In the world where being grunge is often applauded and rewarded, I remain convinced that being tacky is a cultural statement about one’s point of reference.

Is it just me or have you also noticed some of the creeping influences of grunge within the world of CRE?

Of late, I’m becoming more acutely aware of the relationship between cracked stucco, peeling paint, potholed parking lots, leaking roofs and the level of an owner’s commitment to creating and maintain property value through capital improvements and dedication to property management.

I See Ugly Properties

My recent observations of properties in the metro Phoenix, Arizona commercial real estate market have led me to the conclusion that something grungy is happening. Once pristine properties are now left to the elements. The same grunge is becoming more and more apparent in the Prescott, Flagstaff and Sedona, Arizona commercial real estate markets.

There appears to be a deliberate draw-down on capital commitments and property management. It’s obvious, it’s annoying and it most certainly can impact a commercial property’s actual and perceived value. Capital is tight and owners are hesitant to spend.

In a market with negligible, if any, appreciation, some owners are choosing to tighten their financial belts by commiting the unpardonable sin of withholding capital and maintenance improvements necessary to the value equation. Some of this is being forced on owners under the principle of too much property, too little capital.

More than ever, those scant investors who are looking to buy or exchange are digging deeply into the maintenance history of a targeted property and insisting that value adjustments be made for improvements during the initial 36-month their ownership window.

Tenant Perceptions & the Grunge Factor

Retention is now as important as leasing itself. The most clostly and devestating loss a property experiences is vacancy recovery. In fact, I’m finding that in some cases retention is the only path owners can take to sustain their already threatened values.

Grunge shrinks values and contributes to poor leasing and negative tenant retention rates.

• Grunge = concerned, nervous and even angry tenant.
• Grunge = lower lease price per square foot.
• Grunge = a position of weakness in the renewal process.
• Grunge = refinancing problems reflected in appraisals.
• Grunge = diminished public percention of a property.
• Grunge = all sorts of ugliness…that’s why it’s called “grunge.”

The tenant issues stemming from CRE Grunge are myriad and they create value objections on the front end of the leasing process as well as retention problems. When a property enters a cycle toward physical decline the market responds with like-kind perceptions.

Quality maintenance = perceived and actual value.

Retail tenants are more keenly aware of the relationship between quality properties, price per s.f., NNN charges and more importantly, in their minds, consumer traffic.

We can cheat on maintenance, but not for long. Tenants are shopping the market, constantly looking for an edge on cost, a better location, a cleaner look and an owner committed to upkeep.

Grunge may be a prevailing desease we have to live with during the overbuilt, under-capitalized commercial real estate market. But, rest assured, grunge eventually extracts its toll.

When Max Taylor and Company, LLC entered the market with its acquisition of Sun Bell Plaza, Bell Road was two lanes.

Sun Bell Plaza was the premiere gateway to Del Webb’s Sun City and there were few retail strip centers along the corridor, much less the now famed Arrowhead Mall with its renown mash-up of surrounding retail properties that make Bell Road a magnet for shoppers, Spring baseball and concert enthusiasts.

Sun Bell Plaza

Sun Bell Plaza, located at 94th Avenue and West Bell Road in Sun City, Arizona is an example of what I call a “Gateway Retail Center” as it straddles both sides of the main corridor (north and south) at the very entrance to Del Webb’s Sun City retirement community.

Gateway properties can be ideal retail property investments as alternatives to higher end, larger retail malls and prime frontage properties located in more dense retail corridors, such as West Bell Road.

Download the Sun Bell Plaza Flyer.

Local neighborhood retailers and some national brands, such as insurance companies prefer gateway properties not only for their typically more attractive pricing structures but also because they give a community an alternative retail opportunity on high traffic corridors.

However, gateway properties are not without their drawbacks; such as signage and traffic ingress and egress off main corridors like West Bell Road where the traffic moves in excess of 45 mph. Rapidly moving traffic can make access to a retail center more difficult, thus elevating the need for highly visible signage.

In the case of Sun Bell Plaza, there is a traffic light which creates a necessary stop-and-go scenario, improving exposure.

Then and Now

When Sun Bell Plaza was built West Bell Road was a sleeping two lane road connecting metro Phoenix with Sun City. That has all changed now and changes in traffic and retail density diminish the effective retail value of a gateway property and therefore, a more refined approach to marketing and leasing is called for.

Correctly positioned local tenant mix that targets residential users, competitive pricing, creative marketing and long term property value strategies can continue to make gateway retail centers valuable to local residents.

Download the Sun Bell Plaza Flyer.

While the overall commercial retail market continues to lag, gateway property owners can capitalize on this weakness by being more aggressive in competing for neighborhood tenants. Having better-than-market lease rates, incentives and a “cash flow” posture is the key to helping owners ride through this down cycle.

Sun Bell Plaza continues to perform because it is a true Gateway Retail Property with well balanced tenant mix that serves the needs of residents in Sun City, Arizona. But the surrounding market continues to redefine its place and function in the retail community.

