EPIC Lease at 50 Penn - PEC Retail Investment Team Handles Both Sides of the Transaction

Article via The Journal Record by Molly Fleming
http://journalrecord.com/2018/08/02/an-epic-move-former-itt-tech-space-to-transform-into-charter-school-location/

OKLAHOMA CITY – Posters from ITT Tech are peeling off the walls at the school’s former space in 50 Penn Place. The cabinets and desks are still in place. Framed posters feature student testimonials about how the school changed people’s lives.

The space has been vacant since September 2016, when ITT Tech abruptly closed all of its campuses. People grabbed their personal belongings and left.

At 50 Penn Place, 1900 Northwest Expressway, the school occupied space on the north and south sides of the third floor, totaling about 19,000 square feet.

A couple of years ago, Epic Charter Schools had looked at combining its Oklahoma City campuses under one roof and considered 50 Penn Place. But they passed, continuing to operate and grow.

Now, the online-based charter school has reached capacity at its three buildings in the city’s northwest sector. It needs more space, so the school is leasing all of the former ITT space. Staff members will start moving into the space in about 60 days, said Ben Harris, Epic’s co-founder.

Price Edwards & Co. Retail Investment Team broker George Williams completed the transaction. The center and tower are owned by In-Rel Properties, based in Florida.

By 2020, the school will move into an additional 20,000 square feet on 50 Penn’s third floor. This will make Epic’s Oklahoma City square footage 80,000 square feet, with its three buildings and 50 Penn Place. Harris said before the move in 2020, the school will evaluate whether it will keep its three old buildings or move everyone to 50 Penn.

Harris said it is appropriate that the school is moving back into a mall since it once had space in North Park Mall.

Moving into 50 Penn came with several advantages, said David Chaney, school co-founder and superintendent. It offered plentiful parking, which will be helpful for employees, students and parents.

Epic considers itself a blended learning school. While some activity is done online, students still have to come to the buildings to take tests, or they can meet with teachers.

The location was also an asset, Chaney said. Epic’s Oklahoma City campus is in its second year of operating a learning center for elementary-school-aged children. Parents can drop their students off at the school and not have to pick them up until 6 p.m. Being on Northwest Expressway and still in the northwest sector will be helpful to parents, he said.

Since Epic is occupying a former school, it will be able to save on furniture costs.

“Everything is in great shape,” Harris said.

The ITT space offers a variety of room sizes, which will give Epic enough areas for student testing and teacher meetings. The school gives the required state tests, as well as its own quarterly benchmark assessments.

When Epic is ready to move into the other 20,000 square feet, the mall space will be redesigned. The existing Urban Market restaurant will remain.

Epic has spoken with HSE architecture firm and Smith & Pickel construction about updating the space. The renovation will start in spring 2019.

With Epic in 50 Penn, the retail center has 75 percent occupancy. The office tower is 90 percent occupied.

Williams said it made sense to go after a nontraditional retail tenant because retail hasn’t been successful at 50 Penn in several years. There’s still 30,000 square feet to fill at 50 Penn, Williams said.

“When Epic came along, it was a perfect for what the landlord wanted, and what Epic wanted, too,” he said.

Harris said the 50 Penn staple Full Circle Bookstore is a great amenity to the new space as well, and can also be a place where students meet with teachers.

“We feel like 50 Penn is a good place for our employees, too,” Chaney said.

Price Edwards Named Best Commercial Real Estate Firm by Journal Record Reader Rankings

Price Edwards & Company is proud to have been chosen as the Best Commerical Real Estate Firm, and the Best Commercial Real Estate Leasing Firm by the Journal Record Reader Rankings!

"We're honored for this recognition," says Managing Partner, Ford Price. "Working to provide the best service and value to our clients is the backbone of what we do here, and this is a great compliment to our staff who work so hard." The Journal Record’s Reader Rankings are chosen by Journal Record readers across a wide variety of categories encompassing the areas of construction and design, entertainment, finance/accounting, general business, health care, higher education, hospitality, legal services, real estate and information technology.

