Guest: Alan Barocas
Topics: Apple Store, leasing

Transcript:

Chris Ressa 0:02
This is retail retold the story of how that store ended up in your neighborhood. I’m your host, Chris RESNA. And I invite you to join my conversations with some of the retail industry’s biggest influencers. This podcast is brought to you by DLC management. First, I’d like to thank one of our sponsors credit Intel, knowing the financial health of retailers is crucial for the success of your retail related business. That’s what credit Intel is for credit Intel analyzes the financial health of hundreds of publicly and privately held retailers in different sectors. With a subscription to credit Intel you have access to comprehensive analysis of retailers, financial condition, and their Expert Analytics team. Visit credit intel.com for more information.

Welcome to retail retold everyone. Today I’m joined by Alan Berkus. Alan was the former head of real estate for the gap. He was the head of leasing for general growth. He’s been in the industry for over 30 years. He’s since retired. He’s in Naples now excited for him to be here. Welcome to the show out.

Alan Barocas 1:19
Thanks, man. It’s, it’s good to be here. And thank you for inviting me. Yeah. So Alan, tell

Ressa 1:25
us a little bit more about who you are and your story. Okay.

Barocas 1:29
So out of college, I went to Albany in New York. And two weeks after graduation, while some of my friends went off to to Europe and across country I went to work. The first I’d say 10 years of my career was in retail with department stores. And I had various positions there and merchandising, buying, store management, etc. And at that time department stores back in the late late 70s 7879 ad department stores were having problems, some of them were going out of business etc. And so I got approached by the gap stores to come work for them. They have recently purchased a 600 store chain so they had double the size of the company when they were looking for people with managerial experience, merchandising experience, etc. So I joined the gap plus that came with a company car. So that was that was the hook that was but so my first five years with with the gap was in several multistore responsibilities of district manager, I was an HR director in our distribution center in Erlanger Kentucky. Imagine me trying to convince my wife to go from New Jersey to Kentucky, but it was a good time. It was a good time. But then in in shortly, I was there for two years. Then I joined the real estate department. At the time, real estate, the gap had seven, seven real estate deal makers around the country. We have offices in in New York, Philadelphia, Dallas, Chicago and San Francisco. None of us started in real estate. We all came from the field operations. We knew the culture of the company, we knew what worked cetera. So I got my I got my feet wet in real estate at that time. So I started out as an associate, leasing rep. And 15 years later, I was promoted to senior vice president the real estate and construction. So I headed up the function, the best move of my life, and it was life changing for me. So did that. And then in 2006, I had been there 20 years with the company, and I was on the West Coast. My two kids who were grown and married, but no kids, no children. They were on the East Coast. I sold them five times in five years. It was six years that I was out in California. So you know what? Let’s see what page two looks like. So I left. You know, we sold our house in San Francisco and five days for more money than I’ve ever, ever imagined. And we went back East. And so I knew I wasn’t retired, but I knew I wanted to do something. I always like building new businesses. So I started my own my own consulting service a JP and Associates. And what I did was initially I started out with some retailers and brands like Under Armour was and Calvin Klein were two of them, helping them to build their real estate strategy. They wanted to go retail. And so they were my first clients. And while I was doing that, I started to get calls from landlords, but basically saying, Listen, we have this center, could you come out and tell me what you think? Think about it, what we could do, or I’m looking to develop this type of center in this market in this could you come out to look at the market look at this. And I found out that Having a retail perspective was valuable to the landlord. So I did that, then from there I was doing work at Well, this was simultaneous. And I did some work for some private equity companies, you know, analyzing some of their potential purchases, looking at the fleet’s and tell them where their risk rewards were, etc. And doing very well, very well making more money than ever made it the gap now, no equity, because equity as well, dollars are not but then a friend of mine in the business Sunday with Ronnie who had become close to when I was head of real estate at the gap. And he was head of leasing at Vornado. And we kept in touch and we became friends, he became, he was named, he was named CEO of General growth properties to help take them out of bankruptcy. So he made me an offer I couldn’t refuse. And, but I thought it might be interesting to see what it would be like on the other side, right, so I joined I joined his executive team. So you know, from there, I was there for six and a half years, you know, we took the company out of bankruptcy and to a point where it was, you know, very profitable. And yeah, but then I said, Yes, I thought this was a two year gig, he said, and ends up being six and a half, and I was getting a little bit older. And I said, you know, time to enjoy. And we had just bought a place in Naples, and I wanted to spend time with my four grandkids. They’re a little older now, you know, 14 down to eight, but they’re very important. So I told him, I’m leaving in a year, year and a half. And what I did during that year, year and a half is I found my replacement tournament, and I worked with that individual so that we transitioned in that year, year and a half. And that’s when everything was fine. And I left. So I’ve been retired since 2000. It’ll be four years, this coming June 30. So 2017. And at you know, during that, you know, it’s not like going both part of another question that I might be asked later, but I’ll just say that. It was it was a great move. You know, I’ve been able to balance, personal life. But I’ve also been able to stay stay close to the business. And I’ve had some advisory positions consulting business. But right now I’m retired. And if I can fit some of those other things in I will. That’s great.

