Shawn Massey, CCIM, SCLS

Weekly CRE and Retail Article Round Up – February 25th, 2013

I hope everyone is having a good week!
Why Local Commerce Will Be Larger Than E-Commerce For The Next Decade, An Analysis
Haag Brown Commercial Real Estate & Development
Commercial Real Estate Going Mobile and Fast in 2013
City of Memphis seeks new Fairgrounds development partner
Kissing Frogs, and Other Smart Growth Strategies
NAPICS ’13: Is ‘better pizza’ the next fast casual category?

From the desk of Al Taf
Survey details impact of payroll tax changes on retail
Feb 21, 2013 Washington, D.C. — Nearly three-quarters (73.3%) of consumers say their spending plans are taking a hit due to the recent payroll tax changes, according to NRF’s 2013 Tax Returns Survey conducted by BIGinsight.
When asked how the new federal tax laws have affected spending, saving or budgeting of their households, nearly six in 10 (58.2%) of those polled say their plans have been either somewhat or greatly impacted. Specifically, nearly half (45.7%) say they will spend less overall, and 35.6% will watch for sales more often.
Report: Google planning to open retail stores
Feb 19, 2013 New York — Google is planning to open freestanding retail stores in the United States, with the first flagship locations open in time for the 2013 holiday shopping season, according to a report by online site 9to5Google.

According to the report, Google wants to give consumers the opportunity not only to test out its existing branded products, but also the chance to see close up its upcoming technology, such as Google Glasses.
Consumer electronics lose sales power in 2012
Feb 19, 2013 PORT WASHINGTON — Despite a plethora of constantly changing products, the consumer technology industry saw its sales decline 2% in 2012, according to The NPD Group. This is on top of the less than 1% drop in 2011. Since 2010, consumer technology sales have declined by $4 billion.
The top five categories; notebooks, flat-panel TVs, smartphones, tablets, and desktop computers accounted for 53% of sales in 2012, up from 49% in 2011. Tablets and smartphones were the only two of the top five categories to post growth, and accounted for all the increase in revenue share among the top categories. The rate of revenue decline for PC products accelerated year- over-year as tablet sales started to erode the computer marketplace. TVs remained mired in a cycle of declining prices and weak volume as the strong momentum from the very large screen market was unable to offset stagnant demand.
comScore: M-commerce transactions account for 11% of e-commerce spending
Feb 15, 2013 Reston, Va. — Despite the backdrop of continued economic uncertainty, 2012 was a strong year for retail e-commerce, according to comScore’s “2013 U.S. Digital Future in Focus” report. Throughout the year, growth rates versus the prior year remained in the mid-teens to outpace growth at brick-and-mortar retail by a factor of approximately four times.
Total U.S. retail and travel-related e-commerce reached $289 billion in 2012, up 13% from the previous year, according to the report. While e-commerce continues to gain share from traditional retail, the first signs of mobile commerce affecting the digital commerce landscape are starting to emerge. In fourth quarter 2012, comScore estimates that m-commerce transactions (from both smartphones and tablets) now represent approximately 11% of corresponding e-commerce spending.
Consumer sentiment bounces back in February
Feb 15, 2013 Consumer sentiment rebounded solidly early in February after a disappointing showing the previous two months, according to a survey released Friday.
The monthly Thomson Reuters/University of Michigan consumer sentiment index rose to 76.3, up from 73.8 in January.
U.S. Retail Sales Rise 0.1 Percent After Tax Increase
Feb 14, 2013 WASHINGTON | Americans barely spent more last month at retail businesses and restaurants after higher taxes cut their paychecks. The small increase suggests consumer spending may be weak in the January-March quarter, which could hold back economic growth.

