When purchasing or renewing commercial general liability (CGL) policies there is often talk about “what is covered.” But the moral of this article is that it can be more important to discuss “what is not covered.” And by this I am referring to policy exclusions.

Exclusions play a critical role in every CGL policy. When coverage is denied, it is more often than not due to an exclusion. Yet too often I find that the policy holder is unaware of the exclusion prior to the denial. I believe this calls for a shift in focus.

The reason exclusions play such an important role is relatively simple. All CGL policies begin with essentially the same concept: that the insurance carrier will defend and indemnify the policy holder if he/she/it becomes legally liable for bodily injury or property damages. Because this concept affords broad coverage for a wide variety of claims, the policies typically have multiple exclusions.

By carving a much narrower scope of coverage, these exclusions define the true extent of the policy.  Indeed, it is impossible to determine whether a claim is covered without proper examination of the exclusions. For this reason they deserve a significant amount of attention.

To illustrate the importance of this principle, I will discuss one exclusion that has particular relevance for those in the real estate development industry: the sunset clause. The sunset clause is a clause providing that insurance coverage will cease after a specified point in time. In and of itself this sounds fairly innocuous because, obviously, we can’t expect coverage to continue forever. The problem is that insurers can and sometimes do use these clauses to limit coverage in ways that can leave policy holders in very precarious situations.

Insurers know when claims are likely to be filed. By writing exclusions like sunset clauses they can limit their risk, and increase the profitability of policies in ways that are not readily apparent to the unwary. Drawn by cheaper premiums, policy holders may not realize the exclusion is there, or may not understand the full effect of the exclusion. Ignorance is bliss—unless and until a claim is filed.

One of the most significant costs of real estate development, and one of the most significant reasons to purchase a CGL policy, is construction defect claims. In my home state of California it seemed like nearly every development constructed within recent memory was involved in some form of litigation regarding construction defect claims before the real estate market crashed a few years ago, particularly with respect to residential properties. This drove insurance premiums through the roof, forcing some in the industry out of business.

The thing to know about this litigation, for purposes of the sunset clause, is that each U.S. state has passed legislation limiting the period of time in which it can be filed, called the statute of limitations. In California the litigation can, and fairly often will, be filed up to 10 years after substantial completion of construction. So if a sunset clause precludes coverage any time prior to this, you may be liable.

This is why sunset clauses can be devastating if there’s a claim. Some preclude coverage even before the completion of construction. These clauses are particularly onerous because experience has shown that construction defect claims virtually always arise after the completion of construction. A clause like this can render a policy virtually worthless for the claims. This can be very disappointing, especially when considering the fact that premiums for policies with these clauses can easily cost hundreds of thousands of dollars.

Of course, construction defect claims filed before the period specified by the sunset clause may generally be covered. And if asked, those in the business of selling insurance may be quick to verify that point, as assurances that tend to persuade customers to bind coverage are usually provided quite readily. But the period of coverage that is precluded by the sunset clause will likely be a critical period of coverage, and can lead to serious consequences.

This isn’t to lay blame on the insurance industry, however. To meet a strong demand for lower premiums, insurers must write exclusions that limit risk to a reasonable level. And while it is often normal to provide a substantial amount of information to your broker in procuring your policy, he/she still may be unfamiliar with other important aspects of your business sufficiently enough to realize that an exclusion is an issue. In such a case, the exclusion may never be mentioned, and I am sad to say this can and does happen.

Circling back to the moral of this article, do not assume that exclusions potentially affecting your business will automatically be brought to your attention before your CGL policy is bound. Take the time to review the exclusions, and ask questions. Time spent going over the exclusions can pay for itself many times over down the road.

Christian Graham is a licensed practicing attorney in California, and serves as general counsel for the national firm Advanced Retail Solutions. He can be reached at [email protected]

By now, the list of retailers that have vowed to close up shop on Thanksgiving Day is no less than 75. One major landlord, CBL & Associates Properties Inc., also announced that its retail properties will go dark in the run up to Black Friday, accounting for about 62 centers.

This is the second consecutive year that CBL has decided to close its malls on Thanksgiving Day, a decision that officials said was prompted in part by negative feedback from consumers and employees.

