This is a recent panel which I moderated for ICSC Northern California Alliance program on retail trends, shrinking and expanding retailers, etc.

1. A PUBLIC STRATEGY FOR
TODAY’S RETAIL REALITY
ICSC Northern California Alliance Program 2009

2. Panel
Presentations
Janet Smith-Heimer, Managing Principal, BAE
Retail Trends
e a e ds
Retail Store Closures
Garrick Brown, Senior Retail Research Director USA, Colliers International
Commercial Real Estate – The Next Crisis?
Panel Discussion – Public Strategies
Doug Wiele, President, Foothill Partners
Bill Lambert, Assistant Director of Economic Development, Alameda County
Redevelopment Agency
Leslie Parks, Director of Downtown Management, San Jose Redevelopment
Agency
The Good News – Expanding Retailers

3. RETAIL TRENDS & STORE
CLOSURES
bae Janet Smith-Heimer, BAE

4. Why Do We All Care About Retail?
Developers/Retailers
D l /R il Local G
L l Governments
Location Location
Accessibility Accessibility
Attracting shoppers Placemaking /
Revitalization
R i li i
Occupancy Occupancy
O
Sales per square foot Sales per square foot
Return on Investment Tax Revenue to
General Fund
bae

5. Impact of Recession
Developers/Retailers
l / l
Slowed development projects
Rising
Ri i vacancies/ l
i / lower l
lease rates
Closing stores
Bankrupt b i
B k t businesses
Local G
L l Governments
Declining tax revenues
Slowed revitalization projects
Sl d it li ti j t
Empty stores/blighted landscape
Job losses
bae

6. National Sales Trends
US retail sales
grew steadily
through this
h h hi
decade…
Until 2008
bae
Source: Monthly Retail Trade Survey, U.S. Census, June 11, 2009 Release.

7. Recent National Sales Trends
Sales started
to plunge in
Aug 2008,
A 2008 to
unusual low in
Dec 2008
Sales starting
to tick up in
Aug 2009
bae
Source: Monthly Retail Trade Survey, U.S. Census, June 11, 2009 Release.

8. Bay Area Per Capita Sales
Accounts for
changes in
population
l i
Shows 2007
declining on
adjusted per
capita basis
bae

9. Major Impact of Recession: Retailers
Closed or Closing
Mervyn’s Steve & Barry’s
y
Circuit City y
Valve City
Gottschalks KB Toys
Shoe Pavilion Wicks Furniture
Yardbirds Levitz
Bally Fitness Goody Family Clothing
Linens N Things Cache
Sharper Image Movie Gallery
Bombay and Co.
y Wilson Leather
Bailey, Banks & Biddle
bae Sources: Metrovation & Collliers International

10. More Impacts of Recession: Retailers
Closing Stores or Filing Chapter 11
BBQ Galore Filed Ch 11 Disney Stores Closing 100 + stores
y
Ann Taylor Closing 117 stores
g Goodys Closing 103 stores
Cost Plus Closing 26 stores Benigans Steaks Closing 150 stores
Talbots Closing stores Boscovs Filed Ch 11
Macy’s Closing 11 stores Against All Odds Closing W. Coast stores
J Jill Closing stores Black Angus Closing stores
Shane Co Filed Ch 11 Ritz Camera Closing 100 + Stores
Foot Locker Closing 140 stores Lane Bryant Closing 150 stores
Gapp Closing 85 stores
g Eddie Bauer Closing 27 stores
Sprint/Nextel Closing 133 stores Home Depot Closing 15 stores
Ethan Allen Closing 12 stores Pacific Sunwear Closing stores
Pep Boys Closing 33 stores JC Penney Closing stores
Zales Jewelers Closing 105 stores Dillards Closing stores
bae Sources: Metrovation & Collliers International

11. Impacts of Recession
Falling sales
Closing stores
g
Empty storefronts
Closing t dealers
Cl i auto d l
Stalled projects
Where is this all going?
bae Compact Car Parking at Target

12. COMMERCIAL REAL ESTATE
- THE NEXT CRISIS?
Garrick Brown, Colliers International

13. The Next Shoe to Drop
The New Foreclosure Crisis
$3.5 Trillion in total outstanding CRE Debt
(
(according to Federal Reserve)
g )
$2.6 Trillion held by banks
$900 Billion CMBS
Approximately $1.155 Trillion in CRE debt
coming due through 2012
$
$1 Trillion held by banks
y
$155 Billion CMBS

14. Amount of CRE Debt Going Bad Through 2012?
We are already dealing with a number of
banks on their distressed assets, as well
as a number of CMBS special servicers.
Their individual estimates vary, but the
consensus number we are hearing from
lenders of all types is that they expect
roughly 30% of their CRE loans to go bad
over the next 36 months…
Some lenders are bracing for as much as
a 40% failure rate.
About half f these properties will b
Ab t h lf of th ti ill be
retail…

