Retail property professionals began converging Sunday on Las Vegas for the annual ICSC Las Vegas show, and they had some economic concerns their minds.
While retail real estate demand has been solid, the U.S.-Iran war, inflation and quickly shifting federal government policies have executives saying in interviews as they arrive at the show that they are trying to think a step ahead, keeping an eye out for where a challenge could emerge next.
Glenn Rufrano, executive chairman of Philadelphia-based PREIT, the owner and operator a portfolio of mixed-use shopping centers, said ICSC leadership is confident that more money will be available for retail real estate transactions and development. However, he's worried the cost of borrowing to fund that activity could increase.
"It's the 4.6% U.S. Treasury rate and gas being up more than a buck a gallon," that have me concerned, Rufrano said in an interview.
The yield investors who hold a U.S. Treasury note for 10 years increased to about 4.6% late last week, its highest level in a year as inflation concerns continued to affect financial markets. The 10-year yield often serves as a benchmark for borrowing costs, and when Treasury yields rise, fixed mortgage rates typically do, too. That could push up the price of capital for real estate developers and investors.
Rufrano, who served as CEO of Cushman & Wakefield from 2010-2013, said there's a disconnect between some economic indicators including the stock market near records and the pain some consumers are feeling as gas prices remain elevated.
"The people, the real parts of the economy, they're like — they don't care" about the stock market's performance. "You always have to look at what's going on for us people who are making decisions every day."
Concern over higher costs
Executives say retail real estate has been resilient so far to the uncertainty, even as some companies have been unable to stay in business in the years following the pandemic. But they say inflation is a threat.
Hue Chen, who in March took the reins as president and CEO of South Florida-based shopping center owner Saglo, said retail real estate proved its staying power as "most of the high-profile anchor boxes that have announced bankruptcies already have a line of companies that will want to take their space."
But, Chen told CoStar News, he is concerned about rising prices and a lack of urgency among some cities and counties to speed up the development process.
"The cost of construction and capital projects continue to rise with both material costs increasing and labor cost also increasing," he said. "Additionally, the municipalities have not invested in processes or technology to increase the time of their approvals and inspections. A tremendous amount of upside can be had if there was more focus on technology that affected tenant buildouts or even capital improvement projects."
ICSC Las Vegas, an event expected to draw 25,000 people, officially kicks off Monday with professional development sessions throughout the day at Wynn Las Vegas. Attendees, however, got an early start Sunday evening at the resort hotel with the ICSC+Proptech Opening Reception and ICSC+Women In CRE opening receptions, where they discussed potential obstacles.
Access to funds is on the mind late at night of Terrence Maiden, owner and CEO of Dallas-based Russell Glen Co., a real estate investment and development firm whose work includes building grocery-anchored centers and reimaging malls.
Finding financing
Maiden said what's got him concerned is the need to get "the capital markets to open up a little bit more, and also identifying the right sort of banks that are financing, because we primarily focus on distressed assets."
As a result, he said, "finding the right sort of financial capital partners" is critical.
As for artificial intelligence, it is helping Russell Glen accelerate its in-house operations and processes. But, Maiden, an ICSC board of trustees member, said AI has "not really affected" external business to a major degree.
Greg Melroy, business development director at the James Trogolo Co., said he's anxious about when the company's customers determine how much to spend on the holiday shopping season this year.
That's because Trogolo, based outside of St. Louis, works with developers and owners to set up Christmas displays in stores, and timing is critical, Melroy said.
With all the economic uncertainty this year, the thing that keeps him awake at night is "how late budgets are released," he said in an interview. "We have got to get going now."