COVER STORY, OCTOBER 2005

RETAIL'S SOUTHERN EXPOSURE
Annual Southeast Retail Roundtable discusses new projects and trends from Atlanta throughout the Southeast.
Roundtable chaired by Jerrold France, Randall Shearin, Chris Thorn and Dan Marcec

Southeast Real Estate Business and Shopping Center Business recently held their annual Southeast Retail Roundtable in the new offices of Arnall Golden Gregory at Atlantic Station, a much-anticipated new project opening this month in Midtown Atlanta.

Attendees this year were: Linda Bowman, GE Capital; Ron Buckley, New Plan Excel Realty Trust; Mike Cohn, Faison Enterprises; Mike Everly, Novare Group Enterprises; Bernard Haddigan, Marcus & Millichap; Brian Leary, Atlantic Station; Buddy McClinton, McClinton & Co.; Joe Montgomery, Spectrum Realty Advisors; Peter Pelt, Equity One; Joey Petras, RBS/Greenwich Capital; Woody Rush, Jim Wilson & Associates; Gary Saykaly, NewBridge Retail Advisors; Abe Schear, Arnall Golden Gregory; Ray Uttenhove, Staubach Retail; Keith Valentine, Corporate Property Dispositions; Jack Halpern, Halpern; Whitney Knoll, Trammell Crow Company; Michelle Reale, The Shopping Center Group; and Steven Silverstein, Cousins Properties, Inc.

SREB: Since we're here in Atlantic Station, let's start with an update of the project.

Brian Leary.

SREB: Abe [Schear], as a tenant here, and one who's done a lot of leases in this development, how do you see this development as far as being different than anything else, and how is it being a tenant in this wonderful building?

Abe Schear.

Leary: What's been amazing is the residential demand, and that's been far outpacing even the wildest expectations. 3,000 people on waiting lists to get a sales appointment, with people like Novare Group and the Lane Company, in fact, sales appointments are being auctioned and sold on Craig's List and eBay right now, the highest number I've seen is like $1,500 to buy an appointment, which I hadn't heard of happening in Atlanta. The condominium lofts are nudging through the $400 per square foot mark here. So we always envisioned getting a base of residential density at Atlantic Station, add in a critical mass of retail and then it would fertilize the office side, and that's exactly what's happening. This building is full.

SREB: What has it done for property values in this area?

Leary: It's been unreal. The neighborhood to the south here is a little craftsman/bungalow neighborhood called Home Park, sandwiched between Georgia Tech and Atlantic Station. In 1995 when we first started doing some of the initial work on Atlantic Station, the average home price in that neighborhood was $95,000. And that was 1/10-acre, 2 bedroom 1 bathroom, and now the average house is about $225,000. The neighborhood is going from renter occupied to owner occupied. Tyler Perry, a local movie producer who produced and wrote Diary of a Mad Black Woman has bought a bunch of land over on Northside Drive. The West Side Village is percolating, so we've seen a great deal of increasing value.

Bernie Haddigan: Is there a demand for rental housing, or is it all for-sale?

Leary: There is a demand for rental housing, but there is very little rental housing. We're seeing this huge demand for owner-occupied so it makes sense to flip it before they even bring it to market. Now, the one rental property that's built and operated right now will be a rental property for 20 years, because of the way they financed it working with the urban redevelopment finance authority. It is north of 92 percent occupied, with a half-month's free rent, no other incentive. That's the Lane Company's project, and so there's demand to be out here, and it's only going to increase when you hear about condos in the stratosphere range.

SREB: Bernie [Haddigan], you travel around the country. What is the perception of the Atlanta market from other parts of the country?

Haddigan: Nationally, the market is still super hot, a lot of activity. Multifamily is active, retail is active, and on a national level people perceive Atlanta as being strong on retail and multifamily, a little soft on the office side. I think we could hear retail from Whitney [Knoll].

Whitney Knoll (left) and Mike Cohn.

Haddigan: Do you see institutional or private capital buying? Which areas of the market do you see people looking at?

