March 20, 2013

The Wednesday Wrap: March 20, 2013

Each Wednesday, The Wrap
presents a compilation of recent noteworthy commercial real estate stories from
a variety of publications. Below are five stories that caught our eyes in
recent days.

Wary of Power Centers, Recommend Hold on All Retail Assets”
by Retail

Institutional investors are skittish about buying power
centers, probably because of the associated lease-up risks, according to the
Winter 2013 report from the Real Estate Research Corp. (RERC).

Investors surveyed in fourth-quarter 2012 required average
pre-tax yields of 7.3 percent to 9.5 percent for power center properties, while
required yields for all retail properties averaged 8 percent. The average
going-in cap rate for all retail assets was 6.7 percent, according to the

The majority of surveyed investors also recommended holding
retail properties rather than selling them, according to the report.

Diverting More Real Estate Dollars to IT”
by Mark Heschmeyer of CoStar.

The days of rapid expansion for many retailers are now over,
and the money once used for real estate is being diverted to other aspects of
business, like technology, Heschmeyer reports. 

One example is Kohl’s, which recently announced that it has
opened nine new stores and plans to open just three more this year, down from
last year when it opened 20 new stores, 2011 when it opened 39, and 2007 when
it opened 112, Heschmeyer reports.

Kohl’s is cutting the money it spends on real estate, and
that money is going to technology, including IT resources and the company’s
e-commerce business, according to Wesley S. McDonald, Kohl’s CFO.

Big Lots said in its earnings conference call last month
that is plans to divert some real estate capital to test initiatives that could
provide better return.

“We’ve consistently said that we would not just open new
stores to hit a number,” said Charles W. Haubiel, chief administrative officer
and executive vice president of Big Lots. 

Area’s Apartment Boom Could Fizzle”
by Dawn Wotapka and Robbie Whelan of
The Wall Street Journal.

The Washington D.C. area has long been seen as
recession-proof due to its high number of federal employees that retain jobs
whether the economy is good or bad. That reputation had multifamily developers
flocking to the area during the recession, but now they could be overbuilding,
Wotapka and Whelan report.

Developers are expected to deliver 15,000 new apartments
this year, with 11,000 expected in 2014. This compares to the 6,000 unites
delivered each year on average over the past decade, according to Delta

Some are concerned the sequester could impact the number of
units sold in the area as federal employees lose their jobs due to budget cuts,
Wotapka and Whelan report.

“At some point there [are] simply not enough warm bodies to
fill all the units that they’re building,” Anirban Basu, chief executive of
economic consultancy at Sage Policy Group, told The Wall Street Journal.

Are the Real Estate Implications of T-Mobile/MetroPCS’s Merger?”
by Randyl
Drummer of CoStar. 

The Federal Communications Commission (FCC) last week
approved the merger between T-Mobile and Metro PCS, which creates the
fourth-largest wireless company, and concerns already have arisen over the
commercial real estate implications, Drummer reports.

T-Mobile and MetroPCS say the proposed transaction could
result in savings of approximately $5 billion to $6 billion. Savings would come
from merging the networks into one, decommissioning overlapping cell sites and
eliminating of overlapping functions, Drummer notes.

Some worry that this could mean store closings and job cuts.
But the two companies have pledged that they have no plans to close domestic
call centers or retail stores, and plan to increase their number of overall
workers in the United States, according to FCC Commissioner Jessica

Penney Advances as ISI Recommends REIT-Like Entity”
by Lauren
Coleman-Lochner of Bloomberg. 

Per the suggestion of an analyst at ISI Corp., J.C. Penney is
considering turning its top 300 stores into a real estate investment trust-like
entity that would sublet space to other brands, Coleman-Lochner reports.

“JCP’s most valuable asset is its low-cost real estate, and
we believe there are many premium brands that would potentially be interest in
subleasing space within the best location,” the analyst, Omar Saad, wrote in a
note this week.

The suggestion comes after J.C. Penney’s annual sales dropped
by a whopping 25 percent to $13 billion in 2012, its lowest in at least 25
years, Coleman-Lochner notes.

However, J.C. Penney has agreements with landlords that
would largely prevent subleasing, which would make the plan challenging to
execute, Liz Dunn, an analyst with Macquarie Group, told Bloomberg.

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