Based in Oklahoma City, Price Edwards & Company is the largest commercial real estate firm in Oklahoma and has been serving clients since 1988. PEC also has an office in Tulsa and has expanded In recent years at the request of clients to serve other commercial real estate markets including Texas, Kansas, Missouri, Arkansas, and Mississippi.

The Journal Record published the list of Reader Rankings on August 24th. For the complete list of Reader Rankings, click here. 

OKLAHOMA CITY RETAIL PROPERTY MID-YEAR 2017 MARKET TRENDS

Numbers matter in real estate; this survey is built on the premise that numbers matter.   But, in this instance, the numbers do not begin to convey the scale of change in the retail industry nor do they reveal the anxiety that underlies the market.  

Overall market vacancy improved during the first six months of the year to 9.8 percent from 10.6 percent at year-end.   That implies a relatively healthy and improving market.   And there is a lot out there to be pleased about.   The general economy is still holding up even with continued low energy prices.   There are a lot of tenants expanding; most space that has been vacated to date has been backfilled. The market saw positive absorption of nearly 600,000 square feet. Rents, particularly for new space, are at all time highs.  If only we could stop there. The good news has a dark backdrop.   Over 5,000 stores closed so far nationally in 2017 and more on the way.   Negligible income growth locally.   Local tenant struggles.   Fierce competition from internet retailers.

So, where does that leave us.   Are we in a normal cycle or is it the end of retail as we know it?  The truth, as it often does, lies in between.   We see three broad influences in the retail market:   One, retailers are forgetting how to retail.   The best retailers have always been good at staying in contact with their customers.   A big part of which is understanding them well enough to know what they want in terms of merchandise and how to best sell it to them.   In today’s world of big data, that should be easy enough, but many of the problem retailers have failed their customers.  Does anyone think Gordman’s, Radio Shack or Payless has done a good job of this?    Two, competition from the internet is real and unremitting – which really means that Amazon is coming for you.   But, as we’ve discussed before, this is much more nuanced than internet versus brick & mortar.   The two are morphing together…Amazon and other internet retailers are opening brick & mortar stores (and need them to reach more customers and raise margins) while, at the same time, brick & mortar stores are racing to enhance their web presence both in terms of sales and marketing.  This dynamic is changing the way people shop. Virtually everyone browses on the internet, regardless of where they end up buying a product.    Convenience and price have increased importance; the experience is more important.  Three, we are in the middle of a normal real estate cycle.    Retail has been growing rapidly since the 2009 – 2010 recession.    Rents and occupancies are up and there has been significant new construction.  It is time for a correction.     A correction always involves store closures and reduced tenant activity; the amount of leveraged buyouts over the last 10 years has exacerbated this problem by limiting retailers margin of error in a downturn.

You add these three major influences together and you can begin to understand the level of disruption we are seeing today.   We believe it will most likely take another 2 – 3 years to sort out and somewhat normalize the retail market.   In the meantime, the market will be very uneven with some retailers doing well and others struggling or going out of business.    Clear winners in the interim will be value-oriented tenants, health/personal fitness tenants, and tenants who figure out how to enhance the shopping experience.  Tenants that are expected to struggle include fashion tenants, boutiques, and department stores.  Then there will be certain classes of tenants – service & grocery for example – that will see less of an effect from current changes.  Here is a look at how we expect a few specific sectors of the market will fare in this environment:

Locals

One group of tenants getting caught in the retail crossfire is local tenants.   This group is always prone to greater swings in performance given consumer sentiment, changes in disposable income, etc.   All the current bad news (you don’t hear much of the good news) has created an environment where many are being more conservative and shoppers are more value driven.   Most local tenants have less flexibility in this environment with staffing, inventory management and marketing.   Add higher rents, particularly in infill locations, and many local tenants are getting squeezed.