Retail sales ticked up 0.1 percent in January from December, the Commerce Department said Wednesday. That follows a 0.5 percent increase in December and is the smallest in three months.
Department Stores
Nordstrom Q4 profit up 20%; upbeat for 2013
Feb 21, 2013 Seattle — Nordstrom Inc. on Thursday reported that its fourth-quarter profit rose 20% to $284 million, compared to $236 million a year earlier. The company also forecast further increases in same-store sales for its new fiscal year.
Revenue for the three months ended Feb. 2 rose 13.5% to $3.6 billion, from $3.17 billion. Same-store sales, which consist of the full-line and direct businesses, rose 6.3%.
Discount Stores
Sales soft, but Walmart beats profit forecast
Feb 21, 2013 Walmart overcame a meager 1% same stores sales increase at U.S. stores to deliver better than expected fourth quarter profits on Thursday.
The company said total sales increased 3.9% to $127.1 billion compared to $122.3 billion last year. Without the benefit of a favorable currency exchange situation, sales would have increased a lesser 3.7% to $126.8 billion. Full year sales increased by 5% to $466.1 billion compared to last year’s total of $443.8.
Wal-Mart expected to report ‘disastrous’ February sales
Feb 15, 2013 New York — Analysts had already suggested that Wal-Mart Stores Inc. would report weakened sales in February, as its primary customer base felt the pinch of newly increased payroll taxes. But internal emails leaked to the press confirmed the impending bad news.
Bloomberg on Friday quoted an email generated by a Wal-Mart mid-level executive as saying that the retailer had the worst sales start to any month in seven years in February. Wal-Mart blames the slow start to the 2% payroll increase as well as on delayed tax returns.
Drug Stores
The Vitamin Shoppe closes on acquisition of Super Supplements
Feb 15, 2013 North Bergen, N.J. — The Vitamin Shoppe announced that it has closed on the previously announced purchase of Super Supplements, a specialty retailer of vitamins, minerals and supplements for approximately $50 million. The acquisition was funded with available cash.

Grocery Stores

Safeway Q4 income increases 14%, topping estimates
Feb 21, 2013 Pleasanton, Calif. — Safeway Inc. said that its fourth-quarter net income rose 13% to $244 million, far ahead of expectations, helped by its customer loyalty program. Safeway said the program, which offers personalized discounts based on past purchases, is driving market share gains and profits.
Quarterly sales rose to $13.77 billion from $13.60 billion a year ago. Same-store sales, excluding fuel, inched up 0.8%.
Kroger isn’t the only (rumored) suitor for Harris Teeter
Feb 15, 2013 If Kroger Co. wants to buy North Carolina-based grocery chain Harris Teeter Supermarkets Inc., it better get in line. According to different media reports, a number of parties are interested in buying Harris Teeter.
The company confirmed Wednesday that it has been approached by two private equity firms that want to buy the more than 200-store chain. The company retained J.P. Morgan to assist it in conducting discussions with qualified parties.
Wendy’s rolls out new logo systemwide
Feb. 21, 2013 A new Wendy’s logo will appear in all advertising and messaging beginning Monday as part of a branding overhaul that includes more remodeled restaurants, new packaging and new crew uniforms, parent company The Wendy’s Co. said Thursday.
The Dublin, Ohio-based chain’s updated logo — which still includes a portrait of redheaded Wendy Thomas, daughter of founder Dave Thomas — will appear in commercials, on packaging and crew uniforms, and in new restaurant signage, menu boards and digital assets starting Feb. 25.
Jack in the Box 1Q profit increases 73%
Feb. 21, 2013 Jack in the Box Inc. reported on Wednesday first-quarter net income that was nearly double that of last year, indicating that restructuring efforts are taking hold.
Though traffic was roughly flat for the quarter, Lang said the Jack in the Box chain’s systemwide same-store sales rose 1.9 percent, which exceeded the quick-service sandwich segment trends, according to NPD Group’s Sales Track Weekly.
Denny’s to focus on value, coffee in 2013
Feb. 21, 2013 Denny’s Corp. expects value menu offerings, improved coffee and its brand positioning to spur growth this year, the company said in a fourth-quarter earnings report Thursday.

