Wednesday, April 30, 2008

Redstone sees a new market niche in live venue

In her black leather jacket with "Patriot Place" stitched in red and blue on the front, National Amusements president Shari Redstone linked arms yesterday with her new partners Robert and Jonathan Kraft at a glitzy press conference to launch Showcase Live.
In August, the new state-of-the-art live entertainment venue will open at the Krafts' shopping extravaganza, Patriot Place, next to Gillette Stadium. The new venue will have 500 seats, dinner service, and acts from Chaka Khan to Dave Brubeck to Boyz II Men. Redstone, 54, has focused on reinventing the Dedham movie business and quieting family clashes that spilled into the public after a critical letter by her media mogul father Sumner Redstone was posted to Forbes's website. In the letter, Sumner Redstone lashed out against his daughter over issues of succession and the future of the cinema chain. Shari Redstone spoke with the Globe at yesterday's event.

Q. There are tons of music and entertainment venues around New England. How does Showcase Live fill a niche?
A. It's going to be a much more sophisticated, intimate, and luxurious environment than exists anywhere else. The experience is going to be at a much higher VIP level. VIP packages will include concierge services and reserved tables for events.

Q.Why is live entertainment necessary for National Amusements?
A. There isn't any movie theater business out there today that doesn't have to re invent itself. We've been successful in what we've done in the theaters by bringing alternative programming and by bringing live entertainment. The feedback we've gotten from live entertainment is that people really love it, and that was where we came up with this idea for a live music-comedy venue.

Q. Why Patriot Place?
A. We spent a lot of time looking at what would be the ideal first location to launch the project, and of course, there's nothing more well-known and more prominent and more accessible in the area than Patriot Place in Foxborough.

Q. Cinema chains like National Amusements make most of their money from concessions. Will the Showcase Live business model be the same?
A. A lot of revenue will come from concessions, and that's why it's really important to us to provide great food, to have signature cocktails, and to really make it a place people will want to go to all the time, not just to see the great talent but to have a wonderful dining experience.

Q. How does Showcase Live fit in with the overall long-term vision of the cinema business?
A. I'm looking at creating entertainment destinations within our theaters right now and this would be a wonderful adjunct to that business. We will be looking at it as a stand-alone business and you might see Showcase Live where you don't see one of our Cinema De Lux theaters. And I look at expanding not only domestically but around the world. This would be a great concept for Russia and South America where people love entertainment, they love to go out in the evenings. We look at this as our flagship, but also an opportunity to learn and figure out where we could take it next.

Q. Would you consider converting cinemas into Showcase Live venues?
A. It would really be hard to re-create this merely by retrofitting an existing auditorium. That doesn't mean that we wouldn't add a new facility to a place where we have an existing theater. But to do this right, we really need to build it from scratch.

Q. Your father has long expressed doubts over the long-term viability of the movie business. What does he think about this new venture?
A. I'm sure that he'd be really proud of what we're doing here today. We're reinventing the business and doing everything that we can to not only ensure the success in what we do, but getting involved in new concepts and building new businesses and continuing the success of the company that was started by my grandfather.

Q. How do you feel about your father's critical letter that was posted to Forbes's website last summer?
A. I'm not going to comment on any personal relationship issues.

Q. Is your father still trying to negotiate a buyout of your 20 percent stake in National Amusements?
A. I'm not going to comment on any personal business issues.

Q. When was the last time you saw your father?
A. You don't want to keep asking me questions that I'm not going to answer.

Q. The popular video game Grand Theft Auto IV is being unveiled this week and could be the most lucrative launch in entertainment history, beating out any movie debut. How does that make you feel, being in the movie business?
A. I used to say when I first came into this business that I was competing with other movie theaters. Then I realized I was competing with all out-of-home entertainment. Then I realized I was competing with out-of-home entertainment and in-home entertainment. And now I'm competing for people's time. The video game business is something that's strong and certainly something our patrons are very interested in. But that is why we are focused on giving our patrons a compelling reason to go to the movie theaters. That is why we provide a VIP experience, why we have luxe level service, so people can have martinis and food in the auditoriums. That is why we have Showcase Live. We know we have a lot of competition out there and we don't stay there with our head in the sand.

Source: Boston.com

Simon Focusing On Mall Redevelopments

INDIANAPOLIS-With credit tight and the economy slow, Simon Property Group will focus on redeveloping its premier US projects and developing and expanding its outlet centers both domestically and internationally, executives said at the company’s first quarter conference call.

Three new developments, in Noblesville, IN; Panama City Beach, FL; and Tinton Falls, NJ; will open this year, and the company has not backed off any projects in 2009 or 2010. Expansions planned for 2008 and 2009 are: Fashion Mall at Keystone in Indianapolis; Northshore Mall in Peabody (Boston), MA; Orlando (FL) Premium Outlets The Promenade at Camarillo (CA); and Ross Park Mall in Pittsburgh. The company also is close to announcing an outlet center that will be delivered in 2009.

“Capital is a precious resource,” said David Simon, chairman and CEO. “We will make sure we use it on projects that fulfill our requirements.”

New international development projects under construction include centers in Naples, Italy; Sicily, Italy; the Sendai (Japan) Izumi Premium Outlets; and five Wal-Mart-anchored centers in China. Additional development opportunities include projects in South Korea and Japan.

Major international growth by acquisition isn’t likely, though the company is looking at one potential purchase with Canadian mall owner Ivanhoe Cambridge.

“We’ve looked at a few deals. I’m still of the belief that the US economy will have an effect on the global economy, and that hasn’t permeated yet,” said David Simon, chairman and CEO.

For the quarter, funds from operations (FFO) increased 7.1% from the previous year to $420.1 million. Net income available to common stockholders for the quarter decreased 10.7% to $87.9 million from $98.4 million in the first quarter of 2007. Comparable sales per square foot rose 0.8% to $491 at regional malls, with outlets seeing a 5.4% increase to $511.

Regional mall occupancy was 91.7%, down from 91.8% the previous year. Outlet center occupancy declined 120 basis points to 97.9%, and community/lifestyle center occupancy rose 20 basis points to 93.3%.

Source: GlobeSt.

Luxury Retailers Pin Hopes on Outlets

Bracing for a prolonged economic downturn, luxury retailers are lavishing new attention on their lower-end factory-outlet stores.

The efforts reflect a new reality for retailers that are being squeezed by one of the worst consumer spending slumps in years. Sales at outlet stores are growing faster than those at full-priced stores at many chains.

Saks Inc. is renaming its Off Fifth outlets "Saks Fifth Avenue Off Fifth" -- in hopes that a closer association with the luxury department store will be a bigger draw. The 48 outlets also began using the Saks label and selling more merchandise that is tailored for them, as opposed to goods that aren't selling at higher-end stores.

Nike Inc.'s Cole Haan unit is renovating and opening 40 total outlet stores resembling beach houses in the next two years, in a bid to capture luxury customers who might be shopping for bargains. And Liz Claiborne Inc. is changing the format of its outlets, devoting less space to its flagship Liz Claiborne brand and carving out off-price standalone stores for its Juicy Couture, Lucky Brand Jeans and Kate Spade labels.

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The trend is evident at Simon Property Group Inc., the nation's largest mall operator. The company reported Tuesday that comparable sales per square foot at its Chelsea Premium Outlets division rose 5.4% to $511 as of March 31, compared with a year ago. That's far better than the anemic 0.8% increase to $491 per square foot at its regional malls.

The pattern is far more pronounced for some retailers. At Coach Inc., same-store sales at factory outlets rose a healthy 17.7% in the quarter ended Dec. 29, while sales at full-priced stores fell 1.1%; Coach no longer breaks out retail and factory-store results. Nordstrom Inc.'s sales at its high-end department stores, meanwhile, have fallen four consecutive months, most recently by 11.4% in March, while sales at its Nordstrom Rack clearance stores have continued to grow, rising 1.7% last month.

Howard Weinberg, a retiree in Framingham, Mass., who says he generally has been spending less, noticed that several stores at one local outlet mall he shopped at recently were "packed with people," although "some of the stuff there looks like it's a castoff."

The resurgence of outlets entails new risks for retailers. For one thing, shifting sales to what is by definition a discount format can put pressure on profit margins. Coach, for instance, says it sweetened its discounts of handbags at its 101 outlet stores last quarter by 10% to 12%, contributing to a decline in gross margin for the company. "We've had to be more promotional" to take advantage of the higher traffic at outlet malls, says Coach CEO Lew Frankfort.

