On the day before the 4th of July, Marc Candela, CEO for Ladders, sent this to me, offering a word to the wise: “It is not the critic who counts, not the man who points out how the strong man stumbles or where the doer of deeds could have done better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood, who strives valiantly, who errs and comes up short again and again, because there is no effort without error or shortcoming, but who knows the great enthusiasms, the great devotions, who spends himself for a worthy cause; who, at the best, knows in the end the triumph of high achievement, and who, at the worst, if he fails, at least he fails while daring greatly, so that his place shall never be with those cold and timid souls who knew neither victory nor defeat.” That was, Theodore Roosevelt speaking at the Sorbonne in 1910. (It sounds like he’s read the comments section on the internet before.) For those that know me, you know that Teddy Roosevelt is one of my favorite presidents. If you get a chance, watch the movie “The Wind and The Lion,” starring Sean Connery and Candice Bergen. It takes Place in the early 1900’s and shows the will of our leaders and the American people, some say that the 20th Century was the American Century. When we see all these new developments and trimming down of known Commercial real estate and shops closing and what that means to the family, they have spent themselves again and again. If for nothing else, the dinosaurs of our industry have been cannibalizing the market in such a way with the availability to Internet outlets and shopping via Amazon Prime, then those huge big boxes just can’t compete. It happened in 2005 and again in 2010, and now it’s happening once again. The death knell of the Big Box stores is here and here to stay. The result of dark and dreary shopping centers, and malls with dark spaces. Their death knells, we have heard and seen, are from technology. Who heard of Ali Express 10 or 15 years ago. The owners of these shopping vendors and malls have not, as yet, caught up as an industry. The first time I noticed this was at Home Depot several years ago. There was this couple in the plumbing department, they were looking for these Pfister faucets and sink sets. What they did and they showed me that they were picking out and touching the faucets or sinks, they compared using an app Ali Express. To give the reader an idea, let’s say the beautiful faucet was $275.00 and the sink they chose was another $300.00 They showed that same faucet on Ali Express for less than half the money, no tax making it impossible for the big box stores to compete. I am guilty of the same. My wife wanted specific knife sets and there is a culinary store in the King of Prussia Mall. I went there to see the knife at $160.00 and online it was just $90.00 – that’s a big difference. Several Years ago, I was tasked with finding a tenant for a large bar and restaurant in Easton, PA. The owner of the building, we will call him Harry, was an engineer who came to America from Australia with a fresh concept, Lawyers on demand, not the name, just an example. Harry introduced me to his engineering abilities and his cost savings approach using Ali Baba and Ali Express. We were interested in fitting out two new spaces for restaurant use and the equipment, elevated grease trap, exhaust and hood, and Ansul system compressors, etc. What he told me was that he would need to spend $250K from the restaurant supply stores as well as another $60K for each new restaurant. He was offering tremendous concessions and a huge TI allowance. One catch: give him the specs, let’s separate the equipment from labor to install and he would handle delivery of the equipment, both back of house and front of house, from walk-in boxes to tables and chairs, tile etc. I wanted to know more. Here is what I learned that day: He told me every part that was referenced to us was a finished unit.
Being an engineer, he showed me how to look up the schematics, think compressors, blowers and pieces that fit together and for the unit. What he also showed me, was that the parts from large to small came from China or the Asian countries through Ali Express. You could order the components for each part of the equipment, including floor tiles, tables and chairs to light fixtures, etc. All could be purchased from these sites at a more than the same equipment from any American supplier. Even the restaurant supply companies in NYC, they are mostly on the Bowery and almost all Asian companies who already know the savings. A light bulb clicked in my head; I have never looked at products the same way again.
By offering this very incentivized deal with the TI allowance, he could save more than ¾ of the cost that the designer and architect quoted. There was only one hitch, not a catch: it will take 4 to 8 weeks from time of order to delivery by container ship. I told him, six weeks is fine as the architects would take a week or two, then submittals to the municipality would take two or three weeks. For those of us in the know, understand the process from plans, to change orders to submittals to municipality to getting the permit, demolition to rough-in and development understand that the process would be at minimal to 8 weeks, if it came in 8 weeks, then that is just in time. That worked out well as we understand it takes 8 weeks to both submit plans, get approvals and get the job built out minus the items coming in from China. Demolition and build-out had begun and all details were in place, from an open ceiling and distribution of spiral duct was installed, sprinklers move and walls up with electric wiring ran on the rough-in. The contractors were more than ready and as holes were cut to specifications it was like two to three days of assembly and then the installation flew. We had to wait for inspections and then the walls and floors were closed up and this Landlord just saved $300K combined for the two restaurants that were at one point, a large sports bar.
Think for a second in multiples for apartment buildings, new development, urban renewal, and related development. Just as Preit has been converting Boscov’s to a medical office building with everything from rehabilitation to physical therapy, there are those taking the big box in malls and converting them to residential and the only way to do that with either older factories or department stores is to create window and sunlit spaces -- think of a rectangle with a cut out of the center.
Doing this eats up the available usable square foot as if it were retail. Now you have both exterior and interior units, renovating these spaces and creating spaces so all get sun light and the interior spaces are marketed at a discount compared to the exterior spaces. A good example of this type of redevelopment is the Victor Building in Camden, New Jersey. The maxim of every square foot counts is well developed by this layout. The carved-out center of the building becomes a beautiful garden area with a gazebo at the one end with quiet seating and a garden area throughout. If there was one thing that the great developer of Philadelphia Carl Dranoff understood, it was to use the interior concrete mushroom column he referred to them as “Great bones” and you don’t take those out, you use them as an architectural focal point.
It is the point that real estate we knew in 2005, when the market crashed and Starbucks closed thousands of stores nationwide, when the supermarkets failed, merged or just plain went blindly into that good night. It is the recreation of an industry as we know it and have known it to be. When I think about one of the greatest presidents I think of Teddy Roosevelt and his words ring true,…”because there is no effort without error or shortcoming, but who knows the great enthusiasms, the great devotions, who spends himself for a worthy cause; who, at the best, knows in the end the triumph of high achievement, and who, at the worst, if he fails, at least he fails while daring greatly, so that his place shall never be with those cold and timid souls who knew neither victory nor defeat."
For those that scream the sky is falling neither know success nor achievement. Think first of the opportunity to convert a dreary and dark center and bring new life and so many new opportunities.
So, what to do is think outside of the box. Think of new opportunities and if you can’t do this alone then bring in those who do understand what it will take to do so.
Jack W. Intrator CPM, RAM, ARM
Retail and Restaurant Leasing Specialist
Investment sales.
RealtyMark CityScape LLC.
610-805-3849