In fiscal 2013, Denny’s plans to continue to drive branding as “America’s Diner,” and to highlight the company’s value proposition to consumers, according to president and chief executive John C. Miller. Systemwide same-store sales rose 1.7 percent in the fourth quarter, marking the seventh consecutive quarter of same-store sales increases for Denny’s. That rise in fourth-quarter same-store sales comprised a 2-percent increase at franchised locations and a 0.5-percent increase at company-owned units. About 10 percent of Denny’s units are company owned, Miller said.
The Cheesecake Factory: Sandy stunts 4Q sales
Feb 21 2013, The Cheesecake Factory Inc. reported a 26-percent drop in net income for the fourth quarter on Wednesday, saying last year’s Superstorm Sandy took a toll on the chain’s sales in restaurants concentrated throughout the Northeast.
The Calabasas Hills, Calif.-based company also said it planned to close three underperforming locations of its 14-unit Grand Lux Café concept by the end of March. However, company officials also expressed faith in the secondary brand, saying it will start growing again in 2014.
Red Robin stock price rises as 4Q profit doubles
Feb. 19, 2013 The stock price for Red Robin Gourmet Burgers Inc. rose significantly on Tuesday after the company reported a more than doubling of fourth-quarter profit over the prior year.
For the quarter ended Dec. 30, Red Robin reported net income of $6.5 million, or 45 cents per share, compared with $2.9 million, or 20 cents per share, a year ago. Excluding charges related to the company’s debt refinancing in December 2012, the company said net income was $8.4 million for the quarter.
Restaurant sales drop as consumers cut spending
Feb. 19, 2013 Restaurant industry same-store sales declined in January due to pullback from consumers, according to the latest NRN-MillerPulse survey.
Overall, industry same-store sales rose 1.1 percent in January, a significant drop from the 2.4-percent increase reported in December, with both main segments contributing to the results. Quick-service restaurants, which include both fast-food and fast-casual brands, reported a 1.6-percent increase in sales in January compared with a 2.5-percent increase the month prior. Sales at full-service restaurants, which include both casual-dining and fine-dining brands, rose 0.6 percent in January, compared with the 2.2-percent increase in December, the survey found.

Smashburger Wraps up Record Year with 36% New Unit Growth, First International Locations in 2012
Feb 19, 2013, DENVER, In the close of a successful year of growth, Smashburger, the rapidly expanding better burger restaurant concept, is pleased to share a summary of its 2012 business results and accolades. The fast growing brand added a total of 58 new locations globally in 2012, comprised of 17 corporate locations and 41 new locations opened by its franchise partners, representing 36% total new unit growth over 2011, with a total count of 193 restaurants.
Smashburger has not only continued to build upon its success in the United States, but has expanded nationally making an international debut with restaurant openings in Calgary, Kuwait, Saudi Arabia and Costa Rica. David Prokupek, Chairman and CEO states, “We are very excited about the record growth we have had over the past year with Smashburger and the fact that we have gone internationally. We are committed to continue sharing our better burger concept to our consumers all over the world and sharing the excitement with our franchise partners.”
Buffalo Wild Wings Reaches New Heights in Numbers with 900th Restaurant Opening
Feb 18, 2013 MINNEAPOLIS-Buffalo Wild Wings, Inc. today announced the opening of its 900th restaurant in San Jose, Calif. This marks a new milestone for the company, which opened its first location in Columbus, Ohio in 1982. Buffalo Wild Wings is known for its exciting sports atmosphere, award-winning Buffalo, NY-style chicken wings spun in one of 20 mouth-watering signature sauces and seasonings, as well as its wide selection of premium and domestic beers.
Ruth’s Hospitality Group keeps focus on traffic after 4Q sales grow
Feb. 15, 2013 After recording a same-store sales gain at its namesake steakhouse chain for the 11th consecutive quarter, Winter Park, Fla.-based Ruth’s Hospitality Group said it would stick with value-focused strategies to maintain traffic growth and offset expected beef inflation in 2013.
The parent of several upscale-casual brands, including Ruth’s Chris Steak House and Mitchell’s Fish Market, reported traffic and sales growth for the fourth quarter of 2012. The company is also off to a strong start this year, with sales increasing in the mid-single digits through the middle of February, officials said.
Burger King 4Q profit nearly doubles, sales rise
Feb. 15, 2013 Fourth quarter net income at Burger King Worldwide Inc. nearly doubled, the company reported Friday, on the strength of increased systemwide sales, net unit growth and the cost-cutting transition to a franchised model.
For the quarter ended Dec. 31, Miami-based Burger King earned $48.6 million, or 14 cents per share, compared with earnings of $25.0 million, or 7 cents per share, in the same quarter a year earlier. Latest-quarter corporate revenue fell 30.3 percent to $404.5 million as the company continued to refranchise corporate restaurants, driving down company-unit revenue but escalating franchise fees and revenue.

