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Value retail sector continues to surprise and impress.

The value retail sector is a niche retail product that continues to surprise and impress both investors and skeptics. Currently poised to experience stronger performance in selected markets, it persists by serving well the needs of tenants, shoppers and investors alike.

It is a property type that was refined in the 1990's, expanding rapidly nationally and internationally with the creation of new centers, and then it experienced contraction and consolidation that culled more marginal properties from the industry. More recently, the outlet sector has attracted growing attention among investors seeking solid cash flows combined with the potential for growth.

Outlet centers are characterized as retail properties tenanted by a preponderance of manufacturers, and some popular discounters.

These centers are located on major highways and are typically situated an hour's driving distance from one or two growth generators, such as urban areas and/or major tourist attractions Noun 1. tourist attraction - a characteristic that attracts tourists
attractive feature, magnet, attractor, attracter, attraction - a characteristic that provides pleasure and attracts; "flowers are an attractor for bees"
. For manufacturers, these centers offer a highly profitable distribution channel, with occupancy costs Occupancy costs are the whole life costs of buildings and their associated land from occupancy until disposal. These costs may be incurred on a regular or irregular basis. Occupancy costs are those costs related to occupying a space including; rent, real estate taxes, personal  as low as 5% to 10% of sales, as well as an opportunity to control their merchandizing and product image. For consumers, these centers offer proven year round values as well as, in many cases, a selection of merchandise that rivals that available at more traditional shopping malls.

In fact, in some markets, outlet centers serve as de facto [Latin, In fact.] In fact, in deed, actually.

This phrase is used to characterize an officer, a government, a past action, or a state of affairs that must be accepted for all practical purposes, but is illegal or illegitimate.
 regional mall substitutes. Investors are drawn to the centers' credit tenancy; the continuing sales growth of established "anchors" at these centers, such as Liz Claiborne This article is about the corporation Liz Claiborne Inc. For the fashion designer who founded the company, see Liz Claiborne (fashion designer).

Liz Claiborne Inc.
 and Nike; and the potential for expansion through additional development phases. Furthermore, experienced operators can drive revenue growth by supporting the marketing and promotional efforts of growing and successful "inline" tenants, such as Coach and Polo Ralph Lauren Polo Ralph Lauren (NYSE: RL) is American fashion designer Ralph Lauren's luxury lifestyle company. Polo Ralph Lauren specializes in high-end casual/semi-formal wear for men and women, as well as accessories, fragrance, and housewares. , and by enhancing and tailoring their leasing mix for their target market.

Despite its attractions, value retail is a challenging industry that favors experienced owners with specialized leasing and management experience in the sector. A highly fragmented industry in terms of its ownership, the industry is dominated by a handful of owners, including Chelsea Property Group, Prime Retail, Tanger Factory Outlet Stores, and more recently, Prescott Capital Management, which acquired this year a national portfolio that operates under our value retail management and leasing platform and brand, Ariel Preferred Retail Group.

As in the traditional retail sector, it has proven difficult for "one off" owners to exert sufficient clout with tenants to optimize their lease terms and tenant mix. Portfolio owners with critical mass can more readily spread overhead costs overhead costs

see fixed costs.
 across their properties.

Furthermore, manufacturers are a highly specialized tenant universe and leasing relationships tend to be long term. Strong tenants, furthermore, understand the value they bring to owners through their tenancy, the structure of their leases, as well as through their proven draw among shoppers. Owners who can negotiate leasing arrangements across multiple properties, demonstrate leasing synergies through a complementary mix of tenants, and who can offer tenants marketing support are best able to attract strong tenants on favorable lease terms.

The value retail sector is supported by serious and growing interest in the capital marketplace. Increasing numbers of banks and other lenders are willing to finance the cash flows generated by strong outlet centers on terms competitive with those available for more traditional retail products. These lenders are also are supported by the securitization Securitization

The process of creating a financial instrument by combining other financial assets and then marketing them to investors.

Mortgage backed securities are a perfect example of securitization.

May also be spelled as "securitisation.
 market, which has shown a proven appetite for strongly performing, and often cross collateralized, loans to this sector as well.

Equity investors, including private equity groups, funds, and REITs, have been drawn to the attractive cash-on-cash returns Cash-on-Cash Return

A rate of return often used in real-estate transactions. The calculation determines the cash income on the cash invested:
 that can be found in value retail properties. They also like the potential for income growth at the best properties through physical expansion and active enhancement of the leasing mix.

New construction has been effectively limited by self-policing among tenants who do not want to compete with themselves. As a result, growth typically occurs phase-by-phase, and new phases start only when close to fully pre-leased with new and accretive tenants. The most successful centers own or have access to prized expansion parcels.

The value retail sector reflects, and benefits from, broad trends among traditional retailers. In recent years, traditional mall owners have worked hard to identify and attract new and exciting tenants to differentiate their centers from others.

Tenants such as Ferragamo, Burberry's, Chanel, and others are now not only offering full price retail stores, but outlet shops as well. Entertainment is an important draw at retail properties, and both mall and outlet owners are increasingly adding new restaurant and entertainment venues.

Furthermore, the value retail sector has spawned inventive new retail concepts such as Cabela's and Bass Pro Shops Bass Pro Shops is a privately held sporting goods and outdoor goods store headquartered in Springfield, Missouri. The original Outdoor World store, referred to as the "Grand Daddy" is located at the corner of Sunshine and Campbell in Springfield. , sporting goods Noun 1. sporting goods - sports equipment sold as a commodity
commodity, trade good, good - articles of commerce

sports equipment - equipment needed to participate in a particular sport
 discounters and lifestyle retailers that draw hordes Hordes may refer to:
  • Social and military structures of nomadic Turkic peoples in the Middle Ages; see:
  • Golden Horde
  • Tatar invasions
  • The miniature war game HORDES
See also
 of regional shoppers. Savvy outlet owners have further seen the merits of branding pioneered by such owners as the Westfield Group The Westfield Group is a multinational company that owns shopping centres in Australia, New Zealand, the United Kingdom, and the United States. Westfield shopping centres are typically branded with the name Westfield or Westfield Shoppingtown in their name.  and Simon Property Group Simon Property Group, Inc. (NYSE: SPG), also known as SIMON, an S&P 500 company headquartered in Indianapolis, Indiana, is the largest developer of shopping malls in the United States. Simon Property Group, Inc. . Ariel's traditional marketing tactics and dynamic web-presence, designed to inform shoppers, tenants and the financial community, have proven to be valuable branding and promotional tools as well.

Many value retail assets have demonstrated rising sales in recent years, benefiting from the strength of consumer spending Consumer demand or consumption is also known as personal consumption expenditure. It is the largest part of aggregate demand or effective demand at the macroeconomic level.  experienced by traditional retail centers. As a sector, outlet centers have proven themselves to be steady performers across economic cycles, as consumers become more value conscious in more difficult economic times.

With investment capital increasingly receptive to attractive real estate concepts that offer desirable risk adjusted returns, the value retail sector is well positioned for solid growth and expansion among its most experienced owners and operators.


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Author:Stupin, Susan L.
Publication:Real Estate Weekly
Date:Nov 29, 2006
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