“We employ about 100,000 people at the malls, including the employees of retailers, security and maintenance,” says Stephen Lebovitz, CBL’s president and CEO. “There are a significant number of people who can spend the day with families.”

The decision to close stores does not mean landlords and retailers will starve their companies’ bottom lines while indulging in traditional holiday feasting. The National Retail Federation (NRF) expects 2017 holiday sales in November and December to increase between 3.6 percent and 4.0 percent for total sales of $678.75 billion to $682 billion. That haul excludes sales at restaurants, as well as gasoline and automobile sales.

As for Thanksgiving spending, the NRF estimates that in 2014—the most recent year for which that particular data is available—the three-year rolling average was $404, lower than the estimated three-year rolling average amount spent in 2013, $410.

Over Thanksgiving weekend Black Friday remained the most popular day for shopping, as 65 percent of spending occurred on that day in 2014. Thanksgiving Day never accounted for more than 32 percent of shopping, which occurred in 2013 and 2014, according to NRF estimates of spending on individual days throughout the Thanksgiving weekend.

At centers run by CBL, retailers reported that they did more business on Black Friday, Lebovitz says.

“Over the course of the weekend the business we conducted was roughly the same over a three-day period as it had been over the three-and a half-day period,” he says. “We felt that we were not hurting our retailers by not opening, and we were doing something that was very important to our employees and our customers.”

RetailNext, a San Jose, Calif.-based provider of shopper analytics to retailers and malls, predicted that holiday retail performance for 2017 should increase by 3.8 percent on a year-over-year basis. Not all retail segments would be so fortunate, however. RetailNext predicts that department stores and larger format retailers will struggle to keep up with the sales gain, and even see sales drop between 3.0 percent and 4.0 percent. Top seasonal performers are likely to include off-price retailers, warehouse clubs, home improvement stores and specialty stores in the men’s fashion, home furnishings and jewelry segments.

Based on contemporary consumer habits, holiday shopping has already gotten underway, Ray Hartjen, a spokesman for RetailNext, said in an email response.

“Certainly, retail brands are in full holiday mode the moment trick-or-treaters hit the bed on October 31,” he says.

For the better part of a decade, full holiday mode often led retailers to offer aggressive promotions to customers coming into their stores on Thanksgiving Day. Yet the earnings from the promotions did not always help the margins of those companies, Hartjen notes.

“The fourth quarter, the quarter where a retailer’s economic model was depended on profits, became one of the worst profit-producing quarters of the year,” he said.

Landlords and retailers are certainly hoping for a profitable fourth quarter, holiday season and full year, but the idea of closing up shop on Thanksgiving Day continues to catch on. One of the most iconic shopping centers in the U.S., the Mall of America in Bloomington, Minn., noted on its website that most retailers would remain closed on Thanksgiving Day.

CyrusOne Inc. (NASDAQ: CONE) said Oct. 18 that it will make a $100 million equity investment in GDS Holdings Ltd. (NASDAQ: GDS) as part of a new strategic partnership with the Chinese data center developer and operator.

Following the equity investment, CyrusOne will own approximately 8 percent of GDS. Additionally, CyrusOne President and CEO Gary Wojtaszek will join the GDS board.

In a conference call, Wojtaszek noted that CyrusOne and GDS count almost every major online cloud company in the United States and China as their customers. He stressed that the partnership fulfills the companies’ goal of developing a global data presence and creates a “compelling value proposition” for shareholders. He added that “practically all” of CyrusOne’s customers are looking to expand in China.

The strategic partnership is expected to involve the exchange of best practices around sales and marketing, data center design and construction, supply chain management, and customer relationship management and operations.

Wojtaszek said the partnership and investment with GDS will do nothing to disrupt existing plans to expand in the European market. In fact, he pointed out that GDS’s major shareholder, STT GDC, already has a strong presence in Europe. As a result, CyrusOne will now have two partners that can help it expand in Europe at a faster pace than would have been possible alone, he said.

