In the 1980’s, while Europe was building new assets, we were building 27-year amortization schedules. While Europeans developed properties that would be there for the next 100 years, both in their construction and locational demand, in America, with the exception of S&L assets, we developed the most inexpensive and disposable real estate that could be financed.
Then came the next great run in the 1990’s and the 2000’s, when developers discovered how to build for Wall Street proformas. Have you ever wondered why shopping centers and stores across the country, whether in Phoenix and Jacksonville, are often identical—Chipotle, Borders?
The reason is quite simple. If a retailer planned to open 200 stores in a year to meet their Wall Street expansion requirements, it had to be able to stamp out a formula. The formula was not just the retail store itself, but also the shopping center and common tenancy around it that they felt would make a reproducible formula. Developers figured this out, realizing that if they built the same shopping center every tenant would sign up, and they were a sure bet for quick financing. It was off to the races!
Today, you could be dropped out of a plane, land in Anywhere, USA and have no idea where you are. Congratulations, we have successfully commoditized the entire country!
Now, after the Great Recession, the bet is on as to what will come next. Will it be all about Green? Or back to the same formula, same song, second verse? Will it be the redevelopment and/or renovation of the 1980’s disposable product? Or will it be the refinancing of the last round when the formula proved to work only about two-thirds of the time?
Smart money says that the consumer remains predominantly cash-strapped, outside of a little comfort spending and necessities, so forget any real expansion. I am betting that infill and refill will dominate most of the front end of the next development cycle.
As for the remaining wedge, PegasusAblon is hedging our bets that the Echo-Boomers will split from the Baby Boomers in their desires and spending patterns. The Baby Boomers financed and developed a landscape that fulfilled their needs for neverending consumption, and the Echo-Boomers aren’t very excited about the legacy that they’ve inherited.
Echo-Boomers will choose experience over ownership—and herein lies the secret to what comes next …
Michael Ablon is principal of PegasusAblon, a commercial real estate development, investment and management company. Photo Courtesy of John Morgan.
