R ROUNDTABLE
MIHALOPOULOS: It’s rightsizing. We’ve got an example of a Staples store. We know it’s too big. But when they leave, we’ve got an Ulta and a Petco to take whatever space they want to give us. SHOR: And much higher rent. MIHALOPOULOS: I mean, they’re in a spot — most of their business is on the internet now. The office supply business is a perfect example of the mergers. SALANTY: Number five retailer right now online, Staples. MIHALOPOULOS: Dollar Trees and Dollar General, they cater to a different market. They’re going after the Walmart and below customer. ... My parents are Greek immigrants. They came to this country for the American dream, and they worked in the factories. They made money, and they made more money. Today, that dream is gone. You’re working either at Walmart or McDonald’s, and you’re making minimum wage or a little above minimum wage, and you’re going to have to shop at a Dollar Tree, Dollar General because that’s where you are going to be able to balance your food budget. SHOR: That’s the demographic that’s not going to buy on the internet, for the most part. That’s why the value guys are doing so well. Not just the Dollar Generals and Family Dollars and Dollar Trees, but TJ Maxx, Marshalls, and Ross. Their business continues to boom. GEISLER: A lot of these companies are financed, whether it’s private equity or publicly traded. The public markets want shortterm results, and that affects good decision making — long-term decision making. The private equity companies are there to push them to grow, and they load them with debt. I think we have some really great retailers that are victims — or becoming their own victims because they pushed growth too much. Neiman’s has so much debt. It’s one of the best operations in the country, but they’re in jeopardy. SHOR: It’s really a shame. I got out of public
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PHOTO: CHASE MARDIS
In the last five years, there’s been a lot of merger and acquisition activity in the retail sector, and it seems to be affecting a lot of the retail sectors. How is that going to change the real estate component when you have companies merging, and they’re not going to need all of their physical locations?
company retail because I couldn’t stand having to run a business quarter to quarter. It doesn’t allow you to be strategic because if you have a bump in the road on one quarter’s earnings — you miss it by a couple of pennies — your stock gets beaten up. That’s an issue. The bigger issue is private equity’s activity in retail. Neiman Marcus is sort of the poster child of this. You buy a great brand with a great operating team [and] you load it up with debt to take your investment out, because these guys have to get a return on their investment, and now you’ve got a little bump in the road. Neiman has had negative comps, but not terrible negative comps — minus three, minus four, minus five points. I think Neiman, unfortunately, is in real trouble, because they can’t find a buyer. Nobody is going to take the debt. They will take the assets, but they won’t take the debt. What does Neiman do? They pull themselves out — they were in talks with a couple of major buyers. I don’t know how you get from under that debt. GEISLER: Nordstrom is talking about going private, right? I think that’s a great solution in these times. You have to get back to running a business with longterm in mind. SHOR: Exactly. That’s exactly right. SALANTY: The bond holders have to take the loss. GEISLER: You look at rue21 and Children’s Place, all of these concepts that have been through these really aggressive expansions in the last five years, they’re all dying because of too much expansion, poor operations, and debt. MIHALOPOULOS: Store closings have been the highest [in] years, and it’s going to continue. There’s a catharsis going on. There’s a cleaning up, and a lot of it has to do with how Wall Street and how money created this. Go back to the other companies that we’ve done, and every time there’s a leveraged buyout of a retail company, it’s like, “Oh, no.” SHOR: Here we go again. MIHALOPOULOS: We have a Fresh Market store that’s 45 days from finish out and opening its doors. It was bought out by Apollo, and they’re paying rent, but the store is not going to open. We don’t know when it’s going to open. It’s leveraged buyout controlling it. It’s a bean counter controlling the operations of a store. SHOR: It doesn’t give you any margin for error. You put debt on at the current business level; the company can carry the debt load. If there’s a little bump in the road, if business turns negative a little bit, it could be the end of the business. It’s a shame because these are great brands.
I would like to give each of you an opportunity to sum up what your overall impressions are. SALANTY: When I said that I live in the best city in the best state in the best country, that’s a good summary. We have so much good happening in our market — good people and good developers. We’re on fire. We’re in the middle of the country; we can get anywhere within three hours. We just have to get through July and August. FRANK: I agree. Dallas-Fort Worth is an excellent market. It’s a great test market
SUMMER 2017