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ICSC EXPERIENCES OPTIMISTIC OPENING DESPITE RISING INTEREST RATES

Walking the floor at yesterday’s ICSC Western Division Conference in San Diego, one gets a strong sense of industry-wide optimism as the economy continues to incrementally improve. Many more retailers are actively leasing, tons of new startups are in the market and some regions are even seeing an uptick in infill, ground-up development.

While the industry may not see the heyday that occurred before the Lehman Brothers’ collapse for some time, widely publicized low interest rates have generated large volumes of refinancing. This has resulted in a slow but steady sector growth of 4 percent to 5 percent over the past five years.

Of course, larger retail developers (many of which are REITs) realized a tremendous boon by refinancing portions of their portfolios at historically low interest rates.

In addition, the housing market’s rebound over the past 12 to 18 months, coupled with near-historically low interest rates, has driven some shop tenants back into the market.

As key indicators continue to point toward a cautious growth trajectory for housing – median home values are up and homebuilders are acquiring more land to develop – ICSC attendees have taken a positive outlook on the market.

Naturally, that outlook is tempered by the continuing uncertainty over the Fed’s desire to continue to purchase Treasuries and bonds. As a result, the housing market has slowed in the past couple months. New U.S. home purchases have dropped 13.4 percent in July, the biggest decrease in more than three years. Mortgage applications have also reached their lowest levels since October 2008, according to a Mortgage Bankers Association index.

All that said, with inflation in check and the unemployment rate expected to drop each year through 2016, Fed policymakers predict interest rates will not rise until 2015. And that’s surely cause for optimism!

— Gary Glick is a partner in the Los Angeles office of Cox Castle Nicholson.

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