Given his background in business development, Fred Schmidt, president and chief operating officer of Coldwell Banker Commercial Affiliates, is accustomed to analyzing real estate trends over his 36 years in the industry.
Schmidt, who joined Madison, N.J.-based Coldwell Banker Commercial in 2003 as vice president of business development, is not nearly as surprised by the spate of retail store closures as some of his colleagues seem to be.
REBusinessOnline.com sat down with Schmidt at the International Council of Shopping Center’s RECon event in Las Vegas in late May. In addition to discussing his firm’s push into retail markets in major cities, Schmidt shared his insights on how to repurpose malls.
REBusinessOnline.com: Why are we seeing so many store closures and retail bankruptcies at this time?
Fred Schmidt: It’s not a new discussion. It’s common knowledge that Class A malls are doing very well and that the discounters — the top end and bottom end — have been doing well over the years. But there was a prediction four or five years ago that the Class B and C malls were going to suffer because they didn’t have the right merchandising. These changes are now manifesting themselves in terms of the closures because malls are losing anchor tenants.
Fred Schmidt, Coldwell Banker Commercial Affiliates
If you have a mall with a Macy’s, Sears, JCPenney — and I’m not just picking on those folks — there are going to be issues. The challenge and the opportunity will be in repurposing and taking a step back. A team that worked for me years ago was a mall assemblage group. When they were assembling land for a mall, it was a four- to six-year process to get it up and running. If you think about it, you’re planning a city. It’s 750,000 to 1 million square feet, so that’s like a downtown.
The same processes — maybe a little more accelerated — have to occur in reverse now. You’re taking the mall apart, repurposing it, anticipating the needs and the types of uses that have changed dramatically over the years and how to affect those changes in the community. It takes a public-private entrepreneurial development effort and intellectual capacity to figure out what to do with those properties.
REBO: Can you provide an example of a successful achievement of that process?
Schmidt: Yes, there was one in Irvine. Picture a traditional mall, like a fortress — all brick walls, cement walls, no glass or openings. It’s not inviting. But opening them up, having glass, food courts, grocery shopping, healthcare, gyms, entertainment —what we’ve been talking about, experiential real estate.
It’s creating the experience when you go there with the traditional retailing, but with a different kind of anchor tenant, a different mix. There are people that are adapting that, but it’s not a cheap item. A lot of these malls that are closing, particularly in the middle of the country will be somewhat challenged and unable to repurpose the way they would in Southern California where the demographics are so good. They may be repurposing them to healthcare, high-density residential, assisted living, retirement — all different kinds of uses go with that.
REBO: What has been the big surprise of the last six to 12 months in retail?
Schmidt: The thing that surprises me is that everyone is surprised about closures. You could see it coming if you’ve studied the business for a long time. It’s very predictable, very anticipated.
The opportunity exists in the public-private partnership. All the approvals, the adaptive reuse and the concepts that are very different than they were in the past require different professional skill sets and regulatory environments. These also need to be adapted to anticipate that change, and that takes a lot of time, effort and money.
There will be some pain in the process at the same time. The good news is that with all the coverage of this issue, people are aware that this change is hitting us and that we need to be able to adapt.
REBO: Do you think online shopping from millennials has accelerated mall closures?
Schmidt: Online is about 10 percent of total retail sales. Of that, it’s estimated that about one-half to two-thirds are brick-and-mortar stores that are using the online channel approach to retail. This moves the needle and has an impact.
It’s a generational thing though. The department stores that existed when I was younger — the ones that my mother and grandmother went to — don’t exist anymore for the most part. That’s because the way we purchase goods is different. You aren’t going to buy from your mother’s store.
The other side is that service levels aren’t the same. If you can’t get the service or you can’t find the goods, or a combination of both, then you’re probably going to buy online or seek alternatives that give you better service. So I think it’s a matter of where you are in your life, as well as the experience of that department store or those other stores.
REBO: In terms of experiential retail, do you think the food hall concept that we’re seeing in urban areas will continue to grow?
Schmidt: I do. The traditional mall or shopping center was an anchor department store. Now that tradition is gone. So I could see food court concepts, or a grocery store with a food court concept where they have different kiosks or separated areas tied into a center of some sort. The configurations are infinite — healthcare, gyms, that type of element — all those things that people want. It’s the classic live, work, play concept coming together, certainly in the urban zones, but also in the ex-urban and suburban areas.
REBO: What’s new with Coldwell Banker on the retail front?
Schmidt: Our footprint has always been strong in the secondary and tertiary markets. We’re growing in the primary markets. We do Harris polls (public opinion polls) on the retail and office sectors and their users, then study how that manifests itself in terms of space.
For instance, 75 percent of millennials have said they’d want to physically go into a store to shop for something, according to a recent Harris poll. The same applies to speaking to a broker for office space — 75 percent of the younger generation wants to have a face-to-face meeting. Everyone tends to stereotype, but when you look at the studies, those labels get turned on their heads. It’s actually more traditional; they want face-to-face interaction.
REBO: Where has the company opened new offices in recent years?
Schmidt: We’ve opened quite a few offices in the past year, mostly in the major markets. We’ve grown in New York City, Southern California, Cleveland and the suburban areas of Michigan. There’s been a lot of focus on the middle of the country. Traditionally, when you look at the United States, the Southeast and Southwest are where the demographics have been growing, so we’ve been expanding there for years.
REBO: What does the company want to accomplish in the near future?
Schmidt: For starters, closing more mergers and acquisitions. There’s still room for consolidation out there. We bring that entrepreneurial flexibility and spirit to the table. We’re not institutional, and we have that flexibility that a lot of larger organizations don’t have.
We’re in the human capital business. Our agents arrive in the morning and leave in the afternoon. The assets of our company are the people. So how you train them, how you take care of them — that culture is extremely important in this business.
REBO: Is the brokerage business still fairly fragmented?
Schmidt: Seventy percent of the market is unbranded or unlabeled. We’re in the other 30 percent. In terms of U.S. transactions, it’s still somewhat fragmented, and there’s an opportunity in that regard.
REBO: How would you describe the mood of the RECon show this year?
Schmidt: I’d say pretty optimistic, but not over the top. In our business, we’re literally agents of change, whether good or bad. Our job is to look ahead at the changes coming in the marketplace, learn to take advantage of them and adapt. The retail sector is going through a tremendous amount of market-driven, technological and demographic changes, which are actually going to create a lot of opportunities within the industry.
REBO: What impact has the Trump administration had on commercial real estate?
Schmidt: Without getting into the political side of it, there is no doubt that the industry feels that the regulatory regime has changed. That release of pressure has created a change and more optimism about getting things done and moving things through in terms of the regulatory environment.
Businesses in any political environment look for certainty. The less uncertainty they can have, the better off they’re going to be.
— Interview by Matt Valley, compiled by Camren Skelton