Knoll: Institutional is starting to get behind the private guys. Financing and all those are not going to be beyond it, but the pricing keeps going up.

Haddigan: One of the big things we're seeing out there is private capital. And private capital can be a wealthy individual with $100 million worth of capital, and there is more private capital in the market than we've ever seen by a wide margin. I think what that's done is within that range of money you've got a wide range of classification, so you've got investors out there that will accept lower deals and take prices that institutions in the past would not have taken. And as a result, we're just seeing prices at levels that are considered crazy on an all-time historical level. Cap rates have probably dropped 300 basis points over the last 5 years. Two years ago when I was at this roundtable I mentioned how much pricing had gone up without any real significant growth. Since people are accepting lower deals, it moved probably 150 basis points in the last 2 years. And when we do our internal studies, we'll probably close 2,000 retail deals this year, retail investment deals, primarily shopping centers. We saw cap rates in '04 drop about 67 basis points over '03. In the first half of this year, we've seen cap rates drop over 50 basis points, so on a very wide sample of data, pricing has continued to increase, cap rates have continued to decrease. I don't think cap rates continue to drop at the level they have been, but I don't see anything that's going to stop it. Even as interest rates go up, the 10-year treasury is an important indicator for retail debt; it goes up 75 to 100 basis points. I don't think the market is going to slow down for the next 12 months, and going into '06. People we deal with are excited about how their property has appreciated significantly and at the same time they say that they are not going to do anything because they don't know where to put their money. They don't want to sell at a premium price and then have to go compete and buy something that's not better than what they have right now. So, notwithstanding all that, the velocity of the market has more than doubled in the last 5 years. A lot of people look at real estate as an active class. We've seen a lot of capital come to the marketplace.

SREB: Whitney [Knoll], you've sold a lot of shopping centers. Where do you see trends going?

Knoll: Turning to demand, everybody wants to be in. Institutions are pushing the cap rates even lower, and quality properties are fewer and far between. Those cap rates keep going down with prices going up.

SREB: One of the things we've seen around the country is a property in one particular hot market or hot area of a city, and that particular area goes south. Then all of a sudden, years later, it comes back. Do we have that kind of market in and around the Southeast? Buddy [McClinton], do you know anything as far as in Alabama?

(left to right) Woody Rush, Michelle Reale, Buddy McClinton and Ron Buckley.

SREB: As a retail broker, Ray [Uttenhove], you're very active in the market. How do retailers look at the Southeast market for their future growth and current growth?

Ray Uttenhove (left) and Steve Silverstein.

SREB: Linda [Bowman], as one who finances retail real estate, how does GE look at the retail sector of real estate? Are you looking at the Southeast and Atlanta as an area that you want to be active in as far as financing?

Bowman: Most of the markets in the Southeast are favorable. We rank all the markets and they, for the most part, are go, go, go. We're probably one of the Number 1 retail lenders -- that's what we have in our portfolio because that's what we like the most. We're getting comfortable with it, we're getting our arms around it a lot better than we can multifamily right now. The Atlanta market, of course, is a little bit softer. It's hard to get the people following the leverage and concessions, as we don't have concessions in retail. The biggest issue in retail that we've been comfortable with is what the tenants say and who the tenants are and making sure they're valuable tenants. Actually, the grocery stores, there are a lot of stores here in Atlanta that have been impacted by Wal-Mart, as everybody knows, and they keep their eyes on that. The other thing is cap rates like we've talked about, we have a lot of clients that are just walking away from acquisitions because the rates are way too low for them and it doesn't make any sense. Right now, we're seeing interest rates go up, we're seeing a constant that's a little bit higher than the cap rates, so it's hard to get to the dollars right now.

SREB: Now I'm a very positive person, but every once in a while I run into someone saying the bubble's going to bust. It hasn't happened. How does a firm like yours work in an active market, and is this activity going to continue? Where do they see it going as far as interest rates are concerned?

Linda Bowman and Peter Pelt.

SREB: Will development continue at its current pace?

