Western Real Estate Business

MAY 2015

Western Real Estate Business magazine covers the multifamily, retail, office, healthcare, industrial and hospitality sectors in the Western United States.

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A t the onset of the recession and resulting big box vacancies, the standard exercise of developers and architects was to either re-tenant the space with a single user or creatively break up the defunct box into a somewhat complex and compromised fash- ion. The issue with these standard solutions is that we found ourselves challenged with too much depth rela- tive to linear storefront, loading and infrastructure is- sues. These projects also created a lack of uniformity. The results ranged from removing gross leasable area (GLA) at the front of the space (which reduced depth while accommodating retailers' prototypes) to fnding users that could occupy the rear of the space and did not require exposure along the frontage. Sometimes the only choice was to simply mothball the back space for a use "to be determined" in better times. T he word "traditional" used to invoke nostalgic feelings associated with predictability, com- fort and maybe even status quo. All that has changed, however, in the new economy. Nowadays, something considered "traditional" tends to mean it's old, outdated, not with the times. This is no good, as many industries can attest to, because to- day's consumers are demanding. If you're not meet- ing their most basic needs by providing a high-qual- ity, easily accessible, afordable product or service, they'll take their business elsewhere. In the new economy, many are doing just that. In- dustries that had been around for generations, in- cluding bookstores and video rental outlets, were quickly overthrown by new-to-market competitors COMPRESSION IMPRESSIONS By William B. Asher, Executive Vice President, Hanley Investment Group Are you adjusting your rearview mirror to grasp a clearer view of to- day's retail investment market? Warn- ing: cap rates in the mirror may be lower than they appear! Nothing looks as it seems anymore as cap rate compression continues in the retail sector. Just when you think you have seen a new record-low cap rate sale, another best is established the very next month. Single-tenant cap rates have com- pressed about 20 basis points in the past 12 months — from the second quarter of 2014 to the frst quarter of 2015, according to CoStar. Meanwhile, multi-tenant cap rates have com- pressed an estimated 30 basis points for retail property sales in the West- ern United States. As owners evaluate what their property is worth in today's market, the rearview mirror approach of reviewing recent sales comparables is quickly becoming old news. Cap rate compression has been moving An 88,000-square-foot building in the Los Angeles area that is triple-net leased to Kohl's recently sold for $21.9 million. This represented a national, record-breaking-low cap rate of 4.79 percent. Hanley represented the seller in this transaction. The exterior of the former Home Base box will be transformed into multiple storefronts, creating a pedestrian scale. The various uses, meanwhile, will be seamlessly connected through a generous internal common area that links the various exterior, opposed facades of the building. THE CONTINUING EVOLUTION OF BIG BOX CONVERSIONS Forward-thinking anchor tenants have ushered in the newest trend in big box conversions. By Greg Lyon SERVICE DISRUPTION Retail clinics are changing the practice for healthcare providers and shopping center owners. By Nellie Day see RETAIL CLINICS, page 60 see BIG BOX, page 57 see RETAIL FINANCE, page 58 INVESTMENT DEMAND Three of the West's top fnancing experts delve into what owners, developers and tenants should expect in 2015 and beyond. The Importance of Lease Assignments page 47 Colorado Market Highlight page 26 page 44 Retail Construction Changes Post-Recession New Mexico Market Highlight page 30 INSIDE THIS ISSUE www.REBusinessOnline.com May 2015 • Volume 12, Issue 9

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