The Port Authority of the city of Bloomington, Minnesota, is preparing to sell an 11.5-acre parcel of land near Mall of America. Photo credit: Mall of America.
The listing of an 11.5-acre parcel of vacant, publicly owned land could signal further expansion to the Mall of America, which touts itself as the largest shopping center in the United States and Minnesota’s premier tourist attraction.
The Minneapolis office of Newmark Knight Frank, also known as NKF, has been chosen to market the land, one block north of the mall bordering Interstate 494, on behalf of the current owner, the city of Bloomington’s Port Authority.
Mall of America, owned by Edmonton, Canada-based Triple Five Group, will have a say in what is developed on the Port Authority’s parcel, according to Schane Rudlang, the Port Authority’s administrator. The land for sale is immediately north of an even larger undeveloped property owned by the mall itself, a full city block of open space that covers about 31 acres.
If the mall’s land were to be paired with the Port Authority’s parcel, the combined area would come to about 43 acres — roughly two-thirds the size of the mall building and surrounding parking area as it exists today.
As of Monday afternoon, the Port Authority was scheduled to approve that evening a two-year contract with NKF. The brokerage will get a minimum commission of $500,000 for finding a buyer for the property, or 5 percent if it’s a direct sale and, if it’s a co-brokered transaction, then the commission rises to 6 percent.
Rudlang said the purchase price is flexible and depends on the buyer’s proposal. “We want it to be the right kind of development,” he said.
Rudlang said that the land is one of the last two significant chunks of developable property owned by the Port Authority, which has been gradually selling off its holdings around the mall over the past three decades. The Port Authority’s 11.5-acre site offers nearby access to Interstate 494 and is within view of the Minneapolis-St. Paul International Airport’s tarmac.
Judging by the marketing materials for the 11.5 acres of land, the Port Authority may be open to ambitious and even somewhat fanciful development ideas. The marketing materials prepared by NKF tout the property as the site of “The Next Big Thing,” a tall order considering its neighbor is the 5.6 million-square-foot Mall of America. The mall annually attracts 40 million visitors, about double Disney World’s 20.5 million a year, and generates about $2 billion in economic activity. Some ideas floated by NKF for inspiration are a destination medical center, an indoor ski slope, theme park, casino or global corporate headquarters.
Triple Five Group isn’t holding back on elaborate mall projects despite the recent struggles of bricks-and-mortar retail. The firm is developing a 6-million-square-foot shopping and entertainment complex in Miami — complete with indoor snow park — called American Dream.
The Port Authority did not go through a bidding process when selecting the brokerage, according to Rudlang, who said that he was impressed by members of NKF’s Minneapolis team after working with them on an unsuccessful bid to bring the 2023 World’s Fair to Bloomington.
NKF is a relative newcomer to the Minneapolis market. The New York-based real estate company opened its office in 2017 under the leadership of two Twin Cities industry veterans, John McCarthy and Jim Damiani. NKF is the lead broker in the effort to find users for a sweeping, multiuse development planned for the acreage around the Minnesota Vikings’ new practice facility in Eagan.
Executives at Mall of America didn’t respond to requests for comment, while NKF didn’t immediately comment.
There is still room for landlords of single-family rentals (SFRs) to raise rents in most parts of the U.S., though they have to be careful not to over-burden their tenants.
“Demand for rental houses is still strong,” says Daren Blomquist, senior vice president for data provider ATTOM Data Solutions, based in Irvine, Calif.
The companies that operate rental homes don’t have to worry much about competition. SFR vacancy remains low in most markets and the prices of for-sale houses are too high for many households to move out of their rentals. The strong U.S. economy is also helping support the rental home business.
“We do not foresee any meaningful near-term decline in the key housing fundamentals, such as employment, population and gross domestic product (GDP) growth,” says Jonathan Ellenzweig co-head of Tricon Housing Partners, the land and homebuilding finance vertical of Tricon Capital, an investor and asset manager of U.S. residential real estate.
The economy helps single-family rentals
Some of the country’s largest rental housing operators, including Invitation Homes and Tricon American Homes, report that their portfolios continue to be near full occupancy. “The occupancy rate for our stabilized homes… has remained above 95 percent for the past three years,” says Ellenzweig.
Because there are few vacancies in most markets, the companies feel relatively free to raise rents at their properties.
“Rent growth rates continue to be solid in most of the major markets across the country—in the middle to upper single digits,” says ATTOM’s Blomquist. For example, rents grew by 5.0 percent in Philadelphia County and 7.0 percent in Los Angeles County over the 12 months that ended in the first quarter of 2018, according to ATTOM’s annually-released data. The data on SFR rents is based on the fair market rents for three-bedroom rental housing tabulated by the U.S. Dept. of Housing and Urban Development.
However, SFR owners can’t raise the rents too quickly or too much for tenants that have relatively low incomes compared to the cost of their housing. Nearly 30 million U.S. renter households—or roughly half of all renter households—spent over 30 percent of their income on rent in 2016, which is the standard definition for being “cost-burdened,” according to the Harvard Joint Center for Housing Studies.