What's more, outlets are facing greater competition from the so-called off-price retailers, such as Ross Stores Inc. and T.J. Maxx, a unit of TJX Cos., which can buy more discount designer merchandise than before -- a typical byproduct of the economic slowdown that is hurting sales at full-price stores. "The current environment is favorable in terms of availability of product," says Katie Loughnot, a Ross Stores vice president for investor relations.

There's also a chance that outlet operators might cannibalize sales at their own full-priced stores, particularly as new outlets open closer to suburban and urban malls. "The key is to not proliferate the outlets too much, and to be choosy about location," says William McComb, chief executive officer of Liz Claiborne. So far, it has closed or renovated a third of its old Liz Claiborne outlets, which he describes as "relics."

That's one reason jeans maker VF Corp., which plans to open 75 to 100 stores in the next few years, isn't planning a push into outlet malls. "We wouldn't want to drag our brands down with too many outlet stores," says Michael T. Gannaway, vice president of the VF Direct division. The company's brands include Wrangler, Lee and 7 for All Mankind jeans, Vans and John Varvatos.

To avoid hurting full-priced sales, most of the outlet divisions of retailers intentionally don't sell online. One exception is Neiman Marcus Group Inc., which has a Last Call clearance feature on its Web site.

Many retailers, including Neiman Marcus, don't break out the performance of their outlet stores. Saks Chief Executive Officer Steve Sadove said at a conference Tuesday that its Off Fifth business has the potential to deliver "outsized growth" in monthly same-store sales. Saks expects its overall same-store sales, including outlets, to grow by the low- to mid-single digits in the first half of this year.

At Simon's Chelsea outlet malls, "we are still on a positive track" with "no meaningful weakness in tenant demand or in the shopper," says Leslie T. Chao, chief executive officer of Chelsea Property Group.

Outlet centers in New York, Las Vegas, Texas and Seattle have seen "sizable gains" in sales, thanks to the weaker U.S. dollar and an influx of foreign tourists, he notes. But even in other markets "we are holding our own" -- with outlet malls sales flat or slightly up so far, he says.

Even Talbots Inc., which plans to close its 78 children's and men's apparel stores by September, said this month it will open as many as 40 upscale factory stores in premium outlet malls in the next three years. Talbots currently has 25 clearance centers -- locations that Linda Humphers, editor-in-chief of Value Retail News, an outlet-industry magazine, describes as "totally dismal." The new upscale outlet stores will carry merchandise specifically made for them, Talbots says.

Source: Wall Street Journal

Lord & Taylor Considers Stores Outside U.S

Lord & Taylor, the quintessentially American department store, is thinking about opening stores outside the country, possibly in Mexico and Canada, its chairman said Tuesday.

The chairman, Richard A. Baker, the head of the private equity firm that owns Lord & Taylor, NRDC Equity Partners, said the 47-store chain might thrive in foreign countries given its focus on American designers like Joseph Abboud and Charles Nolan.

Department stores have ventured beyond American borders before, but most, like Saks Fifth Avenue, do so by promoting a stable of largely European designers.

Lord & Taylor, however, will cast itself as a destination for the best in American fashion, a specialty that the store has emphasized for more than 180 years.

The United States is losing a bit of its luster for many department stores. The American market is crowded — with names like Kohl’s, J. C. Penney, Macy’s and Dillard’s — and apparel sales are growing at anemic rates.

But appetites for clothes are growing at a faster pace abroad, especially in historically poor countries where consumers are developing a taste for designer clothing. (Saks, for example, is opening a store in China.)

“We are thinking about growth outside the U.S.,” Mr. Baker said on Tuesday at a conference held by Emanuel Weintraub Associates, a retail consulting firm. Besides Canada and Mexico, he identified Asia as the most likely market.

Mr. Baker said that no foreign store openings were imminent, but that he had recently been traveling to Mexico and Canada.

NRDC bought Lord & Taylor in 2006 and has since purchased Fortunoff, the home furnishings chain, turning Mr. Baker, 42, into a major player in the retail world.

A foreign venture would be the latest chapter in Lord & Taylor’s remarkable turnaround over the last decade. Once regarded as irrelevant and financially troubled, the retailer has rebounded by recruiting upscale designers and fixing up its once-dowdy stores.

Source: NY Times

Centro Wins One-Week Reprieve on Aus$5.6 Billion Debt

April 30 (Bloomberg) -- Centro Properties Group, the Australian owner of more than 650 U.S. malls, persuaded banks to give the company another week for talks to refinance A$5.6 billion ($5.2 billion) of debt as it works to sell assets.

Australian lenders and U.S. noteholders owed A$2.8 billion agreed to extend today's deadline to May 7, Melbourne-based Centro said in a statement. The shares fell 4.2 percent to 45.5 Australian cents on the Australian Stock Exchange.

Centro has been trying for more than four months to sell stakes in its funds, pay debt and persuade investors and lenders it should retain a collection of malls that stretches from Australia's west coast to the U.S.'s eastern shore. About 62 percent of Centro's assets are in the U.S., where its properties lost 8.8 percent of their value amid slowing retail sales, according to the company's first-half earnings report.

"If the lenders need an extra week to sort this out, after such a long time anyway, there are some fairly serious negotiations happening and maybe additional deal-makings,'' said Mark Wist, a director at Property Investment Research Ltd. in Melbourne. "It clearly shows there is disharmony among those that have lent Centro money.''

U.S. and European banks in February gave Centro until the end of September to refinance A$2.8 billion in loans owed them, provided Australian banks and the noteholders granted an extension at least as long.

Lenders

Centro's lenders include Commonwealth Bank of Australia, Australia & New Zealand Banking Group Ltd., National Australia Bank Ltd., JPMorgan Chase & Co., Royal Bank of Scotland Group Plc and BNP Paribas.

Centro stock has plunged 92 percent since the company said Dec. 17 it was struggling to repay debt amid the global credit squeeze. The mall owner's market value has shrunk to A$384 million from a peak of A$8.5 billion in May.

The company posted a record A$1.1 billion net loss for the six months to Dec. 31, compared with net income of A$157.3 million a year earlier. Centro wrote down A$578 million on U.S.- based New Plan Excel Realty Trust, purchased last year for $5.2 billion in the biggest U.S. acquisition by an Australian real estate investment trust.

Asset Sales

More than A$4 billion was wiped from Centro's value in December after debt markets shut, including the U.S. commercial mortgage-backed bond market, leaving the company was unable to raise funds. Centro has debt of A$17.5 billion, equal to 75.2 percent of combined debt and equity, it said in February.

"The lenders will be concerned about the likelihood that Centro's better assets will be the ones that sell, so while the capital position will be better the value of the underlying portfolio will be weaker because they will be left with more ordinary assets,'' Wist said.

Centro gained many of its U.S. malls when it paid cash and assumed debt for New Plan Excel Realty. Glenn Rufrano, who took over as Centro's chief executive officer in December, was head of New Plan at the time of the sale.

Former Chief Executive Officer Andrew Scott borrowed to buy $9 billion of malls over two years then spun off the centers into 34 syndicates, three wholesale funds, two unlisted property funds and one listed property fund, which Centro then managed for a fee.

Source: Bloomberg

Tuesday, April 29, 2008

Investment Sales Crater After Record 2007

BOSTON-After starting with a bang, the 2008 investment sales pace in Greater Boston fizzled, dramatically, and is limping along heading towards midyear, according to a report from Colliers Meredith & Grew. Even when not including the $4.2-billion purchase of Equity Office Properties assets by Blackstone in early 2007, Q1 transaction volume paled in comparison to the start of last year, particularly for super-sized trades.

"It was harder to finance the bigger deals," says CMG research director and SVP Mary Sullivan Kelly, whose firm estimates total sales at $1.16 billion for all property types, including industrial, multifamily, office and retail. That is $450 million below the 2007 Q1 results when discounting the Blackstone/EOP activity. Particularly in the suburbs, transactions were generally under $20 million, Kelly tells GlobeSt.com.

The $477-million purchase of a 49% interest in 53 and 75 State St. from RREEF by majority owner Brookfield Financial Partners made up the lion’s share of Boston office building sales in Q1, relays CMG. Brookfield, in a deal first reported by GlobeSt.com, took full control of the two office towers in January after Rreef’s share was shopped to other investors for much of 2007. Five other office building sales pushed the total to just $507 million for Boston, well below the $850 million traded in Q1 2007, minus Blackstone/EOP. Among the early 2008 sales was the acquisition of 4 Liberty Sq. to locally-based Synergy and 285 Summer St. to New York City-based Aegean Capital.

