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News release

Las Vegas

Jones Lang LaSalle Retail Roundtable: ‘Silver Lining or Just Clouds on the Horizon?'

Experts predict retail real estate market will present a very attractive buying opportunity over the next 4-5 years

ICSC, Las Vegas, May 19, 2009 — Strained lending conditions within capital markets have forced retail real estate players to make paradigm shifts to their business models, said a panel of experts at the second annual roundtable discussion hosted by Jones Lang LaSalle.  The participants agreed that the bar has been raised on lending—a factor which investors and developers must now navigate.  The panel, made up of retail and investment sales experts, discussed this extraordinary environment and the opportunities associated with this evolving, yet cyclical sector.
The discussion group included Greg Greenfield, CEO of Gregory Greenfield and Associates; Mark Gleason, Principal of Prudential Mortgage Capital Company; Daniel Taub, Executive Vice President and COO of DLC Management Corp and Tom Caputo, President of Equity One. Representing Jones Lang LaSalle was, Greg Maloney, President and CEO of Jones Lang LaSalle Retail; Jim Koury, Managing Director, Retail Investment Sales and moderator, Kris Cooper, Managing Director, Retail Capital Markets.
Kris Cooper determined, “Underwriting standards have increased dramatically, and we’re not going to see the same aggressive lending in the future.”
“We had an extended run of good times that was so good it should have produced a significant down cycle - but this has turned out to be a down cycle on steroids,” said shopping mall owner and developer, Greg Greenfield.  “There’s been wholesale displacement of lending capacity that, if not permanent, will take months and years to return to normality.”
Prudential Mortgage Capital Company, Principal, Mark Gleason, agreed, “It will be a long time before liquidity and capital returns anywhere to where they were in the go-go years.”
Jones Lang LaSalle’s Jim Koury pointed out that while lending is in a difficult place, an additional market-moving event looms. “There is a wave of properties that were purchased and financed at around an 80 percent loan-to-value between 2005 and 2007, and the resulting loans are scheduled to mature in the next one to five years. Many of these properties will be difficult to refinance due to increased lender underwriting standards, including lower loan-to-value targets.”  Daniel Taub agreed and added, “This will also present an unprecedented opportunity to purchase real estate assets of all quality types at attractive pricing levels.”
For now, pricing for the most risk-averse retail assets remains relatively strong in core markets.  "Dominant supermarket-anchored centers are the stalwarts, with cap rates holding firm between the high 7 to mid 8 percent capitalization rate range, said Koury.  “If you look at historically stabilized values for the same supermarket anchored centers from 1993-2003, cap rates ranged from 8.8 percent to 9.2 percent.  Therefore, today’s data still reflects premium pricing when compared with historical norms.  However, values for non-food anchored centers or properties located in secondary markets are still difficult to ascertain due to the dearth of data in the market. "
Emerging opportunities
Even with lending in such a state of flux and the void left in the market by the disappearance of CMBS, some opportunities are emerging.  Investor Tom Caputo noted, “The best investment we can make in the current climate is buying back our own debt with unlevereged yields at around 12-14 percent.”
Lenders are also finding opportunities in the current climate. “We can cherry-pick the best assets in the market,” said Gleason.
Greg Maloney, from Jones Lang LaSalle Retail was upbeat regarding opportunities for those who dare to take a risk, “Smart investors make money whatever the climate and today’s environment is no different.  However, many people feel that we have not yet hit bottom and are consequently waiting on the sidelines.”
The government’s recent announcement on the Term Asset-Backed Securities Loan Facility (TALF) program could, however, re-start the engine.  Cooper explained, “Special loan service providers are assisting in the financing of distressed assets with 75 to 80 percent loan to purchase price on first mortgage financing.”
Two bright spots are that recent retail sales figures have exceeded analyst’s expectations and there have been fewer than expected bankruptcies.  “While some inevitable victims were over-leveraged and propped up by aggressive capital, we expected more trauma in terms of Chapter 11 filings and store closings, but it has been relatively quiet this year,” said Greenfield.  “We are, however, seeing some retailers being proactive and hiring consultants to negotiate landlord concessions.  In fact, we are being deluged by rent relief and restructuring requests from tenants to reduce their occupancy costs.”