“Income is a big constraint on raising rents,” says Blomquist. “Operators should be buying properties that cash flow well now, not counting on rising rents to get them into a better cash flow position down the road.”
It helps that wages are finally growing faster than inflation in most parts of the United States. That means more families are able to afford higher rents without being forced to consider other housing choices. Wages grew at an average rate of 3.5 percent per year over the three months that ended in August 2018. That rate has wandered in the low-3.0-percent range since 2016.
In the meantime, the subdued income growth is making homebuying less affordable. If renters have less money to save up for a down payment, they are less likely to move out into a home of their own.
At the moment, demand for rental homes is strongest in less expensive housing markets, which serve households with lower incomes. “The weakest demand is in the high-end and the strongest demand is in the low-end,” says Blomquist.
Plans for the Mayo Clinic’s Gonda Building include 11 new floors and a hotel.
Credit: Pelli Clarke Pelli Architects, courtesy of Mayo Clinic.
The Mayo Clinic, the world-renowned medical center, has long towered over Rochester, Minnesota, in fame. It now plans to do so physically as well.
The clinic and Singapore-based real estate developer Pontiac Land Group are embarking on an ambitious plan to enlarge the Gonda Building, the medical center’s flagship location in downtown Rochester, almost 90 miles north of Minneapolis.
Plans call for adding 11 floors to the 17-year-old structure at 200 SW First St., which is currently 21 stories high, according to the clinic. Four floors would be dedicated to new clinic space and seven will be home to a premier hotel, developed by Pontiac Land.
The project, if completed, will propel Gonda past apartment building Broadway Plaza as Rochester’s tallest.
Pontiac Land is owned by the Kwees, a high-profile family that ranked No. 321 on Forbes’ list of billionaires for 2018. Pontiac Land has a number of top-tier hotel properties under its belt, including two in Singapore: the Ritz Carlton Millenia and the Regent Singapore.
The total development cost is still in flux, but Mayo Clinic has said it will invest at least $190 million into the expansion. The hotel, which will be operated by an as-yet-undisclosed hotel group, would be jointly owned by Mayo Clinic and Pontiac Land.
The addition will be used to expand the Mayo Clinic Cancer Center and outpatient procedure operation, and will give Mayo about 200,000 square feet of much-needed breathing room. Mayo Clinic officials say the partnership with Pontiac Land allows them to alleviate space constraints much earlier than they would otherwise be able to.
“We have explored options to accelerate the expansion of the Gonda Building,” said Terese Horlocker, an anesthesiologist and chairwoman of Mayo Clinic’s Midwest Facilities Committee. “However, without a collaborator, the expansion would not be possible for at least a decade and at a significant additional cost.”
This is the first such partnership between Mayo Clinic and the Kwee family, though the two “have been acquainted for a number of years,” according to additional statements issued by the clinic.
The two will issue a request for proposals to architecture and design firms for this project, with the hope of beginning construction by the end of 2019 or early 2020. If all goes according to plan, the project will be complete by the end of 2022.
Mayo Clinic and Pontiac Land will not seek subsidies of any kind for the project from local or state government, according to the clinic.
Executives with Pontiac Land could not be immediately reached to comment.
Similar to what happened in Colorado, California’s cannabis industry might experience some growing pains, industry experts predict. State and local government requirements and an oversupply of product expected to flood the market in coming years are likely narrow the supplier field and cause some operators to shut down. That, in turn, might provide cannabis real estate investors with opportunities to acquire facilities of failed operators at distressed pricing, according to Jim Fitzpatrick, principal at Costa Mesa, Calif.-based Solutioneers, a consulting firm that assists cannabis businesses in securing licensing and helps real estate investors identify cannabis compliant properties and obtain financing.
Currently, there is a limited supply of legal cannabis product in the marketplace, according to Fitzpatrick, but he notes that might soon change because the state of California did not limit the number of grower licenses available. As a result, the market might eventually become flooded with growers and an oversupply of cannabis flower and oils that will cause prices to drop significantly.
Today, California still has a robust cannabis black market, notes Matthew Karnes, founder of New York-based Greenwave Advisors, a cannabis research and advisory firm. However, he expects a shift to legal production as the state may begin to crack down on illegal growers when it fails to achieve projected revenue from the cannabis industry.
In addition, Fitzpatrick notes that many cannabis manufacturers may find it challenging to obtain required state licensing in January 2019 due to non-compliance with the state’s health and safety standards. Many cannabis manufacturers purchased Chinese processing equipment that does not comply with the new California Chapter 38 Fire Code and/or will not achieve the state’s safety standards, he says.
With no grace period to work out safety issues, many manufacturers might be forced to shut down, Fitzpatrick says. “Most operators aren’t capitalized to withstand a six-month shutdown to achieve compliance,” he notes, adding that this will provide investors an opportunity to acquire distressed assets for pennies on the dollar.