Dollar Stores, Warehouse Club & Other Retailers
Zale Q2 profit better than expected
Feb 21, 2013 Dallas — Zale Corp. on Thursday posted a better than expected second quarter profit as sales rose at its namesake chain and it cut selling and administrative costs. The company restated its forecast that it will return to profit for its current fiscal year, which ends in late July.
Net profit in the quarter ended January 31, 2012, rose to $41.2 million, compared with $28.8 in the year-ago period.
Office Depot to Buy OfficeMax for $1.17 Billion in Stock
Feb 20, 2013, Office Depot Inc. agreed to buy OfficeMax Inc. for $1.17 billion in a bid to revive a retailer that’s been losing sales to online rivals and Staples Inc. (SPLS), the largest U.S. office-supplies chain. The shares of both companies fell, with Office Depot dropping the most since April 2010.
The merger will combine companies with revenue of about $18 billion, compared with Staples’ more than $24 billion in sales last year. The company may accelerate the closing or selling of hundreds of stores after Starboard Value LP, an activist fund that became Office Depot’s largest shareholder in September, pushed for expense reductions.
Foot Locker increases capital expenditures for 2013
Feb 20, 2013 New York — Foot Locker announced that its board of directors has approved a $220 million capital expenditure program for 2013. The amount marks a significant increase over the approximately $163 million spent on in 2012.
The company said it plans to invest in such growth initiatives as including new and innovative store formats; continued expansion in Europe; technology to improve its customers’ experience; and robust capabilities for its digital segment.
Sport Clips to make Canadian debut; plans 200 stores in 10 years
Feb 20, 2013 Georgetown, Texas — Sport Clips Haircuts announced Wednesday that it will open its first store in Canada on March 1.
The Burlington, Ontario, franchised location is the first of three planned for the city by master franchisor Sport Clips Canada. In addition to Burlington, Sport Clips Canada currently has 26 stores under contract to open throughout Ontario and British Columbia. Sport Clips Canada said it plans to open 50 stores within the next three years, 100 stores in five years and 200 stores in 10 years.

Topshop eyes 10 more U.S. locations
Feb 20, 2013 New York — Britain’s Topshop is planning on increasing its U.S. presence. The fashion chain plans to open 10 additional stores in the United Stores over the next two years, according to the New York Daily News.
There are currently four U.S. Topshop stores, with the most recent being a flagship at The Grove in Los Angeles. The 25,000-sq.-ft. store carries the retailer’s full range, including its Topman brand for men.
Report: C-store saw traffic bumps in 2012
Feb 19, 2013 Houston — A report released Tuesday by research company NPD Group found that the convenience store sector experienced marked gains last year, as visits increased 4.6% in the fourth quarter and grew an average of 3.7% per month for 2012.
Traffic gains were spread among all type of c-stores, according to NPD’s Convenience Store Monitor, which tracks the consumer purchasing behavior of more than 51,000 convenience store shoppers in the U.S. Traditional c-store traffic increased 0.7%, major oil chains garnered a 3.2% growth, and small/other chains had the strongest growth in traffic at 11.5% compared to the year-ago quarter.
Build-A-Bear Workshop widens Q4 loss; reports annual loss of $49 million
Feb 19, 2013 St. Louis — Build-A-Bear Workshop, which is in the midst of a major turnaround initiative, reported a net loss of $36.5 million for its fourth quarter ended Dec. 29, compared with a net loss of $9 million during the prior-year quarter.
Total revenue for the quarter was $118.2 million, down 1% from the prior-year quarter. For the full year, Build-A-Bear Workshop reported a net loss of $49.3 million in fiscal 2012, compared with a net loss of $17.1 million in fiscal 2011. The 2012 loss included a $33.7 million goodwill impairment in the fourth quarter.
Claire’s expects to end year on high sales note
Feb 19, 2013 CHICAGO — Fashion jewelry retailer Claire’s Stores said that it expects to report a 13.4% spike in net sales to $493 million for the fourth quarter over the same period last year, thanks in part to an additional week of net sales and a comparable-store sales increase of 5.4%.
For the full year, Claire’s expects to report net sales of $1.6 billion for fiscal 2012, an increase of 4.1%, compared with fiscal 2011.
Tri Star Selling 22 Retail Sites, Undeveloped Land
Feb 19, 2013, NASHVILLE, Tenn. — Tri Star Energy LLC is selling 22 convenience stores and gas stations, as well as three parcels of undeveloped land in Tennessee.

