Quality Tenants, Sites Can Thrive

While residential real estate weakness is causing some concern among retail landlords, a resulting flight to quality is good news for market leaders in prime locations, a panel of retail real estate owners said at the RBC Capital Markets Consumer Conference last week. Over the long run, this [housing slowdown] will play itself out. There are forces at work on the positive and negative

NAPLES, Fla. — While residential real estate weakness is causing some concern among retail landlords, a resulting “flight to quality” is good news for market leaders in prime locations, a panel of retail real estate owners said at the RBC Capital Markets Consumer Conference here last week.

“Over the long run, this [housing slowdown] will play itself out. There are forces at work on the positive and negative side,” said Jeff Olson, chief executive officer of Equity One, a major supermarket landlord based in Miami.

According to Olson, softness in the residential real estate market in Florida is evident in retail centers populated with locally based tenants in lower-income areas. However, he said, demand for quality real estate in Florida, particularly among national retailers, remains strong. “We want to upgrade local tenants to national tenants, particularly those like Target and Kohl's that have not been able to penetrate the market as much as they would like.”

John Kite, CEO of Kite Realty Trust, Indianapolis, predicted the “flight to quality” among investors fleeing risky debt would replicate itself in the retail real estate market, with better locations and stronger tenants gaining strength together.

Olson said a slowdown in private-equity-led retail buyouts is also good for landlords, because of better visibility into public tenants' financial positions.

Drew Alexander, CEO of Weingarten Realty Investors, Houston, said retail mergers over the last decade have reduced the number of potential renters of shopping-center space, but the quality of the candidates has increased. “The bad news is that there's not five guys competing for your space anymore. The good news is they're quite viable,” he said.