As the retail real estate environment continues to benefit from demand that is outstripping supply, veteran brokers who started their own tenant representation and agency leasing companies over the past few years are seeing their decisions pay off.

Executives with these boutiques agree that the biggest differentiator between their shops and a larger brokerage that has offices across the country is the ability to develop close relationships with clients and to tailor solutions to their needs. Often such brokerages concentrate on specific regions but have the expertise and the connections with other firms to provide representation on a national scale, as well.

Six principals launched Axiom Retail Advisors in early 2022 to create their own culture and gain more discretion over the types of projects and clients they represented. The boutique focuses heavily on Southern California, but its reach extends to several Western states. It also belongs to a network of retail boutique brokerages that enables it do deals nationwide, said principal Terry Bortnick.

“All of us were very high producers, and we’ve got a perfect combination of tenant and landlord representation,” added Bortnick, who previously had started another boutique brokerage, Argent Retail Advisors, and who also has worked for Pan Pacific Properties and Reza Investment Group. “We can be choosier as to the types of assignments we want to take, which allows us to concentrate more deeply on deals and service clients at a much higher level. I personally like going deep in the weeds on deals.”

Being selective also allows the firm to identify more appealing projects and to better focus on profitability. One specialty Bortnick likes is bringing centers to full occupancy. “We’ve always prided ourselves as being a firm that could get a project fully leased,” he said. “As a smaller company, we can be more nimble and make decisions that have more impact.”

Beyond the Deal

On the opposite coast, former Cushman & Wakefield team members Brandon Singer and Michael Cody founded Retail by MONA — MONA is an acronym for Making Of a New Age – aiming to drive a retail renaissance in New York City. Launched in September 2020 during the height of the pandemic and lockdowns, the partners faced a dormant environment that showed scant promise of fully rebounding, Singer acknowledged. But the duo saw little choice but to plow ahead. “There were a lot of people leaving New York, and it couldn’t have gotten much worse,” he stated. “But we doubled down on the city with the simple thesis that we really had nothing to lose. If the market didn’t come back, we’d just have to find something else to do.”

Six to 12 months later, business started picking back up. The brokerage now anticipates revenue to triple or quadruple this year, much as it did in 2023. Retail by MONA now lists about 25 brokers and five support staff, Singer said.

Part of its success stems from its structure, he said. Instead of brokers competing against one another — as can happen at large brokerage houses, Singer said — Retail by MONA’s teams focus on industry lines like food-and-beverage, luxury and high street. “Our clients have been very happy with it,” Singer declared. “Too often, the larger firms care more about getting a deal done versus the client, so we’ve tried to take a different approach.”

Among other deals, Retail by MONA earlier this year represented the owner of the Chrysler Building in a lease of 2,000 square feet on the ground floor to WatchHouse, a London-based coffee roaster. It’s expected to open this fall. Retail by MONA also represented French leather goods brand Maison Goyard in a 10-year deal to move to 9,000 square feet on Madison Avenue, a half block from its current location on 63rd Street.

Tailored Approach

Retail by Mona focuses primarily on New York but also works with local brokerages in other cities to represent expanding retailers. It has about 25 such deals in the works, Singer said. Beta, founded in early 2018 by former CBRE broker Richard Rizika, similarly focuses on local markets while providing brands with national representation. The firm has four offices in Southern California, but in March, DXL Big + Tall clothing hired Beta to represent it nationally.

In a press release announcing the assignment, a DXL executive noted that the venture would ensure the brand secures locations that leverage customer access. That falls in line with Rizika’s philosophy. “We’re a niche player who figures out what real estate setting is best suited and aligns with a client’s particular brand,” Rizika said. “Maybe it’s a shopping center or maybe it’s more of an industrial neighborhood. Whatever it is, we try to find a solution and to maximize the benefit of controlling that real estate, whether that’s through a lease or acquisition.”

While agency leasing includes the representation of larger landlords, boutiques often see their roles as de facto asset managers for smaller shopping center owners who may need help envisioning a property’s potential, explained Bortnick. That ability was a key behind his decision to start Axiom.

