How DJM Retooled Its Retail Investment Strategy
The retail market has been on a rollercoaster in the past few years—and the ride is not over. Soon without pandemic-induced restrictions evaporated and people began returning to stores and shopping malls, the industry is once then facing flipside setback: inflation.
But despite new headwinds, JLL research found that most consumers intend to venture out vastitude their laptops to do holiday shopping this year, which would be a vapor of fresh air for the retail sector. Daily need shopping centers are particularly well positioned to perform well going forward.
Commercial real manor developer, investor and manager DJM unsimilar its vanquishment strategy pursuit the pandemic. Known for high-profile redevelopment projects, DJM widow a increasingly recession-proof windfall type to its portfolio: grocery-anchored centers. In the past couple of years, the visitor purchased six properties of the kind, all located in California. Vice president of Acquisitions Rob Miller shared details well-nigh the company’s pivot in investment strategy, current goals and predictions for the sector.
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What are the benefits of investing in daily needs centers tween current market conditions?
Miller: To date, open-air daily needs shopping centers—and expressly those welded by grocery stores—have outperformed other types of retail, like experiential retail, power centers and certainly malls. Foot traffic and store sales numbers withstand this out.
If we squint at a typical retail shopping wits during the pandemic, it was very much necessity-based at the outset, surpassing ultimately gravitating toward services and in-person experiences like dining or drinking.
DJM’s portfolio and our recent acquisitions benefited from both phases of the pandemic. We protract to add open, common-area space to our centers and squint to modernize merchandising by subtracting grocers, services, and compelling supplies and instillation experiences.
In your opinion, did the pandemic generate retail trends that will have a lasting impact on the sector?
Miller: The pandemic had an enormous impact on consumers and, as a result, on physical retail. It velocious important trends in the industry such as the conversion to omnichannel and moving yonder from enclosed malls. The question going forward will be how sustainable or lasting some of these changes prove to be.
We’re once seeing wordage and to-go merchantry waif back, which was expected as consumers seek live, in-person experiences. Flipside question going forward will be what happens in the space as consumers spend the household savings which were built up to historic levels during the pandemic. The “new” normal as we are seeing it is a increasingly seamless wits between e-commerce and bricks-and-mortar, and a reinvigorated retail consumer seeking out in-person experience.
Is DJM still focused on redeveloping struggling retail centers? Do you have any significant projects in the making?
Miller: We are currently in the process of renovating Hollywood & Highland, a historic retail and entertainment part-way in Los Angeles. Now known as Ovation Hollywood, the $100 million redevelopment project will update the physical space and convert retail into creative offices. This mixed-use part-way is home to the most iconic landmarks in Hollywood, including the Hollywood Walk of Fame, The Dolby Theater, The TCL Chinese Theater and El Capitan Theater, receiving increasingly than 25 million visitors each year.
Currently, DJM is converting 100,000 square feet to creative offices while rejuvenating the remaining retail space. Ovation Hollywood has a total square footage of 463,000 over 7.6 acres. We are proud to be known as turnaround specialists and those resources protract to request to us. Retail is an incredibly dynamic product type. Stuff responsible for the turnaround of an windfall like Ovation brings out the weightier in our team. We’re constantly applying those lessons to our existing portfolio.
How important is towers and maintaining strong tenant relationships in volatile market conditions?
Miller: Tenant relationships are critical. We view these relationships as partnerships and do everything we can to help momentum tenant performance. This runs the gambit, from structuring intelligent leases based on each tenant’s unique merchantry plan and maintaining unscratched and wipe shopping destinations, to putting on thousands of in-person events per year wideness our portfolio and finding creative and cost-effective ways to maximize online and social media presence. Many of our tenants have been with us for decades which speaks to our worthiness to be good partners.
Which markets are you targeting as part of your retail investment strategy?
Miller: Our focus continues to be on markets with strong household incomes, upper levels of educational attainment—whether that is bachelor/grad degrees or increasingly technical—and concentrations of Millennials and Gen Z. Right now, we’re focused on our home markets in California, the Pacific Northwest, the greater Phoenix metro area, as well as parts of Texas.
What are the greatest challenges for the sector in the coming year?
Miller: So far this year the greatest challenges we’ve faced have come from rising interest rates and increasing construction costs. We visualize construction costs standing to present challenges well into 2023, underwriting spare interest rate hikes. We moreover have unstipulated inflation and supply uniting woes to contend with.
That said, there are a number of positive, perhaps mitigating factors. In most of our markets, retail vacancy rates are at all-time lows, with limited to no new supply. Foot traffic and sales reporting is still trending strongly whilom pre-pandemic numbers. Our typical consumer has proved resilient so far, stuff worldly-wise to swizzle price shocks and protract spending with us.
How do you expect the retail sector to perform in the longer term?
Miller: Retail real manor is the one product type that interacts directly with the public on a day-to-day basis. As such, retail is destined to protract waffly in order to meet the evolving needs of the consumer.
The cookie-cutter retail expansion model of the 90s and early 2000s was unmistakably in ripen pre-pandemic. The industry needed to shutter stores and tropical malls—the U.S. was significantly over-retailed compared with Western Europe and parts of Asia.
Today, we are seeing a proliferation of new retail concepts and uses going into retail space. Digitally native businesses have awoken to the need for brick-and-mortar stores. Distributed health superintendency ways you are likely to visit a clinic or see a doctor in a retail shopping center. Last-mile fulfillment from existing store locations has worked very well for big box tenants. High-quality retail real manor is dynamic which is why we love what we do.
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