Michael Rollins, analyst at Citi Research, said he had considered European expansion to be the priority for CyrusOne. However, “the partnership with GDS strengthens CyrusOne’s move towards becoming the key supplier and enabler of the hyper-scale cloud players both in the U.S. and abroad,” he observed.

KeyBanc Capital Markets analyst Jordan Sadler described the announcement as a “surprising strategic shift,” given that during the second quarter earnings call Wojtaszek said the company was reviewing a number of options in Europe, including a property in Dublin.

“We view the investment and the Chinese market as a potentially significant opportunity, though the risk associated with an investment in GDS remains less clear,” Sadler said.

The search for yield in a slowing market has investors shifting their focus to more lucrative value-add and opportunistic projects. And, so far, there appears to be plenty of capital to back those strategies.

Buying stabilized assets at this stage of the market is a bit like buying a bond, notes Joe Franzetti, a senior vice president at Berkadia Commercial Mortgage. “So for buyers that are looking for out-sized returns, they are going to look at value-add situations where there is an opportunity to increase cash flow and increase value,” he says. Projects run the gamut from assets that need a facelift or expansion to a complete redevelopment or adaptive reuse.

Debt funds are often taking the lead on providing capital for these value-add deals. “There is a tremendous amount of debt funds and mortgage REITs who are really focused on value-add situations,” notes Franzetti. He estimates that there are nearly 80 different entities that are willing to lend on this type of product, and many are aggressively trying to find deals that work or fit their specific business model. Multifamily investors have the advantage of being able to access capital through Fannie Mae and Freddie Mac. Both agencies have value-add programs with fixed-rate and floating-rate debt that provide pretty attractive financing, notes Jeff Erxleben, an executive vice president and regional managing director at debt and equity provider NorthMarq in Dallas.

Commercial value-add projects are a slightly different story, because they don’t have Fannie and Freddie as a backstop providing additional liquidity. “You are dealing with a debt market that is, generally, speaking, significantly lower leverage,” says Erxleben. Leverage on commercial value-add projects is typically at 60 to 65 percent, with debt coming from banks and bridge lenders. On multifamily deals, balance sheet lenders will come in and provide between 80 and 90 percent of the financing on a floating LIBOR structure that provides the dollars not only for the acquisition, but also for the renovation of the project, he adds.

Life companies also have stepped up their bridge lending activity this year. Pricing and leverage are a little lower on life company bridge loans, but all in all, it is a pretty healthy market between the agencies and various bridge lenders out there from the debt financing standpoint, says Erxleben.

Borrowers get creative

Some borrowers with complex projects are finding that they have to get creative to not only find the best financing options, but start building needed momentum on a project. Earlier this spring, BTI Partners raised $55 million to help kick off redevelopment of The Grove Resort & Spa in Orlando by utilizing tax-exempt bonds. The developers had acquired the busted hotel-condo development at auction in 2014. It included 106 acres and three partially completed towers.

“We do projects all over Florida and we have good relationships with the money center banks,” says Keith Lavery, CFO of Fort Lauderdale-based BTI Partners. However, the investment group also recognized that this project had some unique challenges and higher front-end risk—namely, the likelihood of negative cash flow to start—that would make it difficult to finance the first phase through conventional sources. The large debt funds were interested. However, the cost of capital would have been higher with financing rates in the double digits, notes Lavery.

The bonds, which involved creating a community development district, helped to fund construction of a water park, public parking garages and other infrastructure associated with the resort. They also offered an attractive alternative with a rate that was about 6 percent. The first phase, including 184 of the 292 condo-hotel units, opened in March 2017. The remaining 108 units in tower one will open at the end of October, and the investment group is in the process of lining up financing for phase two.

Now that the project is seeing good acceleration in the sale of the hotel-condo units—275 sales with 100 closings booked—the investment group expects to utilize financing from banks and debt funds for the completion of the remaining two towers, which will likely start work in mid-2018. “We have really good reception and we are in detailed discussion with a handful of lenders,” says Lavery.

Lenders are more selective

There is good liquidity in the market for deals that have higher risk and return strategies. However, lenders are approaching those deals with caution and being more selective. Lenders prefer markets where property fundamentals are strong and job creation is strong. There is also a big focus on the sponsor’s experience and track record in successfully executing value-add deals.

