GS MORTGAGE SECS CORP II COM MORT PAS THR CER SRS 1998 GL 11 - 8-K - 19970722 - EXHIBIT_99
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COMPLETE APPRAISAL OF
REAL PROPERTY
The Galleria at White Plains
100 Main Street
City of White Plains,
Westchester County, New York
IN A SELF-CONTAINED REPORT
As Is Market Value
As of May 14, 1996
Prepared For:
Cadillac Fairview U.S., Inc.
20 Queen Street West, Fourth Floor
Toronto, Ontario M5H 3R4
Prepared By:
Cushman & Wakefield, Inc.
Valuation Advisory Services
51 West 52nd Street, 9th Floor
New York, NY 10019
Cushman & Wakefield, Inc. CUSHMAN &
51 West 52nd Street WAKEFIELD(R)
New York, NY 10019-6178
(212) 841-7500 Improving your place
in the world.
June 18, 1996
Mr. John Macdonald
Cadillac Fairview U.S., Inc.
20 Queen Street West, Fourth Floor
Toronto, Ontario M5H 3R4
Re: Complete Appraisal of Real Property
The Galleria at White Plains
100 Main Street
City of White Plains, Westchester County, New York
Dear Mr. Macdonald:
In fulfillment of our agreement as outlined in the Letter of Engagement, Cushman
& Wakefield, Inc. is pleased to transmit our Self-Contained Complete Appraisal
Report estimating the Market Value of the leased fee estate in the above
referenced property. Specifically, we are providing an "As Is" Market Value
estimate as of the date of inspection.
The subject property is The Galleria at White Plains, an enclosed urban regional
mall containing a total of 882,728+/- square feet. Owned GLA is composed of mall
shops, food court, and kiosks totaling 326,813+/- square feet. We would note
that our projected net operating income is substantially below the 1996 budgeted
figure. This is primarily due to the fact that the budget was prepared before
Filene's Basement vacated the property. This tenant was scheduled to produce
$313,200 in base rent obligations, $60,344 in CAM contributions, and $256,546 in
tax obligations ($630,090 total). Management's budget also includes $105,834 in
percentage rent from Family Pet Center which we have modeled as a non-reporting
temporary tenant paying $37,773 in base rent only.
The value opinion reported herein is qualified by certain assumptions, limiting
conditions, certifications, and definitions, which are set forth in the report.
This report has been prepared for Cadillac Fairview U.S., Inc. ("Client") and
its affiliates and is intended only for its specified use. It may not be
distributed to or relied upon by other persons or entities without written
permission of Cushman & Wakefield, Inc.
The property was inspected by and the report was prepared by Jay F. Booth.
Richard W. Latella, MAI has reviewed and approved the report but did not inspect
the property for this assignment.
Cushman & Wakefield, Inc.
Client Name
Company -2- Date
Based upon our Complete Appraisal as defined by the Uniform Standards of
Professional Appraisal Practice, we have formed an opinion that the "As Is"
Market Value of the leased fee estate in the referenced property, subject to the
assumptions, limiting conditions, certifications, and definitions, as of May 14,
1996, was:
ONE HUNDRED MILLION DOLLARS
$100,000,000
This report has been prepared in accordance with our interpretation of your
institution's guidelines, and in compliance with FIRREA and the Uniform
Standards of Professional Appraisal Practice, including the Competency
Provision.
This letter is invalid as an opinion of value if detached from the report, which
contains the text, exhibits, and an Addenda.
Respectfully submitted,
Cushman & Wakefield, Inc.
/s/ Jay F. Booth
----------------
Jay F. Booth
Retail Valuation Group
State of New York Certified General
Real Estate Appraiser No. 46000026796
/s/ Richard W. Latella
----------------------
Richard W. Latella, MAI
Senior Director
Retail Valuation Group
JFB:RWL:emf
C&W File No. 96-9216
SUMMARY OF SALIENT FACTS AND CONCLUSIONS
Property Name: The Galleria at White Plains
Property Type: Enclosed Urban Regional Shopping Mall
Location- The subject property is located in
downtown White Plains, New York between
Main Street (north), Martine (south),
Court (east), and Lexington Avenue
(west). The property address is 100 Main
Street.
Tax Map/Parcel Nos.: 125.75-4-2; 125.75-4-3
Interest Appraised: Leased Fee
Date of Value: May 14,1996
Date of Inspection: May 14,1996
Ownership: Cadillac Fairview W.P. Associates
Land Area
Mall Site: 5.44+/- acres
JCPenney Parcel (Ground Lease): 1.46+/- acres
------------------------------- -------------
Total Appraised Portion of Site: 6.90+/- acres
Stern's Parcel (Not Owned): 2.25+/- acres
------------------------------- -------------
Total Site: 9.15+/- acres
Zoning: B-6 (UR-3), Enclosed Mall District
Highest and Best Use
As If Vacant: Retail use built to its maximum feasible
F.A.R. and conforming to surrounding
land use patterns.
As Improved: Continued use as a multi-level urban
shopping mall.
Improvements
Description: Four-level enclosed urban regional mall
anchored by JCPenney and Stern's.
Constructed in 1980, the mall contains
882,728+/- square feet of which mall
shops, food court, and kiosks comprise
326,813+/- feet.
Year Built/Renovated: 1980/1993
Building Area
JCPenney*: 227,316+/- square feet
Stern's*: 328,599+/- square feet
Mall Shop GLA: 326,813+/- square feet
-------------- ----------------------
Total GLA: 882,728+/- square feet
*Stores separately owned; JCPenney
subject to ground lease; Stern's will
become Macy's as of mid-July 1996.
