by Todd McNeill, Senior Director
It appeared the mission was about to go afoul from the start when Fearless Leader was benched with a knee injury. Nonsense! Seal Team MCA immediately designated a new CO and cleverly dropped into the Vegas Airport without radar detection aboard commercial aircraft.
MISSION- seek out HVCP’s….Highly Valued Capital Sources willing to provide our allies with debt and equity capital.
Rules of Engagement
Capture Developers and Investors with live deals that need to be financed in hostile territory.
Interrogate Capital Providers to discover the latest innovations in weapon technology
Annihilate unnecessary Competition
The Team set up a command post at C188 G St. on the convention floor and then, performed a wide sweep of the perimeter including outlying areas at the Bellagio, Wynn and Caesars. No bar, restaurant or gambling table was left untouched. Cocktail parties and panel discussions were all heavily monitored to gather the best Intel.
Here is the MCA Top 10 Takeaways from RECON / ICSC 2011:
- Tenants are realizing that the future is clicks along with bricks, (see Best Buy’s new prototype). Online sales will grow, but retailing will still have its place. Consumers, especially Generation X and Y use the IPhone and internet already to real time comparison shop. Consumers are also able to research products online while looking at them in person.
- Established retailers have the ability to expand, but are taking a calculated and careful approach. The highest credit grade retailers want the best locations and command the most attention for the most desirable vacancies. Big-box tenants are reducing their store footprints by efficiency, better inventory management and online sales. Tenants also have taken advantage of market conditions to upgrade from class-B or class-C centers to better locations. The outlook for lower-quality properties and tertiary markets remains tentative.
- Social media was in vogue at this year’s show. ICSC had a Social Media Pavilion; many people were Tweeting from the floor. iPad (and other tablets) were consistently being used during presentations.
- The show went from being a “job fair” back to an actual “dealmaking” convention. In addition, there was a sense that this year’s meetings were more fruitful than last years as there is capital in the market to get the deals done.
- Be it investment, leasing or development, Class-A in top tier markets seems to have rebounded quicker than secondary markets, and correspondingly, are being offered the best finance terms.
- The retail development pipeline is in the early stages of restarting, especially in Texas, with many so called “New Projects” actually being previously announced projects that had been put on hold due to the recession. These new revamped projects are being brought back to the market and have been reformatted to accommodate today’s more efficiently sized tenant.
- Construction Loans for retail development are still hard to come by and are reserved for the best Borrowers/Guarantors with financial stability and at least 25% to 30% cash equity in front of the Construction Loan. The dirty secret is that most banks are still hemorrhaging and working through portfolio issues. To the extent banks have construction money available, it is usually reserved for existing bank clients and depositors. The distressed deal pipeline is far from over for either the banks or the special services. Equity is still hesitant to take development risk when there are forthcoming distressed opportunities still available.
- CMBS 2.0– is abundant and competitive. Lenders are getting more creative with structure and dollars while actually underwriting to in place cash flow (as opposed to CMBS 1.0 that underwrote proforma in the latter stages), debt yields and debt coverage ratios. A few conduits are rolling out higher leverage platforms (i.e. 78%) that those same conduits will retain as a “B” piece. These conduits will gain market-share as the need to facilitate all the upcoming higher leverage maturities from the 5 year paper written in 2006, 2007 and 2008 are all coming due and in need of capital to underwrite to today’s debt yields. Predictions of 2011 issuance varied from $30 billion to $60 billion.
- Need a “Floater”?? Floating rate bridge loan products aggressively priced are starting to come to market. No longer do you have to visit your “friendly” private lender to secure a bridge loan request. Look for rates to be at most aggressive, LIBOR + 400, with a 1% Origination Fee plus a 1% Exit Fee. Floaters are a logical “go to” source for distressed Notes and Assets.
- Tenants that are active are grabbing for kick-outs tied to co-tenancy and/or sales, increased tenant improvements and free rent and in some cases, renewals with no rent bump. Capital providers are reviewing rent rolls and leases very carefully to catch the surprises that could affect ongoing cash flow at the property level.
The Team returned safely from 2011 RECON / ICSC with a backpack full of new deals plus live ammunition armed with debt and equity sources that are re-entering the market.
Damage Report: A few hangovers and jet lag.
Casualties: None…all tail ends accounted for
Want to learn more about this? Feel free to contact Todd McNeill, Senior Director.