As with all retail centers, the marketing factors that currently exist are in a constant state of flux. Redefining a gateway property’s position, retooling its performance and re-marketing it with a unique and contemporary message can be a key to success.

Download the Sun Bell Plaza Flyer.

It is a competitive and nervous leasing market and therefore, it is wise for owners to abandon the “one-size-fits-all” approach to leasing.

Lease program development requires a careful examination of the prospective tenant’s business needs and qualifications. Whether the commercial real estate market is Prescott, Arizona, Tucson, Arizona or Phoenix, Arizona, presenting lease options to a prospective tenant can work well because options are non-threatening and they empower.

It is entirely possible that some leases can be optioned to the tenant where street rate is actually exceeded in years 4-5 of an initial term. In a market filled with vacancies and tenants seeking the best value in exchange for their commitment, it makes sense to offer optional leasing programs, which empower the tenant (let me give you a hint, they already have the power) to exercise the power of choice.

Vacancies are increasing and owners are competing for a limited number of truly qualified tenants. The option approach is another opportunity for economic performance. It will be some time before we can say to tenants, “The rate is the rate…” and have them sign off with little resistance.

The International Council of Shopping Centers (ICSC), publishes a “Shopping Habits Report” in the first quarter following the end of a calendar year.

As a retail leasing specialist, I digested the entire 2009 report, subtitled, How the Recession has Impacted Consumer Shopping Habits, and discovered that indeed center owners need to be on top of the consumer game.

The “2009 Shopping Habits Report” contains invaluable information about the future consumer trends that will impact center owners, whether large or small in size.

You can read the report for yourself and draw your own conclusions. However, three things stuck out to me in the report:

• 58% of consumers believe their income will stay the same or become significantly less in 2010
• Most consumers have and will continue to throttle their discretionary spending through 2010
• Strip centers and “Lifestyle Centers” attract the highest frequency of repeat traffic

For those of you who are my clients, I want to briefly focus on the strip center/lifestyle traffic models, which run in the 70-75% repeat traffic level. In 2010 and 2011, my Company, is seizing on the concept of “life-styling” centers that have a higher than normal tenant mix by creating “Center Websites” that serve as a marketing destination point for Broker and tenant inquiries and present a center personality to the viewers.

I am working with clients to help them discover and communicate the flavor and theme of a center to prospective tenants via a unique center website. Village at the Boulders is an example of a “Center Website” that communicates lifestyle and quality of tenant mix. It’s hard work to create this themematic message but the end result is an organic marketing message that can serve the leasing needs, tenant needs and of course, the pride of belonging to the mix.

For owners who have nominal number of national brands or, none at all, the concept still has credibility to the leasing and promotional effort because local strip centers that serve small businesses, pizza outlets, exercise studios, coffee shops and an ethnic restaurant can create a local lifestyle image.

The sites also serve as the focal point for Broker-to-Broker dialogue. One of the most powerful features of the “Center Website” is its “PULL” or “SEPARATION” feature. Owners are looking for ways to differentiate their properties and this is but one way to do so.

The spending habits of consumers will continue to remain in flux until we see a restoration of confidence in the economy. In the meantime, I continue to ask my Owner/Clients to look at “out-of-the-box” models that can create more leasing opportunities and a higher consumer traffic count.

In addition, larger centers NEED and SHOULD create center marketing events that can draw large number of consumers to their centers in order to provide exposure and predisposition for repeat visits.

My team at Arizona Commercial is looking at marketing models that join the “Center Website” to tenant exposure, high traffic consumer events and thus create the old fashioned “Win-Win-Win” for owners, tenants and consumers.

“DOWNLOAD THE 2009 SHOPPING HABITS REPORT” and above all, read it and find ways to recreate your marketing approach for 2010-11.

One thing that will not work is sitting still.

The relevance of the piece was the central focus of creating consumer recognition and value…what else is new in the shopping center marketing game?

What captured my attention in the article was the renewed interest in utilizing events and promotions as a traffic magnet for center impressions in the minds of consumers, tenant recognition and of course, foot-traffic.

The perception of value in the minds of consumers goes beyond having access to a quality mix of retailers (my words) to what retail centers do to create value opportunities to consumers in the form of staged events…an old marketing concept now being resurrected.

Job fairs (relevant in these times), car shows, well-staged concerts (blues and jazz) and segmented events stretched over time that target shopper by product interest for moms, dads, singles, teens, seniors and other demographic groups are seeing a resurgence.

Farmers’ markets were the No. 1 event type that consumers both attended in the past and would like to see more of.” – ICSC shopper habit study

In my own marketing, I implemented retail center websites as a cost effective value proposition developers, owners and center marketing managers can use to provide existing tenants with additional exposure and promote retail center leasing opportunities.

By combining online exposure through Center Website/Blogs and annually staged events, centers can realize additional consumer traffic, predisposition, improvements in tenant satisfaction and new interest from new tenant prospects. There are few losers in this formula and such approaches can create the value proposition consumers seek.

At this time, magnetism seems to be the watch-word to traffic, value, revenue and satisfaction