The convenience stores on the selling block include six that are currently company-operated and 16 that are consignment sites. They will be sold through a sealed bid sale process in a “buy one, some or all” format, according to NRC Realty & Capital Advisors LLC (NRC).
Convenience Channel Ends 2012 With Increased Visits
Feb 19, 2013,HOUSTON — Convenience stores saw increased traffic as 2012 drew to a close, with the number of c-store visits increasing by 4.6 percent in the fourth quarter.
According to The NPD Group, positive movement in some key economic indicators and lower gas prices helped drive the visits. In addition, the firm’s convenience store research found that the uptick in traffic was attributed to an increase in average monthly visits, which rose by 3.7 percent over 2011. Specifically, c-store shoppers made an average of 6.2 visits in a 30-day period.
7-Eleven Named Top 10 Most Innovative Company in Retail
Feb 18, 2013 DALLAS – Technology magazine Fast Company named 7-Eleven Inc. as one of “The World’s Top 10 Most Innovative Companies.”
Ranked third on the list, 7-Eleven was chosen for its ability to “localize and compartmentalize its stores.”
From the ICSC
U.S. mall sales per square foot surged in 2012: Report
Surging sales of furniture and electronics helped improve sales productivity at U.S. malls last year, according to ICSC Research. Sales productivity (gauged per square foot) at nonanchor mall stores rose 6.9 percent year on year in 2012, to $448 per square foot, up $29 per square foot from 2011. This was the largest annual productivity growth rate since the inception of ICSC Research’s report in 1996, surpassing last year’s high of 6.8 percent. Overall sales productivity got a boost from the electronics category, which grew 19.5 percent year on year. Home furnishings also contributed, with sales productivity there up 10.7 percent year on year — the strongest since 2010, when the category rose 11.9 percent, and the second-strongest annual growth rate of all time. Other high-growth sectors were men’s shoe stores (up 14 percent year on year) and children’s shoe stores (up 10.9 percent). Bookstores were a drag on sales productivity. That sector has faced increased online competition and saw 2012 sales productivity fall 5.7 percent from 2011. The fast-food sector’s sales productivity declined 3.2 percent year on year, and men’s apparel declined 1.4 percent.
Landlords set for Office Depot, OfficeMax merger
Landlords say they are ready to fill any stores that might be marked for closure because of the planned merger of Office Depot and OfficeMax — the No. 2 and No. 3 office-supplies chains. The chains agreed this week to merge into an as-yet-unnamed behemoth generating some $18 billion in combined annual revenue. The companies say they anticipate saving as much as $600 million per year, possibly by closing some overlapping stores. “Consolidation in the office supply sector has been highly anticipated and based upon our market knowledge, store spacing, and store performance, we expect the opportunity to recapture certain locations,” said Paul Freddo, senior executive vice president of leasing and development at DDR Corp., in a press release.
Office Depot operates about 1,700 stores, and OfficeMax has roughly 900. The category kingpin is Framingham, Mass.–based Staples, which operates about 2,300 stores and posts some $25 billion in revenue yearly. Staples controls 35 percent of the U.S. market, according to IBISWorld. Boca Raton, Fla.–based Office Depot holds 26.1 percent, and Naperville, Ill.–based OfficeMax has 15.6 percent.
DDR — which owns 50 OfficeMax stores, totaling some 1.2 million square feet, with average remaining lease term through February 2016; and 15 Office Depot stores, totaling about 365,000 square feet, with average remaining lease term through January 2017 — says it anticipates a positive impact on business. The average rent for each retailer is currently $11 per square foot, about 30 percent below DDR’s prime portfolio average, the firm says. “If executed as proposed, the merger will enable us to realize positive rental increases by backfilling the newly available space with a variety of today’s fastest growing, high credit quality retailers, including T.J.Maxx, Marshalls, HomeGoods, Ross Dress for Less, Bed Bath & Beyond, buybuy BABY, Cost Plus World Market, Nordstrom Rack, and many others,” Freddo said in the press release.
Combined, Office Depot and OfficeMax will have upwards of $1 billion in cash on hand and in excess of $1 billion available through revolving credit facilities. A committee of board members from both companies will search for a new CEO. They will consider the incumbent chiefs — Neil Austrian, chairman and CEO of Office Depot; and Ravi Saligram, president and CEO of OfficeMax — as well as outside candidates. The merged entity’s name and headquarters will be decided after the new CEO takes over.