“Not all shopping centers are owned by big Wall Street firms,” he said. “A lot are owned by families or smaller companies, and we can really make a difference by bringing in the right tenants at the right rents under the right deal structure. There are a lot of people that are looking for asset management type of guidance, not someone that can just make a deal.”

Eviction moratoriums and other government regulations disrupted many facets of the economy and real estate industry in 2020. The impact of those decisions is continuing to be felt in 2021 as retailers and landlords across the country grapple with ways to re-open stores and bring occupancies back up at shopping malls.

Landlords and retail brokers must find new ways to work together today with the backdrop of the eviction moratoriums that may be causing them to re-negotiate existing leases at malls and other retail properties. X Team brokers Lunden McGill of Baker Katz in Houston, Brian Gast of Velocity in Phoenix, and Evan Albert of mfi Realty in Baltimore share their insights from the front lines. The advice and insights these retail experts at X Team Retail Advisors offer provide a landlord's perspective to help educate tenants on what to expect and what strategies are best aligned to demand, and challenges faced in 2021.

Landlords that were proactive with tenants when they saw the writing on the wall when Covid arrived, tended to fare better, notes Velocity’s Gast. “All landlords during Covid handled deals differently with tenants especially restaurants, fitness or entertainment retailers, which were categories hit the hardest,” said Gast. “Those that got in front of issues, now are the most successful, while others that didn’t are behind the eight ball.”

In Texas, Baker Katz’s McGill notes that “in the earlier days and in the middle of Covid, most landlords played ball in a sense, because they were interested in helping tenants and it was a mutually beneficial situation.” The majority of tenants in McGill’s market that fell out involved tenants that were already struggling to survive even before Covid hit. “No one that went out of business in our market was a surprise. If anything, Covid was an apt excuse not to be in business anymore,” she added.

Market activity is robust in the Washington, DC Metro at a time when retail activity typically dies down, notes mfi Realty’s Albert. “It is the busiest I’ve ever been in six years, but the leasing business has shifted from landlord representation to more tenant representation now, which is creating competition for sites,” said Albert. “This is the first time that I’ve seen three to four tenants fighting over the same space, especially top-quality real estate or sites that have drive-thru’s.” That is forcing tenants to chase deals to get their preferred space and landlords are more frequently asking for higher rents for those premium spaces.

Conversely, other less appealing spaces can sit vacant. While that was a challenge for lower quality space even before Covid hit, those landlords know they must remain flexible since they understand the space may sit awhile because there’s less tenant demand for them now. “There are two spectrums,” said Albert. “All or nothing. It is a very unique time. And landlords now are picker abouts the tenants they complete deals with.”

McGill adds that activity today is being fueled by pent-up demand and backlogs caused by not doing deals during Covid. She points out that franchise concepts “owe stores” whether in a pandemic or not. “Retailers may have been required to deliver two stores in a market as part of their growth strategy that Wall Street is tracking, but they couldn’t during Covid so now they are aggressively pushing forward on deals, which are hitting the market simultaneously,” said McGill.

Some major national retailers’ expansions or contraction strategies are being influenced by whether a state or market is opened from Covid-related shutdowns or has tough restrictions in place now. Baker Katz’s McGill notes, “Those factors are creeping into the metrics and decision-making process. We are seeing more retailers lean towards lenient states such as Texas, and that’s a unique position to be in now.”

Gast points out a downside to Covid was how it impacted plans. “Some developer and landlord deals that were in progress when Covid hit, went smoothly and went forward, while others paused or faded away. Some deals that were in escrow got extended a couple of months with no penalty, or landlords offered two months of lease grace. That was different compared to the market in 2008, when deals “just died and went away,” notes Gast. An example of how that is playing out today and the patience required is Gast just signed a deal that had died when Covid arrived in 2020. Transaction timing is being prolonged or pushed back as those who want to move forward figure out how to make deals work now because it is a different market today with rising construction costs. That may mean considering offering concessions or percentage rent. But Gast adds, “Generally, we have gotten back to the way it was before Covid now.”

