1209 W Pacheco Boulevard
Calicraft Brewing Co. – Davis, CA
Chase – Crossroads West, Riverbank – Lease
Core Bay Area Infill Opportunity
Popup – Retailer – Pvolve Expansion
Popup Deal – Kitava Lease – Solano Ave, Albany
Popup – Done Deal – Raising Cane’s Lease – Crossroads West, Riverbank
Mothers Tacos
Popup – Listing – 3251 Jacuzzi St – Video Tour
Popup – Press – SF Biz Times Article March 2024
Popup – Announcement – JCA Our Office Has Moved DRAFT
Popup – Done Deal – Dollar Tree – Marlow Rd, Santa Rosa – Lease
Dollar Tree – Marlow, Santa Rosa – Lease
Seize the Day
Over decades in the CRE industry, our team has completed hundreds, or perhaps thousands, of multi-market site tours with grocers, fuel brands, restaurants, pharmacies, home improvement and fitness brands, coffee and burger and chicken concepts, and many, many other users of quality real estate. Over that time, my appreciation for the art of the real estate tour has grown ever deeper. I’ve learned that in order to have real value, the successful real estate site tour always needs to be two things: the journey has to be horizontal, from site to site or city to city; and also vertical, from one idea to the next.
That travel time with the client is a precious one-on-one window to discuss who their customer is, how they evaluate their real estate, how the brand is executing, growing and changing, what market pressures are helping or hindering their growth – capital markets, competitors, stock price, housing starts, unemployment data, etc. etc.
As the pro who is conducting the tour, you ask these questions, absorb the client’s answers, and create advice that reconciles the client’s needs to the marketplace where you are the expert. Your advice is the synthesis of the horizontal and vertical journeys. Sometimes, as the repartee unfolds in the car as we move from site to site, my questions receive a detailed and lengthy response. But other questions are met with a long silence and a thoughtful gaze out the window. The silence and mystery of the client’s non-answer descend on me like a benediction. Have we struck gold? Have we discovered a new way to capture the customer or frame the real estate deal that they haven’t previously considered? A good conversation about real estate sets the gears in the client’s brain turning, sharpening the focus on how we will execute real estate in this particular market. Like a talented actor who can inhabit the role of his character, the best broker learns the mind of the client, and makes it his own.
Our day long discussion is filled with questions, observations, coffee breaks, answers and non-answers. By the end of a successful tour, we’ve exchanged a great deal of information. Sometimes, the tour feels like a tiny, double espresso version of a trip to the therapist. We both complete the journey with new perspectives, with many questions answered, and a sense of direction about our efforts, both individual and collective.
The successful real estate site tour is less, far less, about sites, rents and terms, and much more about creating a partnership, a bond of understanding, that will inform all of the subsequent energy that we put into positioning the brand to thrive.
Invariably, I return home from the site tour exhausted – mentally exhausted. Imagine if you can, driving 200 miles in a day and visiting eight or ten locations, while conducting a thorough, day-long investigation into your client’s vision, needs, challenges and dreams. Simultaneously, you are navigating traffic, organizing lunch, dinner and coffee breaks, meeting with owners and brokers, answering questions from one or more clients sharing the journey, all sandwiched between a very early and a very late trip to the airport. I am wrung out, yet deeply satisfied when the journey is complete and the mission accomplished.
In some ways, ours is a young person’s business. The site tours can be taxing to the extreme. And, guess what? There’s no guarantee that any of the sites reviewed will result in signed leases or closed escrows. The prospect of a day spent fruitlessly can be daunting. Yet only with age and experience can we give the client everything that they need and deserve from a visit to our market. As a young man, I would simply jump in the car and drive. As an older man, I consider the journey carefully. Now, only when I am ready to go forth and conquer, like the ancient Romans who proclaimed “Carpe Diem!” do I embark. And we seize the day.
Popup Blog Post: Seize the Day
The Consumer Has Cash
The U.S. unemployment rate is now experiencing its 8th consecutive quarter below 4%, with national unemployment clocking in at 3.9% as Q4 of 2023 begins. Historically speaking, a phenomenon like this occurs about twice every century. Practically speaking, this means that the U.S. consumer has cash.
Much attention has been focused on inflation and the Fed’s policy of interest rate increases over the past year. Generationally high inflation has not simply triggered an increase in the cost of borrowing money, but also brought about soaring construction and materials costs, labor costs and other related costs of doing business in the commercial real estate industry. Collectively, these frictions in the marketplace conspired throughout Q2 and Q3 to slow or stall numerous commercial real estate transactions in markets across the U.S. For better or for worse, these challenging dynamics are the ones that have captured headlines for over a year.
But in spite of the various headwinds the market has encountered throughout 2023, an economy near full employment has proven to be a powerful tonic that neither inflation nor climbing interest rates could dampen. A multi-year period of sub 4% unemployment has not occurred in the U.S. since 1966-1969 (See Chart). This is truly historic data, and an under-reported, poorly understood economic jolt that continues to propel the U.S. economy, even as the Fed has labored to slow it down.
