Creating a ‘Personal Experience’ is Key for Retail Landlords, Says CREC Partner
LAS VEGAS — The combination of significant population growth and a shortage of supply makes it an ideal time to develop retail projects in the South Florida market, according to Sabrina Stimming, director of retail leasing and partner at CREC, a full-service real estate firm. The population of Miami-Dade County was estimated at 2.75 million in 2017, up from 2.25 million in 2000, according to the U.S. Census Bureau. That’s a 22 percent increase over a 17-year period.
However, stiff competition from e-retailers is among the biggest issues facing landlords today.
REBusinessOnline sat down with Stimming at RECon, the world’s largest retail trade show held last week in Las Vegas, to discuss South Florida’s retail scene. Discussion topics ranged from store closures and backfilling vacant space to embracing internet-proof tenants for today’s shopping centers. What follows is an edited interview:
REBusinessOnline: When you reflect on the past year in the South Florida retail market, is there one trend, project or hot-button issue that stands out and why?
Sabrina Stimming: Store closures for sure — the continuation of some major boxes that are closing. This past year hhgregg, Winn-Dixie and Toys ‘R’ Us have all closed. That’s big stuff. Toys ‘R’ Us particularly has phenomenal real estate, at least in South Florida. In contradiction to what’s happening maybe even in more suburban projects and nationally, it doesn’t seem to be a tremendous concern that this is happening in South Florida. There generally have been other players to come in and backfill those spaces relatively easily.
In the case of Toys ‘R’ Us, some landlords that own properties nearby or adjacent are making hard runs at purchasing these properties because the real estate they have is so good. So they’re at the top of the heap.
REBO: What is it about the Toys ‘R’ Us real estate in general that makes it so valuable?
Stimming: They are Main-and-Main locations in a lot of these markets. I don’t know the history of when the deals were made, but they did a good job at securing good real estate. There is a Toys ‘R’ Us right upfront on Kendall Drive, one of the hottest retail markets in South Florida. And in Aventura, it has prime real estate right on Biscayne Boulevard.
REBO: What types of tenants are backfilling this space? Are there any ideal candidates to backfill the space gone dark?
Stimming: It varies by market. Cost-wise, it’s obviously always going to be cheaper to fill a vacant 45,000-square-foot space with a 45,000-square-foot user, and not have to split the space and create new front doors, split utilities and all those things. If you’ve got the right real estate at the right price, and the highest and the best use is splitting it up into smaller tenants that are willing to pay more and create the right tenant mix, then that’s what landlords will do.
Aldi is taking down some former hhgregg’s space, and Orchard Supply took down some old hhgregg and Winn-Dixie space. You’ve got Ross, Marshall’s and T.J. Maxx, that sort of discount, soft goods segment that are still very active and probably prime candidates for taking down some of those spaces in South Florida. And then there are the grocery stores. There is new competition in the grocery market down in South Florida that we haven’t seen previously, and those guys are looking at a lot of those dark spaces.
REBO: It used to be said that grocery stores were golden and recession-proof. Do you think that’s the case today given the competition you see in the grocery sector?
Stimming: I still think they are. A lot of it is convenience-based, and it’s still spur of the moment. If you need milk for breakfast in the morning, if you order it online it might not get there by the time you need it. So for the most part, those are internet- proof.
REBO: For grocers, do you have to be the No. 1 or No. 2 grocer, in terms of market share, or can you still be No. 3 or No. 4 and do well?
Stimming: It’s hard to tell. We’ve got a lot of new players that are coming in or trying to come in. Aldi came in and they are doing very well. Winn-Dixie goes back to the issue of an experience. Now they’re coming in with the renovations and the updated stores, but I think they waited too long. Their timing was off. Had they done it before, been proactive instead of reactive, maybe we wouldn’t be seeing the closures that we’re seeing.
Other than Publix, Whole Foods Market has a niche, Fresh Market has a little bit of a different niche and Aldi has come in and done really well with the lower- to middle- income segment. It’s too soon to tell how Earth Fare is going to fare. I know Sprouts is looking. But I think there’s room for more than one or two. Also in South Florida, you have a heavy Hispanic population, and you’ve got the Presidente and Sabor Tropical stores. Both are doing well in terms of market share in their segment.
REBO: Miami-Dade County has approved the development of the American Dream Miami retail theme park from Canadian developer Triple Five Group. The project is expected to cost $4 billion and span 6.2 million square feet. Are there are any other high-profile projects generating a lot of attention in Central and South Florida?
Stimming: I can’t really talk about that one. I’ve heard about it, I’ve read about it. There are other projects, not to that large of a scale, but significant. For example, Dania Pointe, which is a Kimco project in Dania Beach. It is pretty well preleased, its buildings are going up and it’s being done in phases. But that’s 1 million square feet of retail, some office space and a hotel. They’ve got the first phase 95 percent preleased.
The other one that’s generating a lot of talk is Seritage Growth Properties’ redevelopment of the Sears at Aventura Mall. Some 300,000 square feet of luxury retail will supposedly be attached to the mall, which is already a monster. Seritage is also doing a similar redevelopment of the Sears in Town Center at Boca Raton. Down here those are the ones that are talked about most.
REBO: How long have you been in South Florida?