 

BOPIS Trend Expands

Buying online and picking up in stores (BOPIS) is a trend that grew substantially over the past year including the emergence of drive-thru’s. This is one of the key trends Baker Katz’s McGill is tracking closely in Texas to see which retailers are adopting BOPIS strategies. “Now, Chipotle has really refined and dialed-in its online ordering process and pick-up in person. That is new income and a revenue stream that many hadn’t paid as much attention to before. Covid has caused them to do so now,” she said.

Retailers that seek to accommodate customers via the tech side of business today “will be leader of the pack,” notes McGill, adding that it has required retailers and restaurants to “adapt quickly” to the detailed and intricate BOPIS systems.

Velocity’s Gast says, “During Covid drive-thru sales on the whole were up 15-20%, which is driving the success of free standing QSR stores. By contrast, Covid accelerated the death of some retailers, even mediocre tenants got taken out of the game. The solid ones who knew what they were doing accelerated sales, and that has put them in the spotlight now. Those that didn’t had to reinvent ways to make money if they couldn’t offer dining.”

Restaurants quickly learned if they couldn’t offer pick-up or take-out they needed to embrace BOPIS and either add or expand their drive-thru capacity, says Gast, who notes that trend is driving a “hot pad market.” Chipotle is working on introducing a drive thru concept called Chiplane and many others such as McDonalds, Burger King, Taco Bell or Filbert’s are exploring ways to expand their drive-thru or drive-up business.

 

Recalibrating Expectations

It is a new market for both tenants and landlords today that requires an approach aligned with market realities. Baker Katz’s McGill says, “Landlords must take a holistic approach and both sides have to completely recalibrate expectations now. Retail brokers are working to educate landlords and tenants as to what a realistic environment is in today’s market.” The expectation for many was that retail was failing and wouldn’t survive Covid shutdowns. Rent decreases were expected to follow the challenging period on 2020. The reality is different, points out McGill.

“Construction prices are soaring, and tenant demand is back on stronger than ever,” she said. That means landlords are needing to go back to tenants preparing to build-out space and share why rents actually need to increase because of the rising construction costs. “Those who accept the new reality are ahead of the game, which is a blessing for the industry but makes for some hard conversations with retailers expecting to get a deal or have the red carpet rolled out for them by landlords.”

The delta between expectations and reality is painful for retailers. McGill says, “Most clients expected take advantage of a market that is not there now, despite the pain and heartache experienced during the Covid downfall. We are in a different spot thankfully and that is driving activity, including retailers that are moving quickly to take advantage of new space availabilities from those who didn’t survive the pandemic.”

The landlords that proactively worked with tenants throughout the pandemic likely found solutions, too. Velocity’s Gast cites a landlord in the Phoenix market that he works with as an example of a model to follow. He completed three new restaurant deals at Desert Ridge, a high-end lifestyle center in Phoenix owned by SKB. The landlord recognized the challenges restaurants faced and offered two months of rent abatement upfront to existing restaurants rather than add it on at the back end of a lease. Other landlords may have added two months of term on the back end of deals.

Savvy landlords understood each retailer and restaurant faced tough times and would require lender support for a couple months. That helpful approach went a long way with tenants initially and as the pandemic shutdowns progressed, landlords recognized tenants required more help since they were faced with capacity issues. That meant incorporating delivery services such Uber Eats or expanding take-out options for some, though for fine dining establishments other considerations were necessary. Gast said, “Landlords that valued a tenant long-term adopted the approach that could include letting a tenant pay half rent or percentage rent in an effort to relieve stress and help tenants bridge to better times.” In some cases, that resulted in longer commitments. “If a landlord could secure a new 7- to 10-year deal to replace one that had three years remaining, they would write off Covid concessions for a longer term,” said Gast.

 

Terms and Contingency Considerations

mfi Realty’s Albert notes that it has become increasingly important for a landlord to pick quality tenants when negotiating retail leases today, rather than the first tenant that shows up at the door. He advises landlords not to be “obnoxious with lease comments but to be in deal-making mode. A tenant could move to another space, or they could face an uncertain future as a result of the ongoing health pandemic.

It is key to be flexible today, points out Albert, since an attitude of ‘it is my way or the highway’ doesn’t produce the best results. He says, “Tenants are considering multiple spaces at one time now, even for a single requirement, so if they lose out on their preferred location, they have back up options. That requires landlords to be more creative with deal structures, offer more TI allowances, or offer percentage rent to keep the base rent low.”