Ressa 7:33
What a great career.

Barocas 7:34
Great story.

Ressa 7:37
I think it’d be interesting going from being a retailer for so long to being a landlord.

Barocas 7:44
What was the most

Ressa 7:47
unexpected thing that you saw from being that you didn’t realize being a landlord versus being a

Barocas 7:53
retailer? You know, I guess there’s, there’s always been this constant war between retailers and landlords, and everybody thinks that each side is being selfish and unrealistic. And it’s all about rent. When we get to the other side, you find that it’s, you know, landlords have expenses too. And, you know, and what it takes to develop, it’s a long term investment. And I found out, I found that, you know, there’s, you can, you can have a mate, you can have a major impact on the retail landscape, if you’ve got a working formula. And I enjoyed my time as a landlord, you know, I, I used to get a lot of grief from my, from my colleagues on the retail side, you know, one of the things that a landlord was trying to take advantage of me when I was at the gap, you know, because I wasn’t paying enough rent, and I would say something to the effect of this and why should I suffer because I’m successful. Right? Okay. So remember Andy Lane from from Victoria’s Secret was in our in our office, and he’s saying, He’s saying, Alan, why should we suffer because we’re successful? And I said, you know, it’s because you taught me that Alan, and I said, Andy, you’re right. You shouldn’t suffer. But there’s a part to that Senator, you shouldn’t suffer because you’re successful, but neither should i. So how do we come to an agreement, okay. And I also found that the landlord side, contrary to what some people may think, is much more willing to compromise, if that makes sense. You know, because it’s a financial, it’s all about financials, it’s all about, you know, and for for a retailer, they have their two or three little financial market numbers they have to hit which they usually hit them very easily and that’s it, okay, for the dealmaker, but in in the landlord side, it’s much more financially driven process. Totally makes sense. And

Ressa 10:00
that’s that story. The Victoria’s Secret secret store is

Barocas 10:05
a good one. Ah, so let’s take a moment. And let’s get

Ressa 10:13
to a little bit to get to know Alan a little bit better. I’ve got three questions for you. Are you ready? We call this clear the air.

Barocas 10:20
Good. All right.

Ressa 10:23
When is the last time you did something for the first time?

Barocas 10:29
You know, I retired

Ressa 10:33
to shave. That’s a good one.

Barocas 10:35
I thought about that question. Since retiring, you can retire and you can retire. What does that mean? So yeah, retired. Okay. Question two.

Ressa 10:47
What is one skill you don’t possess but wish you did? Play the guitar? And I am certainly not musically inclined wish I was but I

Barocas 10:55
was I love I love music. And I would love I tried many times. But once you get to chords, it’s a way so I can’t do with what type of music do you listen to? What do you like to listen to? You know, I’m pretty eclectic. On Music. Certainly. I love classic rock rock from the 60s 70s and 80s. But I love classical music. I love blue. I love Billie Holiday. I love the cold border. I mean, it depends on the mood. And I’m a big Tchaikovsky fan. I can listen to him all day. So. But do I sing in the car? Yes. And is it usually does sirius satellite and its 70s and 80s? All right. Yeah,

Ressa 11:39
those first few stations got the 70s. The 80s. The 90s. Sirius is pretty.

Barocas 11:43
It’s pretty good.

Ressa 11:45
Last question. What is one thing most people agree with? But you do not.

Barocas 11:52
You know, in the business? I think the one thing I had the most trouble with and getting people to, to understand was co tendency. You know, the most retailers follow what I call the bigger idiot theory. Who else is going? Are they going to be there? I can’t go in this you find the five other people. So what did they what have you what did they do by giving you names of five other people that made those deals more important than your deal? Okay, because in order for it, because they’re probably sitting there doing the same thing. So I’m more of a student of the market. Okay, if I put code Tennessee aside, because if the markets not right, and the customer base isn’t right doesn’t resonate with the project and putting together and putting in retailers services, food entertainment that’s consistent with what they’re looking for, then it doesn’t matter. They’re not going to succeed. I mean, I could tell you stories about I’ve sat down and listened to senior real estate executives on the retail side, looking at a center and saying I have to be in that Senate. Why? Because let’s make it because Banana Republic is there. Right? Banana Republic, and I’m making this up, by the way. But Banana Republic is doing $1.2 million. What are they doing? Well, what makes you think you’ll do well in a market just because banana republics and they’re and they’re not and that not performing? Well. I still want to be there. I said, What if I have another sentence show you something where you’ll double your business? Nope. You don’t have banana republic? Not interesting. So that’s, that’s always been a teaching moment for me to try to get across to, to retail or friends. I mean, we had I was I set up a real estate strategy department at GGP where we did nothing but analyze markets and analyze trends as demographics psychographics, and how that we came up with models that we could tell you who’s shops it. And we were able to share that with the retailers. And one thing I will say about retail is they like data. So the more data you can give them on these subjective items, the better. So that was probably one of the areas where I differ with a lot of people. And

