Situs Newswatch 11/10/2017

Situs at NCREIF Future of Retail Session
Situs Director Raymond Belliveau attended the NCREIF Fall Conference this week in Palm Beach, FL, along with other Situs leadership. The “Future of Retail” session was a highly anticipated panel, with commentary by Mark Roberts, Director Deutsche Asset Management; Margaret Harbaugh, Vice President, Morgan Stanley; and Naveen Jaggi, President, American JLL.

The panelists discussed how the increasing share of online commerce hangs heavy over brick-and-mortar stores, highlighting that about 12 percent of all retail is done online. Panelists agreed that brick-and-mortar stores need to integrate, rather than compete, with online merchants to be successful.

The discussion also covered the dramatic changes in consumer profile trends, noting that over the past few years following the Great Recession, an estimated 60 percent of all consumers have moved down from aspirational to budget shoppers. However, retail was facing pressure well before the Great Recession. Banks are also facing similar pressures, with 96,000 branch locations in the U.S. feeling the heat from the overwhelming push toward online and mobile banking.

In response to these trends, some retailers like Walgreens are taking a “back to basics” approach, adjusting from a 12,000-square-foot typical-sized store to a 4,000-6,000-square-foot store more focused on pharmacy business.

Other retailers are using “geofencing” to encourage increased foot traffic. “Geofencing” is an advertising strategy based on sending deal alerts or coupons to anyone with a smartphone in a specific location. Generally, these locations are set within the store; however, some are set up in a supplementary location. For instance, an athletic apparel store may set up a “geofence” at a nearby gym to attract customers likely to buy their products.

The most important element is the oldest pillar of retail. “Customer service is key,” says Belliveau. “Best Buy is alive because of their commitment to, and evolution, of customer service. HEB, a large-scale grocer in Texas, exemplified customer service by bringing trucks full of water and food to victims of Hurricane Harvey hit. Loyalty is a huge factor in a customer’s buying decision.”

Macy’s, Kohl’s Try Different Tacks to Grow in Era of E-Commerce
Department-store operator Macy’s Inc. focused on profit margins in the latest quarter, while Kohl’s Corp. sought to drive sales, as the retailers took different tacks in contending with the rise of e-commerce.

Kohl’s executives pointed to a strong back-to-school season, leading to surprise growth in same-store sales for its third quarter. Macy’s executives, meanwhile, said they saw an increase in gross profit margin, thanks to efforts to control spending on inventory.

Shares of Macy’s were up 7.2% in Thursday morning trading as the company beat profit estimates, while Kohl’s slid 3.6% as it missed expectations.

Macy’s same-store sales — a metric that tracks sales at established locations that haven’t recently opened or closed — fell 4% in its third quarter, worse than the 2.8% fall analysts from Consensus Metrix had expected. Kohl’s said comparable sales rose 0.1%; analysts from Consensus Matrix had expected a 0.7% fall.

read more: NYT

U.S. Department Stores Tap Brakes on Stocking for Holiday Season
This holiday season, retailers are making a list, checking it twice, and then ordering less for U.S. shoppers.

With foot traffic at their stores in decline, department stores that would have stocked up for the biggest shopping season of the year months ago are still in the process of placing new orders, according to nearly a dozen sources including company officials, vendors who work with the retailers and consultants who advise such chains.

The strategy is aimed to keep their inventory costs down and avoid the experience of previous holiday seasons, when large piles of unsold stock led to deep markdowns that eroded profits. But these retailers risk losing sales if supplies run out at a time when many are struggling to keep up with Inc and a steady shift towards online shopping.

Macy’s Inc, J.C Penney Co. Inc., Kohl’s Corp., Nordstrom Inc., Dillard’s Inc. and Hudson Bay Co.’s Lord & Taylor are among the retailers buying in smaller batches with shorter lead times this year and relying on a more dynamic demand forecasting process than in the past, according to sources familiar with these companies’ practices.

