Commercial Real Estate – Santa Cruz
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Macy’s to Close 125 Stores

Macy’s is closing 125 stores nationwide as part of a three-year strategy to ditch under-performing locations. The department store seeks to target its growing digital business and expand in-store tactics that are working while testing new concepts. 

Like many other department-store chains, Macy’s legacy as a go-to for household and family needs has declined as shoppers look to other retailers, both online and at brick-and-mortar sites, while also shifting spending.

In 2020, Macy’s expects to preserve about $600 million in spending, some of which will flow to the bottom line and possibly stabilize operating margins that have been damaged by the company’s struggle to stay relevant.

By Jennifer Waters. Costar News. 2/4/2020

Latest Front in Food Delivery: Kitchen in Empty Malls

Property developers are building kitchens in empty mall space and parking lots to fill food-delivery orders, a new approach in the fast-growing business of shuttling meals to customers.

Developers say “ghost” kitchens can create new interest in retail and warehouse space vacated by merchants that have struggled to compete with e-commerce.

Delivery now accounts for roughly 9% of the $282 billion U.S. fast-food sector and is growing. Restaurants are expanding their delivery offerings to generate sales despite the impact those orders often have on their operational efficiency and profits. The remote kitchens can reduce their real-estate costs while expanding their reach.

The Wall Street Journal. Heather Haddon. 2/2/2020

Pacifica Hotels acquires Seacliff Inn and Severino’s Bar & Grill

Orange County hotel company Pacifica Hotels announced Dec. 5 that it has acquired Best Western Seacliff Inn and Severino’s Bar & Grill. Pacifica Hotels was not able to disclose the purchase amount.

When the former Seacliff Inn owner stopped hotel operations and terminated employees, Pacifica Hotels offered to employ previous workers and hired more than 90% of them, according to Kate Morgan, director of marketing at Pacifica Hotels. The Seacliff Inn employs more than 100 original team members.

Read more here.

New York may chase away business as it considers ‘commercial rent control’

The “Small Business Jobs Survival Act” is designed to protect small mom-and-pop shops in New York City from rising rent prices. The legislation would require 10-year leases, which could only be be altered with the tenant’s approval, to be offered to commercial tenants at renewal. If the two parties cannot agree on a rent increase, they would have to go through arbitration.

These rules would apply to retail spaces of 10,000 square feet or less, manufacturing spaces of 25,000 square feet or less and office spaces of 10,000 square feet or less. It has been compared by critics to commercial rent control, though it would not specify actual rent increase restrictions.

There are many pros and cons to this bill. Officials warning it could do more to damage the very businesses it is designed to protect.

Source: Brittany De Lea | FOXBusiness

Read more here.

Next Retail Trend Combines Barking and Beer

Entrepreneurs are tapping into the ever-increasing desire of dog owners to take their furry friends with them everywhere by building private dogs parks that also have a restaurant and bar. These parks are beginning to catch on among landlords digging into ideas for boosting foot traffic to their properties through amenities people want to experience. And landlords pursuing experiential retailing have been willing to front a lot of money and give big breaks on rent to land these dog parks.

For landlords, these dog parks are “increasing dwell time” at retail properties as well as driving more frequent visits. Indoor shopping malls, which owners have sought to reimagine as tenants have emptied them, could be where the dog parks could appear next..

November 26, 2019

Richard Lawson @ Costar

When Bigger Is Not Better

Professor Thomas Philippon’s book the “Great Reversal” was reviewed in a recent Wall Street Journal column. The column stipulates that most Americans assume that America is the most competitive and innovative Country in the World. The idea that American’s leads the world in innovation and free market opportunity is quickly challenged, as he questions why Americans spend 3-4 times the money on internet as our French brothers, and why cell phone service in America is among the most expensive in the world.

His conclusions are as follows; #1. Through Lobbying and political donations, large American companies can buy protectionist legislation from both sides of the isle. #2. Because the competition is protected, large tech companies (among others) enjoy inelastic demand, that is to say they can raise prices without seeing a significant drop in demand and #3. American industry’s tends to concentrate into few large players in a platform, resulting in less competition for pricing and innovation.

This affects Santa Cruz County Commercial Real Estate as it curtails company formation – small business creates the vast majority of jobs and provides for much of the wage growth. In a prior, but related article, a Journal guest columnist notes that new company formations are at a sluggish rate, slower now than in the last decade. A bright spot would be that women and racial minorities, are starting new business’s at higher rates than ever before, however the gross number of company formations, when contrasted with business closures is down as a ratio.

Kmart is closing more stores..

And Kmart 270 Mt Hermon Road in Scotts Valley is one of them.

Kmart and Sears has announced that it will be closing 96 stores around the country. The liquidation sales will begin December 2nd with stores expected to permanently close by February 2020.

The downfall of former corporate giants like Kmart and Toys R Us is evidence that the brick-and-mortar retail industry is in jeopardy.  But it also provides opportunity for growth and new giants in our community. It will be interesting to see what happens next.

Site for Santa Cruz Nissan Approved!

On October 22, 2019, the County Board of Supervisors approved the application by Santa Cruz Nissan to develop a 23,000 SF. This dealership (including repair areas) will be located on the acreage across from Best Buy on 41st Avenue and Soquel Drive.  The Vote was 3-1 with Supervisor Zack Friend voting no.

The supervisors cited the minimal traffic generation from such a large use of the site, and perhaps glossed over the high tax revenue generated from the dealership.

In terms of Santa Cruz County Commercial Real Estate, the redevelopment of this site is a welcomed move, with the area being a long time blight, the site of homeless occupation and vandalism.

The Future of Co-Working Space

WeWork, the leader in co-working space, recently had its market valuation drop from $48 billion to $8 billion. Admittedly there are a lot of factors in this drop. Our contention is that in a strong tech environment, the value of renting to 1-4 people is being erased.

Co-Working space really got its start in the years following the recession in 2006 to 2010, when many computer tech people became consultants as there was little growth in the tech sector for full time work. The ability to work in the cloud with other “co-workers” made it possible for an individual to work for anyone, anywhere, from their home – or a Co-Working environment.

This had a strong effect on commercial real estate in Santa Cruz, as several buildings became (and still are) home to Co-Working space. Growth was phenomenal, as groups crossed America building office space for multiple independent tenants. In the parlance of marketing, just how deep is this market? Also, as a client once said, the “tree’s won’t grow to the sky”, meaning all markets have demand growth cycles, and then
saturation. We believe in a market where consultants can work for single companies, the demand for Co-Working space has flattened.

DoorDash Opens Ghost Kitchen

In Redwood City, DoorDash is opening a Ghost Kitchen where restaurants will prepare meals to be delivered or for pickup without being a place where people go to eat. The facility will give those restaurants access to new customers in neighboring communities without the overhead involved in expanding their brick-and-mortar stores.

For property owners, the facilities can be advantageous. Ghost kitchens can often be set up in spaces that typically go unused, such as basements or parking areas. They can also be located in industrial space, since those sites offer easier access for delivery drivers compared with standard retail space.

Read more here.

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