Value Indicators
Sales Comparison Approach: $101,000,000 to $103,000,000
Value Per Sq/Ft Owned GLA: $ 309.05 to $ 315.16
Income Approach
Discounted Cash Flow: $99,000,000
Direct Capitalization: N/A
Value Conclusion: $100,000,000
Value Per Square Foot: $ 305.99 (Owned GLA -
326,813 Sq/Ft)
Implicit Capitalization Rate (FY 1997): 8.65% (NOI - $8,565,847)
Exposure Time Implicit
In Market Value Estimate: 12+/- months
Special Risk Factors:
The following special risk factors for the subject property have been
considered during the appraisal assignment at hand:
o The Westchester Mall opened in March 1995 and is located one-half mile
south of the subject. Anchors include Nordstrom and Neiman-Marcus.
With the opening of this property, combined with a generally poor year
for retailers in 1995, the subject property experienced a 10.0-15.0
percent decline in sales. Although we have taken a no growth" stance
on sales projections for 1996, the complete impact of The Westchester
remains difficult to measure at this time. We believe that The
Westchester is likely to draw away sales from the subject for another
9-12+/- months due to continued curiosity shopping. However, we
believe that, in the long-run, these two properties can co-exist in
the White Plains market. A more complete discussion of The Westchester
can be found in the Retail Market Analysis section of this report.
o We would also note the potential for tenants at the subject property
opening stores at The Westchester in addition to, or instead of,
operating at The Galleria. To date, very few tenants have defected the
subject entirely for The Westchester. Several stores, including
Athlete's Foot, The Limited Group, and The Gap, have opened second
units at The Westchester, retaining their existing stores at The
Galleria. This issue remains a potential risk for the subject in the
near-term.
o Finally, Stern's has been an underperforming store at the subject
since it replaced Abraham & Straus in May 1995. The conversion was
part of the Federated Department Store/R.H. Macy & Company merger. The
company is currently in the process of converting Stern's to a Macy's
unit, closing their existing Macy's store two blocks from the subject.
We assume that this conversion will be performed in a timely,
workmanlike manner and that no serious disruption will impact the
mall. Federated has stated that Stern's will likely close the first
week of July 1996, opening one- to two-weeks later as Macy's following
store renovations.
Summary of Salient Facts and Conclusions
Special Assumptions Affecting Valuation:
1. Throughout this analysis we have relied on information provided by
ownership and management which we assume to be accurate. In this
regard, we have reviewed actual lease documents for several in-line
stores and all anchor tenants, a current rent roll of all tenants,
operating statements, and a 1996 budget for income and expenses at the
subject property, including any capital improvement projects.
2. Our cash flow analysis and valuation has recognized that all signed
leases and any pending leases with a high probability of being
consummated are implemented according to the terms presented to us by
management. Such leases are identified within the body of this report.
3. The forecasts of income, expenses, and absorption of vacant space
included herein are not predictions of the future. Rather, they are
our best estimates of current market thinking on future income,
expenses, and demand. We make no warranty or representation that these
forecasts will materialize.
4. The Americans With Disabilities Act (ADA) was enacted in 1990,
requiring equal access to public places for disabled persons.
Virtually all landlords of commercial facilities and tenants engaged
in business that serve the public have compliance obligations under
the law. While we are not experts in this field, our understanding of
the law is that it is broad-based and that most existing commercial
facilities are not in full compliance because of construction prior to
enactment. We recommend a compliance study be performed by qualified
personnel to determine the extent of potential non-compliance at the
subject and any costs to cure.
5. Please refer to the complete list of assumptions and limiting
conditions included at the end of this report.
PHOTOGRAPHS OF SUBJECT PROPERTY
[PHOTO]
[GRAPHIC OMITTED]
View of Stern's store facing north on Court Street.
[PHOTO]
[GRAPHIC OMITTED]
Stern's entrance along Main Street at Court.
Photographs of Subject Property
[PHOTO]
[GRAPHIC OMITTED]
View of JCPenney store from corner of Main and Lexington.
[PHOTO]
[GRAPHIC OMITTED]
Midsection of mall exterior along south side of Main Street.
Photographs of Subject Property
[PHOTO]
[GRAPHIC OMITTED]
Center court area looking down upon food court seating.
[PHOTO]
[GRAPHIC OMITTED]
Food court area.
Photographs of Subject Property
[PHOTO]
[GRAPHIC OMITTED]
Mall concourse.
[PHOTO]
[GRAPHIC OMITTED]
JCPenney throat.
TABLE OF CONTENTS
Page
PHOTOGRAPHS OF SUBJECT PROPERTY................................................9
INTRODUCTION...................................................................1
Identification of Property...............................................1
Property Ownership and Recent History....................................1
Purpose and Intended Use of the Appraisal................................1
Extent of the Appraisal Process..........................................2
Date of Value and Property Inspection....................................2
Property Rights Appraised................................................2
Definitions of Value, Interest Appraised, and Other Pertinent Terms......2
Legal Description........................................................4
REGIONAL ANALYSIS..............................................................5
NEIGHBORHOOD ANALYSIS ........................................................14
RETAIL MARKET ANALYSIS .......................................................17
PROPERTY DESCRIPTION..........................................................54
Site Description........................................................54
Improvements Description................................................56
REAL PROPERTY TAXES AND ASSESSMENTS...........................................62
ZONING .......................................................................64
HIGHEST AND BEST USE..........................................................65
A. Highest and Best Use of Site As Though Vacant........................65
B. Highest and Best Use of Property As Improved.........................67
VALUATION PROCESS.............................................................69
SALES COMPARISON APPROACH.....................................................70
INCOME APPROACH...............................................................85
RECONCILIATION AND FINAL VALUE ESTIMATE......................................115
ASSUMPTIONS AND LIMITING CONDITIONS..........................................117
CERTIFICATION OF APPRAISAL...................................................119
ADDENDA......................................................................120
The subject of this appraisal is The Galleria at White Plains, a four-level
enclosed urban regional mail containing 882,728+/- square feet. The mail is
anchored by JCPenney (227,316+/-sf) and Stern's (328,599+/-sf). Both anchors own
their own stores, although JCPenney is on a long-term ground lease. Stern's is
currently in the process of being converted to Macy's, another store division of
Federated Department Stores, Inc. Mall shops, food court, and kiosks comprise
326,813+/- square feet of the property (owned GLA), with a current occupancy of
about 81.4 percent, including pending leases.
