STREET FRONT OR SHOPPING CENTER?

The renaissance of central business districts like Downtown Los Angeles are challenging many precepts of what makes for a strong retail location. So many franchise brands were born and cultivated in the suburbs. Urban locations are considered non-traditional and relegated to the “B” list. Urban core locations do not align with features found in typical suburban shopping center locations.

The differences include daytime population versus resident population, modes of transportation, and the biggest amongst them, parking. The thought of putting a store in a building with no dedicated parking would scare most corporate vice presidents of real estate to death.

But while the rest of the franchise world frets, brands like Subway and Five Guys are gobbling up urban street front locations. Subway must have 10 locations in Downtown Los Angeles (where I live) and all of them are open 24 hours.

It’s time to think out of the parking lot, don’t you think?

WHAT DOES BUILDING IMAGE MATTER FOR YOUR BUSINESS?

Tenants often struggle with the building image factor of site selection, whether the site is retail, office, or industrial. While a good agent who has taken the time to really understand the client’s business can advise them, it is crucial to help them see the logical answer for themselves. And the determination of how much weight to put on curb appeal is indeed logical.

The experienced reader will certainly make the case for location over building image. This conventional wisdom is sound, but properties occupying better locations often maintain a higher image with respect to design and materials, if only to maximize the rent of their superior location. So for purposes of this brief missive, let’s assume location and image run parallel.

Building image absolutely filters through to the public’s perception of the business located within. If the desired perception of your business is sophistication, class, and quality of goods or
services, then tired, second-rate properties must be passed over. Chances are, the price point of your goods an services are higher, justifying the higher rent commanded by the building. If the desired perception is value and/or convenience, then the “B” or even “C” class buildings might be perfectly suitable for your business, given the owner maintains base standards of cleanliness, maintenance, and safety. These base standards must never be violated. A good real estate advisor will keep his or her clients mindful of this.

Warehousing and distribution tenants address the very same concerns. If the commodity is food products, better building image (and the higher level of building and common area maintenance
that usually accompanies them) are extremely important. If the commodity is recycled materials or galvanized pipe, then image could move in priority below other considerations, such as
truck ingress and egress and loading dock door dimensions, for example.

There are many options in any given market. Choose wisely…and logically.

RETAIL TRENDS: DEPARTMENT STORE CHANGES AFOOT

The high-profile, large-scale barometer of retail health, the department store, is in flux. Three
of the biggest retail tenants on the planet all made print in the Wall Street Journal on February 24. Sears is shrinking, almost to the point of a retreat from the national-scale department
store class. Bloomingdales, the tony NewYork-based icon is adopting grocerystore marketing tactics, and J.C. Penney is touting a grand future.

Big pronouncements are nothing new from department stores. Their size assures them notice
from national media such as the WSJ and their corporate suites make the most of that. But it remains fascinating to see how this outsized model is evolving – some say devolving – from the days they were considered the pinnacle of retail merchandising. Nobody would doubt department stores are struggling to maintain relevance.

Sears will be closing – and in many cases selling – 1,200 stores across the nation in a last-ditch effort to stop the hemorrhaging from a futile attempt to reposition the chain pursuant to their merger with Kmart. The fact is that a venerable merchandising brand has been allowed to deteriorate from pure physical neglect. They have short-changed their physical plant, allowing their stores to deteriorate. Simple property management common sense. The only real value left there is in their great product brands, including Craftsman tools and Kenmore appliances. Whether they can rebuild on those nuggets is anyone’s guess.

Bloomingdales is ditching their branded credit card loyalty strategy for a bar code fob used by the major grocery chains. This doesn’t, in this writers view, detract at all from their upscale values. In a word, smart. And Ron Johnson, the new CEO of J.C. Penney, formerly of Target Corp and Apple, has pronounced department stores the “number 1 opportunity in American retail.”

But just like in the business world in general, the real work in retail is done on a small scale, on the shop level. As always, this is where new ideas, new energy, and the vast majority of retail jobs come from. And this is where we will find reliable indicators of a reemerging economy.

CALIFORNIA’S HOT SPOT

The state of California is reeling from a huge budget deficit anchored to seemingly insurmountable unfunded pension liabilities. And yet, there are signs of life again in one city after what has felt like a long, cold economic winter. The Downtown Los Angeles commercial real estate market is on fire!

Notwithstanding the dissolution of the Community Redevelopment Association – all of the CRAs in the state were vaporized by Governor Brown – there are scores of projects driving the most dramatic renewal of any major city in the country. There are no fewer than 70 active development projects in or near the downtown core, ranging from restoration of Clifton’s Cafeteria on Broadway to the construction of Farmers Field, the only purely speculative professional football stadium built in; well, forever. LA does not yet have an NFL team.

