ICSC European Retail Property School Development 7 July 2014 Berlin, Germany Marc C. Schoepe MRICS, CDP Agenda 1. Introduction 2. European shopping center development market 3. The basics 4. The development process 5. Case study Introduction Marc Schoepe MRICS, CDP Studies • Hamburg, Germany (postgraduate Master in Real Estate) • Frankfurt, Germany (MBA) Professional career • since 05/2013: Head of Transactions EDEKA (CEV GmbH), Hamburg, Germany • 2006 – 2013: Transaction Manager/ Commercial Project Manager ECE Projektmanagement GmbH & Co. KG, Hamburg • Realized transaction volume: € 1bn • Worked on approx. 50 developments (shopping centers, office, logistics and high street) with a total € 3bn of planning volume Introduction Industry commitment • since 2014: Chartered Surveyor/ MRICS Royal Institution of Chartered Surveyors • since 2014: Member Retail Leaders Group Germany, Austria & Switzerland Urban Land Institute • since 2013: Member CDP Admissions and Governing Committee International Council of Shopping Centers • since 2011: Regional Head Next Generation German Council of Shopping Centers Introduction Course objectives • Overview European shopping center development market • Definitions • Benchmarking • Development process • Best practices/ key take-aways • Case study Agenda 1. Introduction 2. European shopping center development market 3. The basics 4. The development process 5. Case study European development market Cushman & Wakefield, & 2014 Cushman European development market Cushman & Wakefield, & 2014 Cushman European development market Cushman & Wakefield, & 2014 Cushman European development market Cushman & Wakefield, & 2014 Cushman European development market Cushman & Wakefield, & 2014 Cushman European development market GfK, 2013 GfK, European development market JLL, 2012 JLL, European development market JLL, 2012 JLL, European development market JLL, 2012 JLL, European development market Cushman & Wakefield, & 2014 Cushman net initial yield = net operating income : purchase price (including transactions costs) European development market • Saturation in highly developed markets, future opportunites (hopefully): redevelopment, mixed-use • Stability of retail real estate due to diversification • High volatility in development activity and opportunities • Country risk is reflected in yields • Current market prices nearly on the pre-financial crises level Agenda 1. Introduction 2. European shopping center development market 3. The basics a) Types of shopping centers 4. The development process 5. Case study Types of shopping centers Open-air Enclosed Textilwirtschaft, Sonae Sierra, 2013 Types of shopping centers Hybrid Mixed-use Moenkhof, ECE, 2013 Agenda 1. Introduction 2. European shopping center development market 3. The basics b) Shopping center classification 4. The development process 5. Case study Shopping center classification Neighborhood center GLA 3,000 – 15,000 sqm Offer Daily needs (Anchor) Tenants • Supermarket • Service-orientated tenants Catchment area < 3 km Shopping center classification Budapest Kőbánya Family Center GLA 9,300 sqm Floors 1 Units 21 (Anchor) Tenants Hypermarket, banks, food, pet shop Parking spaces 400 Atrium European Real Estate, 2013 Shopping center classification Community center GLA 10,000 – 30,000 sqm Offer Daily needs, apparel (Anchor) Tenants • Supermarket • Fast food • Discount stores • Drugstore • Home improvement • Toys • Service-oriented tenants Catchment area < 5 km Shopping center classification Atrium EuroCenter, Budapest GLA 21,300 sqm Floors 4 Units 47 (Anchor) Tenants Hypermarket, apparel, banks, telecommunication Parking spaces 1,000 Atrium European Real Estate, 2013 Shopping center classification Regional center GLA 30,000 – 75,000 sqm Offer General merchandise and services in full depth (Anchor) Tenants • Fashion • Telecommunication • Accessoires • Home furnishings • Toys • Restaurants • Services Catchment area < 8 km Shopping center classification SO OUEST, Paris GLA 48,500 sqm Floors 2 Units 93 (Anchor) Tenants Fashion, toys, accessories, restaurants Parking spaces 1,750 Unibail-Rodamco, 2013 Shopping center classification Superregional center GLA > 75,000 sqm Offer General merchandise and services in full depth (Anchor) Tenants • Fashion • Telecommunication • Accessories • Home furnishings • Toys • Restaurants • Services Catchment area > 15 km Shopping center classification Stratford City, London GLA 175,000 sqm Floors 4 Units 300 (Anchor) Tenants Fashion, toys, accessories, foodcourt, restaurants Parking spaces 5,000 Westfield, 2013 Shopping center classification Power center (retail park) GLA 20,000 – 55,000 sqm Offer Large anchors offering daily needs, specialties (Anchor) Tenants • Supermarket • Home improvement • Furniture • Toys Giltbrook