The pace was even slower in Cambridge, where a $24.5-million sale/leaseback involving New Boston Fund, as the buyer, was the only quarterly completion compared to $140 million in Q1 2007. Suburban volume plunged from $800 million to $177 million. Among the largest deals was the sale of Rivertech Park in Billerica for $45 million, this time with New Boston Fund on the seller side, as reported by GlobeSt.com.

A flight to quality has been one result of the disrupted marketplace, says CMG, with investors targeting core communities and higher-end assets, partly from lenders aiming to “cherry pick” deals. The dearth of commercial mortgage backed securities money has severely curtailed debt availability, and CMG says banks and insurance companies are being rigid in their underwriting assumptions. According to sources, several promising deals have been slowed, or quashed completely, in recent weeks, some of which reportedly collapsed due to lender intransigence.

Most experts had anticipated a torpid beginning for investment sales, says Kelly, and she concurs that the immediate future remains cloudy. On the bright side, however, Kelly notes that CMBS spreads have started to drop, possibly signaling that the capital freeze may be thawing. "We’ll take any good news we can get," Kelly says, adding that real estate denizens can be comforted, realizing that an 8.7% vacancy rate and average rents back into the $50 per sf range are impressive fundamentals for Boston, particularly with only limited new inventory underway. "It shows that when the market gets its footing back, we are going to be in a good place."

Source: GlobeSt.

Massachusetts spared from national, regional jumps in unemployment rates

New England's unemployment rate rose in March, although Massachusetts' saw no change on a month-over-month basis.

The region's unemployment rate for the month rose .2 percentage points to 4.8 percent, compared to February's rate of 4.6 percent, according to a report by The Bureau of Labor Statistics, a division of the U.S. Department of Labor.

In Massachusetts, the March unemployment was 4.4 percent -- unchanged from February. The national rate was 5.1 percent in March, compared to 4.8 percent in February.

New Hampshire led the region with the lowest unemployment rate of 3.9 percent for March, while Rhode Island reported the highest unemployment rate of 6.1 percent.

Source: Boston Business Journal

Circuit City Gets Pressure From Big Investor for a Deal

Circuit City Stores Inc.'s largest shareholder called on the consumer-electronics retailer to put itself up for sale, tacitly endorsed an unsolicited bid by Blockbuster Inc. and raised the prospect of financing the acquisition.

The move by HBK Investments LP increases the pressure on Circuit City's board to begin negotiations with Blockbuster. The Dallas hedge fund holds 15.4 million shares, or about 9.1%, of Circuit City, of Richmond, Va., and is the third-largest Blockbuster shareholder, with an 8.5% stake. HBK Managing Director David Haley declined to comment via a spokesman.

"We are very optimistic about the future prospects of a combined company," HBK wrote in a letter to Circuit City Chairman and Chief Executive Philip J. Schoonover. The investment firm said that a majority of Circuit shareholders would favor the company's sale "at a meaningful premium." It also raised the prospect of filing a lawsuit against the board for refusing to provide information to Blockbuster.

A Circuit City spokesman said directors plan to review HBK's requests "and will respond when appropriate." A Blockbuster spokeswoman said, "We agree with the overall assessment in the letter... ."

HBK called on Circuit City's board to "immediately" provide information and begin negotiations, saying "we see little downside to Circuit City's business by allowing Blockbuster to conduct full due diligence." It also called on the board to set up a "competitive bidding process" that could result in a sale of the company "at a substantial premium" to its trading price.

In its letter, HBK said it believed that Blockbuster could finance "a significant portion" of its offer by tapping Circuit City's own balance sheet. The retailer has about $300 million in cash on its balance sheet, $80 million in a pending tax refund and is trying to sell its Canadian operations. HBK added it "might also be prepared to provide financing" for a transaction.

HBK is the second big investor to call on the company to open its books. Last week, Wattles Capital Management, which owns 6.5% of Circuit City shares, also called on the company to allow due diligence. Wattles Capital has nominated a slate of four directors to the Circuit City board and has sought through a proxy submission to have the existing directors replaced at the company's June 24 annual meeting.

Circuit City has refused to provide Blockbuster financial information, saying it didn't believe the video-rental company could "consummate the proposed transaction in light of the difficult current financing environment."

Blockbuster has threatened to abandon its unsolicited offer unless Circuit City makes available nonpublic financial statements. Activist investor Carl Icahn, a large Blockbuster shareholder, has endorsed the deal.

Wal-Mart to cash tax rebate checks for free

NEW YORK (Reuters) - Wal-Mart Stores Inc on Tuesday unveiled its plans to entice U.S. shoppers to spend their tax rebates in its discount stores, offering to cash the checks for free and saying it has cut prices on key items such as cereal and lunch meat.

The world's biggest retailer said no purchase will be necessary to cash the checks at its customer service desks or in its MoneyCenters -- financial services centers it operates in its stores.

The retailer has cut prices on key grocery and other items like shampoo, juice and sports drinks, to coincide with the distribution of the rebates.

Tax rebates began arriving in U.S. consumers' bank accounts on Monday. They are part of Washington's $152 billion 2008 economic stimulus package, and payments totaling more than $100 billion should be in most Americans' pockets by the end of June.

Retailers are eyeing the rebates as a means to boost business amid a slowdown in consumer spending, and many have unveiled plans to get shoppers to spend the cash in their stores.

Sears Holdings Corp is offering a 10 percent bonus if customers convert their entire stimulus check into a Sears or Kmart gift card. For instance, if the check is $600, Sears will give consumers gift cards totaling $660.

Retail food chains Kroger and Supervalu Inc will allow customers to exchange their check for a store gift card loaded with extra money.

Wal-Mart also said it will refund the purchase fee on its Wal-Mart MoneyCard when any portion of the stimulus check is loaded onto the card.

The Wal-Mart MoneyCard is a reloadable prepaid Visa that the retailer launched nationally last year.

Wal-Mart shares were up 18 cents, or 0.31 percent, at $57.53 on the New York Stock Exchange in morning trading.


Source: Reuters

Big-box retailers undaunted by slow economy

LOS ANGELES (MarketWatch) -- Can big-box retailers keep growing briskly, given the current downturn in the economy? For the most part, yes, but it depends on what's inside the box.

While a select few retailing giants -- namely home-improvement retailers -- have had to curtail expansion plans, others are continuing as if recession talk is nothing more than idle chatter.
Companies like Target Corp. , Costco Wholesale Corp. and Best Buy Co. are carrying on with expansion plans at virtually the same pace as in years past.

"We continue to look at a standard of 100 net new stores a year," Target spokeswoman Anna Goeppinger said. In fact, Target's rate of expansion has quickened, as it built 118 new stores last year and is on pace for 116 this year. In 2005 and 2006, the company added 86 and 88 new stores, respectively.

For the most part, today's retail giants don't suffer in the same way that most retailers do when gasoline prices climb and pocketbooks get pinched. While they may make adjustments, they're big enough to absorb the shock, according to industry experts.

"They really are looking through the economic time because their stores will open after the bad economic times have passed," said Jim McComb, president of retail consultancy McComb Group based in Minneapolis, home to Best Buy and Target headquarters.

The biggest box of all, Wal-Mart Stores Inc. , is curtailing its expansion efforts, although company executives insist that it's not recession-related. The world's biggest retailer is beginning to saturate the North American market, so now it's looking to grow more quickly overseas.
Wal-Mart said as recently as October that it plans to completely phase out new construction of its conventional outlets by fiscal 2009 in favor of its grocery/discount-goods supercenter stores. Development of all new Wal-Mart outlets, including Sam's Club and its group of neighborhood markets, will eventually be cut to 190 by fiscal 2010, down from the 340 new locations that were opened last year.

The subsiding-expansion plans were formulated several years ago and there are no plans to alter them, said Wal-Mart spokesman Phillip Keene, even though economic conditions have worsened since they were outlined six months ago. In fact, the company is stepping up its international expansion efforts at a fairly brisk clip. "There's been no change from this outline," Keene added.

Home-improvement blues
That hasn't been the case with two major big-box home improvement retailers. Home Depot Inc. and Lowe's Cos. are feeling the pinch as the real-estate market drops and new-home building subsides.

