Chances are very few “mega-malls” will be built in the U.S. for at least the foreseeable future, thanks to Amazon and other online retailers.
It’s been three years since a major new super-sized shopping mall opened in the U.S.
The last mega-mall was built by Taubman in 2014 — the 862,000-square-foot University Town Center in Sarasota, FL.
What we will see are huge destination centers that include not only traditional retailers but entertainment as well. Triple Five, owner of the Mall of America, recently announced the finalization of financing for the American Dream Center in the Meadowlands in New Jersey. That center will include a significant amount of retail but will also include destination entertainment venues including a theme park, an indoor ski and snowboard venue and other major attractions.
Further evidence of this, on a smaller scale, is the evolution of the Plymouth Meeting Mall outside of Philadelphia, which, 10 years ago, was a traditional mall. Over the past decade or so the owners have added a Dave and Busters, numerous restaurants and a Legoland Discovery Center. These additions should serve to draw foot traffic in the mall that traditional anchor stores cannot.
The Wall Street Journal reports the upscale mall in Sarasota is doing well, not because of anchor stores, but instead thanks to strong tenants such as Apple and Tesla Motors, which are reliable traffic generators. Taubman Centers, which doesn’t publish sales numbers for individual malls, said the sales per square foot there is comparable with the average of its entire portfolio, which was around $776 for the year ending in March.
“Retail real estate is not down for the count — it’s catching its breath and adapting to a rapid pace of change as it always has,” says Situs RERC President Ken Riggs. “The number of neighborhood shopping centers and strip centers has jumped by 2,303 since 2010. These centers typically offer a narrower range of goods and feature tenants such as grocery stores, laundromats and other necessity-based services that cater to nearby residents. “
But the appetite for building enclosed malls of more than 800,000 square feet has dried up.
Department stores — once dependable foot-traffic generators — are closing locations amid stiff competition from off-price retailers and the growth of online shopping.
“Retail is not dead, but it is changing fast,” says Situs’ Riggs. “Stores today need to provide an experience. If retailers aren’t quick enough, willing or able to adapt their business models to a consumer-driven world that is changing every minute, they are bound to fail.”
As of the current quarter, there were 612 so-called super-regional malls, which typically have a gross floor area of 800,000 square feet or more, only two more than there were in 2010.
The times they are a changin’ as more and more people flock to the web to buy everything from clothing to electronics to foods and even dinner.
Outlet Malls are the Latest Victims of Retail Problems
Et tu, outlet malls?
After years of being seemingly insulated from the ills affecting department stores, the country’s 200-plus outlet malls are starting to show signs of strain.
Tanger Factory Outlet Centers, which owns 43 centers in 22 states and is the largest publicly traded pure-play outlet operator in the US, is throwing off some warning signs,.
The Greensboro, NC, company, seen as a bellwether for the sector, is not planning any outlet openings for 2018, one industry watcher said — noting it was the first time in recent memory that no new opening has occurred.
Tanger used to lead all outlet centers in drawing consumers but now, like all centers, is seeing only a modest increase in shoppers, according to RS Metrics, which uses satellites to monitor cars in scores of shopping centers.
Many of the same shoppers who filled parking lots at these far-from-urban center outlets now see just as strong a value at off-pricers like T.J. Maxx or Nordstrom Rack, some said.
read more: NY Post
There Go the Bank Branches, Too
Major banks are betting on artificial intelligence (AI) to act like a digital personal assistant to customers, helping to automate money-making decisions, top CEOs in the sector told CNBC, amid the continued threat from new, more nimble entrants into the market.
“Really, people don’t like banking; it’s boring, it takes time, causes them stress, and people have bad financial habits,” Carlos Torres Vila, CEO of Spain’s BBVA, told CNBC in an interview at the Money 20/20 conference in Copenhagen earlier this week.
“What we can do is leverage data and AI to provide people with peace of mind, really having an almost magical experience that things in their financial life turn out the way they want it. It’s almost like a self-driving bank experience.”
BBVA is one of the big banks investing heavily in moves to digitize its operations, as customers come to expect more from mobile apps and the way they interact with lenders.
Mitsubishi UFJ Financial Group Inc. unveiled the 58-centimeter (23-inch) humanoid to improve services for customers in Japan and become the first bank in the world to use robots at branches, it said.
