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Due to space constraints, the 2009 Chicago Roundtable was printed in edited form in the October issues of Shopping Center Business and Heartland Real Estate Business. The following is Part Two of the complete transcript.

Shopping Center Business recently held a Chicago Retail Roundtable hosted by law firm Levenfeld Pearlstein. Despite a lackluster year for retail, turnout at the roundtable was robust and the discussion was again lively, offering a snapshot of activity within the market and a view of general industry trends. In attendance this year were: Adam Secher, Baum Realty Group; Peter Eisenberg, Clark Street Development; Peter Caruso, Intercontinental Real Estate & Development; Lew Kornberg, Jones Lang LaSalle; Marlon Stone, Katz & Associates; Richard Kahan, KB Real Estate; Marc Joseph, Brian Kozminski and Keith Ross, Levenfeld Pearlstein; Terry McCollom, McCollom Realty, Ltd.; Ben Wineman, Mid-America Asset Management; Jim Schutter, Newmark Knight Frank; Robert Rowe, Sierra Realty Advisors; Marc Siegel, SJS Realty Services; Ryan Murphy; SRS Real Estate Partners; Tim Thanasouras, Thanasouras Commercial Properties; Aaron Gadiel and Jonathan Payne, The Jaffe Companies; James Turner, The PrivateBank; Sy Taxman, The Taxman Corporation; Richard Dube, Tri-Land Properties; Glen Todd, U.S. Cellular; and Camille Julmy, U.S. Equities.

SCB: Rob [Rowe], you are working with one of the biggest needs-based retailers who is making a push into Chicago.
Rowe: CVS is making a push here. Right now, CVS has targeted corners that we’re going after. We are about to close on one [site] that CVS has been looking at for 10 years. They are realizing that some of the locations are chances of a lifetime. CVS is trying to make deals. They scrutinize things a lot. They are one of the best credit tenants out there who’s making deals now. They try to buy more than do ground leases as they did in the past. That change was driven by the change in the net-lease sales market. To keep the coffers filled, they would rather do purchases. The main targets are the urban areas; the dense areas where the people are. We have a site in Bucktown we never would have gotten before. There would have been five banks going for these corners before. They are out of the market. We are doing deals in the sticks, and we are land banking because we’re buying at a discount. Another client who is very active is Export Fitness. They have a new model they call their Express model. This is 10,000 to 12,000 square feet. We’re going into some of the areas where the population isn’t enough to do a 45,000-square-foot club. The payback is quick because they don’t have to put as much money, and the landlord contributes. They are inexpensive entertainment. It is a bar without booze. They are taking a lot of box space. The biggest challenge I have today is co-tenancy. Some retailers are restricting health clubs.

Kahan: Using the health club as an example, there are very few businesses that are bringing the same customer back to the same location two to five times a week. They are also active early morning to late at night.

Todd: Parking is one of the most sensitive issues to a retailer’s business. We have centers that we are going to leave because the owner doesn’t have enough parking. If you are an older center with a huge parking field, that is great, but newer centers have the smallest parking lot they can. That will put you out of business faster than anything else. We have walked away from a lot of deals that we wanted to make because we were afraid the parking would kill us. It is a problem we can’t fix once we are in place.

SCB: As a retailer, how do you see the economic climate in general?
Todd: I’ll give you the corporate perspective. Perception is a huge thing right now. I have a lot more people touching our deals. The perception is that we are going to get rent reductions on every new and renewal deal we make right now. I have someone a few levels above me measuring my ability to make lower rent deals today than I made a few years ago. That’s part of our approval process. You’ll see deals are getting slower because everyone is being more cautious about the decisions that we’re making. I am doing renewals where I can’t get a rent reduction, but instead of taking a 5-year option I will take 3 years. A friend of mine also works for a publicly traded retailer. It was recently publicized that they had over 500 stores in the chain where half the stores have leases that are expiring in less than a year. I called him and asked him how he could possibly manage this. He said it wasn’t accurate; that they had a lot of kick-outs in the deals, and they never give the leases up. He would just call the landlord and modify the leases. Half of his chain can say goodbye to anything at anytime. It is a priority of their concept – no lease liability.

SCB: As a retailer, do you see any issues with landlords?
Todd: I can’t tell you how many landlords I’ve seen where, when they lose a tenant or two, they can’t maintain the center anymore. We were in 10 properties owned by a TIC manager that went bankrupt. When the parking lot lights don’t go on anymore or the water doesn’t work, our salespeople call us. These issues accumulate, so it becomes a topic.

SCB: Do you see the glass as half full?
Todd: Absolutely. We are actually up this year a little bit. We have some markets that are not so good, but we have others that are well. We are still postured to look at opportunities that we can take advantage of right now.

SCB: John [May], how are buyers looking at the retailers in the properties that you are selling?
May: Buyers are looking at [retailers’] credit, but they are also looking at rent levels. Whether it is a small center or a large center, it doesn’t matter. The people at this table that did such a good job negotiating those $35 to $50 per square foot small shop rents — the investors are marking those down, even if the tenant is in there doing well. If you look at the junior box anchors, those rents were approaching $18 per square foot a few years ago. The most recent deals are being done in the single digits with big landlord contributions. As investors look at these assets, they are not accepting the rent roll as something they can count on for the next 10 years. They are looking at every parameter in the rent roll. The second item they are looking at is the capital stack. The retailers drive the financial side, but now we are going to see the financial side drive the retail side. Grocery-anchored centers were trading at low 6 cap rates 3 years ago. Now, they are at 10 cap rates. We just did the largest transaction in the Midwest, and we were right at a 10. This was a 6 cap asset in years past. Also, the financing world has changed. You can’t get 80 percent interest-only financing or non-recourse financing unless you are coming with a very high equity stake.

SCB: James [Turner], what are the equity requirements today?
Turner: I’m hearing a lot of things that are affecting the rates. If you want me to be at an 80 percent LTV ratio, I’m fine; let me trend down your pro-forma rents by 30 percent per year and then apply a 10 cap. You’ll get 80 percent on that value.

Taxman: I’ve closed a loan in the

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