Rents

Oklahoma City has historically had some of the lower retail rents in the country.  That has changed in the last5 to 7 years, particularly with new development, out-parcels in front of big boxes and mixed use developments.    Rents for small shop space in these developments range from $25 to $35 per square foot with some rents pushing $40 per square foot.   This often prices out local tenants.   It also raises the question whether or not national tenants can generate the sales to justify these rents over time.   Our sense is that they can but it is probably a pretty thin segment of the market.    It will also test our market when some of these spaces come back to the market as second generation space.

Development

Two significant new developments came on line in 2016, The Market at Czech Hall anchored by Ross and Academy and Sooner Rose in Midwest City anchored by Academy and Hobby Lobby.  Expect the uncertainty in the market to put most larger development on hold for now.   There will continue to be some strip center development and the expansion of existing centers, but limited large-scale construction.

Grocery

Oklahoma City has seen nearly 1.5 million square feet of grocery added in the last three years led by Walmart, but also Aldi, Natural Grocers, and Sprouts.    Add four new 90,000 square foot Winco’s to that equation and a new Edmond Crest and that’s a lot of additional grocery square footage.   We saw the results of this with Homeland & Buy for Less each closing two stores in 2016.   We expect to see fewer new stores this year as the market adjusts but the pressure will be on the weaker chains.

Movies

The movie business is about to change in a big way in Oklahoma City primarily from the change in state statute allowing the sale of liquor in theaters.   Warren, who sold their existing Moore theater to Regal, has announced a north Eastern and a Midwest City location.   Flix is poised to enter our market.   Expect Alamo Draft House or similar concepts to follow.   This will put pressure on many of the existing theaters to upgrade.   All-in-all, the next few years should be a boon to movie-goers and a source of growth for retail.

Survey Footnote:

Our survey tracks 29.8 million square feet in 255 buildings of over 25,000 square feet and 15.3 million square feet of stand-alone buildings for a total market of 45.1 million square feet. 

There continues to be a significant number of smaller strip centers in the market (under 25,000 s.f. in size). We would estimate there are close to 5.7 million square feet of these properties in the market.

Shoppes at Quail Springs progressing in north Oklahoma City→

News article via The Oklahoman - http://newsok.com/article/5558112

A commercial retail and office project being built at the corner of May Avenue and Memorial Road has a lot going for it, a broker says.

"The best thing about this location is it's right off Memorial and close to Quail Springs," said George Williams, a retail leasing specialist with Price Edwards & Co., the broker for the Shoppes at Quail Springs, 13601 N May Ave.

"The traffic count is really high, and there are a lot of rooftops, both single family and multifamily, and higher-end neighborhoods.

"What retailers want are locations that have high traffic counts and high-density populations with high household incomes. And this location is one of the best locations in the metro."

Phillip Mazaheri, also a Price Edwards & Co. retail specialist, said the project is being developed by his father's company, Mazaheri Properties.

Phillip Mazaheri said his father, Fred, obtained the property 13 years ago, and started the process of building the Shoppes at Quail Springs a couple of years ago.

Even Phillip Mazaheri said he is impressed by the project's visibility, now that it's nearing completion.

"Seeing renderings is one thing," he said. "But once it started to go up, it really came to life. You can see it from across the way, and from the (John Kilpatrick) turnpike. That's pretty exciting."

Phillip Mazaheri said another aspect of the project he believes its customers will love is its landscaping.

"The developer went above and beyond what was required. The tenants will enjoy that as well."

Upstairs, downstairs

An interesting aspect to the Shoppes at Quail Springs is that it is a mix of both retail and, upstairs over much of the project, 23,000 square feet of office space.

While some of that is set aside for use by Mazaheri Properties and a law firm, much of it still remains available for lease.

It offers interesting views of the turnpike and May Avenue corridors, and also will give tenants excellent exposure to passing motorists each day. The upstairs space is accessible using elevators and stairs that can be accessed from entrances nestled between commercial spaces on the project's street level.