Macy‘s, Kohl‘s, Nordstrom and J.C. Penney declined to comment. Lord & Taylor said it is working on preparing a carefully selected merchandise assortment for the holiday season but did not share anything specific. Dillard’s did not respond to a request for comment.

read more: Reuters

Colliers: Manhattan Office Rents Saw Biggest Decline in 3 Years
Manhattan office asking rents in October saw their biggest monthly decline in three years as prominent Plaza District landlords lowered pricing on some of the city’s ritziest trophy towers.

Average asking rents dropped 1.2 percent to $72.03 per square foot in October, according to Colliers International. That was the biggest monthly drop since May 2014.

Asking rents fell as landlords lowered pricing on some big blocks of available space in prominent buildings, such as Edward J. Minskoff’s 590 Madison Avenue and Sheldon Solow‘s 9 West 57th Street, one of the city’s most expensive office buildings, where rents can reach up to $200 per square foot.

Franklin Wallach, managing director of Colliers’ research group, said Solow lowered pricing by about $25 per square foot on a roughly 250,000-square-foot block of available space at 9 West 57th Street, the iconic Skidmore, Owings & Merrill building whose curved façade overlooks Central Park.

“It’s the first time in several years that I’ve heard of an adjustment in the asking rent there,” he said.

read more: The Real Deal

Infrastructure Spending Can Be Funded By Treasury Bonds, And Help Savers Too
There are several credit facilities within the U.S. Treasury that can be tapped to fund infrastructure spending, and one can be reshaped to provide income for savers.

Did you know that within the U.S. Treasury there is a little-used agency called the Federal Financing Bank, which was established by Congress in 1973? This agency was set up to raise money for public-private entities that offered a series of bonds to fund projects such as United States Postal Service Bonds, New Community Debentures, securities to fund the Tennessee Valley Authority and bonds to fund the Washington Metropolitan Area Transit Authority. There are projects all over the country, including the ravaged Puerto Rico and U.S. Virgin Islands, that can be funded using the Federal Financing Bank today.

At the end of September 2017, FFB holdings of obligations totaled $77.73 billion.

Do you remember “flower bonds?” These were U.S. Treasury Bonds issued with maturities of 30 to 40 years that carried coupon rates of 4.25% or lower to fund World War II. The last flower bond matured in May 1998. In the late-1970s and through the 1980s these bonds traded at deep discounts to par as bond yields moved significantly higher.

read more: Forbes

Drop in Mall Values Weighs Down Commercial Property Sector
Weakness in the mall sector dragged valuations lower across the entire commercial real estate market in October, according to a report by real estate research firm Green Street Advisors.

Green Street’s Commercial Property Price Index, which covers property owned by real estate investment trusts, declined 1% to 125.5 in October from September, the sharpest month-over-month drop since the financial crisis.

Commercial property prices generally have been trending higher since June 2009, when the Green Street index bottomed at 61.2, as an improving economy fueled demand and low interest rates made property yields attractive.

But valuations of many second-tier malls have been sliding in recent months as some retailers struggle to keep up with fast-changing consumer tastes and heightened competition from e-commerce.

Mall valuations fell 6% in value in October from a month earlier and by 11% in the past 12 months, according to Green Street’s index for that sector.

Values fell so dramatically because transaction volume has dried up at a time when REITs should be incentivized to sell assets, said Peter Rothemund, senior analyst at Green Street Advisors. Mall REIT shares have been trading below their net asset values, he said, a situation that normally prompts asset sales.

read more: WSJ

New Value Found in Banks’ Old-School Call Centers
Call centers conjure up old-tech images of phone operators in many people’s heads, but they are taking on a more sophisticated role with the rise of mobile banking.

Once primarily the handlers of everyday questions and routine transactions, call center representatives are now tackling the more difficult problems of consumers who have already done the easy work themselves on their smartphones.

“We’re answering more of the ‘How do I … ?’ questions,” said Jason Furer, site manager for customer care centers at PNC Financial Services Group in Pittsburgh. “We’ve seen an increase in the complexity of what folks are expecting us to do.”

As a result, some banks have made major investments in call-center software or raised the professional requirements for staffers who work there.

read more: American Banker


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