Ressa 14:23
I had a really interesting one because one of the things that I find really fascinating in the business is there’s a tale of two cities. When it comes to co tenancy. You have the group that wants all their peers to be congregated next to them, because rising tide lifts all boats, but then another group that wants to restrict everybody and doesn’t want any sells anything next to them. So you have this tale of two cities. You know, I think it comes from the culture of the retailer. You know your thoughts on competition right in the old days, McDonald’s When one place and you know they did one and a half million dollars, let’s say average and then, you know, Burger King one across the street, Burger King did like one, three, and then McDonald’s did one seven. So a rising tide, they created like a burger Mecca. But today’s environment, you get a tale of two cities, you get one where they want to be by everyone in this retail critical mass. And then you get another cohort of retailers that they want to restrict everyone and they want to try to control the marketplace. So I’ve always found that fascinating by the different mentalities between co tenancy and getting a vibrant co tenancy versus, and being really strict that you have to be next to certain groups is the well, I don’t want to be near them, because they’re selling the same type of product to you know, my customer, right exclusives.

Barocas 15:47
I mean, we had an issue with, with Hallmark, you know, because when I was at Old Navy, of what we did on Navy SEALs, we had a section we had 100 foot not 100, a 30 foot section of greeting cards. Well, they went nuts. But do you mean you’re violating our exclusive? Or you tell me this 30 feet is going to impact your business? We I can’t tell you what we paid to get to get them to, to relinquish that. But you’re right. I mean, that’s what about, you know, there’s nothing wrong with having multiple uses, that sells similar items. It just brings more people and competition is good man, competition makes you strong, doesn’t make you weak. It’s just

Ressa 16:30
fascinating. So the tale of two cities and in that mindset, and everyone’s got a different one. So when you ended up at General growth at a really interesting time, right? They were coming out of bankruptcy. And you were coming from the retail side and some consulting. What was your mission outside of just leasing space? Like if you were to put like a three pillar strategy, what was Allen trying to bring to bring this company out of bankruptcy? And what was some marching orders? Like, what was the strategy at that point? Because

Barocas 16:59
there’s a big turnaround? Yeah, look, I think there’s a couple of strategic initiatives that I had. And the first had nothing to do with leasing per se. But it was more about getting them to be proud of who they work for, to have to be proud of the properties and the opportunities that that it gives them. So that they, you know, they had during the time they were in bankruptcy, they were just given away deals. Okay. And I remember when I was on the gap, and we were looking at doing a job growth deal. I said, just keep pushing them, push them and they’ll give in. Well, no, I didn’t give an I didn’t give instructions to given a gap. We have great properties. We spent billions and billions of dollars, you’re going to be proud of this. If you now we’re going to take you off and we’re going to put you some, some some mall up in North Dakota. Okay, so it was getting them to feel good about themselves, and feeling good about the properties that they had. That’s number one, so I wanted them did that was their product? Yeah, and believe in themselves and say, We’re gonna go out and we’re gonna get it done. That’s, that’s number one. Number two, it was taking a look at what our fleet looked like, and where the opportunities were, and what we needed to do to set up a leasing and development plan. So myself, our head of development, rich pesan, and Sandeep, and Ronnie and I, we visited 150 malls in four months. Wow. Okay. And of course, we didn’t start at the right end, we started in the end where it was hot, and we moved cold. So we never found that very few days, but a temper but basically, our here’s our strategy, we wanted to see every property you mentioned in our earlier discussion, can’t wait to see the property. So we went out to the properties. And we took a look at were some of the opportunities we have long story, we met as many people as we could. So we, we met, we met people and at the end of the day, the result of that is we came up with a $3 billion development plan for the for for those centers. Okay. And then from that development plan also create we didn’t generate those didn’t have a leasing strategy. Okay, there was not so we set up a series of meetings and monthly meetings, where we did portfolios, reviews, internally, talking about where the opportunities are, who was some of the potential people we want to go after and we traced that. So we get you know, it was important to, to be specific to give guidelines and and a plan because there was nothing. Now, once you get used to, you know, to adhering to a plan you can go off plant if you want to, but you understand where you want to be. Yeah. So that was that was another major strategy for us. And the last but not least, was provide a retail perspective to them and their leasing efforts. You know, I’d sit, I’d sit an example might be I’m sitting in, you know, real estate meeting. And, you know, the deal maker brings a deal on an expansion. All right. So expansion that picking up 50% More space. Yep. And they’re only projecting the deal is only being projected the same retail, same sales that they’re currently doing. So you run the numbers, and whoa, stop. Are you telling me that a retailer is going to pick up 50% More space and that expect to do more business? I don’t want that person on my wall. So you go back and you tell them? No, if you want this 50%, we’ll come up with a fair rent, but it’s kind of anticipate what you’re going to do. Because we had our financial goals, and they had theirs. And I know what the I was on the other side, I know what they do. It’s both. It’s BS. So that’s just an example. But the other thing is part of that is trying to instill in them the need to understand as much about the retailer, as you do your property is important. Because people if you have to listen to what’s being said, you can solve many problems sometimes without additional revenue. It might be marketing, it might be it could be a number of different things. But understand what what what makes them click okay. Don’t go after a Michael Kors in a center that they don’t have a snowball’s chance in hell to succeed because the markets not right for them. Right? Or don’t bring a space that’s so lousy. And be proud of yourself that I got this tenant to take this space. Well, you think this tenant is going to succeed in this space? Well, I don’t know. So you know, what’s going to happen? I’m gonna have a close store in three years. So four years, we’re going to have to worry about how do we release it again, don’t don’t do the deal. The best deals you do with the deals you don’t do, quite honestly. Do it if it’s right, you know, we, we built a you know, the other thing we did just overall is we we spent a lot of money building a culture. We went outside we’ve developed Words To Live By we deal with, with behavioral issues that we wanted our people to express etc. Do the Right Thing is very important. Do the right thing by Pete go to the deal. I kill deals that were brought to me, because it wasn’t right to them. I don’t need a problem. I’d rather nip it in the bud. Yeah, find something, something else will pop up. Fantastic.