On Thursday, the management team at Salata, a restaurant that will open next month in a part of the project that faces May, had to turn away a trio of customers who had just happened to have seen its sign from the street and had hoped to grab a salad for lunch.

Currently, The Ambassador Shop, a men's clothing store, and Salons by JC are the only open commercial businesses in the project. But that is going to begin to change, as Salata and other businesses begin to open there later this year.

Phillip Mazaheri said the developer is pleased with progress of leasing efforts, so far.

"This is a long-term investment for him, he's wanting the best mix possible," he said. "We have gotten plenty of interest on the property."

Other businesses that will be opening soon include a restaurant that will feature a new Japanese food concept, a Vietnamese restaurant, a nail salon, and, if negotiations are successful, a bank.

In all, the Shoppes at Quail Springs offers 50,000 square feet of commercial space at its street level.

Laura Gilliam, a licensed aesthetician, said she moved into a spot inside Salons by JC in May from an Edmond location. Gilliam said Salons by JC is doing very well, with only a few individual salon spaces still available.

She said her clients like the Shoppes of Quail Springs as well, because it isn't hard to get in and out of like some locations are.

"I've been doing this for 17 years," Gilliam said. "This is the happiest I've ever been."

OKLAHOMA CITY RETAIL PROPERTY 2016 YEAR-END MARKET TRENDS

By most traditional measures – occupancy, rents, lease volume, new construction – the retail market held up pretty well in 2016, probably the best performance of any asset type.   Market vacancy ended the year at 10.6 percent compared to 10.4 percent at mid-year.   Some underlying factors, however, are creating uncertainty and could impact 2017 performance.  Chief among these are continued low energy prices, low income growth (the lowest in the country in the third quarter) and the resultant decline in sales taxes (see the chart on page 4).   For these reasons, we anticipate uneven performance in 2017 with a slight rise in vacancy and relatively flat rents.  Discounters like TJ Maxx, Ross and the various dollar stores have done well the past few years and we expect that to continue.    Restaurant expansion, which has been booming in Oklahoma City and nationally (40 percent of retail growth last year), will likely slow.    The higher end boutique market may see the most headwind.    One unknown that could help our economy and possibly change the market dynamics is President Trump.   It is anticipated that the new administration’s policies will be good for business in general and the oil industry in particular by ushering in reduced regulations and lower taxes.   Whether or not these policies come to pass or give Oklahoma a positive bump in 2017 is unknown.

Development

On the development front, the second half of the year was characterized by the completion or near completion of planned projects:   The Market at Czech Hall is nearing completion of phase one including Academy, Ross & Marshalls (approximately 180,000 square feet); Sooner Rose at Southeast 15th & Sooner with Academy and Hobby Lobby; Shoppes at Quail Springs is nearly complete as well (96,000 square feet); University North Park has added two outbuildings and three stand-alone restaurants; Winco is under construction in Moore and will start construction soon in three other locations; Chisholm Creek added the 76,000 square foot Tract 30, and, a significant number of smaller 10,000 to 20,000 square foot strips have been completed.    Most of these projects come into the market preleased.    In addition to these projects, Lifetime Fitness will be taking the former Macy’s location at Quail Springs Mall and numerous other retailers – Aldi, Homegoods, Mattress Firm, Five Below, among others – remain active.    As noted in our mid-year report, Walmart just opened two new Neighborhood Markets and a Supercenter (part of the 1.2 million square feet they’ve added in the last few years).    

There are a number of planned projects that haven’t broken ground:   Poag’s Bridges at Springcreek in Edmond; the Triangle Expansion by Washington Prime that remains tied up in a lawsuit; the recently announced retail as part of the downtown Strawberry Fields development; Westgate’s expansion south of Interstate 40 and the possible re-configuration of Shields Plaza.   The performance of our economy in the first half of 2017 will go a long way to determining whether these and other smaller planned developments get done.