Fitzpatrick predicts that the biggest shift in California’s cannabis market will take place in the course of 2020 general election, as the state’s cannabis industry matures and expands into new markets. He says that over the next two years strategic ballot initiatives throughout the state will seek to remove current local government bans on cannabis operations. According to Sacramento-based cannabis real estate developer Tim McGraw, approximately two-thirds of the state’s local governments currently ban cannabis cultivation and manufacturing operations.
Some investors are already snapping up assets in non-cannabis-approved markets zoned for commercial real estate at opportunistic pricing, Fitzpatrick notes, and will fund campaigns aimed at passing ballot measures to allow cannabis operations in these areas.
But the legalization momentum is not limited to California. Karnes notes that investors are also entering New York, New Jersey and Michigan, which are expected to legalize recreational cannabis within the next 12 months.
Additionally, he says that investors attempting to get ahead of the cannabis legalization market are investing in commercial real estate assets in states where it has been legalized for medical use, as they expect it is only a matter of time before recreational use will become legal too.
Meanwhile, real estate and financial experts are launching new services to help growers and operators become profitable and investors to fund cannabis real estate assets.
McGraw, for example, is developing cannabis business parks that provide a “WeWork-type” collaborative campus environment that offers producers and manufacturers efficiencies and synergies while cutting their costs.
Expected to be operational by year-end, his first project, which is nearly fully leased, repositioned an existing cantaloupe storage facility located on 32 acres in Mendota, Calif. to provide 107,000 sq. ft. of laboratory and cold storage space for cannabis operations, as part of a total of 800,000 sq. ft. of space licensed for all types of cannabis operations, except outdoor growing. McGraw has also started work on an 80-acre, 1.2-million-sq.-ft. project in Williams, Calif., and has two Southern California projects in the works near Los Angeles and San Diego.
There is a high level of demand for space in these projects because they provide a turn-key solution for cannabis operators that cuts through the red tape and saves money, McGraw says. This is because McGraw pre-negotiates with local governments to impose a flat permit fee on tenants rather than tax their revenues.
The state of California taxes cannabis revenue at 15 percent and allows local governments to impose an additional revenue tax, which usually varies between 7.9 and 25 percent, but is a whooping 43 percent in Los Angeles, he notes. “The key to success in this industry is margins,” McGraw says, adding that paying high taxes puts producers at a severe disadvantage, making it difficult for them to compete with businesses in neighboring jurisdictions with lower tax rates.
Funding cannabis real estate is another big hurdle for the industry, as federally-insured banks withdrew financial support for the cannabis industry after U.S. Attorney General Jeff Sessions rescinded the Obama Administration’s Cole memorandum earlier this year, which had protected cannabis-related businesses in states that had legalized pot in some form.
As a result, cannabis operations and real estate are being funded with private money, Karnes notes, including family offices, high-net-worth individuals and public and private cannabis REITs.
New financial organizations, however, are launching innovative funding ecosystems for cannabis real estate and business operations. Costa Mesa, Calif.-based AllGreen Funding, for example, is a financial brokerage established specifically to fund cannabis real estate and entrepreneurs. AllGreen Funding Founder and CEO Brian Eaton says his firm is working with all types of private cannabis lending resources, including family offices, real estate debt funds and private equity investors. The firm is in the process of raising a capital fund to finance cannabis assets as well.
Eaton notes that private investors “won’t stick out their necks” without ample compensation,” so interest rates for cannabis real estate are high at 10-15 percent, compared to other types of secured loans. He predicts, however, that as the industry progresses further with more credit unions and eventually financial institutions getting on-board, rates will come down.
Reuter Walton Development received approved to increase the height of its proposed apartment building at 1116 W. Lake St. to eight stories. Credit: ESG Architects.
The developer hoping to build a luxury apartment development in Minneapolis’ Uptown neighborhood was granted permission to vault from four stories to eight. Four more ambitious apartment projects will make their official debut before a city body this week.
Minneapolis’ Reuter Walton Development successfully lobbied the City Planning Commission to allow more height and density to its proposed development at 1116 Lake St. West, a wedge-shaped lot currently home to a defunct Arby’s restaurant.
Early plans for the project debuted in June with 170 flats and one retail space in a 56-foot-tall building. The company will now build an 87-foot structure with 180 units and an additional commercial spot.
The Planning Commission approved the measure unanimously on Monday without discussion.
Reuter Walton’s most recent plans call for two levels of underground resident parking with 155 stalls, a south-facing amenity terrace for tenants on the second level and a small rooftop patio with panoramic views of the Minneapolis skyline. There will also be a small amount of surface parking for customers of the retail operations.
Executives at Reuter Walton could not be reached for comment.
The other apartment proposals are in the works for downtown Minneapolis, all of which will be discussed at the Planning Commission’s meeting on Thursday.
813 Portland Ave.
Kraus-Anderson is pitching a 16-story, 357-unit apartment tower at 813 Portland Ave. in Minneapolis. Credit: ESG Architects.