The Galleria is sited on 9.15+/- total acres bounded by Main Street to the
north, Martine Avenue to the south, Court Street to the east, and Lexington
Avenue to the west in downtown White Plains, New York. The site itself is
bisected by Grove Street which provides ingress/egress into a municipally-owned
parking garage.
Historically, The Galleria has been the area's dominant destination center
for traditional merchandise. With a substantial trade area and high levels of
income, The O'Connor Group recently opened The Westchester, an 830,000+/- square
foot regional mall located about one-half mile south of the subject. Although
the two malls compete to a certain degree, the potential exists to draw
additional customers to the area by means of the expanded merchandise offered
between the two malls. In the near-term, the subject is likely to feel the
impact of this project in terms of lost sales growth and the potential for
increased vacancy.
Property Ownership and Recent History
Title to the appraised portion of the subject property is held by Cadillac
Fairview W.P. Associates. The mall was originally developed by Cadillac Fairview
Company (now a subsidiary of JMB Realty) and opened in August 1980. JMB to
continues to operate the center since acquiring an interest in Cadillac
Fairview.
Over the past three years, the subject has undergone significant changes.
Most notably, a major renovation and remerchandising strategy has been
completed. Approximately $15.5 million was spent between 1992 and 1993 on the
renovation which was completed in November 1993. This is equal to roughly $47.43
per square foot of owned GLA. In May 1995, A&S was converted to Stern's as part
of the Federated/Macy's merger. Stern's has been an underperformer and will be
replaced by Macy's in July 1996. Details of other property changes can be found
in the Property Description section of this report.
The property is currently encumbered by a number of leases with tenants who
are open and operating. Abstract summaries of the JCPenney ground lease and
Abraham & Straus (Stern's) Operating and Reciprocal Easement Agreement (OREA)
have been reviewed and are contained in our files.
Purpose and Intended Use of the Appraisal
The purpose of this appraisal is to estimate the 'As Is" Market Value of a
Leased Fee Estate in the subject property. The appraisal is to be used by the
Client and its affiliates to determine the asset's value in its underwriting
efforts.
o Inspected the exterior of all buildings and site improvements and a
representative sample of shops with Winnette Peltz, the property
manager;
o Interviewed representatives of the property management company;
Reviewed leasing policy, concessions, tenant build-out allowances, and
history of recent occupancy with the leasing manager;
o Reviewed a detailed history of income and expenses as well as a budget
forecast for 1996;
o Conducted market research of occupancies, asking rents, concessions
and operating expenses at competing shopping centers which involved
interviews with on-site managers and a review of our own data base
from previous appraisal files;
o Prepared an estimate of stabilized income and expenses (for
capitalization purposes);
o Prepared a detailed discounted cash flow (DCF) analysis using Pro-Ject
+plus software for the purpose of discounting a forecasted net income
stream into a present value of the leased fee estate for the center;
o Conducted market inquiries into recent sales of similar retail
properties to ascertain sale prices per square foot, effective gross
income multipliers, and capitalization rates. This process involved
telephone interviews with buyers, sellers, and/or participating
brokers;
o Prepared Sales Comparison and Income Approaches to value;
o Reconciled the value indications and concluded a final value estimate
for the subject in its "As Is" condition; and
o Prepared a Complete Appraisal of real property, with the results
conveyed in this Self-Contained Report.
Date of Value and Property Inspection
The date of value is May 14, 1996. On that date, Jay F. Booth inspected the
property and its environs. Richard W. Latella, MAI has reviewed and approved the
report and has inspected the subject property on other occasions.
Property Rights Appraised
Leased Fee Estate.
Definitions of Value, Interest Appraised, and Other Pertinent Terms
The definition of market value taken from the Uniform Standards of
Professional Appraisal Practice of the Appraisal Foundation, is as follows:
The most probable price which a property should bring in a competitive and
open market under all conditions requisite to a fair sale, the buyer and
seller, each acting prudently and knowledgeably, and assuming the price is
not affected by undue stimulus. Implicit in this definition is the
consummation of a sale as of a specified date and the passing of title from
seller to buyer under conditions whereby:
1. Buyer and seller are typically motivated;
2. Both parties are well informed or well advised, and acting in what
they consider their own best interests;
3. A reasonable time is allowed for exposure in the open market;
4. Payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto; and
5. The price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions
granted by anyone associated with the sale.
Exposure Time
Under Paragraph 3 of the Definition of Market Value, the value estimate
presumes that "A reasonable time is allowed for exposure in the open
market". Exposure time is defined as the estimated length of time the
property interest being appraised would have been offered on the market
prior to the hypothetical consummation of a sale at the market value on the
effective date of the appraisal. Exposure time is presumed to precede the
effective date of the appraisal.
The following definitions of pertinent terms are taken from the Dictionary
of Real Estate Appraisal, Third Edition (1993), published by the Appraisal
Institute.