AI has been hailed as a technology that can impact a number of areas – from using data to make more informed decisions for customers to having robot assistants that could answer questions.
“AI is a very potent technology that we are applying in many areas. It will also sit in the interface with customers. The funny part is that sometimes you can see that the reliability of an answer of an AI-generated answer to the question of a customer is higher than of the very next person you get on the phone,” Wiebe Draijer, CEO of Rabobank, told CNBC earlier this week.
“We see AI as a solution to get more reliable insight, the right answer to the right question at the right time in support of the person sitting in a call center or in the branch. And so AI is extremely potent and we are going to see a revolution in how it’s applied already.”
According to a survey of 600 bankers by Accenture, 76 percent think that in the next three years, the majority of banking organizations will deploy AI interfaces as their primary point for interacting with customers.
But the promise of AI also threatens the existence of bank branches. At the same time, a plethora of challenger banks from the likes of N26 to Monzo, which are app-only, have appeared, also posing a threat to traditional institutions.
Banks are being attacked on several fronts, and face a potential “Kodak moment” by falling into irrelevance, according to former Barclays CEO Antony Jenkins, who now runs his own financial technology – or fintech – firm 10X.
read more: CNBC
Launch the Fireworks Again: Changing Credit Scores Benefit Mortgage, Housing Industries
Millions of Americans have another reason to celebrate again, a day after the Fourth of July.
The three nationwide consumer reporting companies, Equifax, Experian and TransUnion, have instituted new policies this week that have raised about 12 million consumers’ credit scores, and that should make it easier for them to qualify for mortgage loans.
The companies are now collecting more specific information about the public records that are included on credit reports, including bankruptcies, civil judgments and tax liens — which means consumers won’t be penalized as severely as they previously were for those black marks on their credit histories.
“This is a welcomed and needed change for millennials and first-time homebuyers that clearly will benefit the mortgage and housing industries,” says The Collingwood Group Chairman Tim Rood. “Small increases in consumers’ credit scores can push them into a higher credit category, from ‘fair’ to ‘good.’ Some lenders only lend to certain categories of consumers, so being included in the ‘good’ category could mean the difference for qualifying for mortgage loans,” says Rood.
According to VantageScore Solutions, which is the competitor to FICO and widely viewed as the industry innovator, if ALL liens and judgments are removed from consumer credit files, approximately 8 percent of the population could receive an average score increase of 11 points. In reality it is likely that while nearly all public records may be removed, only approximately half of all tax lien records could be removed so ultimately the impact is expected to be modest.
Another issue is that most models built prior to the changes are built to use these data. To get ahead of the data suppression, VantageScore recently introduced its fourth generation credit scoring models that is aligned with the changes and is in fact its its most predictive scoring model yet.
Collingwood Group Chairman Tim Rood talks about this and more tomorrow (Thursday) at 6:50 a.m. ET on Fox Business’ “Mornings with Maria.”
We invite you to tune in.
Amazon’s Whole Foods Deal Will Remake Strip Malls
The implications of Amazon’s $13.7-billion Whole Foods Market purchase will go significantly beyond the world of grocery stores, potentially reshaping retail districts in downtowns and suburban shopping areas across America.
Not long ago, the typical American strip mall had a video store, music store and a supermarket. However, Napster and iTunes slayed the neighborhood music store, Blockbuster’s 9,000 video stores were killed by Netflix, and now the local grocery store will get a makeover. It’s a change that will reimagine how we shop and create commercial real estate investment opportunities.
Amazon’s purchase of Whole Foods dramatically changes the $674-billion U.S. grocery market. On the day the deal was announced, competitors across the board — from Walmart and Costco to Kroger and Sprouts Farmers Market — lost a combined $22 billion of market value. That loss came because investors expect Amazon to utterly transform the grocery business.
What’s so scary about Amazon? It makes every business it competes with efficient, squeezing waste out of the supply chain and compressing margins for the entire industry. Now, Whole Foods’ 450 stores in 42 states will form the start of a nationwide distribution center for groceries that will build upon the Amazon Fresh grocery delivery unit, founded in 2007.