Minneapolis developer Kraus-Anderson is pitching a 16-floor, 357-unit apartment tower for a lot now occupied by a single-story, drive-up Wells Fargo bank branch. The 405,000-square-foot building will take up the north half of a city block and include 6,000 square feet of retail space intended for Wells Fargo, which will operate a smaller drive-up bank there once the project is finished. The tower will sit atop a three-level underground parking facility with space for 290 cars. There will be 18 surface parking spots for customers of the bank and short-term visitors.
The flats would range from 476 to 1,350 square feet. On the small end of the spectrum, the apartments would include micro and alcove units and one-bedroom apartments. Kraus-Anderson also intends to offer two-bedroom units with a den, and the company plans to include three-bedroom options as well, the latter of which are particularly difficult to find in the current market.
Like other recent additions, the tower would have a comprehensive list of resident amenities such as a Wi-Fi coffee lounge, top-floor fitness center, yoga studio, club room and outdoor terrace with a pool.
The site is on the next block east from an even more ambitious Kraus-Anderson project that is wrapping up right now, a full-block development that includes a new corporate headquarters for the company, apartments, a hotel with an Italian restaurant and a craft brewery, incubator space and creative office.
240 Park Ave.
The New Jersey-based Wilf family is planning a 17-story, 204-unit apartment tower at 240 Park Ave. in Minneapolis. Credit: BKV Group.
On the northeast side of downtown, the New Jersey-based Wilf family, who own the Minnesota Vikings, are plotting a tower of their own on some long-held land purchased in 2007. The Wilfs unveiled the 431,000-square-foot, 17-floor project at a neighborhood meeting on Aug. 6.
At the time, it was met with strenuous objections from residents in a condo building immediately south, the American Trio Lofts, who argued that the lumbering structure pitched by the Wilfs’ development company, Garden Communities, would not only obstruct their skyline view but replace it with a solid wall only a few feet away from their windows.
Nevertheless, the project is moving forward unchanged. The 188-foot building would have 204 apartment units in all, which will err on the larger side in an effort to comfortably accommodate families at all stages of the life cycle. Garden Communities also proposes a 4,770-square-foot, ground-floor commercial space along Washington Avenue South and a six-level, 275-stall parking structure that will be concealed from view and wrapped, burrito-style, by the apartments.
The project’s architectural firm, Minneapolis’ BKV Group, says the design of the glass- and metal-clad building will be inspired by one nearby: The historic warehouse-style building from which the neighbors hail.
240 Hennepin Ave.
At 240 Hennepin Ave. in Minneapolis, Harlem Irving and CA Ventures have proposed a 470,522-square-foot, 20-story, mixed-use building with 355 apartments. Credit: Tushie Montgomery Architects.
This proposal comes from two Chicago companies, Harlem Irving and CA Ventures, which are fresh off their first joint venture in the Minneapolis-St. Paul market: The Link luxury apartments in the Prospect Park neighborhood.
The two are going even bigger and bolder this time around, with two conjoined towers at a vacant lot on the southwest corner of Washington and Hennepin avenues. When the companies debuted the concept in early August, the renderings were rough and the exact height of the structure was still in flux.
That is no longer the case. The two are now presenting a 470,522-square-foot, 20-floor, mixed-use building with 355 apartments and 20,688 square feet of retail on the ground floor. Plans show space for two retail tenants, each of which would have about 10,000 square feet. There would also be three levels of below-grade parking with 360 spaces and 15 surface spots.
The apartments will include 115 studio units, 140 one-bedrooms, 80 two-bedrooms and 20 penthouse units.
240 Portland Ave.
The Sherman Group wants to build a four-building, mixed-use development at 240 Portland Ave. in Minneapolis. Credit: ESG Architects.
Last but certainly not least is the loftiest of the proposals up for consideration on Thursday: The Sherman Group’s four-structure development plan that will take up much of a city block bounded by Washington Avenue South, Portland Avenue, Third Street South and Fifth Avenue South.
The proposal by Minneapolis-based Sherman first surfaced in July. If it succeeds, the tower component will be the tallest structure ever built by Sherman, which has thus far only constructed buildings of 12 stories or less.
It includes a 22-floor, 241-foot tower on the northeast side of the site with 222 market-rate apartments and 6,000 square feet of retail space along Washington; a six-story, mixed-use building with 90 affordable apartments at the southeast corner of the block; a new city fire station on the southwest side of the block, which will replace an existing one that will be torn down to make way for the affordable apartment building; and a parking facility with 312 parking stalls that would open onto Third, Fifth and Portland.
/deed/newscenter/infographics/manufacturing-infographics/metro-info.jspWith 4,081 establishments supplying 169,598 jobs, manufacturing continues to be a vital industry within the seven-county metro area. Manufacturing provides just about one in every ten jobs, making it the region’s second largest-employing industry, behind health care and social assistance.
Zooming out, the metro area accounts for just over half (53.2 percent) of the state’s total manufacturing employment. However, knowing that the metro area accounts for 60.9 percent of the state’s total employment across all industries, manufacturing is actually less concentrated here than it is in other regions of Greater Minnesota.