Haddigan: It could actually accelerate because people are chasing deals, and a lot of people perceive that they can get a better deal by themselves than deal with all those steps. One of those things that I'd be curious to hear from people on the leasing side, what is the prospect of rental growth? Joe [Montgomery] and I were talking about this earlier; I'm no economist, but my anticipation over the next 5 years, with gasoline prices going up, with real estate prices going up the way they have, and I heard this morning coming in that they're expecting natural gas prices to go through the roof this winter season, what's the prospect for inflation?

Joe Montgomery (left) and Keith Valentine.

SREB: Michelle [Reale], what retailers do you see wanting to locate here, and what retailers here want to expand?

Michelle Reale: One of the categories that is expanding is the arts and crafts people. We work with Jo-Ann, and they're looking at a number of new locations; A.C. Moore is back evaluating the market, considering opportunities here; and Michaels, while they have a number of units, would consider, I think, looking at additional expansion as time goes on. The electronics stores are still big, furniture is still expanding fairly quickly. In talking about the rental rates, there is an opportunity for rental rates to increase because one of the things that we're experiencing is a shortage of quality small shop spaces. A lot of the tenants that we work with are 5,000-square-foot and under looking for grocery store-anchored opportunities. While they may not necessarily be performing better in a grocery store anchored, people are doing well enough and the space is not turning over. Publix and Kroger haven't expanded as rapidly as they have and that's where a lot of our tenants are finding the need for small shop space to create more opportunity. There's a chance that rental rates could go up as a result of that shortage of space.

SREB: Do you see any new retailers looking at the market?

Reale: We do see a number of new retailers looking at the market. Again, they're fueled by some of the interest in the established areas, the North Point, the Perimeter Mall areas. The Buckhead area has seen a lot of tenants entering, especially into Phipps Plaza, with those recent renovations. The market expansion at Lenox Square has seen a lot of upscale tenants being driven to Atlanta to look for spaces. Dick's Sporting Goods and OfficeMax have signed deals, and the pet people all are looking for space again. We're seeing people looking in the outlying areas for those opportunities and really kind of jumping on the infill opportunities that are coming over: [The Sembler Company's] Lindbergh, Edgewood and Perimeter Square. Those opportunities have provoked interest in coming to in-town areas.

SREB: How far out is development going in the Atlanta area?

Reale: People are very actively looking for things in Chateau Elan, Braselton, a lot of developers are looking at projects on the far east side of town. You also have the demand and interest of both developers and retailers in secondary markets. You're seeing people tripping over each other in Macon, Augusta, Columbus and Savannah. There are just so many people chasing the secondary markets and now there are second and third stores for people in those markets.

SREB: Ron [Buckley], New Plan just purchased a big portfolio from CBL & Associates.

Ron Buckley (left) and Mike Everly.

SREB: Bringing in foreign money, does that mean you're paying a higher price for properties than normal?

Buckley: Actually, we sold some centers. Sixty-nine of those we sold to Galileo, but we formed a partnership for working with the equity manager. We will be the property manager where we would control the national property for their growth. We sold them but we also bought.

SREB: Cousins has a lot of properties in and around the Atlanta area and is expanding. What new developments does Cousins have going on in the Southeast, particularly the Atlanta area?

Steve Silverstein: Atlanta is the home of Cousins, so we've grown here. We started out with the Avenue projects and now it's going to Snellville where we did the first development in the Presidential, out at Ronald Reagan and 124. We've just seen that market grow and grow and grow, and we started construction on an Avenue project in Snellville. Being a native Atlantan, I would never have expected Snellville to be a market where we would put an Avenue project. I remember when the population sign of Atlanta was still 900,000 down by Piedmont Hospital and Lenox was an outdoor strip center. It's been neat to watch that growth throughout the entire city. We're looking up the 400 corridor, into Cherokee and Forsyth [counties], and all around. Obviously, while Atlanta's our central point for growth, we certainly see opportunities for growth throughout the Sunbelt area. We just implemented a plan to grow in Virginia, Florida, Alabama, Mississippi, Arizona and Texas. We see the population growing through that whole Sunbelt area, so that's where we see the opportunities for Avenue projects.