“Big-box retail is probably the toughest to get your arms and legs around, because there is typically not a great solution for converting those assets,” says Erxleben. There is often a lot of space that is lost in the conversion, and they are more difficult to leverage from a debt perspective, because it is not a preferred asset class for lenders. Capital is more expensive and it is harder to make those deals work, he adds.

Banks and life companies will do value-add, but many are steering away from complex deals and focusing on easier, less risky repositioning that might require only modest cosmetic work. “We’ve seen more of the traditional lenders—the banks and life companies—doing light repositioning and they do it at a lower leverage point,” says Franzetti. Even Fannie and Freddie are sticking to deals where the business plans are easily attainable, he adds.

“It doesn’t matter who the lender is, what they are really focusing on is the borrower’s ability to execute that business plan,” says Franzetti. Lenders are getting very comfortable with the borrower, the business plan and the market fundamentals. “For somebody who is branching out into this for the first time, I think it is very hard for them to get financing unless they bring in a partner who has that kind of experience,” he adds.

A new report put together by Cornell University’s Baker Program in Real Estate and Hodes Weill & Associates, a global real estate advisory firm, found that institutional investors continue to increase their targets for real estate investments, in spite of facing some challenges.

Institutions’ target allocations to real estate averaged 10.1 percent this year, up from 9.9 percent in 2016, the report’s authors found. In 2018, target allocations will likely rise to 10.3 percent, survey respondents indicated. Thirty percent of survey participants increased their target allocations to real estate in 2017, while 18 percent decreased their allocations.

Most of the decreases could be attributed to the endowments and foundations space, perhaps due to the difficulty of achieving the necessary yields, which average 9.5 percent, the report’s authors speculate. Public pension plans have kept their target allocations largely flat with last year’s levels, while private pension plans, insurance companies and sovereign wealth funds have increased allocations. Public and private pensions and insurance companies target real estate returns of under 8.00 percent.

However, actual allocations have trailed set targets by about 100 basis points, with 60 percent of surveyed institutions reporting they were underinvested compared to targets. Last year, the figure was 50 percent.

Overall view of the opportunities present in the real estate sector has reached a five-year low in 2017, according to the survey’s “conviction index.” The index measures investors’ view of opportunities from a risk/return perspective on a one-to-10 scale. In this year’s survey, the index came in at 4.9. In 2016, it was at 5.4. The reasons include high competition for assets and the resulting outsized valuations, rising interest rates and geopolitical instability, according to the report’s authors.

Returns on institutional real estate investments have been slowly declining over the past few years. In 2016, the annual investment return averaged 8.6 percent, down 240 basis points from 2015.

The survey was administered between May and September of this year and included 244 institutional investors. Survey respondents included public pensions (34 percent), endowments (31 percent), private pensions (18 percent) and insurance companies (14 percent). Three percent of respondents included sovereign wealth funds and government-owned entities. Sixty-nine percent of respondents were based in the Americas, 10 in EMEA countries and 11 percent in Asia Pacific. The majority (82 percent), held less than $50 billion in assets.

In the latest edition of The REIT Report: NAREIT’s Weekly Podcast, Dennis Duffy, director with BDO Consulting, discussed potential conversions of retail real estate into industrial properties.

The rise of e-commerce and spike in retail store closings in the United States have generated speculation about the future of country’s retail property inventory. REITs generally own high-quality properties, which means their portfolios are less exposed to pressures from online retail. Additionally, many REITs are adapting their properties to the changing tastes and preferences of consumers.

However, some retail property owners are considering transitioning their assets into industrial properties, according to Duffy. He noted that demand for industrial space does not appear likely to come down in the near future.

“Population growth continues in the U.S. Demand for consumer goods continues in the U.S.,” Duffy said. “Inadequate existing infrastructure also will create demand for logistics.”

Duffy also pointed out that delivery companies will need logistics facilities that are closer to their client base. Industrial space “has always been on the edge fo town,” according to Duffy.

“From the standpoint of logistics… I expect that any of the retail properties that are surplus or about to be repurposed would probably occur in high-demand areas or those best-suited to deal with the existing infrastructure,” Duffy said.