15. 30% Failure Rate Equals…
The New Foreclosure Crisis
If 30% Failure Rate Holds…
Estimated $300 Billion in Bank Losses and
$50 Billion CMBS
Expected Losses of $350 Billion Thru 2012
Adjusted for inflation, the approximately $160B
lost in the S&L crisis, would come out to roughly
$250B in today’s dollars.
This is bigger than the Savings and Loan Crisis
And it should have hit us… already…

16. Pretend & Extend
“Pretend & Extend?”
Lenders are opting not to foreclose, but most
are also not doing loan modifications or
workouts either…
For many smaller regional and local banks, a
matter of survival…
tt f i l
Attempt to hold back flood gates to lessen
losses and to slowly release troubled assets to
the market to minimize pricing pressures…
Many are holding out hope for improving market
fundamentals to lessen problem…
Some hold out hope of government intervention
or aid…

17. Inconsistencies in Pretend & Extend
Though “Pretend & Extend” is th overriding
Th h “P t d E t d” i the idi
trend, we continue to see inconsistencies in how
banks are dealing with troubled loans
Individual bank balance sheets play a role in
these decisions…
Bank staffs are being overwhelmed by sheer
numbers of problem properties…
Decisions often being made by loan officers
whose expertise is in writing loans, not dealing
with distressed properties…
Decisions often are being made from afar by
individuals with little local market knowledge…
g

18. The Problem With “Pretend & Extend”…
Likely Kicking the Can…
There are no more bailouts coming…
Retail fundamentals will continue to be
weak for at least another three years…
There are already buyers on the
sidelines… waiting…
There are now two types of REITS—
bankrupt or raising capital through IPOs.
$20 Billi h b
Billion has been raised th
i d through IPO
h IPOs
in last five months… to both pay down
debt/save balance sheets and … to build
warchests f the fi
h t for th firesale t come…
l to

19. The Problem With “Pretend & Extend”…
Clouding the Bottom
Without “Pretend & Extend” we would
be looking at shorter, but VERY sharp
g , p
market correction…
Pricing declines from peak of anywhere
from 50% to 80% for some property
types, with pricing schism between
quality, stabilized product with solid
occupancy vs. weaker properties…

20. The Problem With “Pretend & Extend”…
Prolonging the Inevitable…
The asset bubble has burst already.
Deals are not happening yet, because time
is on the side of opportunistic buyers… and
they know it.
There are buyers waiting on the sidelines
NOW… but they want 10% to 12% caps…
not the 8% and 9% caps we see being
offered…
Sales ti it likely till t l
S l activity lik l still at least six months
t i th
off until flood of distressed assets results in
pricing declines of at least another 10 to
15%...
15%

21. Looking Ahead: Worst Case Scenario
When it comes to crisis, Fed is hoping to
manage as if controlled demolition.
t ll d d liti
Assuming they can’t…
Economic recovery remains weak
CRE fundamentals worsen
Pretend & Extend only prolongs problem
until lenders are overwhelmed by sheer
volume of distressed assets
Too many small and regional banks fail at
once (1,500 institutions or more in this
scenario)…
Credit markets seize up again
Double dip recession…
p
NOT LIKELY…

22. Looking Ahead: Likely Case Scenario
CMBS Losses Mildly Diminished by Policy:
Recent Extension of TALF
Recent Tax Changes
Continued Extension of TALF
Further Policy Tweaks
Small and Regional Banks Devastated
1,000 banks fail
,
Pretend & Extend helps some banks to
survive, but ultimately prolongs crisis…
CRE values drop another 20% in marketplace
with murky bottom. Process takes five to seven
years to work through system, with CRE values
depressed
Recovery significantly weighed down, but not
derailed by i i
d il d b crisis.

23. It’s Happening Already
8,204 US Banks Remaining
Roughly 100 Have Collapsed in 2009
Over 415 on FDIC “Watch List”
Watch List
FDIC looking into borrow billions from
“Healthy Banks” to deal with p
y pending crisis
g
The victims will not be the “Big 3” but banks
small enough to let fail…
Excellent Website to Research Individual
Bank Health:
http://banktracker.investigativereportingwork
shop.org/banks/