SREB: What about the new project at Peachtree and Piedmont? How much retail will it include?

Silverstein: Terminus, which is the project, will have about 80,000 square feet of retail and about five marquee restaurants. It will start to create our Fifth Avenue, our Michigan Avenue, up and down Peachtree. It's always been a goal of Atlanta to create that whole retail area, and I think it starts to transition from Phipps all the way into the Buckhead area through that gap. Terminus is going to act as a midpoint between the Buckhead and Lenox and Phipps area. We are going to bring a lot of fashion back into that corner to create more interest. You'll see the rest of Peachtree from Buckhead over to Lenox start developing more with higher end type fashion.

SREB: Abe [Schear], what retailers are you working with here in Atlanta that are doing a lot of leases?

Schear: Let me go back to what Steve [Silverstein] said for a second. The entire look along Peachtree Street from Piedmont all the way up to Phipps is going to change dramatically in the next year or two. It's going to be really exciting, a lot of street traffic. A lot of the tenants we used to chase were mall tenants, and they sort of had the deals in the mall, but now they're not mall tenants. They're going to lifestyle, they're going to open-air centers. They've become very sophisticated and extraordinarily demanding, and really picky. And I don't want to say that they've become more sophisticated from the landlords. They've become extraordinarily opportunistic in terms of what they are. While I agree that the rents will go up and sales go up. But, sales may go up and rent may go down, in some cases, because there are so many protections required in leasing. Upscale tenant leases have become longer without a question, as they've moved out of the mall. They've been able to get a lot more options than they ever could have had in the mall. And they're taking advantage of that. They're doing that with sophisticated exclusive and use clauses. In terms of tenants, most of the tenants we work with are probably national. I do see the big box tenants that we work with and work against: the Wal-Marts, Costco, Targets, IKEA, I think we're seeing we have to be a whole lot more creative. The IKEA project here with parking underneath that is very interesting. There's a new Wal-Mart property up the road, with parking underneath that is pretty remarkable. The project that's built on Peachtree with Selig Properties with parking underneath is pretty remarkable. Mike's worked on a few projects that are pretty remarkable. Costco is going into Cumberland Mall, I'm not sure how that works for the mall, but it works really well for Costco. We're seeing the big box tenants way outside their normal box. They're willing to be a whole lot more creative. I can think of some deals where some of these big developers are a whole lot more creative, and the tenants are more creative than the developer.

McClinton: Woody [Rush] and I worked together for 15 years on the mall side, and now we're both on the open-air side. One great benefit that all of us have seen, the mall business has gotten so expensive from the tenant side, on the overcharging pool. What happens is, the open-air guys come along and all of a sudden we have a rent opportunity that's just amazing; these retailers have discovered they can transition to a lifestyle center or a power center format in the right location, and they have sometimes greater sales than they were doing in the mall. So you take a typical tenant in a mall, maybe in the 2,000-square-foot to 3,000-square-foot range, that was paying $20 per square foot in rent. One of the reasons that I think the marketplace has been able to grow is because of the open-air side. The retailers have enough money built into their performance, they've got more money to spend, and we're still well below what they're paying on the mall side.

Reale: I think it's a pleasant relief for the mall tenants. It's a little difficult for promotional tenants that are trying to bridge the gap. When you look at a family shoe store that's trying to develop and grow their market, and their options are these upscale projects, they're going up a notch. So developers are trying to develop a hybrid of that project with a well-rounded version of tenants that are available to you.

McClinton: That's why we call it hybrid. You know Steve's properties are much more upscale with the Avenue projects, but he's going to get the full benefit of that. Michelle's right, when you bring the dollar stores and some of these other guys up to the hybrid centers it is bringing them up.

SREB: Woody [Rush], you have malls and open-air shopping centers. Are you finding mall tenants wanting to move to open-air properties, and are you finding retailers that want to fill those openings in the mall?