Ressa 22:49
I really liked the first point in, you set it first, which is to be proud of the properties and I say believing in what you have sometimes and believe in yourself. I think all too often sometimes, you know, the first inkling is to think about the assets and not think about like believing in yourself and believing. And so I think it was a really, really good perspective that you had an really interesting strategy that you went to implement. Now a message from one of our sponsors. Our friends at East End group offer true National Facility Services. Their professional staff and elite service partners are in place and currently serve all areas of the United States. Additionally, East End group’s current coverage extends to rural communities, areas that other service companies often overlook. With a multi service platform that includes all of the basic property maintenance services, such as landscaping, snow removal and janitorial East End group also includes more than 25 additional services such as plumbing, electrical and mechanical. East End group takes pride in its work and uses state of the art technologies to report conditions with pictures and timestamps in real time. giving you peace of mind that the work is being performed as requested. Visit East End group.net to learn more.

The next piece I want to bring us to is I want to bring us to a story. You have a story about Apple in Cumberland Mall. So right doors.

Barocas 24:25
Okay, so I’ll try to keep this short but but direct to the point. Come to the mall is in the northwest part of Atlanta. It’s right off Route 284 which is the perimeter. Sure. One prior to the the chapter 11 GGP had spent about $75 million to renovate okay. But they spent on zero money leasing. There was no okay. Because there was no there was there was There was no respect to the customer. Okay. So there’s a lot of temporary tenants that you know, and I lived seven miles from there. And I know the market. It’s a very diverse market. All right, but there are, you know it, but it’s great access, and it’s a great customer. So I said to myself, what, what do we need to do? And there’s only about 347 afoot, give or take, I don’t want to exaggerate. And this is back in 2011. So I said, Okay, so I came up with sort of like a two pronged attack. The first prong was how do I convince Apple to come here? Because Apple was in a was in Lenox Mall. Sure, and their perimeter Mall. Now the one thing you need to know about Atlanta, is on the weekends and at nights, traffic is horrible. So what may appear to be close on paper, it’s not. So once again, knowing that the communities like bindings that was sent it was right, right on top of and the customer base that was there. I had my real estate strategy group put together a whole presentation that we’re going to sit down with, with Apple, and try to convince them that based on what they look for cuddling all the dresses to get the forget tendency. Okay. I’ll get back to that in a second. The second prong of the attack was, I know I need to bring some more key tenants here. Now, we already had Victoria’s Secret that was doing very well, we had American eagle that was doing very well, we had h&m that was doing outstanding forever 21 was doing well. But everybody, everything else looked like horrible. Okay. So I got, I got pretty close. I had a good relationship with my buddy over at Michael Kors. And I said, this man, this is your customer says, I know, I know. But I every time I walked by, see, this is your customer. So I said, Let’s do do be very, you know, protect you. I only benefit if you do very well. Okay, that was a long story short to a woman negotiation. Right. But But I got him to agree. Then I went to my friend over at Sephora. And I said, what your customer is your customer? Well, your customers here went through the same gyration. I got her to say yes. Speed forward. When Michael Kors opened, he exceeded their projected sale by about 45%. And very happy still aren’t still there. And Sephora, sit down. I never really say this, but you are right. Well, to tell you the truth. I’m married a long time. I don’t hear that a lot. So I’m going to appreciate that. Okay. So, so now we had to preme at the time premier tenants, we went back to Apple who was still studying the market. I was saying, by the way, here’s the numbers that are of the tenants who were here that you enjoy being with and here’s to two tenants that might not think would be here they are and they’re both doing very well. So they took a look at it. And we were able first and I respect them for this. They appreciated the analysis we did on the market, the customer etc. And they and based on where they were in the market. They felt this was a viable opportunity. The, to their credit, also the fact that we got Michael Kors and Sephora. Nice, but that’s not what did it. So