“In the past decade, with the growth of the internet, our industry has changed dramatically,” said Austrian in a press release. “Combining our two companies will enhance our ability to serve customers around the world, offer new opportunities for our employees, make us a more attractive partner to our vendors, and increase stockholder value. Office Depot and OfficeMax share a similar vision and culture, and will greatly benefit from drawing on the industry’s most talented people, combining our best practices and realizing significant savings. We are confident that this merger of equals represents a new beginning for our two companies and will allow us to build a more competitive enterprise for the long term.”
Higher taxes curtail spending: Survey
Tax increases are causing many working Americans to rein in spending, according to a National Retail Federation survey of nearly 5,200 consumers, conducted this month. Close to three-quarters of those polled said their household budget took a hit because of recent tax increases. Nearly half of the respondents said they will be spending less overall when they shop, and 35.6 percent said they will watch for sales more often. A third of the respondents plan to cut back on dining out, and 24.5 percent said they will spend less on such “little luxuries” as manicures, high-end cosmetics and visits to a coffee shop.
Of those who described themselves as “greatly impacted,” nearly half said they would delay such major purchases as a car, a TV or furniture, and 43.4 percent said they will contribute less to savings, 46.4 percent said they will comparison shop more often, and 54.4 percent said they will spend less on clothing.
Of the respondents who say the income decrease will have little to no impact, many also reported that they plan to change their spending habits even so. Of this group, 22.4 percent said they will spend less overall, and 15.8 percent said they would increase their reliance on coupons. About 11 percent report plans to cut back on entertainment, and nearly 12 percent will economize on vacation and travel, while 18 percent said they would keep an eye out for sales.
Half of those reporting less than $50,000 a year in household income said they will be spending less overall. About 23 percent of these said they will spend less on groceries, versus almost 17 percent of those earning over $50,000 annually who said so. Furthermore, 27.6 percent of the former category report that they plan to shop at discount stores more frequently, and so do 19.7 percent of the latter category.
“We cannot grow the nation’s economy until consumers consume,” said NRF President and CEO Matthew Shay in a press release. “A smaller paycheck due to the fiscal cliff deal early last month, higher gas prices, low consumer confidence and ongoing uncertainty about our nation’s fiscal health is negatively impacting consumers and businesses across the country. Every day we hear about building the middle class. We can only do that if we tear down barriers that prevent consumers from investing their hard-earned money back into our nation’s economy.”
There are retailers already feeling the pain. Some $19.7 billion less in tax refunds had been returned to Walmart’s shoppers this year relative to last year, the company reported, because of the late release of tax forms and federally mandated tax-fraud scrutiny.
Supermarkets buying up more shopping centers
Grocery stores continue to snap up the productive shopping centers they anchor. The trend is national and has increased since the recession, according to Kris Cooper, a managing director who co-leads retail investment sales at the Jones Lang LaSalle office in Atlanta. “If it is a great store in terms of sales per square foot, it really does make a lot of sense to control your own destiny,” said Cooper. “It’s a smart move for grocers, where they are actually purchasing either the whole center or a freestanding store, if it is a great location.”
Two such great locations are Plantation Towne Square and Colonial Shopping Center, two of the highest-volume grocery-anchored shopping centers in South Florida. The occupancy rates at each are north of 95 percent. Publix Super Markets acquired both properties recently for an undisclosed price. The Lakeland, Fla.–based grocery chain is one of several trying to get a handle on store occupancy costs by purchasing rather than leasing.