The consecutive challenges of the COVID pandemic and the subsequent spike in interest rates that aimed to combat inflation, greatly reduced the pipeline of new commercial real estate developments in recent years, even in the services arena of retail shopping and dining. Despite the shrunken pipeline of new inventory, the sales increases of essential brands in the quick service (QSR) and fast casual restaurant space, warehouse clubs, grocers, and fuel/C-stores continue to out-perform users across virtually every sector of the commercial real estate industry. Increasing average unit volumes (AUVs) by drive-thru and fast casual users, strongly supplemented by increasing adaptation of online ordering that was learned during the pandemic, have users that sell everything from coffee to chicken to burgers to fuel all scrambling to add unit count.
Consequently, a collision is now taking place in markets nationally in which expanding brands with great credit and a big appetite to meet consumer demand are in heated competition for a limited supply of new retail inventory that is only slowly making its way through the development/entitlement pipeline. This dynamic is presently on full display in the Northern California market, where our firm is bringing multiple new projects to market and consistently encountering multiple offers and overbids on rent for new high quality retail projects. On a single proposed new development that our team is currently pre-leasing, we recently received offers from five national coffee brands alone. Brands like these are flush with business because the U.S. consumer if flush with cash, triggering a fist fight for new, high-quality real estate opportunities as they come to market.
The fully employed U.S. employment market is the engine driving strong sales in the essential retail & dining space, even as other CRE segments, notably office buildings, struggle to reconcile the paradigm shift to work-from-home.
During the early and middle parts of 2023, the factor that was more impactful than the rising costs of doing business, was the uncertainty around how much higher the Fed would have to push interest rates to tame inflation. This uncertainty pushed many would-be users to the sidelines, pausing growth to wait out the impacts of increasing capital market pressure on their businesses.
But the recent flattening of interest rates and cooling of inflation have brightened the market outlook in Q4, removing uncertainty about what’s next, thus enabling those users that had hit the pause button to re-engage in lease and purchase transactions. Consequently, the playing field has quickly become crowded with high-credit retail and dining brands, creating an opportunity for landlords to craft favorable real estate deals that will pay dividends for years to come.
Industry watchers have observed for the past few years that the COVID pandemic and its aftermath would create an overhauled lineup of winners and losers in the US economy. As 2023 comes to a close, the vastly different fortunes in the retail and office segments of the commercial real estate industry provide a vivid illustration of how that transformation has played out.
Xfinity – Lease – MSP
Burlington Lease – Cochrane Commons
Verizon Lease – MSP
Popup – Listing – Suisun Valley Place
Popup – Listing – Main Street Plaza
Pvolve
Calicraft Brewing Co.
Heritage Eats
El Pollo Loco – Los Banos
Kitava Kitchen
Ronbow Lease – 1556 Mt Diablo Blvd
The New Catalysts
Each era in retail real estate has its own cohort of catalytic anchor tenants and users around which new projects revolve. I’m old enough to recall the then still-growing regional mall sector of the 1980’s, and the department store anchors who then ruled in retail. Times change.
Interior facing regional malls gave way to exterior facing power centers, with anchors like Target and Home Depot, and the junior boxes and out-parcel users that populated those projects. The subsequent rise of e-commerce dented the business model for numerous brands in categories like consumer electronics, office products, discount apparel and sporting goods, stunting growth in the power center category, but also opening new opportunities for retail development.
New development in the post-Covid era has come to be defined by an inchoate mix of catalytic anchors that no longer rely on department stores, and only selectively upon brands like Walmart, Target and Lowes, whose years of galloping expansion have been significantly curtailed. Today, brands from Tractor Supply to Grocery Outlet, power drive-thrus like Chick-fil-A, In-N-Out Burger and Dutch Bros, quasi-retail uses like truck stops and self-storage, and hospitality brands in the Marriott, Hilton, Wyndham and Hyatt portfolios all compete for high quality retail real estate in markets nationally.
As the mix of active, well-funded catalyst users continues to evolve, the retail real estate market has also become increasingly segmented both along both economic and ethnic lines. Evidenced by the continued growth of extreme value brands like Dollar General, Dollar Tree, Grocery Outlet, dd’s Discounts and Ross, as well as specialty grocers such as Tokyo Central, Vallarta, El Super, 99 Ranch Markets and Cardenas; many brands are choosing to dive deep into targeted demographic silos, rather than spreading a more generalized offering broadly across multiple demographic audiences.
While the power center era is not over, new projects in this space have become far fewer in number, built around select users such as Costco and Sam’s Club (see example), and the shortened list of junior and out-parcel users that have best navigated the storms of e-commerce and Covid, including Burlington, Home Goods, Boot Barn and Five Below, and quick-service restaurants (QSRs) such as Panda Express, Panera Bread, The Habit and Chipotle.