Ressa 28:46
at your co tenancy piece that you were talking about before I

Barocas 28:49
right and then but what happened then, is where Victoria’s Secret was on the second floor, they came down to the first renovated did a whole new store that somebody did a whole new store. I mean, so people got excited. We added other tenants there, most of the 671 a foot. Wow. All right now you take take away the apple factor there, they were doing about $30 million, then you take away the APA and it’s probably around somewhere around 510 520. So 510 520 from 347 Wow, that’s really, you know, so that that probably had the biggest biggest impact and and it cost me you know, it cost ta but that’s the other thing I found out about about being on the landlord side. As the years go by with landlords were always very tight on ta now they look at it as a an investment. How much if I give you $100,000 What am I going to get in return in rent or I get a 10% return for keeps whatever so SAN depot is US backed by chaps. He says oh so you’ve adopted that mall? What are the more you’re going to adopt? And just let other people I showed the way, I’m just gonna watch it off in there. So

Ressa 30:05
that’s sort of how long of a process was it to get Apple convinced to call?

Barocas 30:09
Two years? Two years? Yes, because we had to get to least get some of the leasing approved. Plus they they’re very slow, the very deliberate you then, you know, unless it’s up slammed down home run that it’s on their bucket list. They did very, very deliberate and their decision making, and that’s why majority them, you know, they generate the kind of business they do. And, you know, they go from there. Yeah. Plus the brand. They’ve got

Ressa 30:37
more brand cachet than most people in the world. Yeah, obviously. One of the things I find interesting, you take over head of leasing at General growth and one of the properties, you know, you’re overseeing a large leasing team, how many people were on the leasing team when you were there?

Barocas 30:52
Oh, dealmakers around the country. We probably had something like 6060 dealmakers around the country. Okay, so we had 150 malls. And so you divided maybe two to three moles per retail, but we also got into street retail. We got into Manhattan retailing, we had we had three buildings that we bought partnership with some of the guys in New York, which took took a lot of time and effort, and we were talking about rents that were just not sustainable. But that was another story for another day. So

Ressa 31:31
you have 150 miles to San deeps point, why did you adopt Cumberland mall for you? You had 60 dealmakers, what got you, you know, focused on that. Was that part of a larger strategy? Or is that something like man, I just see so much opportunity here.

Barocas 31:45
I know. I live seven miles from there. Right? Seven miles, I you know, and it’s got a Costco, it had a Costco right next to it on the same tax parcel. That was doing $100 million. Okay. So there are people there, you just got to treat people with respect. You treat them with respect, they will act accordingly. That was the underlying theme through through this whole process. And the fact that was close to me, I could go visit it every day. But then whenever I was home, and I did you know my office, I had an office there. Okay, my office in Chicago. And then since See, when I was in, in Chicago, my wife stayed in Atlanta from October till the end of March, and I was still in Chicago, granted a class, and from April to October should come spending time in Chicago. So that was hard for me. I had an office there. And you know, it worked out. It worked out. Well.

Ressa 32:42
The apples still there today.

Barocas 32:45
You’re sure. That’s That’s terrific. So,

Ressa 32:48
great story. The last piece, I think that I want to talk about is, you know, you have an interesting lens today, you’re retired, but you you’re a student of retail, you’re a student of commercial real estate, what’s top of mind for you, as it relates to retail today?

Barocas 33:05
You know, I think we’re coming. I think we’re coming out of a very interesting experience, you know, under the pandemic, where, you know, stores were closed, malls were close, people got used to shopping online. All right, and, and so now, those, those doors have been opened. And what you’re faced with is you’re faced with a couple of things. Number one, and not in any particular order, but you know, customers want to get out. They’ve got money, rather than got their checks from the government. Or if they didn’t, they didn’t go anywhere. So they save a lot. Some people move, some people are remodeling, some people just want to get out and touch and feel and breathe. Yeah. So so you’ve got a customer base. Now that is changing. They’re still buying online. But they’re also if you build the right thing and give them the right offering. They they’ll come out, you know, when the when the restaurants start to open up, you’ll see more of that, you know, the entertainment. You know, it’s kind of funny, that before the pandemic, and for about a year 18 months before that, do you remember peep of landlords were looking at building more entertainment, more food? That’s how, you know. So when you think about what are the use, so they opened up? And guess what, what are the uses that were impacted most by the pandemic? Hell, entertainment, food. So now you’ve got people who stopped building or people went out of business. So yeah, that retail the retail world has got to get healthy again. And I think you’re seeing some of it. I think you’re seeing some some of the traditional orakpo legacy retailers out there that are are doing some things to try to make their their brand a little bit more true. active, you know, you take somebody like American Eagle. Alright, who is I’ve got a lot of good friends over there they are, in my mind, they are the best ready to wear brands out there that addresses the teen and post teen and younger the younger generation. Right now denim is on the rise again. Okay, people are buying more denim. And denim in many cases was the factor that lifted a lot of retailers for a long time. Okay, American Eagle I think is going to do well. But what they’ve got airy, that is exploding, exploding continues to explode.