Fee Simple Estate
Absolute ownership unencumbered by any other interest or estate, subject to
the limitations imposed by the governmental powers of taxation, eminent
domain, police power, and escheat.
Leased Fee Estate
An ownership interest held by a landlord with the rights of use and
occupancy conveyed by lease to others. The rights of the lessor (the leased
fee owner) and the leased fee are specified by contract terms contained
within the lease.
Market Rent
The rental income that a property would most probably command on the open
market, indicated by the current rents paid and asked for comparable space
as of the date of appraisal.
A price expressed in terms of cash, as distinguished from a price expressed
totally or partly in terms of the face amounts of notes or other securities
that cannot be sold at their face amounts.
Market Value As Is on Appraisal Date
The value of specific ownership rights to an identified parcel of real
estate as of the effective date of the appraisal; related to what
physically exists and is legally permissible and excludes all assumptions
concerning hypothetical market conditions or possible rezoning.
Legal Description
We have not been provided with a complete metes and bounds legal
description of the subject property. The property can generally be described as
Tax Map Parcel Nos. 125.75-4-2 (Account No. 30010002106) and 125.75-4-3 (Account
No. 3003002005), City of White Plains Assessor's Office.
The short- and long-term value of real estate is influenced by a variety of
factors and forces which interact within a given region. Regional analysis
serves to identify those forces which affect property value and the role they
play within the region. The four primary forces which influence real property
value include environmental characteristics, governmental forces, social
factors, and economic trends. These forces determine the supply and demand for
real property which, in turn, affect market value.
A. Environmental Characteristics
The primary environmental forces which influence the region include
physical location, geography, and infrastructure. These characteristics provide
a basis for the region's stability and describe the area's overall locational
bearing. Both natural and man-made environmental forces influence real property
values and are best understood in relation to the subject property's location.
General Overview
The subject property is located in the City of White Plains, Westchester
County, New York. White Plains is the county seat and second largest city in
Westchester County behind Yonkers. Westchester County covers nearly 450 square
miles of wooded suburban settings and established cities, containing 6 cities,
34 towns, and 23 villages. Westchester is bordered to the north by Putnam
County, New York; to the south by New York City; to the east by Long Island
Sound and Fairfield County, Connecticut; and to the west by the Hudson River.
Westchester County has benefited from its proximity to New York City, as well as
an excellent transportation network.
Transportation
Westchester County's transportation network includes four interstate
highways, seven parkways, three commuter rail lines, and a national airport.
Following is a brief overview of the transportation network serving the county.
Highways & Interstates
A primary mode of transportation in Westchester County is the automobile.
County residents benefit from four interstate highways (I-287, I-87, I-95,
I-684), and seven parkways (Saw Mill River, Hutchinson River, Bronx River,
Sprain Brook, Cross County, Taconic State, Playland, and Central Westchester).
Interstate 95 is the East Coast's primary north-south thoroughfare, passing
through southern Westchester en route to Connecticut and other points north.
Interstate 87 (New York State Thruway) parallels the Hudson River, linking
Westchester with New York City to the south and Upstate New York. I-287 (Cross
Westchester Expressway) is the major east-west conduit, connecting the Tappan
Zee Bridge with I-95, and passing through White Plains. The addition of
Interstate 684, which runs north from White Plains through the central portion
of the county and into Putnam, has spawned growth in Northern Westchester
County. These and other local roadways lay the foundation for all major economic
and employment centers within the county.
The Westchester County Airport is centrally located in Harrison off of
Interstate 684, offering airline and charter passenger services, corporate and
general aviation, and aircraft maintenance and storage facilities. The facility
opened a new terminal in 1995 after undergoing a $95 million modernization. New
York City's four international airports, Newark, JFK, LaGuardia, and Stewart,
are all within an hour's drive from most parts of Westchester.
Public & Commuter Services
Public transportation in Westchester County is good, particularly in terms
of commuter rail service into Midtown Manhattan, New York City. Commuter rail
lines are controlled by Metro North, with three main branch lines: the Hudson
Line, Harlem Line, and New Haven Line. In addition, there is an inter-county bus
network, called the Bee-Line, which has routes along most major roadways and
into Putnam County and New York City.
Other Services
Westchester County is also serviced by freight carriers, cargo and shipping
companies, and rail. Conrail and a number of smaller rail lines provide
rail-freight service within the region. The Hudson River accommodates domestic
and international shipping of bulk products, primarily by tugboat carriers from
docking facilities along the Hudson River.
B. Governmental Characteristics
Governmental influences on the region impact property values via political
and legal actions at all levels. The legal climate at a particular time or in a
particular place may overshadow the natural market forces of supply and demand.
Government provides many necessary facilities and services that affect land use
patterns, including public utilities, refuse collection, transportation
networks, zoning codes, and fiscal policies.
Government Structure
Westchester County government is organized among the three traditional
branches, executive, legislative, and judicial. The county executive is chosen
by general election. The county legislature is composed of a 17-member board
representing various districts in the county. The county is the largest single
employer, public or private, in Westchester, providing an array of services,
including police protection, sewage treatment, bus service, road construction
and repair, and a number of social, health, and human services.
Below the county, Westchester's 43 separate cities, towns, and villages
have their own individual government structures with a wide range of services.
These municipal governments generally have an elected mayor or supervisor, and a
municipal council or board that serves as the legislative arm. Municipal
services include water, sewer, and street maintenance, as well as fire and
police protection. All local governments have the power to assess and levy taxes
on real property, and all have planning and zoning boards that determine
municipal zoning codes and master plans for their communities.
