Wednesday, January 16, 2008

Said it before,

and I'll say it again. I'm willing to bet a cup of coffee that Karp & Co. present no significant plans for the Waterside West site this year.

I just don't see how any plans can go forward with a soft real estate market locally, relatively weak consumer confidence and a retail development tailing off nationally. (Did anyone notice that 3BR "luxury" condo selling for $399,000 in the Daily News?)

A reader kindly directed us to this recent article in the Jan. 9 Wall Street Journal, "Housing Drop Saps Retail Landlords' Strength."

The gist:

Sparked by the housing boom across the country, shopping-center and mall developers have gone on a tear in recent years, delivering millions of square feet of new space in Phoenix, San Antonio, Cleveland, Tampa, Fla., and numerous other markets. Since 2005, developers in the U.S. have produced more retail space than office space, rental apartments, warehouse space or any other commercial real estate category.

But just as that new space is hitting the market, demand is declining. Mounting home foreclosures have sapped the strength of previously hot markets like Phoenix and California's Inland Empire near Los Angeles, leaving retail-property owners with rising vacancies and slower leasing rates for new space. And anemic sales gains in the just-completed holiday season fell short even of the retail industry's tepid preseason forecast.


For those of you concerned about chain stores willing to take losses on local stores to preserve a hold or monopoly on the larger market, this article suggests that isn't necessarily a case.

Analysts expect that more bankruptcies and liquidations of second-tier retailers are likely this year. Some retailers, such as Talbots Inc., are closing weak stores. Projected retail demand will justify only 43% of the new space delivered this year and last, predicts market-research firm Property & Portfolio Research Inc.


Note, I have NO idea how our local Talbots is going. Well, I hope.

More from the article:

Retail development is "basically at a three-year high," says Steven Marks, chief of research on real estate investment trusts at Fitch Ratings Inc. "And that three-year high is at a point in the economic cycle where it's probably not the best time to be developing right now."

If consumer spending falls off much more, the retail-property market faces a bloodbath, some say. "In a recessionary scenario, retail gets killed, absolutely killed," says Suzanne Mulvee, senior economist at Property & Portfolio Research.

If the market holds steady, current trends will still translate into varying degrees of stress for owners of retail property. Most of the country's largest malls are owned by huge public companies that are financially equipped to survive a downturn, but the stocks of many of them are trading near their 52-week lows.

And smaller owners that bought or developed property at the top of the market expecting high occupancy and high rents may face problems with their lenders. Some are already scrapping or delaying projects that are scheduled to be delivered this year.


If you're skimming, take a moment to reread the last graph. For those keeping track at home, Karp bought the bulk of his Port properties in 2005, the top of the market.

Perhaps I'm wrong, but a cup of coffee says I'm not.

2 comments:

Anonymous said...

I know nothing specific but if they start at least one phase this year it will be 2-3 years before properties are on the market and by then the recession will be over. Also their financing will be at lower interest rates locking in now.

Tom Salemi said...

Will the recession be over? Didn't realize it had officially started.

I agree timing is everything and the best time to buy is when everyone else is selling.

But so much of this speculative. I still think they wait a year to commit to anything big.

We'll just see more incremental development like the marina, which is a whole other post.

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