ICSC Panelists Say Government Involvement is Key in Thwarting ‘Retail Apocalypse’

Cities like Nashville (pictured) are often heralded by retail developers for their business-friendly atmosphere. Developers say that city and local governments play a key role in helping retail real estate survive and thrive.

ATLANTA — Tim Keane, commissioner of planning and community with the City of Atlanta, didn’t mince words when it came to his thoughts on the government’s role with new retail development.

“Everyone in this room should have higher expectations for their cities and towns,” says Keane, addressing the crowd during the ICSC Southeast Conference & Deal Making event held at the Cobb Galleria Centre in Atlanta in mid-October.

The panel discussion, dubbed “Debunking the Retail Apocalypse,” centered on why retail isn’t a dying industry but one that is evolving on a daily basis. For as much discussion about how food and entertainment are helping change the dynamic for retail real estate, the panel agreed that a concerted effort between the public and private sectors is the only way the retail industry can truly adapt with the times.

Keane, who previously worked with the City of Charleston, says it’s the local government’s responsibility to allow developers to build the projects that people want.

“It’s crazy for developers to have to go through this gauntlet before they can build what everyone wants them to build,” said Keane, who was interrupted by an applause break.

Lacy Beasley, president and chief operating officer of Retail Strategies in Birmingham, says incentivizing developers is a sure-fire way to get deals to come to fruition. In Fort Payne, Ala., Retail Strategies backfilled a shuttered Kmart location with a Dollar Tree, Badcock Furniture, Dunham’s Sporting Goods and an outparcel with Applebee’s, thanks to the help of the city.

“That project had public participation and buy-in. The city offered incentives where new revenue generated was allocated back to the development in order to get the deal done,” says Beasley. “That project does about $10 million a year and employs 100 people, not bad for a town of 14,000 people in Alabama.”

The panelists included, from left, moderator Joel Murphy of New Market Properties; Stephen Lebovitz of CBL & Associates; Jeffrey Bayer of Bayer Properties; Lacy Beasley of Retail Strategies; Paul Xhajanka of Kroger; and the Tim Keane with City of Atlanta.

The panelists included, from left, moderator Joel Murphy of New Market Properties; Stephen Lebovitz of CBL & Associates; Jeffrey Bayer of Bayer Properties; Lacy Beasley of Retail Strategies; Paul Xhajanka of Kroger; and the Tim Keane with City of Atlanta.

In addition to incentives, the government can play a key role by also getting in on the action of developing physical space. Panelist Stephen Lebovitz, president and CEO of Chattanooga-based CBL & Associates, says that his firm is currently working with a municipality on a shopping center redevelopment. The city is developing a convention center and hotel on a former parking lot outside of the former department store, which he says will be a win-win situation for both parties.

“The city is stepping up in a lot of different ways,” says Lebovitz. “The city realized the benefit of developing near our mall because of the traffic we generate. Cities are bringing us ideas too about incorporating new uses in our projects, the whole dynamic has improved.”

Jeffrey Bayer, president and CEO of mixed-use development firm Bayer Properties, expressed his concern that his company’s headquarters city, Birmingham, may be left behind if it doesn’t begin cooperating with its surrounding municipalities.

“The result is low or stagnant job growth, and if we don’t start cooperating and planning, we’ll find ourselves in 25 years as a Southern city that simply cannot compete,” says Bayer. “Cites like Chattanooga and Nashville have done a phenomenal job growing because they planned in advance.”

A Changing Industry

The moderator, Joel Murphy, CEO and co-founder of New Market Properties LLC, started the panel with a statistic that debunks what he deemed a common misconception.

“Fact: pure-play internet sales account for 2.2 to 3 percent of all retail sales,” says Murphy. “Fiction: it accounts for 11 to 12 percent. If you ask people or read the paper, that’s usually what it says. Brick-and-mortar sales make up 87 percent of all retail sales, and the remaining is made up of shipping costs, mail-order sales like subscription drugs, e-commerce and brick-and-mortar online sales like Best Buy.”

Several panelists expressed concern that the general public’s misunderstanding of e-commerce’s role and the string of shuttered retailers this year have damaged the reputation of retail real estate. Beasley says that could trickle into consumer confidence, which directly affects investor interest.

Bayer says the shuttered stores were an evolutionary step for the industry. In the United States, retail square footage per capita is at 23.5, according to Cowen Research. The next closest country is Canada at 16.4, followed by the UK at 4.6 and France at 3.8.

“With fewer retail dollars and too much square footage, naturally you’re going to have a natural contraction of shopping center square footage,” says Bayer. “It’s not the apocalypse, it’s an evolutionary process that goes on from generation to generation.”

“Change is what happens in our industry,” added Paul Xhajanka, division real estate manager with The Kroger Co., who also worked for years with Wal-Mart Stores Inc. “It’s just another evolutionary point in our industry, and we will adapt and we will continue.”

— John Nelson

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