(Subscribe to The REIT Report via iTunes.)

Multifamily developers have been very busy in Seattle, especially in the core sub-markets around downtown. But thanks to affordability and strong job growth—including in the city’s core—few new apartments are sitting vacant and rents continue to rise.

“Performance remains terrific, despite all the new product that has been added to the stock,” says Greg Willett, chief economist with RealPage, which provides property management software and solutions for commercial and multifamily properties. “Lots of places register very solid expansion of downtown jobs, but Seattle’s urban core growth rate is in a whole different category.”

Vacancies shrink in Seattle

Despite all the new construction, the percentage of vacant apartments has fallen on average. Currently, vacancy is at 4.6 percent, down from 4.9 percent at the end of 2016, according to New York City-based research firm Reis Inc.

“Seattle has seen a lot of construction, but demand has stayed even with construction, so Seattle has not seen any vacancy rate increase,” says Barbara Byrne Denham, senior economist with Reis.

Seattle’s economy is strong—but not strong enough to account for how well the apartment sector is doing there. The number of jobs in the Seattle area has grown steadily, increasing by 2.5 percent since last year. That puts Seattle at number 20 out of the 82 metro areas tracked by Reis. Seattle is doing better than the U.S. overall, where the number of jobs is now just 1.6 percent higher than it was the year before.

Seattle is also attracting new residents because it’s not quite as painfully expensive to live there as in other large cities in Western United States. “What is different about Seattle is that its rent levels ($1,654 per unit) are considerably lower than San Francisco ($2,990 per unit) and San Jose ($2,530), so it’s more affordable for millennials,” says Denham.

Seattle’s urban core leads the market

Seattle’s urban core sub-markets fit within the general theme of the metro area. Developers have opened a large number of new apartments, but employers in the area have also hired a large number of new employees.

Since 2010, developers have opened 21,707 new apartments in Seattle’s three urban core markets: Downtown, South Lake Union/Queen Anne and Capitol Hill. That’s a third (33 percent) of the new apartments that opened in the metro area overall. Another 9,378 new apartments are under construction. “That’s 46 percent of everything under construction across the metro,” says Willett.

New jobs are helping to fill all these new units, led by the expansion of tech giant Amazon. The apartments in the urban core markets are 96.7 percent occupied, and apartment rents are growing at a rate of 6.6 percent a year, according to research firm MPF.

In the South Lake Union/Queen Anne sub-market, where Amazon has its headquarters, rents are growing even more quickly, at a rate of 11.8 percent a year.

With so many more new apartments on the way, occupancy is likely to fall below 96 percent over the next few years, according to MPF. Rent growth should slow as well, with the expected annual increase coming in at around 4.5 percent.

“Even with that moderation, however, Seattle’s urban core forecast is among the strongest in any downtown across the country,” says Willett.

As the U.S. office market continues to thrive and investors keep pumping capital into this extremely profitable sector, there is a lot of talk regarding property taxes and their impact on the real estate environment. The decision to expand, invest or exit a particular city or market has to factor in all the costs–this, of course, includes state and local taxes.

Commercial property tax rates vastly differ from market to market, depending on how much that particular economy relies on property tax revenue, the varying property values, tax exemptions and incentives programs, and many other factors. The resulting difference in costs among markets can push companies to consider downsizing or even relocating to another city, where the costs of running a business are lower. 

With a little help from Yardi Matrix and PropertyShark data, and a lot of combing through public tax records, we put together a list of the top 20 taxpaying U.S. office CBDs (central business districts). The list is arranged by the average taxes each CBD pays per 1,000 square feet of space (see ‘Methodology’). The list includes the most sought-after office investment markets in the country–check them out below, and see how much they each command in average yearly commercial property taxes.

New York City, DC CBDs Pay the Highest Property Taxes

The New York City office market leads the pack and is basically in a league of its own. Its CBD houses 426 office buildings over 100,000 square feet, totaling 210 million square feet and commanding a yearly tax volume of $3.4 billion. This means that, as a property owner in the city’s core business district, you’ll need to pay an average of $16,302 in taxes per 1,000 square feet of office space. That’s much higher than what any other market on our list commands, once again emphasizing the fact that New York City is the most attractive office scene in the country. Taxes might be high here, but so are the returns and the investment opportunities.