Retail Park, ICCG, 2013 Shopping center classification Mixed-use GLA > 5,000 sqm Offer Retail plus office, residential or hotel (Anchor) Tenants • nearly everything possible Catchment area > 3 km Shopping center classification West Railway City, Vienna GLA 12,000 sqm Hotel 17.000 sqm Retail 13.000 sqm Office Offer Railway station, hotel, offices, shopping Center (Anchor) Tenants • Supermarket • Fashion • Electronics • Restaurants • MotelOne Shopping center classification Outlet center GLA 5,000 – 35,000 sqm Offer Discount/ outlet goods (Anchor) Tenants • Fashion • Accessories • Home furnishings • Toys • Restaurants Catchment area > 15 km Shopping center classification Roermond Outlets (Netherlands) GLA 33,500 sqm Floors 1 Units 150 (Anchor) Tenants Fashion, accessories, home decor, restaurants Parking spaces 2,750 McArthurGlen Designer Outlets, 2013 Shopping center classification Fashion/ specialty center GLA 7,000 – 25,000 sqm Offer (High-end) Fashion (Anchor) Tenants • Fashion Simon Property Group, 2013 Shopping center classification Lifestyle center GLA 15,000 – 45,000 sqm Offer Open air, upscale specialties (Anchor) Tenants • Department store • Bookstore • Restaurants • Entertainment Birkdale Village, New York City Focus, 2013 Shopping center classification Theme/ festival center GLA 7,500 – 23,000 sqm Offer Tourist-orientated (Anchor) Tenants • Souvenirs • Art • Restaurants Scottsdale Downtown, 2013 1. Introduction 2. European shopping center development market 3. The basics c) Basic layout 4. The development process 5. Case study Basic layout Dumbbell-shaped/ bone-shaped Basic layout Bended dumbbell T-Bone ECE, 2013 Basic layout Lense Triangle ECE, 2013 Basic layout Rhomb Parallel bone/ race track ECE, 2013 The basics • International classification (by ICSC) also includes specialties like factory outlet centers, theme centers and nearly all forms of retail real estate • There are many variations from the original basic dumbbell-shaped shopping center layout due to plot/ center size, plot layout, visibility and need for anchors Agenda 1. Introduction 2. European shopping center development market 3. The basics 4. The development process 5. Case study The development process What at least do you need for a shopping center development? The development process Area Target • Ownership of Acquisition required site • Appropriate Zoning Building permission • Building permit • Executable plans Architecture • Still flexible concept • Constructor(s) Construction • High cost certainty Leasing • Pre-leasing quota • Profitability certainty Economics • Financing closed Development: 1 – 10 years Realization: 1 – 3 years Opening t The development process Phases Evaluation Verification Preparation Acquisition Selection Securing Closing Building permission Zoning Building application Building permit Architecture Conceptual design Schematic design Design execution Construction Budgeting Bidding Contracting Leasing Marketing Negotiation Agreements Profitability Pro Forma Financing Closing Time In reality, no sequential process The development process • Set clear (sub-ordinate) and achievable targets • Frequently control and review your timetable • Always have an eye on the explicit and implicit risks and make them transparent • Remember risk mitigation and delegation • Be smart and tough enough to terminate (really!) bad projects Acquisition: process Acquisition Selection Securing Closing • Target: • Major • Negotiation of • Fulfilling ownership of determinants purchase contract conditions site • Option vs. • Site purchase • Paying purchase • Owner(s) • Price price • Size • Risk sharing • Availability • Termination of • Taking over the • Price existing leases ownership • Ownership vs. • Site access ground-lease • Visibility • Due Diligence • Environmental • Technical • Legal • Commercial Major determinants Market research Overall economy Location - Catchment - Consumption Location - Customers - Cycles - Competition - Financing Location Tenants Site - Anchors - Size - Highlights - Prize - rent (level) Site access - Highways Design/ Construction Politics - Main roads - Size - Layout - Vision - Public - Marketing transp. - Costs Building permission: process Building permission Zoning Building application Building permit • Target: • Proposed vs. • Fulfill all public • Evaluate • Appropriate current zoning and statutory zoning governmental requirements • Building permit • Land entitlement requirements, e.g. fire code • Align • Political interests adjustments • Relationship to with budget/ • Public interests authorities constructor’s agreement • Environmental • Closely monitor issues and manage the process More details to come in the following courses Building permission Google, 2013 Building permission SHZ, n/a Building permission