Certain manufacturing subsectors are highly specialized in the metro. With 16 establishments supplying 2,162 jobs, virtually all of the state’s petroleum and coal products manufacturing employment is right within the metro area. With 328 establishments supplying 35,756 jobs, about 80 percent of the state’s huge computer and electronic product manufacturing employment is in the Twin Cities. The region also accounts for over three-quarters of the state’s miscellaneous manufacturing jobs – which includes medical equipment and supplies manufacturing. Lastly, the metro area accounts for almost two-thirds of the state’s employment within both chemical manufacturing and printing and related support activities (Figure 1).
The 2017 Metro Area manufacturing blog post highlighted long-term growth trends within manufacturing. In sum, manufacturing employment in the region did decline steadily between the turn of the century and 2010. Since 2010, however, employment growth has been slow but steady. Between 2010 and 2017, manufacturing employment grew by 8.3 percent, gaining just over 13,000 jobs. Within the last year, between 2016 and 2017, the industry was largely stable, adding 164 jobs.
Just as with employment concentration, it’s worth the time to analyze industry trends within specific manufacturing sub-sectors. For example, a number of subsectors gained significant employment between 2016 and 2017, including miscellaneous manufacturing; plastics and rubber products manufacturing; beverage and tobacco product manufacturing; textile product mills; chemical manufacturing; fabricated metal product manufacturing; and wood product manufacturing. Subsectors that lost jobs during that time include food manufacturing; machinery manufacturing; computer and electronic product manufacturing; electrical equipment, appliance, and component manufacturing; and printing and related support activities (Figure 2).
While it is important to analyze annual employment changes for a region there are other considerations, including long-term trends. For example, over-the-year, the computer and electronic product manufacturing subsector lost 275 jobs, but since 2010 it gained 1,334 jobs, which sounds much better for growth. However, this subsector is down 8,077 jobs since 2000, which sounds worse.
Geography is another consideration. At the regional level, printing and related support activities is down 141 jobs. Much of this loss was within Hennepin and Ramsey counties. Meanwhile, Anoka and Scott counties actually gained jobs in this subsector over-the-year.
Finally, it is important to keep an eye on the quality of jobs within manufacturing. One measurement of quality is wages. The average annual wage for manufacturing jobs in the Twin Cities Metro Area is $76,544 – 21.7 percent higher than the average annual wage for the total of all jobs in the metro.
Manufacturing is certainly vital to the Metro Area, and it encompasses many different industries and occupations. You can keep track of manufacturing trends through DEED’s Quarterly Census of Employment and Wages (QCEW) data tool, see where job vacancies are with the Job Vacancy Survey (JVS), look up wages with Occupational Employment Statistics (OES) tool, or even search for and apply for jobs with the Career and Educational Explorer.
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While Walmart is increasingly cognizant about competing with Amazon and other online retailers in growing its e-commerce volume, the retail behemoth hasn’t lost a step at its stores. It’s omnichannel strategy includes beefing up its online sales, improving its mobile and same-day delivery capabilities and broadening its appeal to shoppers. The result: In the second quarter the world’s largest retailer saw a surge in digital sales alongside its fastest same-store sales growth in more than a decade.
Walmart’s U.S. e-commerce sales climbed 40 percent—a big jump from previous quarters—and company officials said their online sales are on track to rise about 40 percent for the full year. This is an indication that the company’s grocery delivery options and redesigned website are reaping results. Meanwhile, store traffic was up more than 2 percent and U.S. same-store sales increased 4.5 percent.
Revenue increased 3.8 percent to $128 billion, topping analysts’ estimates of $125.97 million. Walmart’s shares increased 9 percent after releasing its strong quarterly earnings report.
Walmart officials acknowledged that the strong economy, low unemployment and seasonable weather also helped boost sales.
“We benefited from a favorable economic environment and weather,” said Doug McMillon, Walmart’s president and CEO, in its second quarter earnings call with investors. “Customers tell us that they feel better about the current health of the U.S. economy as well as their personal finances. They’re more confident about their employment opportunities.”
“The consumer is the healthiest they’ve been in 25 years,” says Jan Kniffen, a retail consultant and founder of J. Rogers Kniffen Worldwide Enterprises. “But that still means that they bought it from Walmart instead of Amazon. So they’re doing the right thing. The stores are now the best they’ve ever looked. Doug McMillon has completely rebuilt this whole inside of the store to make it just as good as it ever was for the consumer.”
Walmart is cutting back on new stores, focusing on e-commerce, remodels
Walmart has slowed down in one regard, however. It’s cut back on its pace of expansion.
“There’s sort of a new point of view coming from Walmart where they’re building on the traditional foundation of their stores, but they’re not adding many new stores,” says Laura Kennedy, vice president at Boston-based Kantar Consulting, a retail and shopper research and consulting firm. “They’re to add fewer than 15 new Supercenters this year and fewer than 10 new Neighborhood Markets. And there were years where they were adding a couple hundred Neighborhood Markets a year.”