The Washington, D.C., central business district comes in second, with an average of $10,247 in taxes per 1,000 square feet of prime office space. The CBD market boasts an office inventory of 78 million square feet, which commands $801 million in yearly property taxes. The District of Columbia enforces a tax rate of $1.65 for commercial properties with an assessed value below $3 million, and a tax rate of $1.85 for properties assessed above $3 million, according to public records.

Boston CBD Boasts High Taxes, Low Volume

Office properties within the Boston CBD command the third-highest property taxes among the markets we analyzed. At first glance, this might seem surprising, as the district’s office inventory totals just 22 properties and 7.8 million square feet, yet the average tax per 1,000 square feet is $8,609. The catch is that property taxes are a major source of revenue for Suffolk County in general–the current tax rate for commercial properties in the county is $25.37 per $1,000 in assessed property values. And that’s not even the highest rate in the state–Boston ranks 59th in the state in terms of commercial property tax rates, according to the Boston Business Journal. By comparison, the Miami office market, whose central business district boasts a similar square footage volume, commands an average of $3,717 per 1,000 square feet of space, landing the 12th spot on our list.

Austin and Houston CBDs Complete the Top 5

Two Texas contenders complete our top five, namely the Austin commercial real estate market, with an average tax of $7,827 per 1,000 square feet, and Houston, with an average tax of $7,280 per 1,000 square feet. The difference between the two markets becomes obvious when we look at the total CBD office inventory: Austin is home to 37 properties totaling 10 million square feet, while Houston’s central business district houses 50 office assets encompassing 41 million square feet. Property taxes will soon rise even higher in Austin, as the City Council recently voted to raise the tax levy by 11.2 percent, the Austin Daily Herald reports.

Chicago Boasts High Volume, Low Average Taxes

Chicago‘s central business district is home to the largest concentration of office space outside New York City, housing 143 properties totaling over 95 million square feet. And yet, the CBD fills the sixth spot on our list, commanding an average tax of $6,617 per 1,000 square feet of space. The Fort Lauderdale office market is a different story. With an average of $4,804 per 1,000 square feet of office space, the Fort Lauderdale CBD occupies the seventh spot on our list, even though it boasts the lowest office inventory among the top 20 markets presented in our chart above–3.5 million square feet across 14 properties.

Los Angeles CBD–Office Tax Haven?

If you’re looking to invest in California’s office real estate market, and you don’t want to spend too much on property taxes, then you might want to pick Los Angeles or Sacramento instead of San Francisco or San Jose. The San Francisco CBD boasts the highest average taxes for office properties in California, landing the 10th spot on our national chart. The average tax amount per 1,000 square feet here is $4,357, while San Jose follows close, with $3,794 on average. The Los Angeles commercial real estate market, on the other hand, commands an average of $3,042 per 1,000 square feet of office space, though it’s home to the largest office inventory among the Californian CBDs on our list–36.4 million square feet.

See a particular market missing from the top 20? Check out the full top 40 list

The top 20 positions on our list of average taxes paid per 1,000 square feet include most of the country’s most popular office markets. However, there are a few other markets that you might have expected to find higher up on this list–for example, Dallas or Philadelphia, each boasting over 25 million square feet of CBD office inventory.

Check out below the full list of the top 40 CBDs and the average property taxes they pay for 1,000 square feet of space:

Methodology

• Data sources: Yardi Matrix, PropertyShark, proprietary research;
• Square footage parameters: over 100,000 square feet;
• Property location filter: CBD primary;
• The average tax amount was calculated for all properties taking into account the above-mentioned criteria;
• Tax values were verified against Assessor and Tax Treasurer official public websites;
• Tax records may present a 0% to 15% error margin.

Take a quick scroll through the Instagram account of Riley Rose—the new beauty and lifestyle chain created by apparel retailer Forever 21—and you will be inundated by pink color, glitter and aesthetically pleasing photos of products to try and purchase.

