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THE YEAR AHEAD

Pessimists say: Inflation will lead to an increase in long-term rates ranging between 50 and 75 basis points, says Marcus & Millichap’s Bernard J. Haddigan. Higher rates, operationg expenses and borrowing costs will hurt REITs’ FFO, despite strong net operating incomes at their properties, says Steve Sakwa, a Merrill Lynch analyst.

But optimists say: Vacancies will inch down to 8.8 percent and rent growth will hit 3.5 percent (from 2.5 percent in 2005), Haddigan says. Expect buyer demand to stay up while cap rates remain in the low-to-mid 7 percent range for multitenant properties and between 6 percent and 6.5 percent for single-tenant properties, on average.

 

MIXED-USE MUSCLE

The Related Cos. will pay $505 million to buy Equinox Holdings, operator of 25 upscale fitness clubs in Chicago, Los Angeles, New York, San Francisco and south Florida. Related, a New York City-based mixed-use developer, says it plans to anchor many of its new projects with Equinox gyms. Currently, the firm is Equinox’s landlord at three New York City locations, including the behemoth Time Warner Center. A 35,000-square-foot Equinox will anchor a luxury condominium project Related is building on Manhattan’s Upper West Side. Harvey Spevak, president and CEO of Equinox, will continue to lead the company. Equinox revenues have grown from $63 million in 2000 to $168 million for the 12-month period that ended in September. The deal closes this month.

 

A NEW KIND OF JEWEL BOX

Turnberry Associates didn’t go to a traditional jeweler to fill an empty space at its 224,992-square-foot Aventura (Fla.) Square power center. Instead, the firm leased a 16,500-square-foot shop to a collection of 45 high-end jewelry vendors that sell everything from wedding bands to charms for children out of individual booths. The innovative concept is an example of developers and retailers hedging against impending consolidation in the $54 billion jewelry retail sector, says Kenneth Gassman, president of the Jewelry Research Institute. The number of jewelry stores in the United States has declined steadily, from 28,497 units in 1995 to 24,765 in April 2005, the Jewelers Board of Trade reports. And Gassman says that trend is about to accelerate.

 

THE ART OF RETAIL

National Realty & Development Corp. has an artful way of distinguishing its shopping centers. The Purchase, N.Y.-based firm invites artists to use its centers as “canvases” for avant-garde video displays and lighting installations. In December the latest such work featured at National Realty centers received a nod from the art world when the Solomon R. Guggenheim Museum, New York City, exhibited the creation of Robert Whitman, whose “Local Report” video installation appeared over the summer at five National Realty centers in the Northeast. Whitman gave video cell phones to participants spread out around a shopping center. Over a half-hour period, the participants used the phones to do news-style reports, which Whitman then displayed on a projector. “We have been shocked by the positive response from customers,” said Richard A. Baker, president and COO of National Realty. “They love it.”

 

WEALTH OF THE IRISH

“There are a lot of wealthy Irish investors,” said Brett Hutchens, president of Casto Lifestyle Properties. He should know, given that his firm is working for Dublin-based Irish American Partners to develop the retail portion of a mammoth mixed-use project that will open in Sarasota, Fla.’s former Quay by 2009. Elsewhere in the U.S., Irish investment consortiums have snapped up trophy office and retail properties alike. Last year Sloane Capital (backed by Irish horse-racing tycoons John Magnier and J.P. McManus) bought New York City’s Rhinelander Mansion, home to Ralph Lauren’s flagship store, for about $75 million. The number of Irish investors is growing and their appetite for the investment attributes of U.S. real estate is strong, says James Fetgetter, CEO of the Association of Foreign Investment in Real Estate. Observers say Irish investors tend to target unlisted properties, syndicate investments one by one, create closed-end funds, and hold properties for the long term.

 

SECOND STORY

Apartment REITs aren’t the only ones cashing in on the condominium conversion craze. Federal Realty Investment Trust is altering some of the apartment units at Santana Row, its 680,000-square-foot mixed-use center in San Jose, Calif., into condos for sale. By mid-October the firm had closed on 79 units, and 37 more were under contract. The units that sold generated a total of $47.7 million, and the company expects to realize an additional $27 million on the ones under contract, according to Merrill Lynch.

 

NEW YEAR’S BOOM

Baby boomers, who make up one-third of the U.S. population, will start turning 60 this year. What are their New Year’s resolutions for this challenging stage of life? Brent Green, author of Marketing to Leading-Edge Baby Boomers, says four key issues will be their top motivators for 2006:

• Take better care of mom and dad: About 13 million boomers care for aging parents, and one-fourth have live-in parents.
• Keep the weight off: Some 30 percent of boomers are overweight, and they’re hitting an age when the medical dangers of growing girth multiply.
• Find more love: Almost 13 percent of boomers never married, and 14 percent of those who did are now divorced.
• Save more for retirement: Roughly one-third of boomers are financially insolvent, with net assets of $10,000 or less.

 

LANDLORDS EYE SEARS

Landlords are eager to get their hands on Sears Holdings Corp.’s real estate, but the retailer is holding back, executives said at ICSC’s annual New York Conference & Deal Making in December. “We’ve tried to approach them to buy stores, but they say, ‘We’ll call you, don’t call us,’” said Robert A. Michaels, president and COO of General Growth Properties. “It will be five years before lots of Kmart stores come back onto the market,” predicted Glenn J. Rufrano, CEO of New Plan Excel Realty Trust. New Plan has already managed to get in on some of the action, though. Rufrano says New Plan has formed a joint venture with Sears Holdings to tear down three SuperKmart stores in Memphis, Tenn., and rebuild them as shopping centers.

 

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