For Terry Montesi, planning for the middle to worst scenario is how to stay ahead.
While retail has slowed along with the rest of the market, investor appetite for the asset class has started to pick up, said Montesi, who is founder and CEO of Trademark Property Co.
“The capital markets have been nearly frozen,”he said. “I expect them to be slowly thawing.”
Trademark works nationally and has three ongoing projects in Fort Worth. Recently the firm acquired Lincoln Square in Arlington, which totals more than 472,000 square feet of retail space, in addition to a power center that tops 107,000 square feet, spanning across more than 45 acres a few blocks to the northwest of Arlington’s Entertainment District.
According to an Arlington staff report, Trademark’s vision for Lincoln Square is a vibrant, high-quality mixed-use environment that includes a mix of office, multifamily and upgraded retail.
New speculative retail supply has been limited since around 2008, Montesi said, and the construction pipeline going forward is likely to be limited. That means well-maintained and well-located retail is in a good position to see leasing activity and positive rent growth.
Within Trademark’s portfolio, properties are filling up and the firm has started to move out weaker performing tenants and replacing them with tenants that have higher sales productivity. Often, these new tenants are paying 15% to 20% higher rent.
Demand hasn’t slowed significantly yet, but Montesi said he believes that could wane this year. A drop in demand could come from both consumers and retailers on the leasing side.
“I don’t know how bad the recession might be and how much that’s going to impact the consumer,” he said. “I think it’s going to be sort of light to light-moderate, but I’m planning for moderate.” Montesi spoke with the Dallas Business Journal about his retail outlook for the Fort Worth market and North Texas as a whole.
What are the trends you’re paying the closest attention to right now?
The growth rate of e-commerce has really started to flatten. It was a steep curve, and it has started to flatten. That’s good news for brick and mortar.
What’s the sentiment you’re hearing from investors and lenders?
The investment community has really changed their tune on retail. They think that brick-and-mortar retail is not going to go away because of e-commerce. They also have more confidence in the cash flows and the stability of the cash flows going forward, so money is moving back into retail.
Activity is fairly slow right now. Are you anticipating it to pick up any time soon?
I don’t have a crystal ball. I think that activity will be somewhat slow and somewhat limited. Folks will be somewhat cautious, at least for the first quarter or two. Then it’s all going to depend on interest rates. Have they peaked, has inflation peaked and is there enough belief that they have that capital will start flowing significantly?
We’ve got deals we’re financing and raising equity for, and we’ll get at least some of them done in the first quarter. But macro, there will be a lot less capital flowing in the first quarter.
What’s the sentiment you’re hearing among retailers?
From talking to retailers and talking to analysts that talk to retailers, there’s no question that there’s a few of them that have started to put things on hold. I can think of three we were working on deals with who put everything on hold in November and December until January or February.
You are hearing some people slow down or put things on hold until they know more. Knowing more means having a little more certainty about inflation and interest rates, and whether there’s going to be a recession.
I’d say it’s guarded, cautious, but still somewhat cautiously optimistic.
This interview has been edited for clarity and brevity.
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