Last month, Home Depot scrapped plans to put its first-ever store in San Francisco despite wrangling with reluctant city officials for nearly a decade. In 2005, the city's Board of Supervisors had approved the construction of a Home Depot, but the company backed off in light of rough economic conditions.

"We evaluated the deal and found that it no longer worked for us," said Home Depot spokeswoman Sarah Molinari.

Home Depot has curtailed much of its new-store building throughout North America, cutting back to 55 new stores this year from 100 last year. Capital-expenditure spending will be down 32% from a year ago, to $2.3 billion.

The company is looking to spruce up its existing stores and find ways to improve service, as well as invest in its supply chain, according to Molinari. She also said that much of the curtailing in Home Depot's expansion activity is that like Wal-Mart, the company is reaching market saturation.

At one point, Home Depot was building 200 new stores a year, Molinari elaborated.
That kind of pulse-quickening expansion is unlikely to return, it appears. "I just don't think we're at that point in our business. I think we're past that point," she added.
Lowe's, on the other hand, still is growing rapidly, though it has delayed the opening of 20 new outlets this year in markets where the housing crunch is acute, said spokeswoman Chris Ahearn. Most of the delays are in California and Florida markets.

The company still plans to open 120 other stores, she noted. Lowe's would not reveal precisely where it is holding off on construction. "Again, they're delays. We're not canceling stores," Ahearn said. "We still have an aggressive expansion plan."

Markets that didn't experience a massive housing bubble, such as Texas and Oklahoma, are still ripe for new properties. Lowe's has 1,525 outlets in all.

Urban problem
Home Depot's San Francisco experience exemplifies the dilemma now faced by home-improvement centers. Buying or leasing land in pricey urban areas will cut deeply into their return on investment, said Craig Johnson, president of Customer Growth Partners, a retail consultant.

When economic conditions weaken, that takes a lot of steam out of a Home Depot or Lowe's that is looking to venture outside its comfort zone of suburban strip malls.
"Even in good times, it's a reach," Johnson added.

Companies that seem to be clinging to good times are Best Buy, Costco and Target. Best Buy said that it could stand to build another 500 stores in its various markets, so it plans to open 130 to 160 of them over the next fiscal year. That's about the same pace at which Best Buy has grown over the past several years, according to company spokeswoman Sue Busch.

Best Buy is hoping to use the current economic situation to its advantage and to expand its market share as some of its rivals retreat. "Right now, this is where the focus is," Busch said.
Its main competitor, Circuit City Stores Inc., has seen its stock price tumble, and it has become a takeover target for Blockbuster Inc.

"Smart retailers will use down markets as the most cost-effective time to build market share," Johnson commented. "I think Best Buy is doing a very good job of this."

The same goes for Costco, Johnson said. The membership-warehouse retailer may be seeing its nonfood sales drop, but its food and low-price gasoline have grown more attractive to consumers.
The company plans to open 30 to 35 new units this year and to relocate 10 more stores, spokesman Bob Nelson said.

Costco should continue on that pace in the foreseeable future. "We have no plans to curtail next year," he added. "We're cautiously optimistic that things are going to get better."

Source: MarketWatch.com

Monday, April 28, 2008

Australia's Centro says seeking bids for 25 malls

SYDNEY, April 28 (Reuters) - Australia's debt-laden Centro Properties Group (CNP.AX: Quote, Profile, Research) said it is seeking bids for 25 of its shopping centres, but hopes to retain at least 50 percent ownership in them to retain management and leasing control.

The group, which borrowed heavily last year to fund a rapid U.S. expansion, must refinance A$5.4 billion ($5 billion) of debt by Wednesday. It is under pressure to sell assets to raise cash after being caught in the global credit crunch.

Centro, owner of 700 U.S. malls, said refinancing talks were continuing and there would be no update to the market prior to Wednesday's deadline. Banks are expected to grant a five-month extension.

"I imagine it would be Wednesday before we say anything. These things tend to go to the last minute," said Centro spokesman Mitchell Brown.

"We're still working towards it. The banks are still supportive, it just takes a while to get the documentation done," he said.

About two-thirds of Centro's shopping centres are in the United States, with the remainder in Australia and New Zealand. It holds the assets through a complex network of managed funds.
The company is selling part of its Centro Australia Wholesale Fund, which contains 28 shopping centres, 25 of which are wholly owned. Brown said buyers had expressed interest in smaller chunks but Centro hoped to avoid selling off individual centres.

"That's possible but it's not what we're pursuing as the primary objective. You may see a few here or there but we'd prefer not to," Brown said.

"Let's say you put four centres together and someone wanted to take a 50 percent interest in those four centres -- that's the kind of thing that would be ideal in our mind because we'd still then be managing, and marketing and leasing the shopping centres," he said.

The group has previously said its adviser, Lazard Carnegie Wylie, reported extensive interest from potential investors and it expected a number of parties to start due diligence soon. The Sydney Morning Herald on Monday listed potential buyers as GPT Group (GPT.AX: Quote, Profile, Research), Stockland (SGP.AX: Quote, Profile, Research), Westfield Group (WDC.AX: Quote, Profile, Research), Mirvac Group (MGR.AX: Quote, Profile, Research) and CFS Retail Property Trust CFX.AX, although they may face competition issues.

Industry Superannuation Property Trust, family groups and individual property investors may also be interested, the newspaper said.

"(Equity) interest in some or all of those assets is very likely to be sold. Twenty-five of them are not in joint ventures with external partners so there are 25 that are able to be sold pretty quickly," Brown said.

Centro plans to review indicative bids and then grant access to detailed due diligence. Formal documents had not yet been signed.

Centro shares were up 2.3 percent at 45 cents at 0345 GMT in a broader market up 0.5 percent . The shares had traded above A$10 last May.

Centro recently rejected offers to buy stakes in the company reported by newspapers to be up to around A$0.90 a share.

"We have received a number of offers. The board has not taken any of those. We're not going to do anything that takes too big a discount for shareholders," Brown said.

Source: Reuters

Charming Shoppes seeks alternatives for non-core assets

BANGALORE, April 25 (Reuters) - Women's plus-size apparel retailer Charming Shoppes Inc (CHRS.O: Quote, Profile, Research) said it is exploring strategic alternatives for its non-core apparel catalogs to focus on core brands, and cut its planned spending for fiscal 2009.

The company's intention is to raise money by selling its assets, which is an appropriate decision given the current challenging consumer environment, Janney Montgomery Scott LLC analyst Holly Guthrie said.

The company, whose core brands include Lane Bryant, Catherines and Fashion Bug, said it retained Banc of America Securities and Lehman Brothers as its financial advisers.

"We have received a number of inquiries from qualified third parties and are evaluating several alternatives for our non-core apparel catalog titles...," Chief Executive Dorrit Bern said in a statement.

The company, which had earlier this year cut jobs and planned to close stores, said it expects to reduce capital expenditures by an additional $20 million for fiscal 2009, bringing the total planned cuts to $63 million for the year.

Standard & Poor's Equity Research analyst Pearly Wang upgraded the stock to "sell" from "strong sell," saying the company's plans to enhance shareholder value and focus on core brands were encouraging.

Shares of the Bensalem, Pennsylvania-based company, which operated 2,409 retail stores in 48 U.S. states at Feb. 2, were up 3 percent at $4.99 in noon trade on Nasdaq. (Editing by Deepak Kannan)

Source: Reuters

Recession Diet Just One Way to Tighten Belt

Stung by rising gasoline and food prices, Americans are finding creative ways to cut costs on routine items like groceries and clothing, forcing retailers, restaurants and manufacturers to decode the tastes of a suddenly thrifty public.

Spending data and interviews around the country show that middle- and working-class consumers are starting to switch from name brands to cheaper alternatives, to eat in instead of dining out and to fly at unusual hours to shave dollars off airfares.

Though seemingly small, the daily trade-offs they are making — more pasta and less red meat, more video rentals and fewer movie tickets — amount to an important shift in consumer behavior.

In Ohio, Holly Levitsky is replacing the Lucky Charms cereal in her kitchen with Millville Marshmallows and Stars, a less expensive store brand. In New Hampshire, George Goulet is no longer booking hotel rooms at the Hilton, favoring the lower-cost Hampton Inn. And in Michigan, Jennifer Olden is buying Gain laundry detergent instead of the full-price Tide.