Ressa 35:39
So they just bury, right.

Barocas 35:42
So now they came up with another concept, which is let me just get my notes. So I say it the right way. offline. Offline is their activewear. And they’ve opened up four or five stores and that’s doing well. So they’re trying to sustain their their core message and the, you know, opening other businesses to support it. Lululemon, you know, they’ve increased their menswear business, but they came up with mirror, which is a crazy concept, but it’s a mirror that you buy in is a is an avatar in there that works out with you. But it did, yeah, it’s gonna do like $400 million. Yeah, okay. So you’ve got that you’ve got people like Abercrombie, Gilley, Hicks, and Kelly Hicks was something they started years ago, and it failed. It’s that was their answer to Victoria’s Secret. But they’re bringing it back, and is starting to open up some stores. And last but not least, my old company can’t get arrested. But you know, they are, they’re closing more gap stores, I think they said they’re gonna close another 350 gap within the next two years. But we’re where the gap is right now. It’s Old Navy, and it’s athletic. And they were very timid about increasing, increasing, the athletic opens. But now that’s that’s changed. In fact, I understand they’re going into Canada now. So that, you know, that’s good. So you got some of the traditional fill out there who are constantly looking to re the fight to net redefine both to come up with different offerings to the customers so that they can offer a different experience. So that’s, that’s something you see out there. And then the value added value in the off price. I remember last time we went off narrow 55 below. I think that’s a great store. Yeah, okay. It’s well merchandise, it’s neat. There’s always somebody there to help you. So that whether it’s the Five Below or it’s the dollar store, etc, people look for that TJ Maxx with their home store, crew creating that treasure that treasure hunt. So you’ve got this. So these are little nuances that I think people can’t get that when they’re sitting home, buying something offline. So I think that’s going to be important that retailers start to continue to do to come up with ways to to offer a different experience to, you know, to the customer. The other challenge is quite honestly, you know, I think you know, malls are dead. Dead malls are dead, you know, there are 1100 malls and malls are dead. Well, I will tell you, that 1100 number is 10 years old. Okay, there isn’t there aren’t a lot of unknown balls. So maybe 600 balls, but the point is, they should only be 250 balls. And maybe you’ll get to that point, you know, at this point, because the department stores haven’t done anything there other than diligence doing really well. But Macy’s, you know, Nordstrom says was opening more racks than they’re not even opening up new store new Nordstrom stores anymore. So the department stores aren’t as important as they used to be. But the retailers are starting at the landlords are starting to look at malls and coming up with different uses that try to make that the the center of town, the you know, the town hall so to speak. So I think the a and a plus centers are going to be fine. I think you’re going to see for that B and C centers, I think you’re going to see demolition. You know, if you’ve got an empty vacant department store if Amazon doesn’t take it as a fulfillment center. Alright. demo it, because it looks horrible. Okay, put a garden in there, do something. But I think you’re going to see more demolition, because there is one thing you can say, malls have great locations, wherever they are. They’ve got great access in the market. Maybe it becomes who knows that it could be a hospital, it could be something else. I think you’ll see more of that. You know, the, the the rent, you know, like in New York Street retail, you know, it’s talking to somebody the other day about, you know, Manhattan, you know, it’s still you know, the sun to come up come about but look at look at all the vacancies that are there. And people you know, what are people going to be asking for? You’re gonna have people But who wants to be there because I know a lot of talk to a couple of retailers who are talking about getting doing business again in Manhattan because they know if they wait a year, the rents gonna go up. Alright. But other landlords smart enough, there’s an expression has a quote Al Pacino in Scarface, you know, Allah has a is classed as a pig. Okay, so if the if the landlord’s in the in the city, this Manhattan, which I don’t think they’re any different around the country, do which can get the stores open? Okay, don’t be a pick, you’re gonna get a lot of rent? And do it make it easier for a retailer to succeed in Manhattan, when we were doing retail leasing, we were leasing our buildings in general growth, you couldn’t make money at a 20% occupancy? All right? Because we were asking for rents that based on their sales would have been 25 to 30%. How do you make money, you don’t? Okay. But you have you have a vacant space. It’s not, it’s not generating anything. So I think landlords, whether they are, whether they’re street locations, or even in the in the developing world, you know, malls or power centers, whatever, them get retails open, there are people out there who want to open businesses make it easier for them. And the other thing is making it easy for some of these, these new concepts, these online businesses that want to want to go brick and mortar, because they know for scale purposes, they have to, you know, their cost right now, to stay online only something like 27 28%. For the dollar, most of that is transportation, marketing, you know, etc. But make it easy for them. If somebody if one of these businesses comes to you don’t stick him in the corner, put them in a location where they’ll succeed, work out a deal, then I’ll let them let them you know, be successful if they get if their businesses, they’re dope, because going into any any retail venue, the more stores that are open and operating. There will be a vitality in that center that that we haven’t seen in many years. So