The account reflects what visitors will experience when they enter a Riley Rose store. The first of 13 to open in General Growth Properties’ (GGP) shopping centers around the country appeared recently at Glendale Galleria in Glendale, Calif.—which, from the looks of it, is as Instagram-ready as many of its products.

In an age where apparel retailers are taking a hit from the rise of e-commerce shopping, it’s this connection to social media and experience that some experts are saying is a smart move for the retailer, which generally caters to young women. In fact, the chain already has a social following and one physical store open, but it has yet to launch an online web shop.

“As far as a growth vehicle, [Forever 21] needed something different,” says Michael Lushing, principal at Beverly Hills, Calif.-based Lushing Realty Advisors, which helps retailers figure out expansion strategies.

The stores are opening at a time when mall developers are looking for alternative uses for their properties, amid higher mall vacancies. In the second quarter of this year, the vacancy rate for regional malls was 8.1 percent, up from 7.9 percent in the second quarter of 2016, according to real estate research firm Reis. However, the peak vacancy rate for regional malls was 9.4 percent in the third quarter of 2011, according to Reis.

So far this year, there have been 6,121 major U.S. store closure announcements, according to a weekly tracker from Fung Global Retail & Technology, a research firm. That is a 203 percent year-over-year increase. Teen apparel retailers are among those closing locations, as rue21 announced it would close 400 stores, Wet Seal said it would close 171 stores and American Apparel also said it would shutter 110 stores, according to the tracker. However, there is also a 54 percent year-over-year increase in store openings, as so far in 2017, there have been 3,467 major U.S. store opening announcements. Ulta and Sephora are among the retailers opening stores, with 100 and 70, respectively, along with the 10 Riley Rose stores.

Apparel retailers in general have been struggling, says Anne Brouwer, a senior partner at McMillan Doolittle, a retail consulting firm. The teen apparel segment that Forever 21 occupies saw huge growth in the late 1990s and early 2000s, but many of those retailers are not so healthy today, Brouwer says. Compounding the issue is the fact that discretionary spending has changed, especially among millennials who grew up during the recession and have different attitudes about spending, Brouwer says.

With the rise of other fashion retailers like H&M and Zara—H&M has opened 43 stores net in the U.S. in the first nine months of this year, according to Fung Global Retail & Technology—Forever 21 had to diversify, Lushing says.

And it seems that a social media-heavy, experience-focused concept may have been the way to go.

The goal for retail properties is to create a dynamic environment for shopping and socializing, says Joseph Coradino, CEO of PREIT, which leases space to Forever 21 in six of its properties, in an email. “Homogenous retail offerings are not going to capture market share,” he says. For example, Nordstrom is launching Nordstrom Local, which will have a greater focus on customer experience. The stores won’t have merchandise, but will have services like quick pick-up and online orders and tailoring, Coradino says. “Amid a quickly changing retail environment, taking risks can create new opportunities for consumers to rediscover the shopper experience,” Coradino notes.

In announcing the launch of Riley Rose in May, Sandeep Mathrani, CEO of GGP, said that customers expect lifestyle offerings. “Millennials have embraced the Forever 21 brand, and GGP is thrilled with the introduction of Riley Rose. We know our shoppers will enjoy it,” he said.

Still, while there are some chains starting to offer more services and experiences—yoga apparel retailer Lululemon offers in-store yoga classes, for example—it’s not yet the norm, Brouwer says: “I think it’s happening. It’s just not at mass.”

A beauty and lifestyle focus—Riley Rose will also offer home décor and other accessories—that targets millennials and Gen Z shoppers may also work in the store’s favor. PREIT’s 2016 shopper survey found that 78 percent of shoppers between the ages of 18 to 24 prefer to shop and socialize at a mall, Coradino says. Ulta and Sephora stores are staples among beauty shoppers, but those retailers tend to cater to older audiences, Lushing says. “There’s really nobody looking out for the juniors, and juniors like to have their own experience,” Lushing says.

Beauty stores are also still flourishing. “In-store product trials and interactions with makeup artists and experts are appealing to customers and aren’t replicated online—enabling this this sector to favor brick-and-mortar,” Coradino says.