Behind the belt-tightening — and brand-swapping — is the collision of several economic forces that are pinching people’s budgets or, at least, leaving them in little mood to splurge.

The price of household necessities has surged, with milk topping $4 a gallon in many stores and regular gasoline closing in on $3.60 a gallon nationwide.

Home prices are sliding, wages are stagnant, job losses are growing and the Standard & Poor’s 500-stock index, a broad measure of stock performance, is down 6 percent in the last year. So consumers are going on a recession diet.

Burt Flickinger, a longtime retail consultant, said the last time he saw such significant changes in consumer buying patterns was the late 1970s, when runaway inflation prompted Americans to “switch from red meat to pork to poultry to pasta — then to peanut butter and jelly.”

“It hasn’t gotten to human food mixed with pet food yet,” he said, “but it is certainly headed in that direction.”

Retail sales figures and consumer surveys confirm that Americans are strategically cutting corners, whether it is at the coffee house or the airport. (In: brewing coffee at home and flying coach. Out: Starbucks and first class.)

In March, Americans spent less on women’s clothing (down 4.9 percent), furniture (3.1 percent), luxury goods (1.3 percent) and airline tickets (1.1 percent) compared with a year ago, according to MasterCard SpendingPulse, a service of the credit card company that measures spending on 300 million of its cards and estimates purchases with other cards, cash and checks.

Wal-Mart Stores reports stronger-than-usual sales of peanut butter and spaghetti, while restaurants like Domino’s Pizza and Ruby Tuesday have suffered a falloff in orders, suggesting that many Americans are sticking to low-cost home-cooked meals.

Over the last year, purchases of brand name cookies and crackers have fallen, according to Information Resources, which tracks retail sales.

Sales of Nabisco graham crackers have dropped 7.5 percent, and Keebler Fudge Shoppe cookies have slipped by 12.3 percent. Not even beer is immune. Sales of inexpensive domestic beers, like Keystone Light, are up; sales of higher-price imports, like Corona Extra, are down, the firm said.

Some are skipping drinks altogether. The number of people ordering an alcoholic drink fell to 31 percent last month from 42 percent last summer, according to a survey of 2,500 people conducted by Technomic, a restaurant industry consulting firm.

“People have started to shift spending as if we were in a recession,” said Michael McNamara, vice president for research and analysis at MasterCard.
Such trade-offs were on vivid display last week in Ohio, where layoffs have been rampant. At Save-A-Lot, a discount grocery store in Cleveland, Teresa Rutherford, 51, chided her sister-in-law, Donna Dunaway, 44, for picking up a package of Sara Lee honey ham (eight ounces for $2.49).

“We can’t afford that!” she said. “Get the cheap stuff.” They settled on a 16-ounce package of Deli Pleasures ham for $3.29, or 34 percent less an ounce.

The women said that soaring prices for food and fuel had changed what they buy and where they buy it. “We used to eat out at Bob Evans or Denny’s once a month,” said Ms. Rutherford, who works in an auto-parts factory. “Now we don’t go out at all. We eat in all the time.”

Ms. Dunaway, a homemaker, used to splurge on the ingredients for homemade lasagna, her husband’s favorite, before food prices began to surge this year.

“Now he’s lucky to get a 99-cent lasagna TV dinner, or maybe some Manwich out of a can,” she said. “I just can’t afford to be buying all that good meat and cheese like I used to.”

By no means has the economic downturn been bad for all product categories. For instance, sales of big-ticket electronics, like $1,000 flat-panel televisions and $300 video game systems, are on the rise, according to retailers and research firms.

Falling prices for such devices and a looming government deadline to convert to digital television have helped. So has the view, sensible or not, that the technology is a good investment. At a Best Buy in Southfield, Mich., James Szekely, 28, a mechanical engineer, was shopping for a big high-definition TV that he expected would cost at least $2,000, an expense he rationalized because “at least we can watch movies at home.”

(In a survey conducted this month by the NPD Group, a research firm, consumers suggested that they would sooner cut spending on clothing, furniture and eating out than on video games.)

At Home Depot, sinks and faucets are selling briskly. Managers at the chain suspect that consumers, loath to spend money on a splashy kitchen renovation or new roof, are settling for a cheaper bathroom “refresh.”

Another top seller at home improvement stores: programmable thermostats and insulation, which can cut fuel bills.

Many retailers are struggling to adjust to the new needs. Clothing sales have started to sink at department stores like Macy’s, Kohl’s and J. C. Penney. So have furniture sales at companies like Bombay and Domain, both of which have filed for bankruptcy protection.

Consumers are spurning small indulgences. Starbucks is warning of a drop-off in purchases, and sales have dipped at higher-end restaurant chains, including the steakhouses Ruth’s Chris and Morton’s.

To drum up business, Domino’s is offering a new deal: three 10-inch pizzas for $4 each. “We are not recession-proof,” said the chain’s president, J. Patrick Doyle.

But chains that emphasize low prices, like TJ Maxx and Wal-Mart, are thriving. And cut-rate supermarkets, like Save-A-Lot, are swamped.

“People are not not spending, but they are changing how they spend,” said Marshal Cohen, chief analyst at the NPD Group.

And they are often willing to sacrifice convenience or swallow their pride.

George Goulet, 52, the business traveler switching from the Hilton to the Hampton Inn, now books flights that depart in the afternoon rather than the early morning. “It’s a lot cheaper,” he said. “I can really see the difference.”

Mary Gregory, 55, a telephone company operator in Cleveland, used to eat red meat at least once a week. Now it is hardly ever on her menu. “I usually buy turkey instead,” she said. “Any recipe that calls for meat, like chili or spaghetti, I try to substitute turkey.”

Hall, a retired construction worker in Detroit, wants to buy a fence for his backyard. But he decided not to buy a finished product at Lowe’s, the home improvement chain where he was shopping recently. With money tight, “I am looking to put it together myself,” he said, adding that he hoped to save $200.

As the compromises mount, people are even coming up with clever schemes to hide their cost-cutting.

Holly Levitsky, a 56-year-old supermarket cashier in Cleveland, buys a brand of steak sauce called Briargate for 85 cents and surreptitiously pours it into an A1 steak sauce bottle she keeps at home.

“My husband can’t even tell the difference,” she said.

Source: The New York Times

Stein Mart Opens in Westboro, MA

WESTBORO — Stein Mart Inc., an off-price retailer of clothing and home goods with more than 280 stores in 30 states, will open its first New England store April 24 at the Bay State Commons shopping center.

The company, based in Jacksonville, Fla., expects to find shoppers in New England who know the chain through travels to other states.

“We’re finding there are people who want to shop at Stein Mart year-round, not just when they’re in Florida” or other locations, said Stein Mart spokeswoman Kathy Schwartz Lussier.

Stein Mart’s Westboro store will cover 31,000 square feet and include men and women’s clothing, shoes, accessories, gifts and linens. Most Stein Mart stores employ about 50 full- and part-time workers. Nilza Ortega will be the store’s manager.

In addition to selling national and designer brands at discounted prices, Stein Mart carries its own brands, including Peck & Peck clothing for women and T.Harris-London menswear. The company also aims to create a department-store atmosphere in its stores. The “Boutique” department in Stein Mart stores offers free personal shopping services and special merchandise and displays.

Stein Mart posted $1.46 billion in sales and a loss of $4.5 million, or 11 cents per diluted share, during the fiscal year ended Feb. 2. The company cited a drop in business late in 2007 that caused it to mark down merchandise, and it said it would moderate the pace of new store openings. Stein Mart has reported it will open six new stores this year, including the Westboro store, relocate one store and close six stores.

Stein Mart has scheduled a pre-opening fundraiser from 6 to 8 p.m. April 22 at the store at 1500 Union St. to benefit the Westboro Women’s Club projects and scholarships. Tickets to the event are $10 and will give participants a chance to shop at the store before it opens to the public. Tickets are available at Plant Bazaar, 50 East Main St., and will be sold at the door.

Source: Worcester telegram & Gazette

Golf sales soaring, even if economy is not

QUINCY —
Times are tough all over. Unless, that is, you sell golf equipment.

“We entered this year with some anxiety because of the election and the economy. But actually our numbers are up some from last year,” said Michael Stough, a manager at Edwin Watts Golf in Hanover. “We’re pretty excited about ‘08.” It’s the same rosy picture at Golfers’ Warehouse in Braintree. “We’ve been doing very well,” said assistant manager David Singletary, who was already tied up with a customer 19 minutes after the store’s 10 a.m. opening on a weekday morning last week. “We haven’t seen a drop at all (in sales).”