Grocery

Our grocery market has experience significant change and increased competition over the past five years, trends we see accelerating.    The sizable expansion of Walmart noted above has added nearly 800,000 square feet of just grocery.   Specialty grocers, virtually nonexistent in our market 10 years ago, are now prevalent with Sprouts and Natural Grocers continuing to expand and Trader Joes entering the market albeit with one location.   Aldi has added stores as well.    Winco is poised to add four large stores to this mix; Winco is a strong entry in the market that will compete with Walmart on price.   The recent passage of State Question 792, allowing full-strength beer and wine sales in grocery and convenience stores, will influence the grocery market.   Whether or not it will allow us to attract a national full-scale grocer like Kroger or HEB remains unknown.  The answer may be a few years off as the law does not go into effect until 2018 and is being challenged in court.   But, the net effect of all these influences could very well shake-up the market.   Homeland and Buy For Less have already both closed stores; the response of existing operators bears watching as the competition heats up.

The Internet

In the world of retail, the internet is usually characterized as both the future of retail and the killer of brick and mortar stores.   The reality is much more nuanced.    Currently, internet sales make up about 9 percent of total retail sales; 30 percent of e-commerce sales go to Amazon.   Internet sales continue to grow rapidly; most experts put internet sales at around 20 percent of total sales by 2030.    Here is where it gets murky.   The second largest e-commerce retailer is Walmart, much of which is picked up at their stores.   Approximately half of internet sales are to retailers who have brick and mortar stores.   Retailers are getting very creative at using their stores both to fulfill internet orders and be distribution centers.    Interactive kiosks in stores are becoming more commonplace.   Amazon, of all companies, is opening brick and mortar stores (see the Amazon Go article on page 22).  Walmart is experimenting with small stores that are primarily pick up locations for internet orders, including groceries, that are filled at a nearby Supercenter.   The fact is that brick and mortar and the internet are integrating in ways we wouldn’t have imagined.    Expect this to continue.   Brick and mortar isn’t dying; it is organically changing in response to changing consumer tastes and buying preferences just like it always has.

Survey Footnote:

Our survey tracks 29.4 million square feet in 253 buildings of over 25,000 square feet and 14.8 million square feet of stand-alone buildings for a total market of 44.2 million square feet. 

There continues to be a significant number of smaller strip centers in the market (under 25,000 s.f. in size). We would estimate there are close to 5.5 million square feet of these properties in the market.  

Big Box or Small Shops - What is the best strategy for shopping center development?

As demographics, consumer spending habits and behaviors change, shopping center owners and developers must reevaluate their strategy when it comes to retail tenants.

In years past developers preferred centers anchored by “big box” retailers.  That strategy worked because big box anchors had strong credit, drove traffic to the center, and added a level of clout.  Often, these anchor tenants were given preferential deals given what they would bring to a development.

Lately we’ve seen a trend where retailers, particularly some of these anchor tenants, are closing underperforming stores, shrinking store footprints, or relocating to more favorable locations. Store closings run the spectrum from department stores and apparel to electronics. Affected retailers include Walmart, Office Depot/Office Max, Macy’s, Sears, and Barnes & Noble to name a few.

Big box retailers pose a challenge as those vacancies are much harder to fill. There are fewer replacement options plus many tenants that remain in the center have co-tenancy provisions which allow tenants certain concessions from the landlord if anchor tenants leave their space.

The benefits of leasing to smaller tenants include the ability to charge higher rental rates and allows for a more diverse tenant mix which can lead to a better overall shopping experience – often a preference for younger consumers. Plus the fast casual restaurant industry, services, and medical tenants are a growth markets which allows for vacancies to be backfilled much faster.

The outlier in this trend may very well be grocery anchored shopping centers which still seem to be in favor, both from the perspective of smaller retailers which see them as a draw and to investors who see them as being more stable.   In our market, with the dominance of Walmart in the grocer sector, there are very few grocery anchored centers compared to other markets.

As the retail market continues to change, retail owners and developers must adapt to find the right balance between big box and small shops in order to withstand the retail market cycle’s next fluctuation.