Depressed values have enabled some chains to acquire real estate at good prices, but Cooper says the practice long predates the current cycle. Some chains are buying quite aggressively. The Kroger Co. has been purchasing real estate associated with its stores since 1995, according to published reports. By the end of 2011, Kroger owned nearly half its 2,435 supermarkets. The company estimates that it saves about $1 per square foot annually by owning rather than leasing. And owning the real estate helps Kroger reduce exposure to the rent escalators that increase occupancy costs if sales exceed certain thresholds, says Andrew Wolf, a research analyst at BB&T Capital Markets. “That gets them out of having rents that might be counterproductive to what they’re trying to do,” he said. Grocery chains are out to capture the real estate value their stores create, Wolf says. “Some of these chains have decided that they want 100 percent of the value on the ancillary businesses that are in the same center with them, that pay much higher rents, rather than let the developer get it.”
A chain’s decision to own the real estate often reflects motives beyond a simple comparison of occupancy cost, sources say. “Sometimes it is a defensive move, and sometimes it is a strategic move,” said broker Gail Whitfield, president of The Whitfield Co., a commercial brokerage and investment firm. “If a landlord or lender is not keeping up the property’s maintenance or appearance, then they have a high motivation to purchase the property.”
Inland Real Estate Corp. posted $24 million in fourth-quarter funds from operations, up from $19.1 million a year ago. The firm reported some $8.2 million in earnings for the quarter, up from $900,000 in fourth-quarter 2011. Same-center net operating income, meanwhile, slipped 0.9 percent, which the firm attributed to real estate taxes.
• Wal-Mart reported $127.1 billion in net sales for the fourth quarter of fiscal 2013, up 3.9 percent from the year-ago quarter. Same-store sales, meanwhile, rose 1 percent (excluding fuel) at U.S. Walmart stores and 2.3 percent at U.S. Sam’s Club stores. Traffic at U.S. Walmart stores slipped by 10 basis points from the year-ago quarter, while the average ticket price rose by 1.1 percent. “We are confident that our low prices will continue to resonate, as families adjust to a reduced paycheck and increased gas prices,” said Bill Simon, Walmart U.S. president and CEO, in a press release. “We see the underlying health of the Walmart U.S. business is sound, and sales trends are similar to what we’ve demonstrated in the last few quarters.”
• Georgetown, Texas–based Sport Clips Haircuts will open its first Canada store in March, in Burlington, Ontario. This is the first of three that franchiser Sport Clips Canada plans for that city. Sport Clips Canada says it plans to have 50 stores in Canada within the next three years, 100 in five years and 200 in 10 years.
• Topshop says it plans to open an additional 10 U.S. stores over the next two years, according to published reports. The British fast-fashion chain currently operates four U.S. stores.
• Total visits to U.S. convenience stores increased by some 4.6 percent year on year in the fourth quarter, according to NPD Group, and by an average of 3.7 percent monthly in 2012.
• MGM Resorts International is looking at selling parts of its $8.5 billion CityCenter development, on the Las Vegas Strip, including the 500,000-square-foot Crystals Mall, to help pay off $1.85 billion in debt, CEO Jim Murren told investors this week. MGM owns CityCenter in 50-50 partnership with Dubai World, the investment arm of the Dubai, United Arab Emirates’ government.
• Same-store sales per square foot at Canadian nonanchor mall stores grew 2 percent last year, to $596 per square foot, according to ICSC Research.
• Shutl, a U.K.-based same-day-delivery software platform, is preparing to launch in the U.S. next month. The service, whose backers include UPS, works with retailers that offer two Shutl delivery options during online checkout. These include “now” — for which Shutl promises to deliver merchandise within 90 minutes — and “when,” for which the customer may choose one-hour delivery windows any day, any time. The service is available only to shoppers who live within 10 miles of the store they have ordered from. Shutl owns no delivery vehicles. Instead, it finds the brick-and-mortar store nearest to the buyer and the courier nearest to the store. Retailers pay Shutl a fee for each delivery thus coordinated. The cost of a Shutl delivery for the shopper is typically less than $10. The firm says it handles about 30,000 orders daily in the U.K.
• James C. McClune, who served as ICSC chairman from 1973-1974, died February 11. McClune, of Novi, Mich., was president of Crown Center Redevelopment Corp., a Hallmark Cards subsidiary (he retired in 1985) and also was an executive at Shopping Centers Inc., Detroit. “James McClune led ICSC during a period of great growth in our industry,” noted Michael P. Kercheval, ICSC’s president and CEO “It was a time of rapid growth for ICSC too.”
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Capital Gains Tax Could Hurt Local Real Estate By Sarah Baker Updated 2:45PM Print | Front Page | Email this story | Email reporter | Comments (0)