Woody Rush: With the premium mall opportunities shrinking, they are actually growing rents faster through CAM than they are through rent. On one side, it helps push the tenants a little closer to the open air side because the CAMs are more affordable and there's availability in those properties. They are so much more affordable than what we're seeing in the mall. As far as someone wanting to jump out and go to the other, again it goes back to occupancy costs, and what the cost and evaluation of what the tenant can do in that market, and what's available to them. We've been very successful with the ones that we had in the malls and they stay there. So in some cases they are torn: the new centers are going to be a little nicer and a little sexier, the rage is the restaurant concept. They're all about trying to get traffic in these centers and whether it be an open air center and trying to figure out how to try to get the public in there. America is seeming to fall in line with the convenience factor. We're so time stressed, we have less and less time, and we go to the open air a few more times, they spend less time there, and the mall still for some reason plays to the longer shopping trip. People spend an extended period there and have more time to leisure shop.

SREB: Are gas prices going to have an impact?

Rush: It certainly could. We're trying to make the mall attractive from a tenant lineup as the outside open air market. Whether it is the upscale option in the community or whatever, we're trying to make their mousetrap just as attractive as anybody else's. So many of the malls have been refurbished because of the department store going out, or you just want to embrace that new energy that abounds to get more people on the property. And we all want the consumer to be there as much as they can to spend more money.

Silverstein: Retail has come full circle. When Lenox was originally built, it was two sides of retail that had an open plaza in the middle, a courtyard, and a grocery store. That's how it started. We have a lifestyle center in Collierville, Tennessee, that's going to open in October that is doing the same thing -- two sides of retail with grass down the middle and two anchor tenants on each side. It is an open-air environment with places to sit around and have some ice cream and do some shopping. What the Avenues and what a lot of shopping centers are doing comes right back again full circle when Lenox first started. Everyone says Saddle Creek in Memphis was the first lifestyle center, but I would say Lenox really was the first lifestyle center. Retailers come back to the same type of lineup or go back through that cycle again as the populations fill in. What lifestyles have allowed us to do, is get into the pockets before the mall can get into the pockets because there is room and there is density to fill. We'll see growth back out into a mall again as those pockets develop.

Mike Cohn: One thing that nobody's touched on is that apart from complications arising from underwriting and leases, one of the things that retailers have realized in the last 10 to 15 years is the same shopping dollar. The Target shopper is the Talbot's shopper is the restaurant shopper that goes to the movies and then out for ice cream afterwards. There's a much greater sense that the right format with the right mix with the right buildings working the proper way. That was never conceivable before. Ten years ago, most retailers would throw you out of the room if you suggested building a shopping center with them and Target. You're seeing it at malls today and with backfilling department store boxes with Costco. The key is to create the venue that everybody wants to go to and extend a shopping trip. And if the shopping trip is extended with the right retailers, funds will be extended as well.

SREB: What areas are hot in the Southeast?

Cohn: The entire Sunbelt is hot for development. The Atlantic Station developers, who had extraordinary patience when there were a lot of naysayers around in the market.They had the ability to put IKEA with Dillard's with Regal with an office park with residences. Everybody 10 years ago would have said that's impossible.

SREB: What parts of the Southeast do you think would be at the top of a retailer's list?

Cohn: I think the Southeast starts with Atlanta, and includes all the exurban markets that used to be considered non-metro Atlanta markets. Cherokee and Forsyth [counties], those are now viewed as metro Atlanta markets. The deal we're doing in Peachtree City and Southpoint, those are all viewed as metro Atlanta. Atlanta and Macon are growing close together. Nashville is significantly underscored, and we are going to take advantage of that fact.   Birmingham has come of age in the last 8 to 10 years, and retailers have realized that the quality of income in Birmingham is every bit as good as Atlanta. Then you get into those true tertiary markets, like Macon or somewhere in southern Alabama, and those markets are exploding as well.

SREB: Regarding Atlanta, what's going on in-town? Are you seeing more demand than in the past?

