Owner representative, tenant leasing rep, and property manager for community shopping center in Redlands, California. Work included owner representation to other investor groups and anchor tenants involved with center ownership.
StoneCreek’s work included the preparation of redevelopment plans for this major Inland Empire region property, a plan that envisioned a mixed-use district dubbed, “Redlands Marketplace.” Shown below, the facility’s owner’s at the time reviewing redevelopment plans. A unique feature of the great value for the property is the more than 1-mile of north-facing interstate highway frontage bordering the northern boundary of the Tri-City shopping center property. Interstate 10 is one of the primary routes to and from Southern California mountain and desert recreation areas, ski areas, Palm Springs, and the like.
Our SCP Advisors group of StoneCreek Partners has prepared hundreds of feasibility studies, for shopping centers, office/industrial, hotels, and an array of specialty-purpose assets. Over the years, as we apply the traditional feasibility methodologies my refrain for our team is, “where’s the juice?”
At inception as we take on a new feasibility assignment, it is helpful to know a project owner’s real intent in commissioning the analysis. Sometimes a project sponsor is already convinced of a project’s viability, so a “feasibility report” is intended for a capital raise, or, to refine some aspect of a project’s program. In other instances, a project owner in the midst of master planning or developing, becomes interested in alternative future project components. There are numerous other reasons. The “feasibility sensibility” is really a continuous concern that directly or implicitly drives the design, development, and operation of any particular project (assuming “other people’s money” is not the only capital involved).
No matter the asset class we like to keep asking where the customer demand will really come from, or in short hand, where is "the juice" that will drive the project?
Closely related to an owner’s real intent for feasibility analysis, is determining the best metrics to use. Is an owner’s focus on cash flow, dividends to equity, and debt coverage? Or is the expectation of “trophy” appreciation an actual attribute of the asset class? As an example, over the years we have been involved with several to-be-built California coastal resorts. In each case, the land values and entitlement costs made for expectations of lean returns on investment (cash on cash). But, as an asset class, since the days of development of the state’s first coastal hotels there has been a demonstrated record of superior appreciation cycles. So for this type of investment, it would seem that feasibility analysis should include increased analytics and metris that specifically addresses appreciation expectations particular to this asset class. Having asset managed numerous Ritz-Carlton and other luxury hotels and resorts, the focus on an owner’s appreciation metric is quite necessary, since owner’s often see year-to-year net cash flow captured primarily by the hotel management company.
In our practice, no matter the asset class we like to keep asking where the demand generation will really come from, or in short hand, where is “the juice” that will drive the project? Some examples:
- Office and Industrial -With general-purpose office, flex-tech, and industrial space, the evidence of the feasibility juice is the dynamics of subletting in a particular market, with the direct feasibility juice being the viability of a market’s larger tenants (employers). It is not difficult to identify the industry growth prospects of major tenant categories in a marketplace, and integrate these prospects with employment growth, supply/demand analysis, leasing velocity, and absorption projections. In the Bay Area (San Francisco – Jose) at this time, with so many tech firms looking to grow and invest outside of the Silicon Valley’s high cost of living, does historical absorption of office and industrial space (in the Bay Area) really have anything to do future demand? The tech industries seem to have significant growth prospects, but where?
- Attractions – I use “attractions” here to refer to the asset class that includes “consumer leisure-time experiences” from outdoor adventure parks, to aquariums, museums, theme parks, and such. So where’s the feasibility juice? The typical analysis is to review trade area populations, drive-times, and season-part / day-part type factors to derive attendance (participation) through capture rates derived from other markets and projects. This benchmarking is a helpful reference. But to get at the feasibility juice for this asset class, the more direct analysis is to determine for these same trade areas what the “competition is for a consumer’s time” and what this “guest’s trip motivation” may be for visiting a target (subject) project. On a Saturday morning, a parent interesting in a family outing for the day, will consider a trip to the movies, a mall, batting cages, you name it. An aquarium or theme park competes to some extent with all other leisure-time facilities in an area, depending on the trip motivation, but capturing only a share of all a consumer’s out-of-home trips.