The State of New York carries a general sales tax, gas tax, tobacco and
alcohol tax, public utilities tax, motor vehicle tax, and individual income tax,
among others. Locally, property taxes are levied based upon a millage rate per
$100 of assessed value. Property taxes include a county rate, municipal rate,
and school rate.
Services & Utilities
The City of White Plains and Westchester County provide a range of
municipal and county services, including police and fire protection, emergency
medical services, street construction and maintenance, traffic signalization,
planning and zoning, community and economic development, and parks and
recreation. Consolidated Edison provides electric service to most areas of
Westchester, except for the northeastern part which is served by New York State
Electric and Gas. Con Edison also supplies natural gas to the region, except for
North Salem, Lewisboro, Pound Ridge, and portions of Bedford and Yorktown.
Bond Rating
Moody's Bond Record places the State of New York's bond rating as 'A'
relative to investment qualities. Westchester County carries a bond rating of
'Aaa', while the City of White Plains carries a bond rating of 'Aa1'. 'Aa' bonds
are judged to be of high quality by all standards but include elements that may
present long-term risks which appear somewhat higher than 'Aaa'. 'Aaa' bonds are
judged to be the best quality and carry the smallest degree of investment risk.
The '1' designation suggests that the bond group possesses the strongest
investment attributes.
C. Social Forces
Real estate values can be influenced to a large degree by social issues
impacting the region, including population trends, income levels, the profile of
workers in the area, and other quality of life issues. The demographic
composition of the population reveals the potential, basic demand for real
estate services.
Population
The population and its geographic distribution are basic determinants of
the need for real estate. Aggregate population growth is distributed among
regions in response to changing economic opportunities, while the demand for
real estate is created by a population's demand for the goods and services to be
produced or distributed within the region. Thus, population and demographic
trends can influence the demand for services provided by property, thereby
affecting property value.
After peaking in the early 1970s, population in Westchester County has
remained relatively stable, exhibiting only moderate increases over the past 10
years. Between 1980 and 1990, population in Westchester increased at a compound
annual rate of only 0.1 percent per year. From 1990 to 1995, population has
grown at an annual rate of about 0.3 percent per annum to 888,980.
Through 2000, population growth is forecasted to be flat according to Woods
& Poole Economics, lower than the rate of growth projected for the state as a
whole. The Westchester County Planning Department projects population growth of
0.1 percent per year through 2000, while Demographics USA and CACI Marketing
Systems forecast growth of 0.2 and 0.4 percent per annum, respectively. The
consensus forecast is for 0.2 percent annual population growth through 2000.
A color graphic depicting projected population growth over the next five
years is included in the Retail Market Analysis section of this report. As can
be seen, the largest areas of growth are forecasted to be in areas of central
and northern Westchester County. Purchase is projected to see growth of 6.0-7.6
percent per annum, while most areas surrounding White Plains will have increases
between 0.1-3.0 percent per year.
Households
Household formation is an important component of demographic analysis which
helps to identify changing patterns or shifts within the population. A household
consists of all people occupying a single housing unit, thus providing
significant sociological information about the region. Household formation also
has a significant influence on demand for real estate. Households, combined with
effective purchasing power, provide the basic demand for housing units and
household needs, thereby transforming needs into effective demand for real
estate improvements.
Like the nation as a whole, household formation has occurred at a rate in
excess of population growth within the subject region. This acceleration has
been the result of several trends, namely the fact that the population is
generally living longer, divorce rates have been on the rise, and many younger
professionals are postponing marriage and/or leaving home at an earlier age, all
resulting in increases of one- and two-person households. The total number of
households in Westchester County has increased from 309,450+/- in 1980 to
323,900+/- in 1995, a compound annual increase of about 0.3 percent per year.
Accordingly, the number of persons per household within the MSA has decreased
from 2.80 in 1980 to 2.74 in 1995.
Projections through 2000 show household growth at 0.0-0.1 percent per year,
slightly higher than population growth forecasts. Westchester County Planning is
projecting annual household formation at a rate of 0.4 percent per year, while
Demographics USA and CACI forecast annual growth of 0.3 and 0.4 percent,
respectively. Combined, the consensus forecast shows annual household growth of
0.3 percent per year through 2000.
Income levels, either on a per capita, per family, or per household basis,
indicate the economic level of residents within the region and form an important
component of economic analysis. Average income has a direct impact on the
ability of residents to satisfy material desires for goods and services,
directly affecting the demand and price levels of real estate.
Average income levels within the subject region are above state and
national figures. On a per capita basis, Westchester County has an average
income of $37,850 for 1995, about 44.5 percent higher than the state level of
$26,189 and 68.3 percent higher than national statistics. Income growth has
generally outpaced state and national trends, experiencing annual growth of
roughly 7.8 percent per year (1980-90); 3.2 percent per year from 1990 to 1995
(not adjusted for inflation). Income projections show per capita income growth
of 4.4 percent per year for Westchester County.
A large part of the differential between Westchester's income levels and
that of the state or region is accounted for by residents who commute into
Manhattan to predominantly professional, technical, and managerial employment.
Although income levels are above average for the state, higher taxes and housing
costs can often erode the purchasing power of area residents. As such, the
effective disposable income of residents-adjusted for tax payments,
contributions to pension funds, and the cost of new housing-do not rank as well
against other regions of the state. This is not the case for Westchester County.
Sales & Marketing Management places median household effective buying income at
$59,654 for Westchester County as of 1994, 43.7 percent higher than the state
median of $41,500 and 60.9 percent above the U.S. median of $37,070. The City of
White Plains shows a median household EBI of $55,207.