Kennedy says the company started this move toward many fewer openings in 2017. Walmart added about 35 new Supercenters in 2017. In the past, they were adding some 200 Supercenters annually. Now Walmart is focusing on remodels of about 500 stores per year.
“Walmart has figured out they pretty well blanketed the country, so they continue to open stores, close stores and relocate stores—the things they’ve always done—but now they’re focused on the big store and the little store and nothing in between,” Kniffen says. “They basically walked away from the stores in the middle.”
Spending big bucks on e-commerce
Walmart has invested billions in its e-commerce business to compete with Amazon.com. The retailer is also pursuing a more affluent online shopper. Walmart paid $3.3 billion to acquire Jet.com in 2016 in an effort to reach higher-income, urban millennial shoppers.
Last week, Wal-Mart relaunched the Jet.com website to become the “shopping destination for city consumers.” The new website focuses on “localization, personalization and smarter recommendations” and new partnerships including with Nike and Apple. The relaunch started in New York but will also roll out to other major cities.
Since its Jet.com acquisition, Walmart has purchased niche brands like ShoeBuy, Bonobos and ModCloth and partnered with Lord & Taylor, which will bring new products to Walmart.com.
Walmart is also battling Amazon internationally, agreeing to pay $16 billion to buy 77 percent stake in Flipkart, India’s largest e-commerce retailer, which will give it a major presence in one of the world’s biggest markets. It’s a deal that Amazon also bid on.
Leveraging current stores
Walmart is taking advantage of its existing network of 4,700 stores to get products to shoppers quicker.
“They can leverage their store base to be much more competitive with Amazon,” Kniffen says.
For example, Walmart’s online grocery delivery option will be available to more than 40 percent of U.S. households by year-end, meaning deliveries from about 800 stores. And grocery pickup service for online shoppers is now available at more than 1,800 locations with more to come. That’s also part of the remodel strategy.
“Any of the stores that have the space to do so, they’re blowing out the one side and putting in the drive-thru acceleration lanes,” Kniffen says. “That gives them the ability to be more much attractive to the consumer, and it gives them something at the moment Amazon can’t do. They’re looking at different ways to leverage that store base to be more competitive with Amazon, and they’re doing a pretty darn good job.”
Grocery makes up more than 50 percent of Walmart’s revenue. Walmart is one of the biggest U.S. grocers and is way ahead of Amazon in that sector. However, Amazon has been increasing efforts after acquiring Whole Foods in 2017. However, that’s only 400 stores.
“It’s nothing in the total game in grocery,” Kniffen points out “When you look at what Walmart has done, they’ve made themselves a much better competitor to Amazon and they basically said, ‘If you’re going to win in grocery, you’ve got to win against us. And if you can’t win in grocery, your growth rate is going to slow down,’ because that’s where Amazon’s new focus is. They’ve taken over books. They’ve taken over electronics. They’re taking over apparel as we speak. But now they’re moving into grocery and that’s the real battleground and Walmart is way ahead.”
Dolllar store competition
While Walmart continues to expand its appeal to compete with Amazon, it also wants to gain back share from the dollar-store sector.
“A lot of their focus is now on Amazon rather than dollar stores,” Kennedy says. “That’s not to say that they don’t still compete with the dollar stores and they don’t still see them as a competitor, but the bigger target is on Amazon.”
When Dollar Tree acquired Family Dollar in 2015, it took market share from Walmart, predominantly from the lower-income shoppers seeking rock-bottom prices. The other significant player is Dollar General. Both chains have between 13,000 and 15,000 locations.
The huge number of dollar stores, their price strategy and range of merchandise make them a direct competitor with Walmart.
“I think Walmart would probably say they’re definitely still a major competitor—a competitor to shoppers who want to be confident they’re paying the everyday low price for products,” Kennedy says.
“Clearly, Walmart’s growth would have been better had Dollar Tree, Dollar General and Family Dollar never existed,” Kniffen adds. “None of us ever believed that there was a bottom below Walmart, but those guys proved there was. They managed to do it with small package sizes, convenient locations and small footprints.”
Kniffen says about five years ago, Walmart said they were going to “quit giving share in this space, and they brought in smaller package sizes and marketed against them and did all kinds of work with consumer products guys to make sure that they were competitive on price and size – not just price.
“I can’t really tell if they’re gaining share back,” Kniffen says. “It’s hard to measure that, but it certainly put a lot of pressure on that space, and they’re certainly trying not to lose share any longer in that space.”
As the recovery efforts following Hurricane Florence continue, the commercial real estate industry is beginning the long and complex process of damage assessment and remediation.
While estimates of the total damage caused by the storm may not be complete for some time, the industry is already bracing for a pronounced impact.
“Clearly the size and the scope of Florence is quite significant. … The sheer magnitude of the damage will not be known for multiple days,” says Clark Schweers, principal and head of the forensic insurance and recovery practice at BDO USA LLP, an assurance, tax and financial advisory firm.