Just as notable as today’s catalyst growth brands are users whose growth has faded post-Covid. Most notable on this list is Amazon whose swing and miss at a grocery store roll-out continues to baffle landlords, investors and industry watchers. Perhaps more impactful to retail development has been the cessation of growth by the entire pharmacy industry. CVS, Walgreens and Rite Aid were growth stalwarts that co-anchored retail centers for decades, yet they have become far more active in the real estate disposition business than in adding net store count. With tens of thousands of stores nationally, changes to the pharmacy industry through acquisitions (CVS and Target) and insurance industry changes, have effectively shut down new growth for a retail sector that was formerly a key puzzle piece to new projects.
Mega stores like Bass Pro Shops, Scheels and Cabela’s have likewise backed off of growth, raising questions about the ability of these categories to re-start growth in the future. The growth of traditional auto dealerships has stalled, as consumers embrace the shift to EV brands like Tesla, Rivian, Polestar and Lucid. Still other small concepts that expanded heavily in recent years but then reconsidered include poke shops, boutique fitness concepts, mattress stores and yoga studios.
While change in the retail landscape is a constant, both the frantic pace of change through the tumultuous Covid and post-Covid era, and the dizzying array of user categories that are in competition for quality retail real estate today have added a chaotic dimension to marketplaces nationally. Or to put it a different way, the new normal of projects developed around power drive-thrus, self-storage, EV dealers, truck stops and ethnic grocers, is not very normal.
Costco – Lease – Crossroads West, Riverbank
Popup – Listing – Fairview Plaza, Vallejo
Popup – Listing – Crossroads West, Riverbank
Popup – Listing – Sycamore Crossing
Ceres Crossings
Bad Walters – College Ave – lease
Popup – Listing – 9 Anchor Drive, Emeryville
Raising Cane’s – Ceres Sale
Lucid Motors
Farm Boys
My Salon Suite
Rheem Valley Shopping Center
Client Spotlight
Uncertainty or Opportunity?
As the sun begins to set on the withered stalk of another eventful year in commercial real estate, uncertainty prevails in Q4 of 2022 as forecasters ponder the direction that markets will take in 2023.
Throughout 2021 and the first half of 2022, the same industry voices which had grown dormant through a trying pandemic, rent the air with cheers when a post-Covid recovery brought users off the sidelines. The recovery that began to blossom in early-2021 produced an exceptional 18-month run, fueled in part by historically low interest rates, PPP and other government largesse.
Yet a more sobering sentiment has taken hold in late 2022 due to a once-in-a-generation escalation of inflation rates, completely alien to half of today’s market participants. Commercial real estate markets today find themselves caught in a negative loop of rising inflation, rising interest rates, rising construction costs and an ever-shrinking pool of large format retail tenants with strong credit that are seeking to grow. Several of the key catalysts to new retail growth appear to be missing.
Amazon appeared, briefly, to be stepping into this void. But headwinds encountered by the e-commerce giant in the brutally competitive world of grocery retailing have hastened a re-thinking, or perhaps a retreat, from this proposed store roll-out. Largely due to Amazon’s emergence in the grocery space, and much more importantly from a CRE perspective, the news of the announced consolidation of the Kroger and Albertsons real estate fleets represents a gigantic shift in the national retail real estate landscape. If approved, the merged behemoth will be far better positioned to compete with both the largest bricks and mortar grocer/retailer in the world, Wal Mart, and the largest E-commerce retailer in the world, Amazon.
The inevitable shedding of real estate that the Federal Trade Commission will stipulate for the Kroger merger/acquisition will present an unscripted and welcome boost to retail commercial real estate markets. The opportunity for users, investors and developers to acquire proven real estate in core markets will generate interest from all quarters, especially since the disposition of redundant real estate will be a condition of FTC approval, at whatever price the market will bear. Investors of every stripe – parsimonious, acrimonious and sanctimonious will each have a shot at what will be, at least in part, a lot of great retail real estate. All by itself, a national Kroger/Albertsons disposition program would represent a boomlet of development, leasing and job creation in numerous markets. Man proposes and the FTC disposes.
Mid-term elections have the chance to swing both houses of the federal government into Republican control, which historically speaking would suggest a business-friendly climate and the de-emphasis of utopian progressive spending, such as the threat to saddle the US taxpayer with billions in expunged student debt obligations. More importantly, with an economy at near full employment, the consumer today is in a strong cash position. Strong employment and cash are proxies for economic expansion, both of which will work to counter inflation’s impacts. And any decision by the Federal Reserve to stop, or ultimately reverse interest rate increases will encourage growth to find its footing again. With America at a very high level of employment, consumers in a strong cash position, a shift to a more pro-business Congress appearing realistic and tapering interest rate increases, a 2023 recession is no foregone conclusion.
Our current outlook suggests that the US voter, as well as governmental agencies including the Federal Reserve and Federal Trade Commission, will each play an outsized role in determining how real estate markets will take shape in 2023. And a US economy that is still finding its post-COVID footing will present numerous, if not widespread, opportunities for growth.