A color graphic displaying average household income by area is presented in
the Retail Market Analysis section of this report. As shown, areas of central
and southern Westchester are generally more affluent than other sectors. The
highest levels of income are located in Scarsdale, Purchase, Armonk, and
Bedford, as well as Briarcliff Manor and Chappaqua.
D. Economic Trends
Economic forces are significant to real property value. The fundamental
relationships between current and anticipated supply and demand and the economic
ability of the population to satisfy its wants, needs, and demands through
purchasing power are tantamount to such an analysis. Some of the specific market
characteristics considered in economic analysis include employment trends, the
economic base of the region, expansion and new development, and the overall
economic health of the region.
Westchester County is noted for the number of large corporations that
maintain headquarters or branch operations within the county. Over one-third of
the county's non-agricultural wage and salary employment is provided by the 450
largest firms that each employ over 50 or more people. At least 35 companies, 8
of which are Fortune 500 firms, maintain their corporate U.S. or international
headquarters within the county. The presence of so many companies with national
or international operations serves as a buffer against some of the short-term
swings seen in state and local economies.
Employment Distribution
The largest sectors of non-agricultural employment in Westchester include
Services, Wholesale/Retail Trade, Government, and Finance, Insurance and Real
Estate (F.I.R.E.). Services currently accounts for about 39.1 percent of
non-farm employment, growing at an annual rate of 0.6 percent per year over the
last five years. Wholesale/Retail Trade accounts for 19.4 percent of
non-agricultural employment, declining by nearly 1.6 percent per annum since
1990. Government and F.I.R.E. round out the top sectors of employment,
accounting for approximately 12.1 and 10.2 percent of non-farm employment,
respectively. Government jobs have been cut-back in recent years, while F.I.R.E.
employment has declined by 1.9 percent per year since 1990.
Major Employers
One of the primary employers in Westchester County is International
Business Machines (IBM). The firm's corporate headquarters are located in
Armonk; the U.S. headquarters are in Purchase. IBM accounts for roughly 2.0
percent of all jobs in Westchester County. Other major employers in the region
include Kraft General Foods, Philip Morris, Nestle, Readers Digest, AT&T, Union
Carbide, Texaco, NYNEX, and Pepsico.
Corporate migration over the years has transformed Westchester from a
strictly bedroom suburb of New York City, to a major employment center in its
own right. Since 1960, the number of non-residents who commute into the county
for work each day has steadily increased as new jobs have been created. The
labor force contains a larger percentage of professional, technical, and
clerical workers, and smaller percentages of blue collar categories than that of
New York State as a whole. This is a reflection of the trend to locate corporate
headquarters in Westchester.
Although a number of firms have been drawn to Westchester over the past
decade, the largest, IBM, has undergone a corporate-wide restructuring. As part
of the restructuring program, IBM has vacated significant amounts of office and
industrial space throughout the county, as well as eliminating a number of jobs.
The number of IBM employees has fallen from approximately 15,000 in 1985, to
about 8,000 today.
The following chart details some of the largest employers presently located
within Westchester County.
Employers No. Employees
========================================================================
Westchester County 9,640
------------------------------------------------------------------------
International Business Machines 8,000
------------------------------------------------------------------------
NYNEX 5,160
------------------------------------------------------------------------
U.S. Postal Service 3,900
------------------------------------------------------------------------
Yonkers Public Schools 2,861
------------------------------------------------------------------------
Pepsico, Inc. 2,550
------------------------------------------------------------------------
Consolidated Edison of New York 2,100
------------------------------------------------------------------------
General Motors 2,000
------------------------------------------------------------------------
City of Yonkers 1,965
------------------------------------------------------------------------
General Foods U.S.A. 1,960
------------------------------------------------------------------------
Bank of New York 1,944
------------------------------------------------------------------------
AT&T 1,822
========================================================================
Source: The Westchester County Association
========================================================================
Unemployment Rates
Unemployment rates in Westchester County have historically been below state
and national figures. As of 1994, the unemployment rate for Westchester was 5.5
percent, 140 points below the state unemployment rate of 6.9 percent. Mirroring
national trends, unemployment peaked in 1992 at 6.2 percent, followed by a
generally declining trend through 1994 (5.5%).
====================================================================
Historic Unemployment Rates
====================================================================
Westchester United
Year County New York States
====================================================================
Feb-96 n/a 6.6% 5.5%
--------------------------------------------------------------------
Feb-95 n/a 6.9% 5.5%
--------------------------------------------------------------------
1994 5.5%* 6.9% 6.1%
--------------------------------------------------------------------
1993 5.4% 7.7% 6.9%
--------------------------------------------------------------------
1992 6.2% 8.5% 7.5%
--------------------------------------------------------------------
1991 5.4% 7.2% 6.8%
--------------------------------------------------------------------
1990 3.4% 5.2% 5.6%
====================================================================
Source: Employment & Earnings: Bureau of Labor Statistics.
Westchester County
* As of June 1994.
Although it is too soon to know what the 1995 annual adjusted rates will
be, it appears that unemployment declines have moderated within the region and
the state as a whole.
Employment Growth
Over the past five years, it is clear that employment growth in Westchester
has moderated over the growth experienced between 1980 and 1990. Total non-farm
employment grew at a compound annual rate of 1.3 percent per year from 1980 to
1990, declining by a rate of -1.1 percent from 1990 to 1995. Services and
Finance, Insurance and Real Estate have historically led employment growth,
followed by Transportation, Communication and Public Utilities and Government.
Farm and Agricultural Service employment has remained relatively stable, while
losses in the Manufacturing base have continued, but at a more moderate pace.
Woods & Poole Economics projects little or no non-farm employment growth over
the next five years, with an annual rate of decline forecasted at -0.2 percent
per year.