Personal guarantees from retailers are giving way to letters of credit (LOC), which landlords now prefer because it helps protect them against a tenant bankruptcy and the funds can be drawn to cover rent. Tenants appreciate LOCs too because they can help protect their personal assets.

Albert notes he is seeing tenants seeking pandemic clauses in leases, though landlords mostly are reluctant to provide them. Typically, only retailers like Starbucks or Ross Dress for Less are able to get them. Landlords don’t feel compelled to add such clauses anymore as they did at the pandemic’s outset because they see the market has stabilized and they have pool of tenants from which to pick.

It is natural for tenants to want Covid language included in leases to help protect them should future government shutdowns occur. Some landlords have added in language that outlined what would happen and how they would work with tenants in the event of another shutdown. “More is needed to iron out issues and work through the impacts of eviction moratoriums, back-rent and concessions,” said Gast. “But ultimately landlords still must pay their lender and other bills. Even when a tenant can’t pay rent, the landlord still has a mortgage to consider. In the short-term they can carry tenants, but if a center is shut down tenants can’t remain in place for free.”

Baker Katz’s McGill agrees it is fairly standard now in the industry to have a Covid contingency in leases if the government shuts down a tenant or a business. They are typically pre-negotiated rent relief, or cover force majeure provisions.

Another factor to consider are construction timelines for new space. Build-out periods are now extended in the Washington, DC Metro because permitting offices are behind by as much as five months. Albert also notes he’s seeing rising construction costs in the market, as well as labor shortages, too. Some retailers are not able to meet opening date requirements due to the fact they can’t staff a store and no applications are coming in. They may need add 90 days of extension or pay dark rent, notes mfi Realty’s Albert, who adds that every landlord that he’s worked with is doing a blend of extensions or securing CAM expenses and taxes for the last 90 days of build-out.

Looking back over the past year of Covid, Gast says a key takeaway is that strong collaborative relationships triumph over challenges. “Covid is an anomaly, and no one knew what to expect,” says Velocity’s Gast. “Neither the landlord nor tenant could prepare for unknowns that were revealed during the pandemic. It wasn’t a landlord or tenant’s market it was a two-way street. That is why both must work together to find solutions now. In most cases, shrewd landlords proactively communicated with their tenants and got in front of issues when they recognized a tenant was struggling to keep up with rent.”

Today, landlords and retailers face an environment where multiple solutions must be considered. Keeping an open mind to find creative ways to get a lease executed may include rent abatement, concessions, or renegotiating deals with longer terms. It may also mean being flexible regarding fixturizing periods and opening dates that get pushed back due to no fault of the tenant when permits for construction build-outs are delayed due to backlogs or slower processes at planning departments. Retailers and landlords across the country can find ways to re-open stores and bring occupancies back up at shopping malls when they collaboratively work together with retail tenants.

 

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Shots in Arms and Cash in Hands – What Does it Mean for Retail?

The American Recovery Plan Act became law on March 11 – having passed through the House and Senate and signed into law by President Joe Biden one day earlier than anticipated. In the month since its signing, millions of Americans have seen two things happening – (1) access to the COVID vaccine and (2) stimulus checks in bank accounts.

 

Shots in Arms

Short-term production and distribution challenges plagued the earliest months of the vaccine rollout, with frustration around the varying standards state-by-state and on how and who could access the vaccine. By the passage of the American Recovery Act in March of 2021, the outlook was much rosier, and by March 25, President Biden called a new goal of 200 million COVID-19 vaccines administered in the first 100 days of office (April 30). On March 2, President Biden announced that Merck Pharmaceuticals would assist rival Johnson & Johnson in the production of their 1-shot COVID vaccination, assisting with the distribution of vaccinations and ability to speed up timelines. “Two of the largest pharmaceutical companies in the world who are usually competitors are working together on the vaccine,” President Biden said in remarks delivered at the White House. “This is the type of collaboration between companies we saw in World War II.”

