RETAIL PRODUCT OVERVIEW

Retail properties can range from a single, one-tenant building to over a million square feet of assorted shops that display goods or sell services to the public.

CATEGORIES

There are 3 general categories of retail properties:

1. Shopping Centers - A group of stores catering to a trade area, which offer a variety of goods and/or services and on-site parking (the tenant 'mix'):

a. A 'super regional center' has 3 or more major department stores, is often enclosed (mall), is 750,000 to 1 million square feet, and draws from a large trade area of 12 miles or more.

b. A 'regional center' has one or two department stores, a variety of smaller stores, and is larger than 300,000 square feet. It will draw from an 8 mile radius or more.

c. A 'community center' usually has a supermarket, junior department store, and a variety store, is larger than 100,000 square feet, and draws from a 3-5 mile radius.

d. A 'neighborhood center' is built around a supermarket and/or drugstore, provides convenience goods and services to a neighborhood, is between 30- 100,000 square feet, and draws from a 1-3 mile radius.

e. A 'convenience center' is a small cluster of stores along a street, 5-40,000 square feet; trade area is immediate neighborhood. May have a convenience market, laundromat, dry cleaner, etc.

f. A 'specialty center' often has a theme, usually has no anchor, and generally is local in impact. Examples might be home improvement centers, gift shops, or auto service and sales.

CATEGORIES (Con't)

2. Free standing store - One commercial building meant to be occupied by a single user. It is typically found near major shopping centers on major routes, and fills a specific need in the area.

3. Strip commercial - A string of stores in a commercial area with no central leasing, management, or theme.

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(owner/occupant, or lessees)

A tenant or owner-user of retail property is primarily concerned with:

u Improvement allowances - what the landlord budgets for carpeting, tile, bathrooms, etc.; additions to basic leased area. This allowance is sometimes called 'T.I.' (tenant improvements).

u Location - traffic counts, ease of access to store, convenience to shoppers.

u Cost of occupancy - expense pass-throughs, improvements, insurance, etc.

u Overall draw of customers to center - does center have a steady stream of shoppers?

u Demographics - are goods or services attractive to people in the trade area?

u Effectiveness of management - does the landlord respond to complaints or suggestions?

u Parking availability - is there adequate parking for customers?

A buyer of retail properties is primarily concerned with:

u Physical condition of property - price should be adjusted to reflect the condition of physical plant.

u Net income generated by leases - what is left after expenses of operation are paid?

THE RETAIL USER'S NEEDS (Con't)

u Occupancy level and tenant mix - are there vacant ('dark') spaces; are tenants attracting shoppers?

u Stability of tenants - turnover rate; how long have tenants occupied the center?

u Upside potential in income - are rents under market; do leases escalate to keep pace with inflation?

u Protection from large increases in operating expenses - tenants share in expense increases; physical condition of center is good without deferred maintenance.

u Area growth patterns - is area gaining or losing population? Will new competition emerge?

You can learn more about leasing or selling retail properties by reading periodicals and books published for this segment of the market. The leading national organization in this field is the International Council of Shopping Centers in New York City; their telephone number is (212) 421-8181.

RETAIL BUILDING CONSTRUCTION TERMINOLOGY

Bay or space One rentable unit for a store. Generally a center rents one or a combination of units to a tenant. The units are a standard size.

Off-site Costs Bring utilities to site, improve streets, add curbs and gutters, bring sewer to property.

On-site Costs Prepare site for construction. Costs to level land, create parking lot, landscape, and lights.

A & E Architectural and engineering costs, expenses PSF.

Hard Costs Direct costs associated with building construction and improvement. Does not include landscaping.

Soft Costs Indirect costs including A & E, financing, carrying costs during construction period, commissions.

OTHER RETAIL TERMINOLOGY

HVAC System for providing heat and cool air (heating, ventilation, and air conditioning).

CAM Common area maintenance. Includes expenses such as security, irrigation, window cleaning, etc., of such areas.

Locals The tenant is a small operator; this may be the only store.

Majors or Anchors The tenant is part of a large-chain store group of service company and is the nucleus of the center. Usually have favorable leases, as they draw the public and stabilize the center.

Overage The percentage of the volume of business that goes to the landlord as additional rent, also known as percentage rent.

Breakpoint Level of sales at which an overage or percentage rent additional payment becomes due.

Merchant's

Association Local association of store operators whose objective is jointly promote business at the shopping center.

Out Parcel A portion of shopping center land either leased or sold to a retail user.

Cost of Living Increase in annual base rent tied to cost of living index on predetermined Increase formula.

FURTHER INFORMATION

Recommended Texts:

Successful Leasing and Selling of Retail Properties

Available from Real Estate Education Company

520 North Dearborn Street

Chicago, IL 60610-4975 (800) 621-9621

Dollars & Cents of Shopping Centers Development Handbook

Available from Urban Land Institute

1090 Vermont Avenue N.W.

Washington, DC 20005 (202) 289-3380

Organizations:

International Council of Shopping Centers (ICSC)

RETAIL LEASE SYNOPSIS

SAMPLE RETAIL RENT ROLL

Rent Roll As Of: September 1988 Loan Number: 9123720

*UR = Utility Reimbursement

Any Free

Date Term Rent or other Landlord's Tenant's

Tenant Square Feet Annual Rent Begins Term Concessions? Expenses Expenses

SAMPLE COMPARABLE WORKSHEET

Verified Sale Information

7924

AC70549

IMPROVED SALE 2

(Winter Park Corners)

LOCATION This property is located on the northeast corner of State Road 426 (Aloma Avenue) and Lakemont Avenue in Winter Park, Orange County, Florida.

LEGAL DESCRIPTION Lengthy Legal, See Deed. Tax Parcel 30-22-24-2316-05-001, 003, 004, 005. Orange County, Florida

GRANTOR Winter Park Corners, Limited

GRANTEE Brand and Associates

SALE DATE October 1987

SALE PRICE $9,075,000.00

FINANCING $5,000,000.00 mortgage - Third party financing at market rates.

VERIFICATION

With Chip Whiting, Broker

By William T. Anglyn, November 18, 1987

IMPROVED SALE 2 (Con't)

RECORDED O.R. Book 3924, Page 2960, Orange County, Florida

DESCRIPTION

Site This is an approximate 9.37 acre parcel, irregular in shape, but resembles a rectangle. There is 976 +/- feet of frontage on the north side of Aloma Avenue and 300 +/- feet of frontage on the east side of Lakemont Avenue. This site does not include the 100' x 120' out parcel at the corner of Aloma Avenue and Lakemont (occupied by a Union Oil gas station). The center also has frontage on a back street (Edwin Boulevard) and frontage on a side street (Lander Road)

IMPROVEMENTS This center is improved with a 99,000 square foot shopping center anchored by a Drug Emporium and a White Rose nursery. According to the tax records, this center was constructed in 1960. Based on our inspection, a renovation refurbishment program has reduced this effective age from 27 to 15 years.

PROPOSED USE Continued use as a neighborhood shopping center.

ZONING C-1

COMMENTS The center was approximately 99% occupied upon sale. Subsequent to the sale, two tenants have vacated this center, containing approximately 20,000 square feet.

This sale included a six to nine month master lease on the local spaces.

ANALYSIS An Analysis of this sale indicates a unit price of $91.67 per square foot of building area.

SAMPLE PERFORMA

Rosemont Plaza Pro Forma

October 30, 1987

Gross Potential Income S/SF

Less Expenses