Halpern: Well the density of housing is increasing at such a rapid rate in Atlanta that it makes redevelopment of existing shopping centers more feasible. We have a property at Cheshire Bridge and Lavista, where the Tara theater is located. We are redeveloping a portion of that with a Publix and some shop space. It's helped by the density of housing that's taking place at Lindbergh and in the area surrounding it. We have similar opportunities in a couple other places. Amsterdam Walk off Monroe Drive, which was a warehouse complex that we converted to retail space. It worked very well. Coincidentally, it happens to be right next door to the beltline, so we're exploring what additional opportunities that will provide for the property. In Smyrna, we have a property called Belmont Hills that we've owned for more than 40 years. It's worked well as a shopping center throughout its life, but the time has come for us to redevelop that property, and we're exploring a mixed-use development there that would have a Wal-Mart-anchored retail component. Atlanta's growth is creating opportunities for all property owners to take a fresh look at what they own and see if there aren't ways they can take advantage of that housing density. That is making it possible to build denser retail and put stores closer together.  

SREB: Novare has done some unique developments. Can you give us an overview of what you have done and some of your current activity?

Mike Everly: Within the context of the retail, we're bringing more customers into the Midtown area, into downtown and Buckhead. In terms of creating that density, our big project that kind of set us on our current course was Metropolis on Peachtree Street, which delivered in 2003; that has 495 condos and 40,000 square feet of retail. We built Eclipse in Buckhead, and then Inspire across the street from Metropolis in Midtown. Our project under development here at Atlantic Station is our first TWELVE project, a brand name for hotels that we're developing. It'll have a 100-room boutique hotel with floors three through six, and then seven and above are condominiums. The TWELVE concept is going to add a lot of value to the condominiums. We'll do our second TWELVE at Centennial Park, on the land adjacent to the Civic Center and the Civic Center MARTA station. Our typical model has been anywhere from 10,000 to 40,000 square feet of ground floor retail. We really look at it very optimistically and looked at where this building is going and how much will that location support in terms of retail. We have another site on Peachtree, and we're really looking more to see if we can have the retail as a more valuable component of that asset, in terms of looking of how much retail can we do there.

Leary: Not to put Mike [Everly] on the spot, but the skills they've honed here in Atlanta, now they're active in Charlotte, Tampa, Nashville, and who knows where else.

Everly: Austin as well.

SREB: Peter [Pelt], Equity One bought quite a number of shopping centers in the Atlant a area. Can you tell us more? Why did you come to Atlanta to buy properties?

(left to right) Peter Pelt, Jack Halpern and Bernie Haddigan.

SREB: In what other parts of the Southeast are you active?

Pelt: Well, we're heavy in Florida. We have gotten into the Northeast, it's all grocery-anchored, very dense, significantly more barriers to entry up there, and it's a little bit different market. We are also looking at larger land, currently under contract with some properties that are 150 acres. In some cases we are partnering up with the residential developer or flipping out to the residential developer, or promoting more joint ventures. We've really taken a different look at how to grow the business.

SREB: Joey [Petras], what is your perception of the lenders you work with, and how do your customers look at the Southeast and the Atlanta market?

(left to right) Whitney Knoll, Mike Cohn, and Joey Petras.

SREB: What can Atlanta do to make downtown better?

Uttenhove: I said to someone that in 12 to 18 months we're going to look at downtown Atlanta and say wow, this is really a different place. I think we're just at that point of pioneering that all of the factors are coming together to begin to make downtown viable: the aquarium, the residential development that is happening. There is a focus on specific areas of downtown, starting with Centennial Park. The Fairlie Poplar district and all that is beginning to take off. The biggest challenge I think of downtown, is that so much of it is controlled by individual owners. It's very hard to create the kind of single purpose focus we have in suburban developers.

Reale: Controlling the environment is very key. The whole Piedmont Avenue corridor is on the brink of repositioning with the Georgia State housing, and the hole from Georgia State north to where it hits Interstate 85, that whole area is going to change dramatically in the next year or 2. The focus has been on Centennial Park. It's going to be tremendous in the next few years. The focus on the amount of people that are going to be drawn to the area is going to change the perception there. It's so difficult when you find a lot of small property owners, and you've never had cohesive thought or direction.