When investor/developer Phil Woodard sells his warehouse at 138 St. Paul Ave. in the South Main Historic Arts District to nonprofit ArtSpace this year for $850,000, he’ll be handing over $3,500 from his proceeds to the federal government.

That’s because as of Jan. 1, many investors below the top tax bracket owe an additional 3.8 percent Medicare surtax on passive investment income from interest, dividends, rents and capital gains. The tax falls on individuals with an adjusted gross income above $200,000 and couples filing a joint return with more than $250,000.

Woodard bought the Class A warehouse for $600,000 in 1999. Its 2012 county appraisal was $436,800.

“If you sell something now, it’s going to take a pinch,” Woodard said. “The way the economy’s going now – the real estate was just kicking in, people were starting to buy. The low-end and the high-end stuff was actually selling.

“Is this going to change it? Do we add money to every condo we sell over $250,000? We have to be careful.”

The 3.8 percent tax comes after the top capital gain tax rate was permanently increased from 15 percent to 20 percent under the American Taxpayer Relief Act of 2012. It results in an overall 23.8 percent rate for higher-income taxpayers – a 58 percent increase from 2012 tax rates, according to the Qualified Intermediary firm Asset Preservation Inc.

“It’s definitely a pretty good dent,” said Preston Thomas of Colliers International. “You can sometimes have a gain in a property without making money on it that you have to pay tax on depending on what your basis is in it.”

Thomas said the 3.8 percent on smaller transactions wouldn’t be a big deal.
But as larger transactions come around, it’s a substantial cost to the seller, which in turn is a cost to the buyer.

“The seller’s got to make up for it somewhere, so they’re going to try to get a higher price for the real estate,” Thomas said. “I don’t think it’ll help (the market). It just kind of is what it is. Depending on if we’re representing sellers or buyers, it’s something that needs to be addressed on the front end so everybody’s aware of it. It is definitely very relevant.”

Johnny Lamberson of CB Richard Ellis Memphis’ investment sales division said he hasn’t heard sellers suggest that they’re not going to sell because of capital gains yet, but it’s still early in the year.

While no one wants to pay more taxes, he expects the new tax to affect the types of purchasing entities involved in a particular deal differently.

“A lot of these folks quite honestly, especially the big boys, when they sell something they’re going to go into a 1031 Exchange anyway, so they’re not going to pay that tax,” Lamberson said. “Whereas if it’s a private syndication or a partnership where this may be their only deal with no plans of any future deals, then they’re the ones that are going to be affected by that.”

Also known as a tax deferred exchange, a 1031 exchange can take place if an entity sells an office building, for example, and that entity is allowed in a certain timeframe to go buy another office building and use the first sale’s proceeds to buy it. The seller then postpones paying the tax.

Mark Halperin of Boyle Investment Co. agrees with the idea that it might influence the larger institutional type seller less than it might affect the smaller, individually owned seller. But he said the tax is not going to affect Memphis any differently than it would affect St. Louis or Phoenix.

What hurts Memphis more, Halperin said, is the city’s real estate taxes on commercial property. An office building here can have double the taxes of a comparable property in Nashville.

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Shawn joined the Memphis Office of The Shopping Center Group in 2003 and became a partner in 2008 to focus on shopping center leasing and tenant representation. He has a Bachelor of Business Administration and an MBA in finance and real estate from The University of Memphis. Prior to joining The Shopping Center Group, Shawn was a Senior Project Manager for Cingular Wireless (AT&T) and was responsible for real estate development management, construction and implementation for wireless antenna and tower infrastructure for Tennessee and Mississippi. He is adjunct professor at The University of Memphis where he teaches the masters level class in real estate development and sustainability. In 2013 in will be working with Homburg Academy and University teaching on-line commercial real estate classes internationally. He holds both the CCIM and SCLS designations. Shawn engages in tenant representation, third party leasing/sales, investment sale and development consulting in the retail sector.

He is the co-founder and Chairman of the Board for the Memphis Business Academy charter schools (K-12th grade) in the Frayser area of Memphis. He is currently the 2013 vice-president of the Memphis CCIM chapter, 2013 Secretary/Treasurer of the MAAR Education foundation. He has serve on various charitable organizations boards in Memphis including Habitat For Humanity, the Binghamton Development CDC Retail Committee and Youth Visions. He is a member of Christ United Methodist Church. His wife is Price Phillips and he has two children Amanda and Matthew.

For all your retail real estate needs (tenant representation, landlord representation and property, investment & land sales) I hope that you will choose The Shopping Center Group and me to represent you and your business. We understand that representation is a privilege and that you have a choice!
The opinions expressed in this post are entirely my own. They should not be considered the opinion of The Shopping Center Group, LLC in which I am associated.

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