Values are going through the roof. The owner of the Downtown Car Wash, a fixture for more than 30 years in the South Park district near LA Live and Staples Center has announced he is selling after getting serious interest from several developers for his parcel of three quarters of an acre after listing it for $25 million, or $683 per square foot. That’s just the dirt.

Population is growing dramatically, but the numbers will astonish you for reasons you might not expect. There are – get this – 45,000 residents living in downtown LA, While this is a 300% increase from just 10 years ago, these numbers are still surprisingly low for a major internationals city. Growth is relative. But the trend that cannot be quantified is that downtown is emerging as the coolest area in downtown LA. You have to have lived in our fair city to understand what a radical change that represents after being the black hole in the middle of the megalopolis for 50 years.

Keep your eye on Los Angeles.

THE FUTURE OF BUSINESS IN CALIFORNIA

It was a brilliant presentation of undeniable facts from Larry Kosmont, President of Kosmont Companies about the economic and political forces presently at work in California…and the ramifications to every business in the state.

Mr. Kosmont made his 2012 Economic Forecast presentation to the Central City Association in downtown Los Angeles on Thursday, February 16. Some of the facts Larry laid out were daunting:

• The state is frozen in a dread triangle of high unemployment, staggering pension obligations, and the legislative’s preferred response: tax increases.

• There are 15,000 retired public workers in California with pensions greater than $100,000 annually.

• The casualties resulting from the elimination of the State’s redevelopment agencies will include tens of thousands of jobs and hundreds of projects, including the construction of the vast majority of new affordable housing in the State.

• As California raises its taxes, it continues to lose business to Arizona, Nevada, and Colorado

• Mr. Kosmont describes a “hollowing out” of our business economy: successful businesses are incubated in California, but most of the blue collar/middle class jobs are then exported due to the high cost of doing business here, leaving only a skeleton crew of sales people to maintain the company’s presence.

• Downtown Los Angeles is the brightest spot in the state, as the residential population grows and businesses springing up constantly to be a part of the revival of a once great urban core.

The conclusion: California is not the promised land it once was, but it can be rescued.

Mr. Kosmont’s presentation is available online at www.kosmont.com. It is very interesting reading.

TRAFFIC COUNTS – FRIEND OR FOE?

One of the most closely watched metrics in measuring the relative desirability of a business location is traffic count. Having a real estate broker that can access this information in real time is highly valued by tenants who consider this critical information.

But consider this: One of the most heavily traveled roads in Southern California is Pacific Coast Highway. For the affluent population residing near the Pacific Ocean, this road connects all of the communities up and down the coast. Most of the highway is wide and carries a large volume of traffic efficiently. But many of the retail shops that line the highway are struggling or empty. This may have you scratching your head, but stay with me here…there is a very sensible explanation. In some locations along the highway, convenient ingress and egress are sacrificed due to high volume, high speed traffic flow – people are zooming by and don’t slow down long enough to identify the businesses in the area. The rent premium paid for high traffic at these locations is unfortunately wasted; worse, it becomes a burden that could put the business under. What a shame.

There is more to traffic count than meets the eye. It is more than just a number: Is the subject traffic artery busy due to local commerce, or is it a favored route across town or to the freeway? Is exposure of your brand (i.e. your sign) your goal, or is your objective fitting strategically into the fabric of shopping patterns for your target customer? There is no universal right or wrong here. But you need to define what is right or wrong for your business.

You and your real estate broker need to clearly understand your customer and their reasons and methods of patronizing your business. Traffic count is indeed very valuable information, but only if interpreted correctly.

LOCATION, LOCATION…COMMUNICATIION!

One baseline principle of commercial real estate will never change: location, location, location. But there is a new “place” where all businesses reside today and that is the internet. More and more people every day decide where and with whom they are going to do business using search engines. Notwithstanding the street address of your business is, your online location – where your prospective customers find you on the world wide web – is gaining in importance.

Even if you elect to pay a premium for a prime location, you could be wasting your money if you fail to make a strong initial marketing push. And the internet is one of the smartest places to do it. There are firms that guarantee to move your business web site to the first page on the major search engines. That's a smart way to drive traffic to your new location. And there is a new company based in Orange County, California that is a one stop shop internet platform for streaming internet video advertising opportunities allowing you to rifle shot your message to your potential customers from the top of gas pumps, office building elevators, doctor’s offices, and even on movie theater screens.

Today, having the right address is not enough – you must get the word out in a hurry to make sure your business hits the ground running.