Golf tugs at the wallet perhaps more than any other sport. Individual clubs can sell for hundreds of dollars, and pricey golf vacation packages beckon from the pages of magazines. But if golfers are economizing, retailers aren’t seeing much evidence of it. In fact, both Stough and Singletary said their stores are selling more big-ticket merchandise than they did at this time last year.
Singletary chalks that up to some new, “must-have” innovations, including Callaway Golf’s I-Mix system, which allows golfers to mix and match the heads and shafts of their drivers to add flexibility to their games.

“The major brands are doing a good job of anticipating issues with sales,” he said, “and they’re really combating it with new products that the golfers just can’t say no to.”

Don Neville, a 38-year-old math teacher at West Roxbury High School, estimates that he spent about $2,000 on his game last year. Although he said “financially, it’s hard times,” he was at Golfers’ Warehouse, trying out different drivers in the club-testing area while his 6-year-old son played with some $25 club head covers.

“It’s one of those mindsets that you figure that if you get the best equipment, it’s going to help your game in some way,” Neville said.

Tom Murphy, a 38-year-old from Marshfield, said he isn’t surprised that golf gear is flying off the shelves. “It’s everybody’s getaway,” he said of the game, “everybody’s release, so to speak.”

Source: Patriot Ledger

Alpha Omega closes two stores

The Alpha Omega jewelry store in Harvard Square closed Monday, and the Natick Collection locale shut earlier this month. The luxury jewelers are at the end of its court-authorized liquidation sale. The remaining inventory has been consolidated to the Burlington Mall and Prudential Center store locations, where the sale is scheduled to end Sunday, April 27.
Lexington Jewelers Exchange Inc., the Cambridge, Mass.-based company that operates the Alpha Omega chain, filed for Chapter 11 bankruptcy Jan. 2.

Cranston, R.I.-based Ross-Simons Jewelers will take over the Natick Collection and Prudential Center locations and re-open them as Ross-Simons stores in the near future. Alpha Omega's some 80 employees will be considered for employment with Ross-Simons stores, sources say.
Alpha Omega's debt totaled $34.1 million, according to court documents filed Jan. 18. Its largest creditors include the Boston Globe ($1.2 million), Boston Magazine ($176,654) and the Boston Celtics ($207,500). Its assets at the time of the filing were $20.6 million, including $19 million in inventory.

The Alpha Omega bankruptcy comes in the midst of a national hardship for jewelers, according to Michael McGrail, managing director of Boston-based Tiger Capital Group LLC, one of the firms that bought the troubled jewelers out of bankruptcy in January.
"I think Boston has weathered the storm," said McGrail. "But there's going to be a longer-term storm so it's tough to predict right now."

The consortium that bought Alpha Omega includes Tiger Capital Group, The Gordon Co., which is based in Florida, and SB Capital Group of New York.

Source: BBJ

Safeway Continues Store Expansion

PLEASANTON, CA-Despite belief that 2008 will remain soft, Safeway is continuing to expand, executives said at the company’s first quarter conference call. For the year, the company expects to spend $1.7 billion to $1.75 billion in capital expenditures, opening 20 to 25 new Lifestyle stores and completing 250 to 255 Lifestyle remodels. Yet rising food prices are affecting the consumer, as shoppers pursue value.

“It doesn’t matter whether you make $30,000 a year or $150,000 a year, when prices go up, demand dampens,” said Steve Burd, chairman, president and CEO. Remodels likely will slow between 2010 and 2012, as the company has compressed its normal 10-year renovation cycle into six to move to the Lifestyle concept. After that, the next set of remodels will be less extensive, Burd said.

For the quarter, the company reported total sales of $10 billion, up 7.3% from the first quarter of 2007. Identical-store sales increased 4.5%, boosted by the shift of Easter from the second quarter to the first. Excluding the Easter shift, identical-store sales rose 2%. Net income was $193.4 million, compared to net income of $174.4 million for the same quarter in 2007. The company opened one new Lifestyle store, completed 22 Lifestyle remodels and closed four units. Safeway operates 1,740 stores in the US and Canada.

Source: GlobeSt.com

Boston: Samuels & Associates Completes $10M Purchase

BOSTON-An automotive service center, that has been a fixture in the city’s Fenway District since the 1970s, has been sold to an affiliate of local developer Samuels & Associates. The buyer paid just under $10 million for 1345 Boylston St. to its owner/operator, Goodyear Tire & Rubber Co., which signed a short-term leaseback of the property.

The purchase of the Fenway building, apparently, has been in the works for some time, with Samuels & Associates forming 1345 Boylston St. LLC, more than two years ago, before then changing the name to Fenway Enterprises 1345 Boylston St. LLC, in late 2007, which acquired the asset. Calls to Goodyear in Akron, OH, and to Samuels & Associates principal Steven Samuels at his Newbury St. headquarters in Boston were not returned by press deadline.

The $9.9 million paid for 1345 Boylston St. was more than twice what the $4.4 million that Goodyear’s 30,000-sf property is valued at by the Boston Assessing Department. If history is any guide, Samuels is likely eyeing the parcel for development, having already undertaken two major commercial projects in the immediate vicinity. Samuels and partner Boylston Properties built the 576-unit Trilogy Apartments mere blocks from 1345 Boylston St., and Samuels is constructing another high-rise across the street at 1330 Boylston St. That project includes 450,000 sf of space that combines office, residential and retail with three levels of underground parking.

All of the activity is within a few blocks of Fenway Park, home to the Boston Red Sox for close to 100 years. After a concept to erect another ballpark next door fizzled when the team’s new ownership opted to preserve the revered stadium, a revitalization of the area slated for demolition has been underway for much of the decade. The Fenway now features a growing strip of restaurants and retail, a multiplex cinema and the two apartment developments. Meanwhile, Trilogy Partners' partner, Boylston Properties, is building a six-story life sciences facility to take advantage of the Fenway’s location next to the Longwood Medical Area. Boylston Properties paid $8.7 million for the site at 121 Brookline Ave. where the building will be constructed, as reported by GlobeSt.com.

Retailers To Customers: Stimulate Us!

With credit tight and the economy creaky, big retail chains are getting more aggressive than ever in capturing the tax rebate checks trickling in to customers now and the stimulus checks due later in the year. One strategy: paying you to hand them over.

Sears Holdings, expected by Wall Street analysts to show a 3% decline in sales in the April quarter from a year ago, is peddling a 10% bonus to those who turn their stimulus checks into company gift cards. Getting $300 from the government? You can have $330 in merchandise credit if you give it to Sears or K-Mart.

Big supermarket chain Kroger offers the same deal, hoping customers will figure tax rebate (or stimulus check) time is a good time to think about saving on groceries. The company will add 10% to its gift cards for anyone who purchases one with a tax refund.

Home Depot takes a slightly different tack. Instead of adding bonus dollars to gift cards, the company is marketing home improvement projects that can expect to cost $300, $600 or $1,200--the dollar amounts people will receive from the government stimulus package.

Marketing around tax-rebate season is nothing new for retailers, but it's tough to recall a time when there was more desperation in the air. In the current economic climate, convincing a customer to turn over his entire stimulus check to one retailer is a tough sell. Industry analysts, naturally, are skeptical, even though some think the gimmick may add an extra trickle to second-quarter sales numbers.

"I’m not sure the Sears or Kroger programs will work; 10% may not be enough of a discount for some people," says Joel Naroff, chief economist of Naroff Economic Advisors.

A recent survey by American Century Investments revealed that only one in four Americans plans to spend any of their stimulus checks when they arrive--most say they plan to pay off debt or add to their savings. In other words, most people will be cashing non-stimulus checks.

Experts say there's little doubt other retailers will hop on board the rebate promotion bandwagon, given the struggle to convince consumers to spend over the next few months. If that happens, the likely result will be a few more dollars in sales, but no real competitive advantage, says Retail Technology Group analyst Mark Lilien.

"The idea is so obvious that it's easy to copy," Lilien says."And when retailers copy each other, they are not gaining any equity."

The idea makes especially little sense at Sears, he thinks, given that retailers selling apparel and furniture routinely offer sales of 40% and 50% off. A 10% giveback, unless it's for a large appliance like a refrigerator, won't bring many people in the door.