Ressa 42:18
that was a lot. I’m gonna unpack some of it. I’m gonna throw a couple challenges at you a little bit. Alright, so one you’ve said, and I think old school landlord, but you’ve said don’t put that tenant in the corner. You said that a couple times. You said that previously that you killed some of those deals. But you have vacant real estate and you have to lease it who should go in the corner. If it’s the new hot concept, somebody needs to go on the corner.

Barocas 42:43
Somebody does or how else can you use that corner? Do you set it up as a community? Well, you’re right. I mean, if you’ve got so much space, anything I get is right. But but don’t. It depends on who the retailer is. Okay, it really does and depends on what the uses. But don’t try to do anything you can to make it to make it a profit potential. So if you want to put them in that corner, maybe it’s not rent, maybe it’s a strictly percentage rent deal. And maybe it’s a low percentage rent until they hit a certain sales special, then it goes up or whatever, make it so that they can be profitable. Don’t just sit there. I had I had dealmaker come to me once when we approved the deal. It was a lousy location in water tower. There were a Mexican company, they paid us something like $400 a foot for 1500 90 that 1200 square foot state. Okay, horrible space to sell proud. The last three weeks, you know how long this space was? was vacant? Like three years? So I don’t know if I answered your question. But I think it’s not as simple I understand.

Ressa 43:54
I think what you’re getting to is placemaking matters, right? And there are certain uses that do well and help the landlord but the business does really well, that might not be front and center locations where some retail concepts need. So that’s how to characterize it. The next thing I would say on the challenging piece, I think we all want to help incubate retail. Sometimes, though, I would say there’s a depends here because one of the problems in New York City is a lot of those landlords, they purchased the building at a price where if they do the rent that somebody wants, they might as well throw the keys back to the lender because they’re not going to make it. And so I think your basis in the property matters, right? Sometimes if I have to make that deal, I’m losing, I’m never going to make money. Maybe I made a bad purchase. That’s true, might have made a bad purchase. But if I’m better off trying to take a shot to find the little bit of a unicorn, if I lock myself into this, then I’m guaranteeing that I’m toast. And so I don’t want to guarantee that I’m toast.

Barocas 44:56
You’re just saying it makes sense and but But I would I would say this, that if right now, they purchased it, and they need to get X amount of rent, the space is vacant, you’re not getting any rent out of it, find a tenant, you put them in there. Anything you get from them will help you, okay? Is the deal is structured, if it’s structured in a way, that you get something, and you get more than you would be getting right now, and that if they are successful, you get more, you know, maybe it’s an increasing percentage, who knows, instead of just doing this, the traditional triple net deal and saying, This is It’s rent taxes, and we go from there and see how you do. I think there’s got to be some, some thought behind what you can do to mitigate your risk, but also allow for the retailer to succeed?

Ressa 45:55
Yeah, I would characterize it as in a new world order. We all need to get collaborative and creative to on deal structure. I think that’s fair. Historically, what I’ve found is the retailers whether they’re new or legacy that are continuing to grow. Well, their business model is long term leases that fixed rents, they want to do the base rent, triple net taxes, because you want to lock in your rent, right? You want to lock in five years worth of fixed rent, because as sales grow, now you’re locked in, you fix your costs, the worst thing you can do in that regard as that variable cost structure, whereas someone who’s unproven not sure if they’re gonna go up or down and wants to protect the downside. Well, that business is probably looking for a variable cost structure because of that, right. But you know, right now, I’m sure I’m not in city retail. I’m in suburban, much like majority of the GGP portfolio was, but you know, I know in the Great Recession, we had a lot of box retailers that we were doing business with. And they were trying to lock in, you know, occupancy costs for long periods of time, because they saw the forest for the trees, and they saw the economy going up, and they didn’t want to have to pay 2000 grants in 2011. And to that end, they locked it in they made great business decisions and having a variable cost structure would have hurt them pretty bad. So I think it’s it the the business model matters tremendously, right? Because if you’re 100%, right,

Barocas 47:25
yeah, I think people there very few original ideas or ideas in this business, there really is. And as far as dealmaking as a dealmaker, when I was I’m sure do you make during your career, you came up with a very creative deal. Okay. And then, as I did, so, the question is, how many times did we try to duplicate that? Okay, whether it made sense or not? Okay, well, how many times that people look, oh, that got approved. So I’m going to do that. The key is, is to sit back, say, what’s the right? What’s the right deal? How what do we need to do to make this deal? Successful? And, you know, too many pitches? It’s it’s a fallback, they just, they just do the deal and do the deal and do the same deal structure, whether it’s right or wrong, you have to sit back and look at that.