SREB: Is the aquarium going to have the biggest impact?

Leary: The park is in the heart of downtown, and it will shift west, and it will shift back and grow back over there by Georgia State.

Reale: And you'll see how that single vision can benefit everyone and will start to kind of pull people together in the effort that needs to take place.

Uttenhove: There's been this competition between Midtown and Downtown. I see that disappearing; it's all going to merge into one area. So what's happening at Atlantic Station, and what's happening at Centennial Park is filling in the void.

Schear: A number of neighborhoods around downtown -- Cabbagetown, Castleberry Hill, West End -- there is a tremendous amount of investment in the homes there. Those were historically protected areas. The neighbors themselves have chosen to revitalize. The Edgewood property over on Moreland is the result of growth to the east of town. If one goes just beyond the King Center to the east, there is a lot of pretty nice residential there and the housing value there is unbelievable. But the same thing in Cabbagetown. People don't realize that houses are selling for $400,000 to $500,000 now. West End is phenomenal and really underserved and Castleberry Hill is not served. And there are a lot of people that live over there, and that's going to help downtown. Those are owned/permanent housing markets.

SREB: Keith [Valentine], how has your business been impacted in this market and other parts of the Southeast? Are there a lot people wanting what you have to offer?

Keith Valentine: We've worked with good people that had good properties. But besides Atlanta, I've worked in the Carolinas, Dallas, New York, so I get to see some of the trends moving around. There are two trends I've identified: the first is that strong retailers are still building and relocating, Wal-Mart builds small stores into the superstores. The Home Depot is going to move those boxes to the competitive positions. What's interesting in some of those is that it is a lot quicker given the government regulations. We saw the Kmart package go through it. We're redoing a Home Depot in Chicago, and I'm redoing one in Pennsylvania. In Pennsylvania, I'm putting softer space with Staples, PetsMart and Kohl's. So existing real estate is desirable. Retailers we've seen take existing space include Dick's and a smaller group of sporting goods retailers like Rocky Mountain Sports. Kohl's has just opened its first Florida store, they'll be throughout Florida. Lifetime Fitness is now doubling what usually is seen, they're now at 100,000 square feet. We see Bed Bath & Beyond. Belk's bought Peebles, that's an interesting small town play. I get to see the cities, but then I get out in places like Phenix City, Alabama, and Madison, Alabama, outside of Huntsville. In Atlanta, we are disposing of a former Expo store for Home Depot on Garson Drive in Buckhead. It is located near apartments by Gables and Post Properties. That Expo location on 18 acres could be rebuilt, it may be a mixed-use.

SREB: Mike [Everly], are you looking at doing more downtown?

Everly: We are. We've got our Centennial Park project. We're trying to build 1,100 condominiums on that site. We see that Centennial Park area kind of being a little bit between downtown and Midtown and being a little bit like Midtown was 5 years ago in terms of an area that's in transition. Now that the office buildings are going up around us, we have a lot more certainty that's going to be a hot area, I think we feel really strongly about Midtown. Buckhead and downtown are the two areas that we are looking for sites that we can develop. It's getting harder to find sites in Midtown.  

SREB: Are there any retailers interested in the Lindbergh area? With Sembler redeveloping Lindbergh Plaza, you have to know this area is going to take off.  

Reale: We've had a lot of retailers that are interested in that area. People want to see the Lindbergh project opened, and I think there's a lot going on with the old Gold Club site. The continuing evolution of this MARTA station itself, that BellSouth owned project that is going to come together. There's still a lot of thinking from the retail standpoint that it's still in the shadow of Buckhead. Retailers want to see what anchor tenants are going there. They want to see how the market defines itself and where the customers are coming from, and the increased density, and really understand whether or not it is a part of the market or another market.

SREB: We're going to jump way out of Buckhead to Alabama. Buddy [McClinton], you're building a 600,000-square-foot development in Prattville, Alabama, with Bass Pro Shops. How will this affect the area?