It’s these experiences that are helping beauty to grow in retail, says Jessica Wolfe, a principal in the consumer products and retail practice of global strategy and management consulting firm A.T. Kearney.

Nyx stores, for example, have been successful and provide tutorials and technology in the stores, allowing customers to take selfies. Riley Rose also taps into the millennial desire to post photos on social media—not only of the Barbie dollhouse-aesthetic of the store, but of themselves for feedback from followers or to show off, Wolfe says. Riley Rose’s tagline on the store’s Instagram page is “Everything u want & love for a curated lifestyle.”

It’s also helpful that Riley Rose doesn’t have—yet—its own branded line of make-up, unlike other stores branching into beauty, like Topshop, Wolfe says. Instead, Riley Rose offers up to 200 brands—some not yet household names—in a range of prices, which might cater not only to Forever 21’s base of shoppers, but also older shoppers who may usually buy more established make-up brands, like Stila. “It feels like it’s being more curated for you, and you have the opportunity to really pick and choose,” Wolfe says.

Investors are making up for lost time as 2017 comes to a close, buying and selling a high volume of student housing properties.

“A gigantic inventory of student apartment investment sales were introduced to the market in the fourth quarter,” says Fred Pierce, president and CEO of Pierce Education Properties, an investor, developer and manager of student housing assets.

After a slow beginning to the year, 2017 now seems likely to be one of the biggest years ever for sales of student housing properties. It’s unlikely to catch up to the record volumes of 2016, but might beat every other year on record.

“I am very encouraged by the strong, deep investor demand for student housing properties,” says William Talbot, executive vice president and chief investment officer for American Campus Communities (ACC), which announced its own $591-million deal to buy a portfolio of seven student housing properties on Sept. 25.

Volume of sales approaching 2016

The volume of sales in 2017 is likely to get a lot closer than seemed possible to last year’s record-breaking volume.

“Most believe that fourth quarter closings will bring total investment sales activity to $8 billion or more for 2017,” says Pierce. That would make the volume of investment sales in 2017 the second-largest in the history of the student housing sector, second only to the more than $10 billion in 2016.

Buyers are finding plenty of available capital to help them close these transactions. “The trend of increase in global equity dedicating funds to the space continues… there is also available, attractive debt,” says Dorothy Jackman, executive managing director of the national student housing group at real estate services firm Colliers International.

Also, potential buyers are finding ways to satisfy their requirements for investment yield, even though overall prices remain high and yields are still relatively thin. “We see more investors looking at tier-two and tier-three markets, recognizing the competition for tier-one properties may drive down cap rates and raise price points,” says Jackman.

A number of student housing transactions are in the works and are likely to close before the end of the year. “Brokers have a significant amount of deals under contract or active listings,” says ACC’s Talbot. “We think the year is going to finish strong.”

ACC’s deal

The giant deal by ACC shows the rush of deals now being completed and the struggle to find higher yields from acquisitions.

“It is the biggest deal that has closed in the last 12 months,” says Jim Costello, senior vice president at Real Capital Analytics (RCA), a New York City-based research firm.

ACC picked a set of seven strong properties for its giant deal with affiliates of Core Spaces and DRW Real Estate Investments.

“It is the strongest portfolio that we have seen,” says Talbot. All seven of the properties are less than 0.2 miles away from the college campuses they serve. And the schools are all tier-one universities, with an average student enrollment of more than 35,000.  “The deal speaks to the strong demand for pedestrian student housing.”

The portfolio also combines both the high prices and lower yields common for stabilized student housing with the higher yields that ACC receives from development. “Over the last few years, we have focused on development rather than acquisition. The yield is better on development,” says Talbot.

The seven properties that ACC bought in the transaction includes four completed and stabilized student housing properties in which 97 percent of the beds are occupied. The others are still in the process of development and stabilization. ACC anticipates that in three years the yield on its investment will be more than 5 percent, once the properties have been completed and fully leased. That’s less than the 6.25 percent yield that ACC targets for its own ground-up developments. It’s also significantly higher than the usual yield of less than 5 percent now available from the acquisition of stabilized student housing properties.