This collaboration has meant an accelerated timeline in even the most bureaucratic and complicated of states. California, home to 33 million Americans, announced that on April 15, all residents over the age of 18 would be able to receive the vaccine. Los Angeles County, the most populous county in the nation sped up that timeline by 5 days, on April 10 allowing all residents over the age of 16 to book a vaccination appointment, many of which were for the single shot JNJ vaccine. Governor Newsom further accelerated the opening when he declared the California economy would be “open for business” June 15.

What does open for business mean? This various state by state. Some states like Arizona, Texas, and Florida, have allowed for businesses to reopen, some removing statewide mask mandates as early as February. Retailers in these states have a head start on their slower-to-open counterparts in other states, being weeks ahead on indoor dining and capacity percentages. Regardless of the state of reopening, commercial real estate professionals agree we will see some return to normal this summer. “Humans are fundamentally social animals and I think we will all be hungry for in-person experiences once it is safe to return to them. Additionally, I think the shift away from working five days a week in the office is going to create a greater desire for ‘third spaces’ — not home, not a formal office environments,” said Clelia Warburg Peters, Venture Partner at Bain Capital Ventures.

The acceleration of vaccinations, paired with better weather and a world of retail adjusted to omnichannel operations, all lead to increased spending. Kiplinger forecasts 10% growth in retail sales in 2021, following a more moderate increase of 3% when pandemic shutdowns reduced sales in many months. 2021’s sales growth will be front-loaded into the first half of the year, because of the boost of relaxation of COVID-19 related restrictions and an increased sense of safety due to vaccinations. Kiplinger anticipates some consumer cash will be diverted into more services in the second half of the year, rather than goods, as travel and tourism are poised for a massive spike.

 

Stimulus Checks

The bill allocated for a third economic impact payment, or stimulus payment to individuals earning $75,000 or less and couples earning $150,000 or less, filing jointly. Each individual has received $1,400, with dependent children adding an additional $1,400 each to payments.

Based on the previous two rounds of stimulus, roughly 29% of funds were used for consumer spending. The balance went towards debt repayment and savings. Of the consumer spending, food and household supplies were the big winners, with recreational goods and household items making up a smaller, but significant amount of spending. The third round of stimulus has hit bank accounts at a time when the overall consumer confidence has increased, with the Conference Board citing that the confidence index is now at 109.7, up from the previous month’s rating of 90.4. “Consumer confidence increased to it’s highest level since the onset of the pandemic in March 2020,”, said Lynn Franco, the Conference Board’s Senior Director of Economic Indicators. “Consumers' assessment of current conditions and their short-term outlook improved significantly, an indication that economic growth is likely to strengthen further in the coming months.

Consumers' renewed optimism boosted their purchasing intentions for homes, autos, and several big-ticket items. However, concerns of inflation in the short term rose, most likely due to rising prices at the pump, which may temper spending intentions in the months ahead. X Team’s Ken Schuckman of Schuckman Realty based in New York doesn’t see any signs of spending tempering. “There has been a pent up demand for spending. While there has been a seismic shift in spending patterns over the last year, we are an inherently social people, and with stimulus checks in pockets and a more positive outlook than in previous months, spending should increase and benefit retail along with it.”

 

Ongoing Impact

Economists and CRE professionals alike warn of the long-term inflationary impact of pumping stimulus into the economy. X Team’s Schuckman warns of over-excitement about a second roaring ‘20s, reminding of the long-term impact of an inflationary environment. “There’s a lot of talk about the roaring ‘20s right now, but we need to remember what happened at the end of the last roaring ‘20s, the Great Depression.” Responsible monetary policy will need to follow the government spending spree of 2020 and 2021. Schuckman also emphasizes that the Stay-at-Home economy is over, but the conveniences we’ve become accustomed to will stick. In March of 2020, there was a 5-year projection that 1/3 of malls in America will close, in March of 2021, that timeline has been reduced to 24 months. “COVID has been an accelerator”, says X Team’s President, Dave Cheatham, “It is painfully clear that one of the lessons 2020 taught us is that COVID truly revealed who was weak in the retail sector and, conversely, it proved who was resilient.” Schuckman adds that innovation will be the winner in the new era, category killers will be dark big boxes, where new concepts will be able to open and thrive.