Stimming: I was born in South Florida, so I’ve been here all my life. But in retail, in this business, 17 years.
REBO: Which segments of retail (grocery-anchored shopping centers, stand-alone drugstores, open-air centers, malls, etc.) are benefitting most by the large influx of population into South Florida?
Stimming: All of the above. Assuming that the influx in population is across the spectrum of incomes and socioeconomic stratus, high-end will go to high-end malls, and everyone is going to need their prescription drugs, everyone needs to get their groceries. So they are all pretty much benefitting.
REBO: What’s driving the increase in boutique fitness retailers within shopping centers? What tenants like to locate near boutique fitness concepts?
Stimming: That trend is a result of landlords trying to get a tenant mix that’s a little bit more internet-proof, a little bit more service-oriented. You can’t have an entire shopping center strictly of just soft goods and dry retail anymore because those are the tenants that are getting pummeled by Amazon and other online retailers. You still have brick-and-mortar [stores] that do well if they are providing a good experience. But in addition to that, you need to have other things that can’t be purchased on the internet such as fitness and entertainment and those types of things. Fitness is filling that smaller gap, the 2,000 to 3,000 square feet. Those are some vacancies that you have, and boutique fitness is a fix.
REBO: Where are we at in the boutique fitness cycle?
Stimming: It’s been a couple of years in the making. It started with the big mega-gyms like LA Fitness and 24 Hour Fitness, then you had the 10,000- to 15,000-square-foot discount niche, which was the UFit and the Planet Fitness. And now you’re seeing an even smaller segment, which is the cycling, pilates, kickboxing, Crossfit, boot camp, etc. It might be too soon to tell whether these will sustain long term, but for the most part, people are really enjoying a little bit more of a personal experience. We’re not at the end, but we’re certainly not at the beginning. We’re maybe reaching the peak, and we’ll see. A lot of the opportunities have been absorbed, so you’re going to have to start going out into less dense markets to grow those concepts.
REBO: You represent a number of institutional-type landlords such as Barings Real Estate Advisors, Regency Centers and American Real Estate Advisors. Which type of retailers are these institutional owners pursuing aggressively today and why? Any noteworthy trends?
Stimming: I don’t want to say it’s a trend specific to institutional owners. Across the board, landlords are just trying to look for the right mix of a good concept, good financials and experience. That can mean a national tenant, but that can also just mean a strong local retailer with five to seven locations that knows what its doing. You’re just trying to hedge your risk a little bit, being a little more picky about doing start-up deals with inexperienced mom-and-pops.
REBO: You’ve been in the business 17 years, and there’s always risk for shopping center owners. Is today’s retail landscape fraught with any greater risks than when you first got into the business?
Stimming: From a landlord perspective, you’ve got to feel that it’s a little bit more risky. Again, South Florida is unique. It’s so insulated because we don’t have a lot of land to develop and we’ve got a tremendous influx of population. There’s still room to grow more retail and have positive absorption.
Still, as a landlord, generally you’ve got to feel a little more risk in developing a new project and knowing if it’s going to get preleased or not, simply because of the effects of the internet and e-commerce. You really have to get the right mix of tenants that you hope are going to have longevity and hedge against that e-commerce threat. In that regard, that risk is certainly unique compared with when I first started in the business.
REBO: Speaking of e-commerce, eyeglass retailer Warby Parker is now building brick-and-mortar stores. Has online come full circle — where you have the online folks moving into brick-and-mortar stores?
Stimming: What you’re seeing is brick-and-mortar tenants realizing — if they didn’t before — that if they don’t have an internet presence they’re not going to survive. They’re not going to compete. Now what you’re seeing is the pendulum swinging the opposite way, where e-commerce retailers are realizing that online doesn’t do it alone either. Sometimes people want a location where they can go in and touch and feel. The savviest of retailers are going to have omnichannel ways of reaching the customer.
REBO: Do you think the press makes too much about the threat of e-commerce?
Stimming: It’s a reality. I don’t think we’re obsessing too much about it. We’re pointing out the obvious. This is why Sears isn’t around anymore. This is why Toys ‘R’ Us isn’t around anymore. It’s a couple of things. It’s e-commerce, it’s the ability to find the same product cheaper online, but it’s also that these tenants didn’t do anything to make their stores inviting or evolve to new tastes. You have to be able to like the experience of shopping in order not to just go and order it online through Amazon.
REBO: In your own shopping habits, do you find yourself doing a lot online today?
Stimming: It’s a mix. I’m an Amazon Prime member, so I do ship a lot of things to the house. But I haven’t crossed over in terms of groceries. I’m not the online grocery shopper. I still like to try on my clothes before I buy them. But the hard goods that I can order that I’m not that particular about, I can happily order online.
REBO: Are there any retailers in South Florida that are hitting it out of the park? Any that have surprised you and taken the market by storm?
Stimming: I guess Aldi would be an example. I didn’t know how Aldi would be received, not having known what it was about initially. Aldi works because it’s purely about price. People love to go in there and see the kind of deals they can get. Aldi has brands of its own, but it also has name brands that you can get for a lot cheaper than at Publix. For them, it’s price-driven. That customer really appreciates the value that they’re getting when they’re shopping there.
— Matt Valley and Camren Skelton