Wednesday, May 26, 2010

ICSC RECon 2010

Net Lease Insider asked Patrick Nutt to contribute his analysis of the 2010 ICSC convention.

It is as follows:

In the weeks and months leading up to this years ICSC convention in Las Vegas, everyone I spoke with had uncertainty about the overall turnout and value in attending the conference this year. Well, as I sit in my office fresh off a 72 hour session of networking, deal making, and walking (lots and lots of walking), I can emphatically say that once again it was a great event and well worth attending. While we can all work effectively through the use of emails and phone calls, the opportunity to sit down face to face with clients and discuss existing business and future plans is always time well spent. I am still revisiting all the conversations I had and observations I made, but here’s a glimpse of what I took away from the show.


I heard various numbers mentioned from a variety of sources, but I would say that attendance was about even with last year, however activity was up. It seemed as though most attendees this year had pretty busy schedules and were discussing real activity that will occur over the next 12 months, rather than casually discussing hopes and plans like the 2009 version of RECon.

Prettiest girl at prom award goes to: Dollar General.

All aspects of the net lease world were feverishly talking about Dollar General and their aggressive expansion to include 600 new stores a year. We’ve seen merchant developers that formerly focused on power center and grocery anchored locations now shifting their resources toward building 20-60 new dollar general stores in the coming months. REITs and private funds alike are looking to this retailer to fill their need to place capital. This is purely a numbers game for all parties, as Dollar General needs to open these stores to keep Wall Street happy, merchant developers need volume to create efficiencies to make this a profitable program, and the institutions need this same volume and a pretty yield to make sense of acquiring assets generally priced in the $850k to $1.5M range. This could be a winning combination for all, but we’ll be keeping a watchful eye on this program to see if everyone can execute on these plans.

Biggest Question: What do I do with all this money?

That was basically the continuing theme from the institutional groups. With the rebound in the REIT sector, they are all flush with capital and need to put that money to work. They are paying their investors a return from the day they receive it, so money not spent is worse than accepting a slightly lower cap rate. With the lack of product on the market, acquisitions are in short supply and has everyone searching for quality assets. With the dead pipeline from the past few years, very little new development is coming out of the ground, forcing buyers to chase existing properties, but owners are repeating the same question…..if I sell today, what do I then do with the money??

Retailer Activity:

If you are a net lease player, the next 12-24 months should be exciting as the typical single tenant retailers were discussing new stores, relocating old locations, reasonable growth in strong markets, etc. For those in the shopping center, power center, or regional mall world, recovery is still a long ways off. The big box tenants are still waiting patiently for more signs of recovery in the global economy before moving forward with new locations. 2010 and 2011 will see the smaller retailers continue their slow growth plans, while big boxes will begin to move forward in 2012-2013…..that is if the economy and job markets continue to stabilize and improve.

Phrase least heard: “Distressed Properties”

What seemed like the mantra of the 2009 RECon was almost never brought up this year. Much of the capital raised over the past two years has yet to be deployed, and would-be vultures have accepted the reality that lenders and servicers simply don’t have the need or ability to flood the market with distressed assets. They have proven that they would prefer to work with existing borrowers and renegotiate the debt terms or extend maturities rather than take a greater loss by selling into a market filled with bottom feeders.

Overall, it was a good show with great activity from all participants. While we are still a long way from being out of the commercial real estate mess of the past several years, people in every aspect of the industry have learned a new reality for deal flow and real estate fundamentals. The industry is very different today than in previous years, the reckless have wrecked themselves, while the experienced and diligent have found a way to stay alive and do another deal.


  1. Jon, very informative feedback from your perspective! Did you hear any feedback on trending cap rates?

  2. Jon, your comment about the market not being flooded with distressed assets may be just a bit off. Wells Fargo and LNR Property Corporation are about to come to market with $2 billion combined of REO and distressed loans. This could have quite an impact indeed on the overall market.