 

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The power of developing new ideas and mentoring young leaders is no more evident that at X Team Retail Advisors. The national retail alliance announced X Now, its multi-generational team, is growing its members in an effort to cultivate new retail leaders. The new regional X Now leaders are spread across the country and includes:

National leader, Evan Albert of MFI Realty in Baltimore, MD
Northeast, Andrew Thacker of S.L. Nusbaum in Richmond, VA
Southeast, Andrew Tanneberger of The Providence Group in Charlotte, NC
Midwest, Sean von Schwartz of Stokas Bieri in Detroit, MI
South Central, John Frazier of Baker Katz in Houston, TX
West, Kevin Trujillo of Velocity Retail Group in Phoenix, AZ and Joe Chichester of Faris Lee Investments in Irvine, CA

The X Now program was launched to ensure rising stars within the organization receive the tools and resources to develop and sustain a career in the retail real estate industry. Components of the program include mentorship, training, and fostering multi-generational teams, the backbone of longevity in commercial real estate.

“An organization’s growth and long-term success can often be traced to the priority and attention paid to its young leaders,” said X Team’s Jim Stokas of Stokas Bieri, who serves as a mentor to X Now members. “Mentorship benefits the company as well as the younger leaders who receive retail sector training and guidance that ultimately establishes a foundation for career success.”

A recent example of such collaboration within the X Team network involves Indianapolis, IN based Niessink Commercial. Connie Niessink, who serves as a mentor for X Now team members, relays how the firm referred an investment listing encompassing two retail centers in Indianapolis, IN to Faris Lee, an X Team affiliate in Southern California. As a result, Faris Lee found a buyer and a $9.3-million sale was executed for these properties.

The X Team is comprised of more than 350 retail real estate affiliate specialists in 40 markets across the U.S. that have come together in one dynamic and cohesive unit. The value of such an affiliation plays out in numerous ways, not the least of which are the opportunities to network, learn and expand beyond the backyards of members.

Niessink also shares how its 23-years of representing Panera Bread contributes to new opportunities for X Team affiliates. “We just completed our 50th transaction on behalf of Panera,” said Niessink. “Interestingly, this 50th deal was done in Louisville, KY with our X Team Partner, TRIO Commercial Property Group, which was the listing agent for the site. It is a perfect example of the power of collaboration across the X Team platform.”

That type of relationship-building effort to complete deals is at the forefront of X Now, too. Evan Albert, who joined the MFI Realty team in 2015, specializes in tenant and landlord representation throughout the Maryland, Washington D.C. and Northern Virginia markets. He has overseen the expansion of local, regional and national tenants, assisting them in site selection, analytics and deal negotiation. Albert has been in the industry for nearly six years but says he’s looking to build relationships with tenants and landlords through networking in the coming year as part of the X Now program.

Albert said one of the biggest challenges to establishing a foothold in the retail real estate industry for him so far is “building relationships with tenants and landlords who have been using other brokers for years. Retail real estate is an industry of networking, and we are all very social people, but it is difficult to convince someone who has been using broker x for the last 15 years to switch to myself.”

The value a program such as X Now brings to a career is measured in long-term success. “There is tremendous value in the program,” notes Albert. “First, it is a great networking opportunity. Second, these are the future leaders of their markets and by building relationships now, while we are relatively new to the business, allows us to build those decades long relationships that lead to business across our networks. Finally, we can compare ideas, tactics, and strategies to better hone our skills.”

But to tap into the power of X Now, young leaders must understand the support that is available and determine the resources that help them best meet their needs. “I would say the biggest area of support is in networking,” said Albert. “Anyone can trade paper and negotiate LOI’s but getting into the room with the head of real estate for xyz company can be a lot more difficult.”

An example that Albert says shows how a program like X Now brings value was when he needed a contact at a bank for a project in Virginia. Locating the right person was proving elusive through Internet searching or through his local contacts. “Ultimately, he discovered a fellow X Now member represented that bank in their market and was able to connect me to the right person.”

The X Now program equips rising stars within the X Team platform with exactly what they need to build a career in retail real estate. The innovative program is also a powerful tool to cultivate new retail leaders and grow the organization.