All Whole Foods’ stores won’t close, but they will change. Yes, customers will always want a neighborhood store for the touch, smell and feel of certain things — to pick up steaks for a dinner party, for fresh pastries and crisp lettuce. However, Amazon won’t stock high-priced downtown real estate with excessive amounts of paper towels and floor cleaning products, or even dry goods such as pasta or canned beans. The mass of these items will instead be stored and distributed from regional warehouse facilities, perhaps automatically shipped directly to customers using predictive models. As a result, the average size of a typical Whole Foods store most likely will shrink, as will the average grocery store across America.
Some supermarkets will stay the same, for people who don’t like shopping online or prefer a trip to the store. Most competitors, however, will adapt to the Amazon model, shrinking their footprint and bolstering online capabilities to become more efficient and automated. Large grocers must now change their business model or go the way of the dinosaur.
This will create significant disruption in commercial real estate as countless supermarkets go out of business, others remodel to occupy a smaller footprint, and some move to new premises. We saw similar disruption after the 2008 financial crisis when thousands of car dealers across America went bankrupt as credit dried up and countless supermarkets closed as property prices crashed. A repeat of that dynamic in the grocery sector will be a significant opportunity for investors in distressed assets. At Northstar Commercial Partners, for example, after the crisis we bought five vacated Albertsons stores in Colorado for less than 10 percent of their replacement value. Each of these were repositioned into alternative uses at attractive prices.
Investing in such properties, when they become available, requires a creative approach to what could work in the space, whether it’s a single business or remodeling the space to create a series of smaller units. In the case of those Albertsons stores, for example, one is now occupied by an antique dealer, another by a college that wanted a neighborhood presence.
In the coming years, spaces now occupied by supermarkets will become children’s play centers, business incubators, leisure centers and even charter schools. Real estate developers and investors attuned to what will appeal to the local officials charged with revitalizing retail districts will find powerful investment opportunities. The properties vacated by the coming grocery transformation will be sold by real estate investment trusts that are overexposed to assets with declining cash flows, companies selling property to invest in operations, as well as by banks that will foreclose on unprofitable businesses.
read more: Entrepreneur
Wall Street Betting on Amazon Prime Day
Amazon Prime Day is coming — it’s just that nobody knows exactly when — and anticipation for the third annual promotional event is already building on Wall Street.
Amazon bills Prime Day as a one-day-only shopping event with thousands of discounts available only to its Prime members.
Prime Day was held on July 12 in 2016 and on July 15 in 2015, so one would expect Amazon is preparing to announce the date of this year’s e-commerce phenomenon sooner rather than later.
And that’s when investors expect a rally, according to a note from Deutsche Bank analyst Lloyd Walmsley.
In 2015, for example, Amazon shares outperformed the S&P 500 by 6 percentage points between the day that Jeff Bezos and his team made the first Prime Day announcement and Prime Day itself.
Walmsley called the last two events for Amazon a “resounding success” and noted that media reports have even suggested that this year Prime Day will last 30 hours, instead of 24.
“Amazon is requiring retailers to hold greater inventory on hand this year to serve throughout the 30 hours, which could boost sales,” Walmsley wrote.
read more: CNBC
Walmart Escalates War of Words with Amazon
Walmart is escalating its war of words with Amazon by sending veiled messages to the trucking companies that haul its merchandise from its distribution centers and stores, telling them if they do business with the Web giant it may not want to work with them, according to an industry expert.
“I know that Walmart has expressed its views to truckload carriers,” says transportation consultant Satish Jindel.
“Walmart would prefer to do business with carriers that are not doing business with Amazon” and are not “conflicted,” because it’s concerned about their ability to handle high volumes of deliveries during peak times, Jindel adds.
Walmart began having these conversations with carriers over the past 30 days or so, according to Jindel, who talked directly with those carriers and who also spoke at a logistics conference this week about the issue.
His comments were picked up by Deutsche Bank analyst Amit Mehrotra, who wrote a note about it, and by DC Velocity, a trade publication covering logistics.
“These developments, if true, are likely to have significant implications for U.S. transportation companies as Amazon and Walmart remain two of the largest users of truckload capacity,” Mehrotra wrote.
read more: MarketWatch
Buffett Bets on Banks
Warren Buffett’s Berkshire Hathaway Inc. plans to swap $5 billion of preferred stock in Bank of America Corp. for 700 million common shares, worth $17 billion.
Berkshire will exercise its warrants to buy common stock at a discounted rate of $7.14 a share when the Charlotte, North Carolina-based bank raises its per-share dividend to 12 cents, Berkshire said in a statement Friday. Buffett acquired the preferred shares through an investment in the lender six years ago.
