if you haven't downloaded it, download it.
00:29:22 Chris Ressa
It's called the breadth of open air and the the premise is about, you know, why open air retail is, you know, one of the strongest and maybe one of the less appreciated.
00:29:37 Chris Ressa
Real estate categories of all all commercial real estate.
00:29:42 Chris Ressa
One of the things we are seeing is this.
00:29:47 Chris Ressa
Suburban search is still continuing to happen.
00:29:51 Chris Ressa
You know the a lot of the retail expansion is about the suburbs and you know, the urban environment is a challenge.
00:30:00 Chris Ressa
I was on a retail panel and they had me and they had someone who was.
00:30:07 Chris Ressa
Who leases space in the urban environment, and it was really the dichotomy of how challenging the urban environment is versus how robust the suburban environment is.
00:30:18 Chris Ressa
And I think food is a good segue to that, right, which is you mentioned, you know food and beverage category well if people are working from home.
00:30:28 Chris Ressa
More than they were.
00:30:30 Chris Ressa
If people move to the suburbs, these suburban populations have more both full-time population and daytime population.
00:30:39 Chris Ressa
And you know, food and beverage usually follows that.
00:30:45 Karly Iacono
I'm excited for some new concepts.
00:30:46 Karly Iacono
I think it's time for innovative change, so can't wait to see it.
00:30:50 Karly Iacono
Sweet greens and similar concepts coming to a neighborhood near me.
00:30:57 Karly Iacono
The last category that I was paying close attention to that left for you to touch on is entertainment. So felt like for years we were talking about experiential retail then that gave way to COVID and now we're back talking about experiential retail. So having gone to many retail centers, obviously my day-to-day.
00:31:16 Karly Iacono
I I am always amazed by the new concepts that I see popping up like indoor go karting seems to be everywhere.
00:31:24 Karly Iacono
All of a sudden, So what are your thoughts on the entertainment side?
00:31:29 Karly Iacono
Maybe virtual reality?
00:31:30 Karly Iacono
There's just endless ideas here and how that is going to evolve over the next year.
00:31:37 Chris Ressa
So I think.
00:31:39 Chris Ressa
You know, in the between 2010 and 2020 we we used to hear this comment that people wanted in the tech world, a new business would come on and they would claim we're the Uber of X.
00:31:55 Chris Ressa
In the retail space right now, what I'm seeing is everyone wants to be.
00:31:59 Chris Ressa
The top golf of.
00:32:01 Karly Iacono
It is such a great comparison.
00:32:03 Karly Iacono
You're exactly right, yeah.
00:32:06 Chris Ressa
Top golf has had such a big success and then with the explosion of golf post COVID they have, you know, rode this wave.
00:32:14 Chris Ressa
They're doing great and you know, we just saw this new baseball concept come out that wants to be the top golf of baseball.
00:32:22 Chris Ressa
And what the biggest one where there was multiple operators at the show is people are trying to be the pickleball of top of the top golf of pickleball.
00:32:33
I knew it, yeah.
00:32:36 Chris Ressa
I I can't believe how many pickleball operators there are out there and they're claiming it's not a fad.
00:32:44 Chris Ressa
Given the the rapid participation and how many people are growing into pickleball, it is huge and some of these pickleball chains that are up and running are.
00:32:57 Chris Ressa
Really successful and and they're limited and I'm talking about think of a pickleball concept that looks like a top golf but is pickleball.
00:33:06 Chris Ressa
I'm not talking about a restaurant that might add 2 pickleball courts.
00:33:09 Chris Ressa
There might be a lot of those.
00:33:10 Chris Ressa
There's very few pickleball concepts out there open today that look like a top golf.
00:33:16
Right.
00:33:18 Karly Iacono
That that's the main focus, not the correct part.
00:33:19 Chris Ressa
If the big.
00:33:21 Chris Ressa
Well, top golf, you know, does significant business in the food and beverage part of their business.
00:33:27 Karly Iacono
Right.
00:33:28 Chris Ressa
And so and and that is the plan and what these pickleball operators do.
