One of the largest retail landlords in the country, Benderson Development, sees some economic recovery signs in parts of the Gulf Coast. Others in the beat-down industry hope the trend grows.
Business. Benderson Development, Manatee County
Industry. Commercial real estate, development
Key. Company has seen an uptick in leasing in the first half of 2010 compared to the past two years.
By the Numbers. Click here.
Commercial real estate landlords with vacant retail properties on the Gulf Coast might want to clone Bill Ekasala.
After all, Ekasala is a rare breed: He just spent nearly $500,000 to open a bakery and sandwich shop in the Cooper Creek strip mall, a mile west of Interstate 75 in Manatee County. Not many other entrepreneurs are taking chances like that these days.
“I know the economy is lousy, but I'm unable to retire,” says Ekasala, a restaurant veteran who opened his first place in Massachusetts in 1962. “I don't like to play golf and I don't fish too much.”
Instead, Ekasala is one of several examples of what Benderson Development is doing to survive the recession. The company, with a Manatee County corporate headquarters in the same plaza as Ekasala's John Dough Bakery, has had to jostle for new business in the face of the economic downturn — much like its competitors in the retail sector of commercial real estate.
Vacancy statistics for Gulf Coast retail properties reveal the crux of the issue.
For example, the retail vacancy rate in the Tampa-St. Petersburg market has increased four consecutive quarters, reports CoStar Group, an industry research firm. The rate crept up from 6.6% in the second quarter last year to 7.7% at the end of the 2010 first quarter.
The increase mirrors the rise in retail vacancies in Charlotte, Collier and Lee counties, according to CoStar. That region has jumped from an 8.2% vacancy rate at the end of the 2009 second quarter to 10.3% by the end of the first quarter in 2010.
Benderson, however, has some good news on the leasing front. For example, the past six months have been some of the company's best since the onset of the recession at the end of 2007, says Mark Chait, director of Florida leasing for the firm. “We have noticed a serious uptick in leasing interest as well as actual deals getting done,” says Chait.
In addition to Ekasala's 3,200-square-foot bakery, Benderson recently closed lease deals with two national retailers for its University Town Center, across University Parkway from Cooper Creek. One, Stein Mart, plans to occupy a 30,000-square-foot store, while the other, Petco, will take a 15,000-square-foot location. The stores are expected to open later this summer.
Chait declines to discuss annual revenues for Benderson, one of the largest commercial developers and landlords in the country in terms of properties. The company, founded in 1950 in Buffalo, N.Y. by family patriarch Nathan Benderson, holds a portfolio of more than 40 million square feet of commercial space spread through nearly 40 states.
Still, despite its size and scope, Chait says entrepreneurs like Ekasala are the centerpiece of the recession-survival strategy at Benderson.
In general, the focus is to find potential tenants, be it local businesses or national chains, that have the fortitude and guts to handle the recession. The potential economic issues to arise from the Deepwater Horizon oil spill only make finding that sort of tenant that much more difficult.
“We have reacted to the recession by working a lot harder,” says Chait. “We just have to dig deeper to get a deal done now.”
That's not much different than what many other Gulf Coast commercial real estate landlords and developers have to do nowadays to generate lease activity.
But the recent uptick at Benderson doesn't seem to have spread along the Gulf Coast.
“There aren't particularly too many good things happening right now,” says Mitchell Rice, whose Tampa-based RMC Property Group has a leasing and development portfolio of more than 50 shopping centers worth more than $500 million.
Like Chait, Rice says for the first time in what seems like a long time, he and his staff are getting calls to national retailers returned. The firm has even been able to set up some initial in-person meetings.
“But there isn't a whole lot of leasing deals,” says Rice. “The floodgates still haven't opened.”
The same goes for several shopping centers in Lee County, where Karen Johnson-Crowther, director of retail for Colliers Arnold in Fort Myers, says a projected bump in summer leasing activity never materialized. Johnson-Crowther says the summer is when tenants tend to move around, to get ready for fall and winter.
“This is when we should be seeing more leasing activity than normal,” says Johnson-Crowther. “And I'm not seeing it.”
Sue Ault, with Sarasota-based Ault Realty Advisors, also once thought 2010 was going to be a solid improvement over the past 18 months.
But the oil spill and its aftershocks — real or perceived — sunk those hopes. “It's a large challenge and an unfortunate situation,” says Ault. “[The spill] has added to an already serious downturn in commercial real estate.”
Ault, who works for tenants and developers in several Florida markets, says her best advice for struggling landlords is to copy what residential real estate brokers have done: Get lease rates in line with market realities, much like home sellers have to do in a market saturated with foreclosures and short sales.
Says Ault: “They can't be greedy about rent.”
Location still key
Despite the adversity, the market isn't totally devoid of opportunities.
Agents at RMC, for example, say there has been interest from recession-resistant chains like AutoZone and the Dollar Tree. Benderson has capitalized on that segment of the retail market, with a Dollar Tree and a Marshalls among the new stores it has signed up for properties on University Parkway in Manatee County.
Chait and a few commercial real estate brokers familiar with Benderson say a combination of factors has led to the firm's recent success in a difficult environment.
Flexible lease rates, partially made possible by having a massive portfolio, is one factor. Another factor is most of Benderson's properties are high-end, which is what helps draw potential tenants in a downturn, some brokers say.
Yet another big reason for the company's recent success surely has a lot to do with an old real estate truism, the one where location trumps everything else.
The mile or so on University Parkway where Benderson controls more than 500 acres of commercial property that surround its corporate headquarters is a perfect example. Those shopping centers are a few miles from Lakewood Ranch, one of the region's largest master-planned communities, with 7,000 homes and more than 15,000 people.
“This is an area still underserved by retail,” says Chait. “It has good population demographics and good income levels.”
The company nonetheless has some distinct challenges to overcome in the area. For instance, the Circuit City building that anchors the south end of Cooper Creek and fronts University Parkway has been vacant since soon after the electronic retailer filed for bankruptcy in late 2008.
And across the street from Cooper Creek sits one of Benderson's most discernible victims of the recession: Nearly 300 acres for what was supposed to be a 900,000-square-foot regional mega-mall anchored by Nordstrom, Neiman Marcus and Macy's. The land has sat idle since Benderson shelved the project in December 2008.
While a rebirth for the mall project isn't imminent, Chait holds a modicum of optimism.
“We are starting to work on plans for that again,” says Chait. “We hope to move forward on it in the near-term.”