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Mixed marketplace signals underscore the need for turnaround and restructuring professionals to put an even sharper focus on data and analysis in commercial real estate projects, writes Andrew Graiser, Co-President of A&G Real Estate Partners, in the December issue of The Journal of Corporate Renewal (JCR).
Graiser’s feature article in JCR’s December issue—”Hopeful Signs and Dire Omens: The Complex Calculus of Real Estate Optimization”—provides tips on how to negotiate seemingly contradictory trends in retail, office and theater/entertainment in areas such as site-selection, occupancy-cost reduction and lease negotiations/terminations. JCR is published by the Chicago-based Turnaround Management Association.
Graiser starts the piece with an overview of dynamics in retail, where landlord flexibility, smart adaptive strategies and robust consumer demand have translated into a remarkable success story for many operators. And yet, he observes, “this sector continues to be marked by growing concerns about supply chain disruption, online competition, employee shortages, construction expense/delays, and the winter wave of COVID-19.”
Likewise, the office market continues to exist in “a state of limbo” as tenants try to figure out what workplaces will look like moving forward. Nonetheless, surefooted office occupiers are in many cases showing renewed enthusiasm for creative deals with landlords. “Landlord flexibility is part of the reason that office observers in New York City and other markets are seeing an uptick in activity among occupiers that need 10,000 square feet or less,” Graiser writes. “These landlords are not necessarily slashing rents, but they are offering much more free rent and being generous with tenant-allowance dollars.”
Lastly, theaters are showing progress that would have seemed unthinkable just a year ago, but piracy and streaming video continue to challenge the sector. “As they work with their landlords on lease renewals and other negotiations, theater operators should guard against the premature perception that ‘things are fine again’ in the movie business,” Graiser writes. “It will take more than a few blockbusters for this tear-jerker to end.”
In conclusion, the veteran real estate executive advises turnaround and restructuring pros to question their clients’ longstanding assumptions about real estate strategy. For example, operators that have always resisted closing stores may want to rethink that stance. “The demand for space is strong. For retailers, now could be a good time to scrutinize the bottom 10 percent of underperforming stores in the portfolio and consider exiting at costs that could be substantially less than this time last year.”
Likewise, landlords continue to show flexibility, creating opportunities for turnaround and restructuring pros who are representing companies in out-of-court settings. “One of the lessons landlords learned in 2020 was that constructive engagement can make a real difference in whether key tenants survive.”
As the real estate sector moves forward in Q4, Graiser concludes, “Turnaround and restructuring professionals need to sit down and carefully consider all the hopeful signs and bad omens in play—and make intelligent and data-driven bets on behalf of their clients.”
Melville, N.Y.-based A&G has saved 650-plus clients $8 billion in occupancy and other costs and has sold real estate and leases worth $12 billion. Global M&A Network named A&G “Real Estate Restructuring Firm of the Year” for its work in both 2019 and 2020. https://www.agrep.com/
Press Contacts for A&G: Jaffe Communications (908-789-0700), Bill Parness, 325506@email4pr.com or Elisa Krantz, 325506@email4pr.com.
