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Insider’s view: Northwood Retail president on the national retail-investment landscape

The Business Journals

November 4, 2021

Retail real estate has been on a turbulent ride since the Covid-19 pandemic and remains in a state of flux as e-commerce continues its meteoric growth.

But at Dallas-based Northwood Retail LLC’s properties, a rebound is well underway, says Ward Kampf, president of the retail real estate firm. Kampf oversees a national retail portfolio that includes open-air shopping centers, typically part of mixed-use centers developed by other Northwood companies. Northwood Retail’s footprint spans the country, from California to the Carolinas.

Beyond the pandemic and e-commerce, retailers are facing new challenges in 2021, including a persistent labor shortage, supply-chain issues and inflation — all of which could have ripple effects on the retail real estate market.

The Business Journals spoke with Kampf about Northwood Retail’s next steps, and the opportunities and challenges in retail real estate since Covid-19. The following excerpts have been edited for brevity and clarity.

Has your acquisition strategy changed much since Covid-19? Do you expect Northwood Retail will do more acquisitions in the coming months?

We start with the overarching theme of growth. We were one of the few big guys to go into the Carolinas versus going to Atlanta. We think a lot about the cities that are “it” cities. On the West Coast, I think it’s San Diego, where we just made an acquisition. I think Phoenix is an “it” city, I think Dallas, Austin, Nashville — we have a toehold in Nashville, (which) is just blowing up right now. Charleston is an “it” city and I think (also) Charlotte and then the Triangle. Miami, we don’t own anything there, but I do think Miami’s an “it” city.

It’s funny because you get these very New York-centric or LA-centric private equity firms or REITs — they’re all in Dallas or Austin. The investment profile for (these) cities is getting very, very crowded. Even Charleston, where we own a hotel and we own an asset out in Kiawah, that was happening in 2017, 2018. It’s really intensified. What we look for is open-air, mixed-use.

What’s the landscape right now for retail investment?

Somebody asked me point-blank, has there been capital for malls? There really hasn’t.

There’s more demand and more capital for open-air centers, especially if they’re grocery anchored, than can be satisfied. It’s not uncommon to see a sales process where there’s eight, 10, 12 (groups competing for it). We think it’s best in class that’s out there buying: they got to the other side, they’re well capitalized. And they’re getting creative.

Everybody’s in those markets I defined. They’re looking at their East Coast and West Coast portfolio and saying “we need to move into these southern Sun Belt growth cities.” That’s why it’s getting more competitive, as everybody’s defined the markets they want to be in. Everybody is going after the same markets.

Given how much retailers have been impacted by the pandemic, even if they’re recovering now, are you seeing new types of accommodations in negotiations for retail space? Have the dynamics of leasing retail or deal terms changed since the pandemic?

What surprised us is how quick collections have come back, how profitable the retailers have become, either through technology, through different ways of logistics or labor. Retailers (like) Warby Parker are going public, Allbirds (went public Wednesday). You’ve got these tenants that the capital markets are with. They need to grow, as they go public.

At the beginning of the pandemic, especially around restaurants, there was a lot of uncertainty about how it would come back. Now that we’ve been able to see how we’re opening and it’s sunnier and rosier, and people are out there looking for space, they’re finding sometimes two or three tenants looking at the same space, and it’s gotten very competitive.

If it was a percentage rent versus a fixed number (in lease terms at the beginning of the pandemic), I think some people said, We’re doing so much business that we want to go back to a (fixed number).

Yeah, I’ve heard retail tenants in malls and other properties have sought to move to more of a percentage-based lease structure versus a fixed rate. But you’re seeing a move away from that?

Last fall, we were looking at a project (and) they were doing this creative 8%, 10%, 12% (rent) for the first year, and now I would say that deal is a $50 or $60 (per-square-foot) rent — the same market, the same area. That’s how quickly it’s turned. The tenant right now is saying, Look, I’ll just go to the fixed number instead of sharing all this upside with you.

The labor shortage, supply-chain issues, inflation are all affecting retail and the broader economy. Have those had ripple effects on retail real estate yet, such as tenants opening new stores or signing leases?

We’ve got La La Land Kind Cafe. He’s based here in Dallas, he opened in LA and he’s just blown up. He’s been delayed in opening because of parts that he’s waiting on, I think, for one of two of his machines. Materials, parts or, if you’re in restaurants, we’re hearing inspections are taking longer. I would say the only thing it really backs up is timing. When do retailers get open? How can you help them get open? What materials can they substitute or not?

We haven’t seen people push out a year or two years, but I could see it if this persists awhile, if supplies can’t be met. I could see it becoming an issue in ’22 for ’23 openings, but I think people have a pretty good handle on it right now. But we do see some backup, whether it’s two months (or) four months in certain areas.

Anything else that you’re keeping an eye on heading into 2022?

I think what we’re interested to see is, where does the office market go, because that’s going to tell us a lot about, is suburban retail going to be stronger, is the CBD going to come back?

One of the things I think we all have our eye on is the inflationary pressures that are out there. And then, I think, the scarcity of labor. There isn’t anyone I talk to that isn’t shorthanded on the labor front. Hopefully, we’ll start to rebalance labor costs. But I do think some of this inflation may stick around longer than we think.

If you’re going to say, is there one thing that keeps you up at night or that you think about, I think you’ve got to think about that. It’s everywhere. Scarcity of labor, wages. Some prices, I think, are going to increase — can the retailers pass that on to the consumer?

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