00:33:34 Chris Ressa
But I think if the pickleball operators of the world have their way, there's going to be a.
00:33:38 Chris Ressa
Lot of pickleball concepts out there that look a lot like top golfs.
00:33:42 Chris Ressa
So obviously to the go to market for that is challenge, right?
00:33:46 Chris Ressa
Think about the real estate component, top golf took a while to get up and running.
00:33:51 Chris Ressa
They take up ton of real estate.
00:33:53 Chris Ressa
It's typically a development.
00:33:57 Chris Ressa
And it takes years to get them going and they have to find a creative way to finance it.
00:34:02 Chris Ressa
And top golf had some really clever ways to finance their growth, and now they're in such a good position.
00:34:10 Chris Ressa
You know, I don't know.
00:34:13 Chris Ressa
When we're sitting here and talking about a pickleball concept that has 100 plus locations and looks like top golf, but I can tell you that was hot on the ICE floor.
00:34:26 Karly Iacono
Cannot wait to get an update on that this time next year.
00:34:30 Karly Iacono
Let's see how many people are still playing pickleball how they make these profitable and how they find that space in the square footage.
00:34:37 Karly Iacono
I saw some pictures of pickleball companies opening and that the main floor area of malls, not an anchor spaces, just in the middle of the mall.
00:34:45 Karly Iacono
Which is very strange to me, but it's vacant space.
00:34:49 Karly Iacono
It's empty space, underutilized space.
00:34:51 Karly Iacono
So they're going to go wherever they can fit, but where they end up and how they perform financially will be really interesting to watch.
00:35:02 Chris Ressa
Let's talk about it from a capital markets perspective.
00:35:04 Chris Ressa
I know essential properties trust, I believe bought 4 pickleball their net lease company, they bought 4 pickleball concepts.
00:35:15 Chris Ressa
Top golf as a top golf traded.
00:35:19 Karly Iacono
I haven't seen one.
00:35:21 Karly Iacono
They are few and far between.
00:35:21 Chris Ressa
You know and and and they and they usually trade at pretty compelling cap rates from a seller perspective.
00:35:27 Chris Ressa
So we'll see.
00:35:29 Chris Ressa
I don't know that any pickleball operators have the the balance sheet of, you know, top golf and you know now they're owned by Callaway but.
00:35:39 Chris Ressa
They want to get there and so the theme that I would say is everyone wants to be the top golf of.
00:35:46 Karly Iacono
And that's going to come down to who's backing them financially, right.
00:35:50 Karly Iacono
And if you can get a strong guarantor, then landlords are going to be more open to taking a risk on the concept because there's something behind it.
00:35:57 Karly Iacono
So what private equity company swoops in and finances rapid pickleball expansion?
00:36:03 Karly Iacono
That's really, in my opinion, going to be the determining factor on who wins.
00:36:07 Karly Iacono
The pickleball race or whatever sport we're talking about.
00:36:10 Chris Ressa
The pickleball race.
00:36:11 Karly Iacono
Pickleball race TBD. It's gonna.
00:36:14 Karly Iacono
Be fun. Have you played?
00:36:16 Chris Ressa
I've played once.
00:36:20 Karly Iacono
Restrict my basketball court in the backyard to add pickleball.
00:36:27 Karly Iacono
It's it's not hard to.
00:36:28 Karly Iacono
Do so good time.
00:36:31 Karly Iacono
All right, we covered a lot to everyone listening. Those were our top five takeaways from CSC, Las Vegas, 2023 if.
00:36:40 Karly Iacono
You have questions?
00:36:41 Karly Iacono
Comments reach out to Chris or I.
00:36:43 Karly Iacono
We love talking about retail real estate.
00:36:46 Karly Iacono
And Chris, thank you so much.
00:36:49 Karly Iacono
See you as always.
00:36:51 Karly Iacono
And until next month, that was what's in store.
00:36:54 Karly Iacono
I'm Carly Iacono, joined by my co-host Chris Russia, and we can't wait to see you again very soon.
00:37:00 Karly Iacono
Take care, everyone.