Another measure of the economic health of a region is retail sales
patterns. Consumers drive the economy by creating demand for goods and services
and, in turn, generate the need for housing, office space, retail centers, and
warehouse/distribution facilities. It is estimated that consumer spending
accounts for two-thirds of all economic activity in the United Sates today. As
such, retail sales patterns have become an important indicator of the economic
health of a region.
Retail sales growth has been relatively strong in Westchester County over
the past nine years. Since 1985, total retail sales have grown at a compound
annual rate of 3.0 percent per, lower than statewide growth of 3.8 percent and
national growth of 5.4 percent per annum. During this same period, White Plains
experienced a decline in retail sales of -0.1 percent per year. From 1990-94,
sales growth has tracked at 1.3 percent per annum for Westchester, with New York
showing annual growth of 1.9 percent per year. The City of White Plains
exhibited an annual sales decline of -3.3 percent per annum between 1990-94.
Woods & Poole forecasts Westchester County to see annual retail sales growth of
only 0.05 percent per year above inflation through 2000 (adjusted to 1987
dollars).
E. Critical Observations
The following bullet points summarize some of our general observations
relating to the subject's region:
o The region's economy is relatively diverse. No single sector of
employment truly dominates the economic base. Economic volatility is
mitigated to a certain extent by the high concentration of government
employment.
o Employment growth is projected to be flat in Westchester County
through 2000, although F.I.R.E. and Services should see moderate
increases.
o Population growth is forecasted to be 0.2 percent per year, while
household formation will occur at an annual rate of 0.3 percent.
o Income levels are projected to increase at an annual rate of about 4.4
percent per year for the region through 2000. Retail sales projections
are forecasted to grow by only 0.05 percent per year above inflation
over the next five years. Demographics USA forecasts that average
household Effective Buying Income will increase at an annual rate of
3.4 percent per year.
o Westchester has become an important suburb region to New York City.
Nearly one-third of the county's labor force commute to New York City;
approximately two-thirds of this number into Manhattan.
The short- and long-term outlook for Westchester County and its surrounding
region is for stability, with moderate long-term growth in employment and
population, and better growth projected for income levels and buying power. The
economy is relatively well diversified, with a strong labor force and good
transportation system. On balance, we are relatively optimistic about the
short-term outlook of the subject region. Long-term, the region should see
stability and moderate growth. As we foresee a slow economic growth condition
for the region, it is our opinion that the long-term prospect for net
appreciation in commercial real estate values remains positive. Westchester
County should sustain and continue moderate growth into the future, while
remaining desirable to the major industries, maintaining a strong labor force
with good government support.
A neighborhood is defined as a grouping of complimentary land uses affected
by similar operations of the social, economic, governmental, and environmental
forces that influence property value. The area most closely surrounding the
subject, whether it contains residential property, commercial property, or a
mixture of commercial and residential properties, is called a neighborhood.
General Overview
The subject property is located in the City of White Plains which is
situated in lower-central Westchester County. White Plains comprises a total of
9.6 square miles and is the fourth largest city, by population, within the
county. It is bordered to the west by the Town of Greenburgh, to the north by
the towns of North Castle and Harrison, to the east by the Town of Harrison, and
to the south by the Village of Scarsdale. Neighboring communities include
affluent residential areas such as Purchase, Hartsdale, Rye, and Ardsley.
The City of White Plains has evolved into a dynamic community over the past
20 years. In the process, it has transformed into a desirable retail, office,
and residential location. The downtown area has developed into a significant
suburban office market with major retail activity centered around the Galleria
at White Plains and the newly constructed Westchester. Additionally, White
Plains is the county seat for Westchester, spawning a strong governmental
presence due to the location of city, county, and state and federal agencies and
courts.
Access
White Plains is a convenient location for areas both inside Westchester
County and out. The Bronx River and Hutchinson River Parkways provide direct
access into the city from as far south as The Bronx. The New England Thruway
(I-95) also services the city along Westchester County's eastern border. I-95
provides access between New York City and Connecticut. The Cross Westchester
Expressway (I-287) is the major east-west limited access roadway connecting I-95
with White Plains and west to the Tappan Zee Bridge and Rockland County. The
Taconic and Saw Mill Parkways link with communities north of White Plains and
provide access with northern Westchester County and Putnam County. Major local
arterials include Mamaroneck Road (Route 125), North Broadway (Route 22), and
North Street (Route 127).
White Plains also benefits from a good network of public transportation.
Metro North's White Plains station runs express and local trains into New York
City's Grand Central Station. Peak travel time is approximately 30 minutes. The
city also has an efficient local bus system. Westchester County airport is
located about 5 miles northeast of the downtown area.
Land Use Patterns
The subject property is located along the south side of Main Street between
Court Street and Lexington Avenue. Areas surrounding and directly influencing
the subject are decidedly commercial in nature. There are numerous shops and
office facilities fronting the heavily trafficked streets that service the
neighborhood. The Westchester County Courthouse and County Office Building are
one block south, while the City Municipal Building is two blocks to
the east. The White Plains rail station is located two blocks to the west. The
convenience of rail service via Metro North and the number of commuters who work
in downtown White Plains have the effect of increasing the subject's market
potential and provide an important component of customers for the mall.
Business and Employment
White Plains and surrounding areas are home to national and international
corporate headquarters, including such Fortune 500 companies as Pepsico, Texaco,
and Kraft General Foods. IBM is headquartered in nearby Armonk and maintains
facilities throughout portions of Westchester County. Other notable facilities
include New York Hospital-Cornell Medical Center, Manhattanville College, and
SUNY Purchase.