Florence, which began as a Category 4 storm in the Atlantic Ocean, made landfall as a Category 1 hurricane on Friday in North Carolina. It brought a record amount of rainfall—more than 33 inches—in Swansboro, N.C., and powerful winds, causing significant flooding. The storm has killed 37 people as of Tuesday’s count, The Associated Press reported.
When it comes to property damage, ratings firm Moody’s has initially pegged property losses from the storm between $16 billion and $20 billion. This is likely a conservative estimate, the firm stated. A new report from Morningstar Credit Ratings issued Thursday morning identified $1.49 billion in securitized commercial mortgages that are at an elevated risk because of major damage. The firm found 189 properties backing 187 securitized loans in 16 of the 18 North Carolina counties that have been declared as disaster areas by the Federal Emergency Management Agency, though assessment is still ongoing.
Morningstar said it doesn’t expect a surge of loan defaults; business-interruption insurance should help for most properties. But flood damage could hinder refinancing some existing loans and paying off any maturing loans over the year.
After Hurricanes Harvey, Irma and Maria, few CMBS loans fell delinquent, Moody’s reports. “It’s a known factor for certain locations, so when the deals [are] rated initially, we definitely take that into account,” says EJ Park, a senior credit officer at Moody’s. Prior to the storm, Moody’s anticipated CMBS loan exposure in the Carolinas at 2.7 percent and commercial real estate CLO exposure at 0.9 percent of the universe it rates. The firm found 345 loans backed by properties likely to be hit by the storm, for a combined 1,479 properties in North Carolina and South Carolina that hold a loan balance of $10.7 billion.
The storm appears to have missed larger cities in the area, such as Charleston, S.C., but hit hard in less-dense areas. Some of the commercial assets likely to be most impacted include single-tenant retail, garden-style apartments, single-family rentals, vacation properties and light industrial buildings, says Ross Litkenhous, vice president of strategic development at Altus Group, a commercial real estate software provider and advisory firm.
Commercial real estate professionals in the region face concerns not just about the extent of damage from flooding and wind, but also the sheer amount of wind-driven rain seeping through properties, Schweers says. Even minor water intrusions can have big impacts on commercial properties where people live and work. And with extreme flooding blocking access to properties and infrastructure, quick remediation appears unlikely. “Mold can be quite devastating and extremely costly for owners to deal with if it’s not able to be dealt with in the beginning,” he notes.
Further challenging remediation efforts, surging floodwaters in the region have triggered other environmental contamination concerns from coal ash and pig waste, The New York Times reports.
And while there is never a good time to have a natural disaster, the timing of Florence is particularly bad. Construction materials and labor costs are soaring, and they could increase further with tit-for-tat tariffs, Litkenhous says.
Meanwhile, the storm’s impact on the residential side is likely to create more demand in the local apartment sector, already somewhat constrained. “Clearly with the sheer amount of residential damage that has occurred, there is going to be significant demand for temporary housing and for apartment rentals,” Schweers says.
In the region’s smaller cities that were impacted, the multifamily occupancy rate was running around 94 percent before the storm, says Greg Willett, chief economist at RealPage Inc., a provider of property management software and services. That means few apartments may be free for temporary housing.
For example, there are about 22,000 apartments in Wilmington, N.C., with an occupancy rate between 93 percent and 94 percent. That translates to only about 1,500 vacant units. “That’s not a lot of stock if a bunch of single-family homes have been damaged,” Willett says.
While the recovery efforts appear to be challenging, the industry may be more prepared to bounce back than it was a few years ago. Following the wildfires on the West Coast and last year’s trio of harrowing hurricanes—Harvey, Irma and Maria—natural disaster resiliency has been top of mind for commercial property executives. However, natural disasters might always be a challenge “because it’s something that’s difficult to plan around,” Litkenhous says.
New owners have proposed renovations for Minneapolis’ Suburban World Theatre at 3022 Hennepin Ave. S.
The ceiling stars may soon shine again in the Suburban World Theatre, a long-vacant movie palace located in Minneapolis’ thriving Uptown retail district. If plans succeed, the theater would be the only example of an atmospherically styled film venue in Minnesota to be run by a for-profit business.
Atmospheric theaters like this one typically featured facades styled to emulate Italian palazzos or medieval Spanish structures. The insides were no less ornate. Screening rooms were built to look like lush Mediterranean courtyards decked out with nude statues, faux trees and ornate terra cotta detailing. But the showstoppers were the vaulted ceilings, which were artfully made into cerulean, star-studded skies from ceiling lights complete with puffs of clouds scudding by overhead. The Suburban World went one step further with a moon that rose and set with the show.
Across the country, many showcase theaters from the golden age of film are getting facelifts amid a newfound appreciation of a building style that can be hard to find in the Netflix era. Often, the uses of these refurbished buildings are being broadened beyond film viewing because fewer people will venture out anymore to see a movie they can watch on a laptop or smartphone.
Minneapolis is now joining this wave. A local development team closed on the property, and plans to turn it into an event center and live performance venue with a small bar at the front of the house that will operate full time.