Ressa 48:14
I’ve got one more question before we go to the final part of the show. I’m gonna make it too because I don’t want to end on a negative what’s concerning you the most about our industry right now?

Barocas 48:21
Right now? I think it’s the it has nothing to do with the industry, but it’s the it’s the economy, and where we’re going. And when will the bubble burst? You know, people are getting people are getting This isn’t political. This is just I think it’s common sense. People getting to getting some help from the government right now. But that’s not going to happen. It’s not going to be there forever. And there’s inflation, we have to worry about the supply issues we have to worry about. So I think it’s all in those non retail issues that are that are impacting the economy that are going to have a negative impact. It’s going to be it’s going to be a while before we get out of it. I hope you’re wrong. But why? So that’s what I’m afraid of. I know, that’s what I’m afraid of. I hear you.

Ressa 49:18
If I were to answer that I would, right now. No construction costs are a real challenge, especially in if you’re in a market where rents aren’t growing. Construction costs are rising everywhere. That’s really a challenge. So even to do some basic base building work is more costly and that $75 million renovation that GGP did today that’s you know $175 million renovation that’s that’s problematic.

Barocas 49:46
So what are you most excited about about

Ressa 49:48
our industry right now?

Barocas 49:50
You know, I like some of the new the new concepts that are out there. And you know, whether it’s Casper you know, the bedding I think they’re straight I like Warby Parker has been around for a while you can say they do, they continue to reinvent who they are. And so there’s still, there’s still a lot of new businesses, there’s still a lot of entrepreneurs out there, they’re trying to do things a little bit differently. And I think that as an industry, we have to embrace them. Okay. And, you know, I was I forget where I saw this, but, you know, the, somebody put together, they built an area specifically for new retail concepts. It was wasn’t at the end, next to Sears, it was on the 45 yards, okay, and get rotate, giving people chances to experiment, etc. So, I think this is going to be there’s going to be some exciting things out there for a customer to to experience. I think people now understand they have to do things a little differently. It’s a question of, will they because, you know, when you’re running the race, at some point, you get to a conflict, and then you fall back to old, old habits. So but I think the room is at the death of this business have been greatly exaggerated. I mean, I went through it in late 80s. I think these parts of the 90s and 2006 567, death, death death that were resilience that I one thing i Oh emit yesterday about the Lambo side was to the retail side had never seen more optimistic people than they’re on the landlord side. Okay, they’re always, there’s always a reason to do something, there’s always a reason to spend money, there’s always room to make the dreams that they have. And when they build it, it’s a reality. So I think that hasn’t stopped that it’s still there. That’s a great, great point. Okay.

Ressa 51:52
Last part of the show. I call it retail wisdom. I got three questions for you. They’re fun questions. Are you ready? Go ahead. All right, question one, what extinct retailer, do you wish would come back from the dead?

Barocas 52:04
Waldenbooks? Ah, it’s really it’s the classification called Walden but a smaller bookstore. People still read books that I think there’s things you would put in that bookstore today that you wouldn’t have logged in, but maybe they would. You can have a you know, you can have a cafe you can have a community room, sometimes to go in and touch and feel books. Question two. And as a New Yorker modells. Gear, if you’re a new home team, you walk through that store, funnily enough, you always have to spend money. Sorry.

Ressa 52:40
No, that’s good. Question two. What is the last item over $20? You purchased in a store?

Barocas 52:47
It was in the Apple Store. Okay, I bought the charging block. I’ve seen them. Now. Now. They’re different. And I had to get the cables to go with that. And it was kind of interesting, because I looked at it said, I’ve got a lifetime back guarantee on that. But I don’t have a lifetime guarantee that they’re not going to change the head again. Or they’re not going to change the block. I’m gonna have to buy something different in three years. Yeah, these guys. They’re amazing. But that was what I bought.

Ressa 53:15
Totally. Yeah. And we’ve all gone through. I remember when they made the big switch from the wire when it was wide and a fan right. Yeah. Yeah, that was a big deal. Last question. You and I went shopping at Target

Barocas 53:26
and I lost you. What I would I find you it. Electronics, electronics. Okay, is radios, music gadgets. I love that stuff.

Ressa 53:39
All right. Well, Alan just was great. Thank you so much. Thank you for inviting me. I really appreciate it. It’s been fun. It has been fun. This is terrific.

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