Some retailers are able to call the shots through rent relief while other retailers’ business models are riding high, as DLC’s Daniel Taub pointed out, “Value oriented retailers and dollar stores are part of a small universe of tenants that are doing business and haven’t stopped doing business.  They are well-capitalized and are doing deals, taking advantage of situations and expanding into markets that were previously closed to them.  Landlords will do deals on a much lower cost per square foot basis.  Gone are the days when Starbucks and national and regional banks put their footprint on premium leasing space.” 
Taub continued, “Some of the smarter retailers, in addition to hiring consultants to persuade landlords, have right-sized their own portfolios by downsizing their operations.”  Meanwhile, it really is time for leasing teams to roll up their sleeves and go to work, with cold-calling high on the agenda, remarked Caputo.
Survival of the Fittest
While retailers are fighting to survive, many are questioning the health of the traditional shopping mall, as well as other types of retail investments such as lifestyle centers.  “I think the free-flowing cash that was available prior to the credit crunch enabled many malls that should have gone out of business to be artificially sustained,” said Greenfield.  “Now with the lack of liquidity, there will be a rationalization of regional malls.  I still think the regional mall-as a concept-will continue to exist.  Many lifestyle tenants will return to the traditional malls but there will be a consolidation among the strongest of all the categories of malls.”
Along with strict underwriting standards and rationalization of retail opportunities, panellists also discussed the future of the lenders themselves.  “We are in effect competing with a new breed of lenders, some regional and community banks in the Mid-Atlantic States, metro New York and New England—these were small banks that were not doing business in the go-go years but now they’re relatively active,” said Gleason. “The problem is that a $10 million asset is large for them.  There is some capital in life insurance companies but beyond that, it drops off the cliff.”
The panel agreed that despite this new breed of lenders, this would not spur an immediate resurgence of activity.  In fact, it may be several years before that occurs.  Cooper observed, “One saving grace is the lack of new construction, only projects nearing completion.  We have seen some rather substantial projects cease mid-cycle.  At least from the supply side, we won’t see an increase in product.”
Maloney on the other hand thinks that a resurgence is just
around the corner, “I have a more optimistic view, and think that market stabilization will begin Q4 this year which will
spark an uptick in the market in 2010.”
Gleason noted, “In the short-term, unless something like TALF really takes off, the lending environment will remain constricted.”  Greenfield concluded, “As bad as it is, we’ve had quite a ride and we should remember that real estate is cyclical.”
Participants in the Jones Lang LaSalle retail roundtable agreed that investors should get in position to take advantage of an unusually attractive opportunity to acquire both distressed and non-distressed assets as their loans mature over the next 4-5 years.
About Jones Lang LaSalle Retail
As a third-party service provider, Jones Lang LaSalle Retail manages the largest retail portfolio in the country. Its 59 million-square-foot portfolio consists of more than 145 regional malls, strip centers, power centers, lifestyle centers, ground-up development projects, mixed-use centers and transportation terminals across 30 states. Jones Lang LaSalle (NYSE: JLL) has a portfolio of 1.2 billion square feet of property under management worldwide, including more than 10,000 retail locations on four continents. Jones Lang LaSalle is the only global real estate services firm with a team of dedicated, full-time experts who deliver comprehensive and globally integrated services in Energy and Sustainability under one umbrella. The firm offers leading-edge, industry-unique technology, training and tools in energy and sustainability to maximize the benefits for its clients and the greater community. For more information on Jones Lang LaSalle Retail, visit
About Jones Lang LaSalle
Jones Lang LaSalle (NYSE:JLL) is a financial and professional services firm specializing in real estate. The firm offers integrated services delivered by expert teams worldwide to clients seeking increased value by owning, occupying or investing in real estate. With 2008 global revenue of $2.7 billion, Jones Lang LaSalle serves clients in 60 countries from 750 locations worldwide, including 180 corporate offices.  The firm is an industry leader in property and corporate facility management services, with a portfolio of approximately 1.4 billion square feet worldwide. LaSalle Investment Management, the company’s investment management business, is one of the world’s largest and most diverse in real estate with more than $46 billion of assets under management. For further information, please visit our Web site,
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