- Shopping Centers / Retail Malls – If you’ve been involved with retail market analysis, you’re familiar with Reilly’s law of retail gravitation. The foundational work for the retail industry published in 1931 promulgated the methodology for retail trade area analysis that followed. Although “at retail” formats have been in continuous evolution since those days (organized retail centers, enclosed suburban malls, pedestrian malls, festival marketplaces, power centers, to name a few), the impact of online shopping has spurred perhaps the most rapid repurposing we’ve seen to-date. With the repurposing of existing malls to accommodate retail-entertainment concepts, and new malls with all-new anchoring tactics, the current era demands hybrid methods of underwriting retail investment. The analysis of cinemas and their impact on shopping environments was one thing, but with the possible tenanting strategies proving out today an analysis closer to mixed-use project studies is what’s required.
- Film Studios – New film studio development and expansion continues, even as digital production has allowed highly dispersed production teams. Film studios are an unusually difficult asset class since there usually no long-term leases, secured strategic partnerships, or other revenue sources of an assured long-term nature. The juice driving feasibility for this asset class is the direct financial and tax incentives offered by local, state, even national government bodies to filmmakers. So the focus here is on the expectation for continuance by such government bodies of such incentives.
- Hotels and Resorts – Some thoughts about hotels and resorts are offered in the foregoing. There are a lot of nuances with lodging since so much depends on the purpose for the accommodations. Within FIT (free and independent travelers), business, group, and other travelers, each is a separate area for drill-down. I started my career at KPMG and Laventhol & Horwath before that, where the group of us helped to create the standards for feasibility evaluations of hotels and resorts. Since those times, while I remain interested in the ADR’s, occupancies, and the like of competitive facilities, I am more interested in how the specific offering at a subject property will attract specific guest-types; essentially, how specifically will the property compete for its share. And, since we often work in areas of great potential but little track record, we are constantly scouring outside of a subject property’s region for analogous projects where we can reasonably draw some performance analytics to help the underwriting.
There are additional feasibility factors of course. Barriers to entry in particular markets is a vital part of the analysis, including land values, entitlement challenges, community opposition, and the like. But the search for the juice, I think it all starts there.
NEXT ARTICLE: Project feasibility analysis is best when no matter the purpose it is used more as a risk assessment method, where future scenarios are explored that can quantitatively and qualitatively test a project financially.
Asset management review during development, including leasing, tenant mix, entertainment, and events at this mixed-use facility. he project involved a mixed-use facility including a major retail mall, hotel, serviced apartments, and office space.
Tenant mix, leasing, and anchor tenant strategies for mixed-use district planned for Bakersfield, California.
Strategic marketing and leasing support to ownership involved with large landholding in the vicinity of Bakersfield, California.
Work including consideration of project naming convention and selection of project name. Also provided retailer presence grid and analysis for retailers in the region, and those that were not. Work included collaboration with owner’s team and project architect on land planning issues for the mixed-use program of power center, lifestyle center, and general-purpose for-lease office buildings.
Acting as a retail-entertainment consultant, StoneCreek Partners provided master planning support to this mixed-use district proposed for Panama City Beach, Florida, including tenant mix, leasing strategy, and hotel branded products.
StoneCreek Partners provided conceptual design, market analysis, tenanting, and leasing plan preparation in support of this master-planned regional center. for the region that simply does not now exist. A planning issue in the conceptual plan was how to strengthen the connection between Big Box retailers, specialty Retail, and Restaurant Row districts that comprise the downtown area of the plan.
Rebecca’s Landing mixed-use district is envisioned to feature a top line-up of restaurants in Panama City Beach and the Bay County region, with the restaurants situated overlooking Lake Rebecca. Each of the restaurants share terrific views of the end-of-evening sound-and-light show that emanates from the center of the lake.
Development strategies, including financial and market analysis, for joint pubic-private development opportunities at Metro Rail stations.
Joint development refers to commercial development that is encouraged at such stations stops as part of the overall regional economic strategy for such transportation development. Work effort included a market study with financial recommendations to document the fiscal economic impact of such joint development strategies.
Metro Rail is an urban rail system serving Los Angeles County, California. It consists of six lines, including two rapid transit subway lines (the Red and Purple lines) and four light rail lines (the Blue, Green, Gold and Expo lines) serving 80 stations.