The retail sector is adapting to changing times
What is the current situation like for brick-and-mortar retailers? Have they found ways to adapt to the surge
Cook: More retail space has been occupied every quarter since the end of the recession. … We’re seeing a lot
of retailers expand. And the retail expansions mostly are in the value sector, so we’re seeing Ross Dress for Less,
HomeGoods, T.J. Maxx, Marshalls, all of those guys are opening up new stores.
In addition, we’ve had this new ironic phenomenon of clicks-to-bricks retailers. … Warby Parker, they
announced they were doing 25 locations [last] year. Casper announced 200 locations (within the next three
years). UNTUCKit, Bonobos, all of these traditional online retailers are now opening up physical stores. Now,
granted, those stores have much smaller footprints than, say, a closed Toys R Us, but if you just look at store
counts, the overall store count is still rising.
What is happening with financing in the retail sector? Have lenders become stricter about the deals they accept?
Board: Not for grocery-anchored and/or neighborhood retail assets. However, in regard to refinancing
big-box-anchored [properties] and power centers, the answer is yes. Lenders are requiring higher debt
yields and debt-service coverage ratios to give them less risk within the capital stack.
There is still a significant amount of liquidity for retail throughout the capital markets. The two most sought-after subsectors of retail right now are grocery-anchored and neighborhood retail assets. Power centers and
big-box-anchored centers are still able to get financed. They are just being scrutinized a little tighter with
underwriting regulations due to co-tenancy, kick-out and termination clauses tied to sales, and the overall
parent-company risk of some of the big-box retailers in today’s market.
Do you think a significant share of retail properties underpinned by commercial mortgage-backed securities
(CMBS) are in trouble?
Board: I don’t believe there is a significant share of retail that will be in trouble. We are on the back end of the
era of the super-aggressive loans that were made prior to the crash of the financial market. Fortunately, outside
of mall assets, retail fundamentals have continued to stay relatively strong. … The liquidity from debt funds and
the ability to go a little higher on the capital stack has created another bucket of money to complement the
CMBS market and allow for borrowers to pay a little higher rate for a shorter-term, higher-leverage, more flexible
The CMBS market is still eager to finance retail properties, and retail continues to be one of the highest percentages
of asset classes financed by CMBS. However, securitization pools used to allow for up to 25 percent allocation to
retail which, in most cases, has now been reduced to 20 percent. [That] has caused CMBS lenders to look for
alternative asset classes in less desirable locations to help balance out their pools.
What about restaurants, bars and others types of businesses capable of driving growth for retail?
Cook: The F&B (food and beverage) sector is still growing. If you look at individual players, the F&B sector
has always had a lot of churn, so as old concepts are going out, new concepts are coming in. And for most
of this current cycle, the hot, expanding retailers have been the fast-casual players. The boom really started
There’s a lot of expansion around different experiential, destination retail. There’s a lot of interesting new stuff
coming, from your basic trampoline parks and bounce houses to more complex things. There are several chains
that have axe throwing, adult putt-putt golf, darts and bowling. Dave & Buster’s, Punch Bowl Social, all of those
entertainment concepts are expanding right now. n
Neil Pierson is editor of Scotsman Guide Commercial Edition.
Reach him at (800) 297-6061 or firstname.lastname@example.org.
James Cook is senior vice president
and director of retail research at JLL,
based in Indianapolis. He oversees the
production of national retail research
and speaks regularly with clients and
the media about how retail real estate
will change with tomorrow’s economy. He hosts the “Where We Buy”
podcast that focuses on retail and
real estate, and he has worked in the
commercial real estate industry since
1999. Reach Cook at (317) 810-7191 or
Jimmy Board is managing director
of the real estate investment banking
group for JLL Capital Markets, based
in Houston. He focuses on debt and
equity loan originations, acquisitions,
recapitalizations, investment sales
and loan workouts. He has helped
originate more than $3.5 billion of
debt and equity financing for clients
in all commercial real estate asset
classes, including office, industrial,
retail and multifamily.
Reach Board at (713) 425-5900 or
Senior vice president and director of retail research, JLL
Managing director of the real estate investment banking group, JLL Capital Markets
By Neil Pierson