Source: Forbes

Is Real Estate Sentenced to Hard LIBOR?

A spike in a common benchmark interest rate for commercial real estate lending will increase debt service on many floating-rate loans but isn’t cause for alarm, according to industry observers. Even so, “for some subset of existing borrowers the recent increases are likely to be painful,” says Robert Bach, chief economist at broker Grubb & Ellis in Chicago.

Alarm bells sounded last week when the three-month London interbank offered rate, or LIBOR, shot up nearly 20 basis points in two days to close at 2.91% on Friday, April 18. Many analysts consider the jump to be a correction triggered by the British Bankers’ Association, which is reviewing its method for setting the rate. Three-month LIBOR hit 2.92% this week but fell back to 2.91% on Thursday.

The British Bankers Association sets LIBOR based on the interest that 16 banking institutions charge one another on loans. Earlier this month, analysts suggested some of those banks could be underreporting the interest they charge to downplay increases in their own costs, and those suspicions appear to have triggered last week’s correction.

Most of the commercial real estate industry’s construction loans and other short-term debts are pegged to LIBOR, so the rate spike could affect a wide swath of borrowers. Construction loans outstanding for commercial real estate at the end of 2007, including apartments and condominiums, totaled $358.7 billion, reports Oakland, Calif.-based Foresight Analytics.

The recent increase in LIBOR doesn’t directly present a problem for commercial real estate lenders but is occurring at a difficult time in the economic cycle for their customers with floating-rate debt, according to John Cannon, executive vice president at financial intermediary Capmark Finance Inc. “Borrowers by and large right now can’t pass those costs on to their customers, the tenants,” he says. “The industry has a lot of LIBOR borrowers, so this [rate spike] has a real material impact.”

That impact is even greater than it might have been a year ago, Cannon says, because borrowers are holding onto construction loans and other floating-rate debt longer while they seek permanent financing. Why? Because a lack of liquidity in the market for commercial mortgage-backed securities (CMBS), which was the chief source of permanent financing in recent years, has made fixed-rate loans costlier and more difficult to find and obtain.

If the run-up in LIBOR is sustained over time, borrowers with existing short-term loans may experience difficulty adhering to their budget as debt service increases the demand on the borrower’s cash flow and cash reserves. In the case of a value-add developer using a short-term loan to upgrade an asset, for example, spiking debt service may eat up the budget for some of those improvements. “That has a negative effect on what he can do with other parts of the property,” Cannon says.

In a big-picture sense, however, LIBOR’s 20 basis-point surge isn’t a big deal for the commercial real estate industry, according to Jon Southard, a principal at Boston-based CBRE Torto Wheaton Research. “Certainly not, given that CMBS spreads have moved 100 basis points in a month recently,” Southard says.

Indeed, March 7 spreads on 10-year, AAA-rated CMBS had climbed to 291 basis points over swaps from 93 basis points two months earlier, reaching an all-time high and 10 times spreads a year before. Swap spreads are a premium investors pay when trading floating- for fixed-interest streams, and are added to a long-term interest rate, usually U.S. Treasuries. “On our list of worries, this is pretty far down the list right now given everything else that is happening,” Southard says. “These are crazy times.”

And there is reason to expect LIBOR rates will come down to be closer in line with other short-term rates, such as U.S. Treasuries. A year ago the three-month LIBOR rate was 5.36%, just 52 basis points over the three-month Treasury rate of 4.84%. Today that spread is three times as great at 165 basis points, so a reversion to historical spreads would bring LIBOR down considerably.

“If you take a look at the spreads over a period of time, they’re certainly wider than they traditionally have been,” says Jamie Woodwell, senior director of commercial and multifamily research, Mortgage Bankers Association.

For now, LIBOR remains low enough that floating rate debt is still low and manageable for most commercial real estate borrowers, says Capmark’s Cannon. At 2.91%, today’s three-month LIBOR rate is roughly half the 5.06% it was six months ago. “I don’t think anybody is pushing any panic buttons yet,” he says, “but they’re watching it.”

Source: National Real Estate Investor

Low Expectations for the High End

Amid anemic consumer spending and sinking confidence about the U.S. economy, luxury goods retailers are on a surprising streak.

The latest quarterly results from high-end retailers including Coach (COH), Burberry, and LVMH Group (LVMUY), parent of Louis Vuitton, Christian Dior, and Veuve Cliquot, show sales exceeding expectations both at home and abroad. Gas prices are approaching $4 a gallon, but Burberry is rolling out a new handbag dubbed the Warrior. Its cost: $22,000.

Even with these hopeful sales reports, Wall Street anticipates deep trouble for retailers, including luxury purveyors. Once thought to be immune to the ups and downs of ordinary shoppers, shares of the 13 biggest luxe stocks around the world have lost 29% since last June, according to Savigny Partners, a boutique investment bank focusing on high-end retailers. Shares have sagged most, analysts say, at companies that have reached for middle-class customers who aspire to ritzier goods but are being hit hard by the current slowdown.

Luxury shares could still fall another 25% to 30% to reach the values typically seen in recessions, says Morgan Stanley (MS) retailing analyst Michelle Clark. Apparel sales, which have been weak for two quarters, generally suffer up to two years before recovering, she says.

Merger-and-acquisition activity has helped share prices hold up in past downturns, but little has materialized lately. LVMH Group Managing Director Antonio Belloni told Bloomberg News on Apr. 16 that his company is seeking acquisitions but offered no specifics. Valuations are certainly attractive, as major luxury stocks are trading at less than 10 times their 2008 earnings before interest, taxes, depreciation, and amortization, compared with a ratio of almost 14 times last June.

However, tight credit markets have made it all but impossible to finance a buyout, and many private equity firms are stuck without backing. A leveraged buyout deal for German fashion house Escada crumbled in April, and Italian fashion house Roberto Cavalli has been seeking a buyer since last summer. "People are being very careful," says William Plane, director at Savigny Partners.

The best bets for investors are retailers catering to the ultrarich, whether in the U.S., Europe, Asia, or the Mideast. This includes companies such as LVMH, Gucci owner Pinault-Printemps-Redoute, and Hermès. "There's much more insulation for the ultraluxury brands whose consumers are relatively unaffected by all that's happening," says Fred Crawford, managing director of AlixPartners in New York.

So-called aspirational brands such as Coach and Polo Ralph Lauren (RL) face the biggest challenges and thus make the riskiest investments, analysts say. Customers who were once more than willing to stretch their budget to buy a hot pair of shoes or cashmere scarf are rethinking their priorities, Crawford says. The firm just completed a survey of thousands of consumers about their shopping habits. "Right now, people are trading down," he notes.

Without rising real estate values to fuel consumer spending, some have declared the present era of affordable luxury dead and buried, but most retailing experts see the trend on hold until the economy improves. The fascination with celebrity culture—wearing the same shoes as Mariah Carey or carrying the same handbag as Sarah Jessica Parker—is here to stay, says Dana Telsey, who covered retailing at Bear Stearns and elsewhere and now runs her own consulting firm. "The media has created much greater brand awareness, and that's not going away," Telsey says. "The cycle will come around."

Source: Business Week

Saturday, April 26, 2008

NJ: 93,000-SF Center To Get Upgrade

OLD BRIDGE, NJ-The Lightstone Group is getting ready to launch a major renovation of its Browntown Shopping Center, a 93,250-sf strip on Route 516 here. The specific cost hasn't been released, but company officials term it "a multi-million-dollar" project. The center, which dates to the early 1960s, was acquired in 2003 from the estate of Saul Cantor as part of a three-center portfolio for $20 million.

"This reflects our continued reinvestment in our existing portfolio," says Jeffrey Dash, VP of retail leasing and management for the Lakewood, NJ-based Lightstone Group. The renovation will include a general building facelift and enhanced lighting, parking and landscaping, according to Dash.

Long-time major tenants New York Sports Club, Drug Fair and Wendy's remain in place as the property's anchors. Browntown Shopping Center is currently listed on Lightstone's website with a total availability of approximately 6,100 sf.

"We plan to also remodel the interior and exterior of our store as well," says Timothy LaBeau, president and CEO of Drug Fair, a regional Somerset, NJ-based chain with 40 stores in New Jersey. The other two centers acquired from Cantor in 2003, Millburn Mall in Vauxhall, NJ, and Newbridge Shopping Center in Bergenfield, have both also subsequently undergone major renovations.