The move, which will make Berkshire the bank’s biggest shareholder, is a fresh vote of confidence in Bank of America from one of the world’s savviest investors. It also was a sound move for Berkshire. Buffett laid out his thinking in a February letter to shareholders, saying that the decision would come down to simple math: The preferred investment pays $300 million a year in dividends, so it makes sense to convert that into common stock if those shares began earning more.
read more: Bloomberg
Fed’s Bullard says US Rate Hikes ‘Too Aggressive’ for Data
The U.S. Federal Reserve should defer on its rate hike agenda until concrete reforms emerge from Washington, according to one of its key policy makers.
James Bullard, president of the St. Louis Federal Reserve, told CNBC that weak data has undermined the Fed’s hawkish stance and the central bank should take a more reactionary approach if and when it sees solid signs of growth.
“The Fed can afford to wait and see what comes out of the political process,” said Bullard, who admitted he has retreated from his formerly more hawkish stance.
“Some of (President Donald Trump’s) policies can provide growth but they’ve got to get them through Congress,” he explained.
The Fed announced its most recent interest rate hike of 0.25 percentage points in June. However, it simultaneously admitted that it expects U.S. inflation to fall well short of its 2 percent target this year.
“The committee has been too hawkish for the data during the last 90 days or so,” said Bullard.
read more: CNBC
Feds Win Control Over one of Manhattan’s Hottest Properties
The federal government won a valuable prize in the war on terror Thursday — full ownership of one of Manhattan’s hottest properties: 650 Fifth Ave., where Nike just signed a 15-year lease worth an estimated $700 million.
The 36-story tower, worth an estimated $800 million, was awarded to the government after a Manhattan federal jury found that it was actually controlled by Iran in violation of US sanctions. Prosecutors have been fighting for the tower for nine long years. In 2013, they seized control of 40 percent of the office tower after proving that partial owner Assa Corp. was actually a front for Iran’s Bank Melli. A jury found that charitable group Alavi Foundation, which owned the remaining 60 percent of the tower, was managing the building on behalf of Iran.
read more: NY Post
Aetna to Move Corporate Headquarters to New York City
Health insurance giant Aetna will move its headquarters to Chelsea, Manhattan, from Hartford.
The firm will begin setting up shop at a 145,000-square-foot facility across the street from Chelsea Market, at 61 Ninth Ave., next year. The vacant site is currently a construction zone. The new building will not be Aetna’s first location in the city — the company already has offices in Harlem.
“New York City is a knowledge economy hub, and a driver of the innovations that will play a significant part in our ongoing transformation,” Aetna chairman and CEO Mark Bertolini said in a statement. “Many of the roles in our new office will be filled by innovators from the area’s deep talent pool, which will be an invaluable resource as we consider additional investments in the city going forward.” The city and state are providing Aetna a combined $34 million in tax breaks for the move, and the state’s economic development agency will invest $84 million to fit out the facility, according to a press release from the state.
read more: Politico
Manhattan Rents Back to Pre-recession Levels
A renter hoping to land a studio in Manhattan would need to earn a $100,000 salary in order to qualify for the average unit, according to a report that shows the speed of the rental market’s recovery since the Great Recession.
“Manhattan is a very resilient market,” said Gary Malin, head of Citi Habitats. “It’s a market people want to be in — will pay to be in — and that owners will continue to invest in.”
The report found that the rental market for Manhattan below 96th Street essentially went through three stages over the last decade: The Great Recession caused average rents to drop 8.8%, nearly doubled the vacancy rate and caused landlords to offer concessions for nearly half of all apartments. From 2009 to 2011 rents roared back, and vacancy fell to an all-time low. And since then apartment owners have seen steady growth, the report noted, with studios and one-bedrooms posting the largest gains.
“None of these periods take that long,” Malin said. “It might feel long when you’re in one of them, but they happen fairly quickly.”
That rapid recovery has led banks and developers to bet big on the borough. This year 5,844 new units are set to come online, more than double the amount that became available in 2007.
But another big shift in the landscape could temper future growth compared to previous years. Over the past decade, areas outside of core Manhattan, such as Brooklyn, Long Island City and now East Harlem, have become popular for new development because of their lower costs and have been pulling renters away as much of Manhattan has become pricier.
read more: Crain’s NY
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