McClinton: We happened to be in the right place at the right time because we have a wonderful facility in Prattville right outside Montgomery. It's a bedroom community, and we are benefiting from Montgomery's growth. This community is just exploding; the growth is expanding along the interstate and Bass Pro loved the interstate look. We have 140 acres right there. If you can get someone like Bass Pro to anchor your development, you have a great start. We've all been talking about the synergy of the mixed-use, and it's amazing. I don't know how many of you know Turnberry's Destin Commons; it's a great development and it has Belk on one end and Bass Pro on the other. It has an open-air center, it has some components like Cousins does, but at the same time it has a lot of typical power center tenants in it as well. It doesn't matter when you go there, one of the key anchors is the movie theater in the middle, Belk is at one end, and Bass Pro is at the other. The tenant mix is well balanced, but if you go from the middle of the center where Rave Motion Pictures is the anchor in the middle, the traffic is twice what it is at the other side of the center. I can only tell you when you visit the development, you wouldn't think the Bass Pro shopper is a Belk shopper. In that development, the busiest retailers are from the center court down to Bass Pro. So I think that type of component and that kind of draw is really kind of making a full circle.

SREB: Who are the buyers of retail properties in Southeast?

Haddigan: The REITs are active more on the institutional side; they're showing up at every offering. Private capital, market exchange buyers -- we've seen so much appreciation in multifamily across the U.S. Virtually every apartment seller has got appreciated equity and leverage, but a tremendous amount of capital. On a national level, New York is a huge exporter of capital, private capital. California is a huge exporter of capital, probably tripled in the last 7 years out there. When California investors are selling, they want to exchange into California first, then Nevada, Arizona and across the U.S. In the last year, we just sold a 400-unit apartment building in Montgomery, Alabama; it was really kind of a run-down deal with a small investor coming out of Los Angeles in the exchange. On the retail side it's the same thing. One thing that's happened too, is that Florida is now becoming a huge exporter of capital. Five years ago, 3 years ago, a lot of capital was going into Florida, but prices have gone up so much now that the Florida sellers are now coming up the coast. One of the things you see today is that industry is open to anywhere. It's much easier to quantify your risk and understand your extent of property today than it was years ago.

Montgomery: One of the categorical buyers that was not on the radar screen several years ago that is a major part of the market today is the tenant-in-common groups. Many of those are importing capital as Bernie noted, from California to New York and farther out.

Haddigan: One of the issues with TICs is they're typically guaranteeing a dividend in the 5 to 7 percent range to their investors. With their own fees, etc., they're having a tough time competing because of where pricing is right now. It's hard to find opportunities, but at the same time, there was a lot more noise about a year ago about the impact of potential TIC buyers. They're out there, but they're having a tough time competing.

SREB: Woody [Rush], where are your new developments outside of Alabama?

Rush: In Macon, Georgia, we're doing a parallel of a lifestyle center we built in our hometown of Montgomery, Alabama. It is on the north side of Macon there, and we've been looking at some other sites that we aren't quite so far along with, but they're all in the Southeast.

McClinton: Wal-Mart's neighborhood market, their grocery store division, it's going to kick back up probably pretty significantly. It's kind of moved over to the side over the last couple of years because the focus has been on the supercenter format. But their market is going to get very active and they will be looking at a lot of closed Winn-Dixies and some of these other stores. I think you'll see a lot of Wal-Mart neighborhood markets in the next 3 to 5 years.

Reale: I'll be interested to see how the neighborhood grocery stores deal with the urban growth and how they deal with it and serve that market. It's a very necessary aspect of that development, to have the grocers deal with it, how the developers deal with the grocers, and it's something that the residents are going to need.

SREB: Well, Mike [Everly], have you looked at that for your residences?

Everly: We'd like to see it. We're really excited about Publix coming into the Midtown Plaza project. We're not sure we want to have a grocery store in one of our projects; we'd love to find more of an urban market, one with a smaller scale market come into some of our projects. We have one in Nashville.

©2005 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.