Source: GlobeSt.

NJ: Despite Economy, Vacancies Stay Low

The current market conditions have changed considerably since just six months ago. Retailers are now showing considerable caution in securing new sites due to the economic slowdown. The sub-prime mortgage crisis as well as gasoline prices have had an impact on retail sales, as would be expected. Family disposable income has been re-allocated and, as a result, the buying power of the 15 – 25-year-olds has considerably diminished.

Fortunately, in the State of New Jersey, our economy appears to be stronger than in other parts of the country. The Goldstein Group, which monitors retail vacancies throughout New Jersey twice a year, currently shows a retail vacancy in New Jersey of approximately 5%. This figure is low compared to other retail markets in the United States, such as Atlanta, Miami, Chicago and Dallas, who are experiencing a much higher vacancy rate, in the 10-15% range. Fortunately for New Jersey, this lower vacancy rate has meant that our economy is holding up better than those being experienced nationally.

Although it is obvious that we will be experiencing some rougher times ahead, we don’t anticipate a huge increase in retail vacancies, and we anticipate that New Jersey will bounce back quickly when the economy regains its strength.

Source: GlobeSt.

Supermarkets Could Pick Up $2 Billion From Stimulus Spending

NEW YORK — Goldman Sachs here estimated that supermarkets could pick up 7% of the stimulus checks the government will issue next month, or close to $2 billion during the second and third quarters.

"Although $2 billion is only about 0.3% of overall supermarket consumption, it could bolster comps at a time when food inflation is dampening demand," according to a Goldman Sachs research report entitled Independent Insights, which asked 2,500 U.S. consumers how they plan to spend their rebates. The report said the amount spent at supermarkets could be higher than the $2 billion projected if cost pressures on essentials like food and gas drive a higher proportion of spending into non-discretionary outlets," or if the percentage of tax check dollars spent is greater than expected."

Goldman said it believes Kroger will be a big beneficiary of the spending because the amount of tax checks will be greater in the Southeast and Midwest, which are Kroger strongholds, and because Kroger is offering a 10% bonus if shoppers cash the checks at its stores and put the money into a Kroger gift card, a program Supervalu is also offering.

Source: SuperMarket News

Balt: Restaurateur defies sluggish economy, plans expansions

The owner of the Bicycle -- one of Baltimore's most popular restaurants -- plans to start a casual Italian restaurant about six blocks away from his Federal Hill eatery.

And Timothy Dean, of Timothy Dean Bistro, is spending $2.5 million on a 280-seat jazz lounge and restaurant at Prince George's County waterfront development National Harbor.

The moves underscore how some established restaurant operators are expanding even though consumers are watching their pennies. You can still lure diners by offering the right concept and good prices, restaurant owners say.

Timothy Dean will open Timothy Dean Bistro Jazz Club in August because he wants to grow his brand. Financing will come from two bank loans and business partner Peter Mallios of Mallios Realty in Washington, D.C. Plans to open a restaurant in Las Vegas have been put on hold for now while Dean expands to the retail and resort development.

Meanwhile, the Bicycle's Nicholas Batey will buy the building at 554 E. Fort Ave. to open Ullswater, named after an English lake. The building was formerly occupied by the defunct Soigné and more recently, the Sly Fox Pub.

Batey said he hopes to open the 100-seat eatery by October. Batey declined to say how much he will pay for the property but state tax records assess the value at $300,000. Funding for the new restaurant will come from a U.S. Small Business Administration loan and friends, he said.

Batey said he has noticed consumers are spending less. Some weekdays this winter have been slow at the 65-seat Bicycle, he said.

But Batey said he thinks he can draw customers with a lower-priced, casual restaurant. Diners at Ullswater will be able to order an entrée, appetizer and a glass of wine for $30. Federal Hill's the Bicycle sells contemporary international cuisine, with entrées such as New Zealand bass with red lentil dhal for $28.

Opening an Italian restaurant was always one of Batey's ambitions.

"The opportunity for the building and everything came at the right time," Batey said. "I just had to move forward and do this concept."

Source: Washington Business Journal

DC: Kettler secures $217M for Leesburg project

Kettler will get a hand from Sovereign Bank as it proceeds with a major mixed-use project in Leesburg.

Kettler and its development partners, Dallas-based Cypress Equities and District-based The Carlyle Group, secured the loan for the Village at Leesburg development. The project will have 1.2 million square feet of residential, retail, restaurant and office space when complete.

Sovereign Bank is the administrative agent for several national and local financial institutions that are providing the loan to Kettler.

An open-air shopping market at the Village at Leesburg will be anchored by a Wegmans supermarket.

As part of the project, McLean-based Kettler and Cypress are building a new $31 million interchange on Route 7 that is expected to be finished by July 2009. The development is located at the juncture of Route 7 and Crosstrail Boulevard.

Aside from the commercial space, the 150-acre Village at Leesburg will include 335 luxury apartments.

Source: Washington Business Journal

Friday, April 25, 2008

Developer picked for 16 acres at Fort Point

Postal Service moves plan to redevelop annex site forward

The Postal Service has named the big real estate firm Jones Lang LaSalle to develop the annex site it will vacate, 16 acres on Fort Point Channel in a rapidly developing section of downtown near South Station.

Jones Lang LaSalle beat out a team made up of the Beal Cos. of Boston and the Related Cos. of New York, as well as three other companies in earlier bidding, for the right to turn the property into a bustling mixed-use urban development.

Last year, the Postal Service said it would sell the site and move farther down Summer Street, next to the Reserved Channel on the South Boston Waterfront.

The selection of a developer begins a long process. Permitting for the annex's redevelopment and construction of a new Postal Service facility could take five years or more, officials said.
"Our piece of property seems to hold the key to the renovation of the whole waterfront," said Bob Cannon, public affairs manager for the Postal Service in Boston. "That simply can't happen while we stay here."

Jones Lang LaSalle executives said they will meet with abutters, neighbors, and city officials before deciding what to propose to build there.
The site is currently zoned to accommodate about 6.2 million square feet - or roughly the same amount tentatively planned for the 23-acre Seaport Square project on the South Boston Waterfront.

The Postal Service site is subject to the stringent limitations and requirements of the state's Chapter 91 law, which governs waterfront property, as well the city's exhaustive permitting process. In the end, the development could be smaller than current zoning al lows, in part because of the extensive amount of open space that could be required.

"Our plan will focus on the public realm and public access," said Daniel J. St. Clair, managing director at Jones Lang LaSalle.

The developers will have to coordinate their project with the planned expansion of rail lines at South Station, which could include as many as six new tracks to accommodate increased commuter-rail traffic from the south and Amtrak trains.

The Postal Service will now begin negotiating a purchase-and-sale agreement with Jones Lang LaSalle. It could be completed this year, and under the current plan the sale of the site would not be completed until all city and state permits are in place, and a project of a specific size is proposed.

The price of the property would be determined by how much the developer is permitted to build.
Vivien Li, executive director of the Boston Harbor Association, noted the area has several other major developments in planning, including an office tower behind South Station, plus great access to transportation, all of which will result in an exciting new neighborhood.

But, she cautioned, it will take time.

"It's a very complicated site," she said. "It will just help to bring even more people down to the waterfront, but the planning itself is going to take many, many months."

Jones Lang LaSalle has experience in that. The firm, or Boston-based Spaulding & Slye, which it bought in 2005, previously managed the complex permitting for large development sites, including Fan Pier on the South Boston Waterfront, NorthPoint, a 45-acre mixed-use project in East Cambridge, and the redevelopment of historic Russia Wharf.

"We've master-planned 10 million square feet in 10 years," a happy Kyle B. Warwick, managing director for investment development of Jones Lang LaSalle, said yesterday. "That has been our expertise."

Jones Lang LaSalle is the managing partner in a joint venture on the Postal Service site with Walton Street Capital, a real estate investment firm it has had business relationships with before. The development team includes CBT Architects of Boston and urban planner Ken Greenberg of Toronto.

None of the three big sites Jones Lang LaSalle moved forward is finished, but all are under construction. NorthPoint is being sold but is stalled as its current owners, including Jones Lang LaSalle, resolve a lawsuit with their partner.

The Beal-Related team, which is building The Clarendon, a residential project in the Back Bay, expressed disappointment that it wasn't selected "to work with the USPS to develop what we believe will be a new front door to downtown Boston."

Source: The Boston Globe