The renovation would mark a return to form for Suburban World, which debuted in 1927 as The Granada and was described by original architect Jack Liebenberg as “Moorish on the outside and Venetian within” in a 1980 interview.
“We’re going to return it to its original grandeur,” said Dean Dovolis, founder and CEO of the architectural firm on the project, Minneapolis’ DJR.
An entity controlled by developers Doug Hoskin and Amy Reher paid $1.5 million for the 6,935-square-foot building at 3022 Hennepin Ave. S., which has been empty and dormant since 2011. The surrounding neighborhood has experienced a shopping boom in recent years and includes such 21st century destinations such as an Apple Store, H&M, The North Face and Urban Outfitters.
The building is one of just four remaining atmospheric theaters in Minnesota, the others being in Rochester, Faribault and Austin.
The Rochester theater was last used as a Barnes & Noble bookstore. It is now owned by the city of Rochester, which paid $6 million for the property in 2015 and has approved a $1 million renovation budget for the building.
The other two are owned and operated by nonprofit arts organizations.
Across the country there are at least 1,500 restored theaters, according to Ken Stein, president and chief executive of League of Historic American Theatres, a non-profit advocacy group out of Austin, Texas. Even so, atmospheric theaters are a special breed, representing only hundreds of the thousands of impressive cinema buildings that were constructed between 1900 and 1950, according to Stein.
“They are a rare and precious gem,” he said.
The seller of the Minneapolis theater is Aventura, Florida-based Elion Partners, a development company that floated plans to turn the theater into a retail space in 2013.
That project never came to fruition, though Elion did begin preliminary work at the site. Elion’s venture is one of several thwarted reuse schemes that have come and gone since the Suburban World showed its last film in the late 1990s.
In 1999, then-owners Scott and Lisa Johnson added a restaurant in the building. It operated as the Cinema Grill until 2002, at which point the Johnsons began negotiating a lease with well-known Minneapolis restaurateur Kim Bartmann. That did not pan out, and the Suburban World went dark for three years.
In May 2005, new owner Donald Driggs successfully petitioned the city to allow live stage performances at the site. He ran a restaurant and events venue there until 2011. In 2012, the property reverted to the lender, the Commerce Bank of Edina, and was put up for sale.
Elion bought the Suburban World for $750,000 after pitching its plan to the city in March 2014.
Elion did not respond to a request for comment, but Dovolis worked on that project and said the hang-up came from the Heritage Preservation Commission, which has veto power over changes to locally designated historic sites. Suburban World was designated as such in 1991.
“The HPC was reticent about flattening the theater floor,” Dovolis said, adding that this time the developers have come up with an acceptable workaround.
DJR has designed a second floor that would be constructed atop the original, with a crawl space in between, which would not alter the basic structure of the building.
“If it becomes a theater again these could be removed,” Dovolis said. “Everything I’m proposing is reversible.”
The overhaul also calls for ripping out the existing commercial kitchen, which was inserted into what was the lobby area, Dovolis said, as well as adding new mechanical equipment, plumbing and electrical infrastructure. From an aesthetic point of view, DJR has recommended light touch-ups to the terra cotta work, restoration of the terrazzo floors in the lobby, and a rehab of the building’s marquee.
The developers also plan to give the Suburban World a new paint job in soft greens, grays and blues, which is a period-appropriate answer to the aggressive bold colors that were added over the years.
A new commercial kitchen would be added into what was the projection area.
Hoskin said that demolition of the current kitchen and recent additions to the structure would begin this month. Hoskin and Reher’s plan got initial approval by the HPC in June but will have to go back for one more vote on Sept. 25.
If all goes well, the renovation would take six to eight months. Hoskin said the newly revamped Suburban World would probably reopen in late spring of 2019.
Once done, the Suburban World would be able to seat about 220 guests for banquet-style events, and host live performances with an audience of up to 500. The bar would have a maximum capacity of 30 to 35.
Brad Case, Nareit senior vice president for research and industry information, was a guest on the latest episode of Nareit’s REIT Report podcast and discussed the impact of emerging blockchain technology on the real estate industry.
Developed in connection with cryptocurrencies, blockchain is “essentially a set of practices that make it possible to keep records of who owns assets,” Case explaied. He noted that although blockchain is not the same as distributed ledger, for the purposes of considering the effect on real estate, the two terms can be treated as synonyms.
Blockchain can establish ownership of an asset much more efficiently than at present, Case said. In addition, the technology makes it possible for governments to keep property records used for tax purposes at a reduced cost and lower probability of fraud.
Meanwhile, blockchain also has the potential to eliminate much of the appeal of private real estate investing relative to REIT investing, according to Case. He noted that while buying a REIT stock only takes a matter of seconds, the process of investing on the private side can take about six months on average. Much of that time is spent on due diligence, a process that blockchain can cut down to days rather than months.
“Most of the reason for investing in private real estate is to take advantage of the differences in the way returns are measured. Blockchain has the technology to bring those to a minimum and eventually eliminate them—that will eliminate a lot of the appeal of private real estate investing relative to REIT investing,” Case said.