24. WHAT DO WE DO NOW?
Panel Discussion: Leslie Parks, Doug Wiele, & Bill
Lambert

25. THE GOOD NEWS
Expanding Retailers and Restaurants

26. Retailers - Expanding
Anna’s Linens 7-10,000 sf DSW 15-25,000 sf
Apple Computer 3 5,000 15 20,000
3-5 000 & 15-20 000 sf Famous Footwear 5 8,000
5-8 000 sf
Avis Car Rental NA (malls)
Batteries Plus NA Fantastic Sams 1,200-1,500 sf
Bed,
Bed Bath & Beyond 20-30,000
20-30 000 sf Foods Co 65-80,000 sf
,
Brooks Bros 8-10,000 sf Forever 21 2,500-90,000 sf
CPK 5,000 sf Gamer Doc 800-1,500 sf
Carter s/OshKosh
Carter’s/OshKosh 2-4,000
2 4 000 sf Game Stop 1,200 2,000
1,200-2,000 sf
Children’s Place 4,000 sf Golfsmith 20,000 sf
Staples Copy 4,000 sf H&M 10 – 40,000 sf
Citi Trends 5,000
5 000 sf Henry Markets 20 30,000
20-30 000 sf
Cost Cutters 900-1,200 sf Home Goods 25-37,000 sf
Costco 100,000 sf+ JoAnn Fabrics 35,000 sf
Dollar Tree 10-12,000
10 12 000 sf Jos A Banks 4,500
4 500 sf
Kohl’s 86-92,000 sf
Sources: Metrovation & Collliers International

27. Retailers – Expanding (cont….)
Massage Envy 2,500-4,500 sf Sprouts Organic Grocery 20-30,000 sf
Old Navy 15-19,000 sf Staples
St l 15,000 f
15 000 sf
Payless Shoes 2700-3300 sf Styles for Less 2,500-3,000 sf
Pet Food Express 6,500 sf Supercuts 900-1,200 sf
Petco 12-15,000 sf Sylvan Learning Centers
S C 1,600-2,500 sff
Party City 12,000 sf Target 125-175,000 sf
Rack Room Shoes 6,000 sf malls The Avenue 4,500 sf
Rainbow 5,000 sf TJ Maxx/Shoe Store 10,000 sf
Sleep Train 5,000 sf Villa Sport 70-80,000 sf
Smart and Final Extra 25-30,000 sf Walgreens 14,500 sf
Sports Chalet 40,000 sf Zara (malls) up to 14,000 sf
Sources: Metrovation & Collliers International

28. Restaurants - Expanding
Bad Ass Coffee up to 1,800 sf Golden Corral 11,000 sf
Beach Pit BBQ 2 – 2,500 sf Habit Burger 1,500 – 2,200
Big Swirl Yogurt up to 1,500 sf Java City up to 3,000 sf
Boston Market up to 3,500 sf Jimmy John’s up to 1,500 sf
Cheba Hut 2,000 sf Johnny Rockets up to 3,500 sf
Churro Station (malls) 800 sf Julie’s Thin Crust up to 2,500 sf
Cici’s Pizza up to 4,200 sf L&L Hawaiian BBQ up to 2,500 sf
Einstein’s/Noah’s up to 2,500 sf Maos Vegetarian 1,000 sf
El Pollo Loco up to 3,500 sf Marco’s Pizza up to 1,400 sf
Extreme Pita 1 – 2,000 sf Mary’s Pizza Shack up to 4,000 sf
Extreme Pizza up to 2,500 sf McDonald’s 4,000 sf Pad
Five Guys Burgers & Fries 1 – 2,000 sf Mr. Pickles 1 – 2,000 sf
Fraiche Yogurt 800-1,500 sf Old Chicago Pizza & Pasta up to 4,500 sf
Fuddruckers up to 5,500 sf Pacific Yogurt Partners up to 1,200 sf
Fuzio Universal Bistro 3 – 3,500 sf
Sources: Metrovation & Collliers International

29. Restaurants – Expanding (cont…)
Panera Bread up to 4,500 sf SF Sourdough Eatery N/A
Pho Hoa 2 – 4,000 sf Shakey’s Pizza up to 4,000 sf
Phoa Noodle 1200-1800 sf Smashburger 1,800 sf
Pinkberry up to 2,000 sf Spicy Pickle up to 1,800 sf
Pizza Patron up to 1,200 sf Sonoma Chicken Coop 5-8,000 sf Pad
Pizzeria Venti 2,500 sf Spoon Me up to 1,300 sf
Popeye’s Chicken 2,500 sf Pad Submarina up to 2,500 sf
Red Mango up to 1,200 sf Subway 1 – 2,000 sf
Round Table Pizza 2 – 3,000 sf ToGo’s up to 2,400 sf
Rubio’s Mexican Grill 2 – 2,600 sf U-Food Grill (airports) 800 to 2,000 sf
Sandella’s Flatbread up to 1,500 sf Wahoo’s Fish Tacos up to 2,500 sf
Seller’s Markets up to 3,300 sf Wing Stop 1,500 sf
Sources: Metrovation & Collliers International