In the retail world of Commercial Real Estate, what was big and fat is now being honed down in size, shape, color and message.

For most of my career retail centers, gerenally speaking, all looked the same. All shopping malls have been essentially the same and all open air centers were all the same. Town centers…same! Strip centers…yep, same! With few exceptions, there existed little or differentiation in the marketing or the appeal. With the exception of Outlets and higher end centers, retail has been essentiall the same, tame and lame story.

Design is free when you get to scale. The riskiest thing you can do now is be safe…safe is risky. — Seth Godin

One of the most important ingredients in retail today is the ability of a location to “stand out” as a unique place that delivers a constant stream of products that are remarkable and irresistible to “unique” people and groups. Emphasis on “REMARKABLE” and emphasis on “UNIQUE.”

Listen to Seth Godin from TED on the topic of standing out.

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.

There has been a lot of talk about pent-up demand, cash on the side lines and investors in the wings. So far we have not seen the long awaited collision of reduced prices and pent-up demand.

We travel down the road, wearied and parched, as months go by without our seeing a passing vehicle.

Small and intermediate investors, those most strapped for cash reserves, are running low on fuel waiting for the collision of buying power with what they fear is their last price adjustment they dare make before the notes are called and new refinancing is required. The NOI isn’t there, neither are the tenants or the buyers.

The good news is that we are seeing the dust of approaching vehicles just over the hill. There is the noise of oncoming traffic.

Those of us in the Northern Arizona commercial market are seeing a measurable increase in traffic. We are seeing more tenants, slight increases in rental rates and in general more activity on the retail and industrial fronts.

Although we are not yet ready to pop the corks on the Champaign bottles, we are least sipping some cheap wine in anticipation that perhaps 2011 will bring the collision between lower rates and pent up demand.

Barring any overreaching government intervention and further reluctance of lenders, I am now finally ready to at least acknowledge the prohibited collision is predictably logical.

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.

Now, some nearly 25 years hence, I truly do recognize the importance of “sorting” and the notion of elimination has become more and more a part of representing my commercial real estate clients effectively.

Of late, and driven by market conditions, there has emerged a new brand of bottom-feeding. It’s a concept I call “LOI Shopping” or, maybe “Networking the Deal” for better terms.

There is no doubt in my mind that this carp-like behavior among prospective tenants is a product of too much inventory and the desire of often marginal tenants to continue their vain attempts to shrink or even collapse the pricing envelope.

Mind you, there is no orchestrated conspiracy here; just a glut of inventory and an every expanding population of weak tenants who think if they shake the tree hard enough fruit will fall to the ground.

Well, I am mad as hell and not going to take it anymore! I am implementing new measures to expose and terminate the pretenders…these fakes and would be tenant hypocrites who are representing themselves to my clients as so much more than they really are.

Although I am not ready to strap on a six shooter like Richard Boone did in “Have Gun Will Travel,” and ride into some western town on a mission of settling scores, I am ready for a serious revision of my qualifying language and the way I handle the “wanna be” candidate.

Sorting through Hypocrisy

Since we are using some Latin, let me throw in some Greek too. The work “hypocrite” is derived from the Greek noun “υποκριτής” meaning “one who wears two masks.” It’s the source of the theater icon that depicts “comedy and tragedy.”

I am ready to pull back a few masks and find out what is behind them. I’m ready for a lot less comedy, especially since no one is laughing. Then too, I am not especially fond of the tragedy angle either.

Masks don’t work well in the empirical world of commercial real estate. Masks are only suitable for the stage, where the emotions of an audience are supposed to be toyed with.

I’m going back to what Del Webb taught me as a highly skilled Sales Counselor…the principle of Terminatio Simulatio Velociter or, in plain English, TERMINATE THE PRETENDER QUICKLY.

You see, guys like Del Webb understood clearly the principled approach to professional representation. There are only two types of real estate investors or, in the case of Del E. Webb, home buyers; the ones that will and the ones that won’t…the ones that can and the ones that can’t…the ones that do and the ones that don’t.

Those that will are those than can and those that can are those that do. No mask, no pretense.

To the Webb organization, the deliberately implemented sorting process begins at the first business encounter (give name, get name, use name) and continues as an integral component of all the follows, culminating in securing loyalty, examination, agreement and execution.

For the foreseeable future, the market is going to continue to hammer us all, owners, tenants and brokers. Too many properties, too little time and too few truly qualified tenants and investors.

I’m going back to the principle of Terminatio Simulatio Velociter or, in plain English, TERMINATE THE PRETENDER QUICKLY.

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 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

Three suites are currently available and are priced at $9.50 per square foot, triple net with graduated annual rent incentives and half rents for qualified tenants. Download the flyer.

Owner is offering graduated lease rates with half-rent incentive for qualifying tenants. Download the flyer.

Watch the short video below to preview this property

For more information about this property, contact Donald Teel by email or, if you prefer by calling 928.777.8100. Visit CommercialWebPage.com. Download the flyer.

25,000 SF Retail - Prescott, Arizona

This is an excellent opportunity for an investor to acquire a value added, well located commercial investment property in Prescott, Arizona.

The existing lease is a new 10-year absolute NNN lease with increases and percentage rent and two five-year options to renew.

In addition, the property includes a 4,500 sf pad for retail expansion.

Property Description:
ASSUMABLE FINANCING. 5.75%, 27 year note, 15 years with option to renew at market rates. 8% CASH ON CASH. Single Tenant new 10-year Absolute NNN Lease with Escalations and Percentage Rents. 25,000 sf. Investor opportunity to acquire a well located, value-added asset with no landlord responsibilities. Includes a 4,500 sf Pad for additional expansion. Goodwill of Central Arizona is one of the largest and oldest nonprofits operating in the state of Arizona for more than 60 years.

Location Description:
Located within the Prescott Towne Center, a 53,000 sf retail center comprised of 3 buildings directly across from Village at the Boulders with Super Wal-Mart, Big Lots, Tuesday Morning, JoAnn’ s and Dollar Tree.

Prescott is located 90 miles NW of Phoenix with a mild 4 season climate resulting in a healthy growth rate. The Prescott MSA has a population base of approximately 100,000 and a trade area of approximately 165,000.

For more information about this property or any other commercial real estate investment opportunity in Prescott Arizona, email Mary Jo Kirk, CCIM or call me at 928.710.4045.