White Plains is a major retail area in which many of the region's largest
department stores have located. The area attracts shoppers from all parts of
Westchester County, Yonkers, The Bronx, and parts of Connecticut and Putnam
County, New York, principally due to the retail presence of such department
stores as Bloomingdale's, Lord & Taylor, JCPenney, Saks Fifth Avenue,
Neiman-Marcus, Nordstrom, Macy's, and Sears. The most recent addition to this
mix of retail entities has been development of The Westchester, an enclosed
regional mall which has incorporated the existing Neiman-Marcus store, as well
as construction of the region's first Nordstrom department store.
While White Plains has been impacted by the past national recession, its
economic diversity, as well as the quality of area improvements and office and
retail space users, has helped to cushion the effect on employment and income
for residents in the area. The downturn in retail sales for the City of White
Plains, however, accentuates the overall affect the national recession has had.
White Plains Office Market
The subject property benefits from its location within the Central Business
District and the "daytime" population that works in White Plains. The White
Plains CBD posted relatively healthy results in 1995, primarily as a result of
Oxford Health Plans' commitment to 265,000+/- square feet at Westchester One.
This transaction was the largest lease in Westchester County since 1992 and had
a tremendous impact on the overall vacancy rate.
The overall vacancy rate in White Plains at year-end 1995 was 26.4 percent,
slightly higher than third quarter results, but 4.0 percent lower than year-ago
levels. Class A faired considerably better than Class B space, with the Class A
vacancy rate declining from 30.2 percent in fourth quarter 1994 to 23.7 percent
at year-end 1995. Class B space experienced an increase in vacancy from 31.2
percent to 35.5 percent during the same period.
Recent Development Activity
As discussed in the Retail Market Analysis, The Westchester Mall opened in
1995. This project is the most recent development within the City of White
Plains. The Westchester provides additional draw to the downtown vicinity,
particularly on the weekends.
Conclusion
Overall, we believe that the neighborhood surrounding and influencing the
subject is conducive for the continued operation of the mall. On balance, the
long-term prospects for appreciation in real estate values appears good.
A retail center's trade area contains people who are likely to patronize
that particular retail center. These customers are drawn by a given class of
goods and services from a particular tenant mix. A center's fundamental drawing
power comes from the strength of the anchor tenants as well as the regional and
local tenants which complement and support the anchors. A successful combination
of these elements creates a destination for customers seeking a variety of goods
and services while enjoying the comfort and convenience of an integrated
shopping environment.
The subject can be described as a regional shopping center.
A regional shopping center (1) provides for extensive variety of goods,
including a wide selection of general merchandise, apparel, and home
furnishings, as well as a variety of services and recreational facilities
The major occupants of a regional center include a least one, but no more
than two, full line department stores. Each full-line department store
generally has an area of not less than 75,000+/- square feet. In many
instances, the department stores are physically a part of the center but
are independently owned. In theory, its typical size for definitive
purposes is 450,000 square feet of gross leasable area; it practice it may
range from 300,000 to 850,000 square feet The regional center is the second
largest type of shopping center. As such, it provides services typical of a
business district yet not as extensive of those of the super regional
center.
In order to define and analyze the market potential for The Galleria at
White Plains, it is important to first establish the boundaries of the trade
area from which the subject will draw its customers. In some cases, defining the
trade area may be complicated by the existence of other retail facilities on
main thoroughfares within trade areas that are not clearly defined or whose
trade areas overlap with that of the subject. The Galleria's potential trade
area clearly overlaps with its newest competitor, The Westchester in White
Plains. The subject's capture rate of area expenditure potential is also
influenced to a lesser extent by other regional centers such as the Stamford
Town Center and the Cross County Shopping Center in Yonkers. In addition,
peripheral competition is seen in such centers as Jefferson Valley Mall in
Yorktown Heights, Danbury Fair Mall in Danbury, Connecticut, Vernon Hills Mall
in Eastchester, and the Poughkeepsie Galleria in Poughkeepsie, New York.
Although located outside of the subject's effective trade area, it is
anticipated that Palisades Center, a 3.3+/- million square foot mega-mall
currently under construction in eastern Rockland County approximately 15+/-
miles from the subject, will certainly impact regional shopping dynamics.
Finally, there are several free-standing department stores in White Plains
within a mile and a half radius of The Galleria including Sears, Macy's, Saks
Fifth Avenue and Bloomingdale's. While some cross-shopping does occur, these
department stores act more as a draw to the White Plains community, creating an
image for the area as a prime shopping district and generating more retail
traffic to White Plains than would exist in their absence. We recognize and
mention these stores and centers to the extent that they provide a complete
understanding of the area's retail structure.
(1) Urban Land Institute Dollars and Cents of Shopping Centers - 1996
Once the trade area is defined, the area's demographics and economic
profile can be analyzed. This will provide key insight into the area's dynamics
as it relates to the subject. The sources of economic and demographic data for
the trade area analysis are as follows: Equifax National Decision Systems
(ENDS), Sales and Marketing Management's Survey of Buying Power, The Urban Land
Institute's Dollars and Cents of Shopping Centers (1995), CACI, The Sourcebook
of County Demographics, and The Census of Retail Trade - 1992. The subject's
Effective Trade Area, profiled by Equifaix National Decision Systems, has been
defined based on the results of a customer survey conducted by Urban Retail
Properties, Co., which included polling the mall's customer's to determine the
zip code of their primary residence.
Scope of Trade Area
Traditionally, a retail center's sales are principally generated from
within its primary trade area, which is typically within reasonably close
geographic proximity to the center itself. Generally, between 55 and 65 percent
of a center's sales are generated within its primary trade area. The secondary
trade area generally refers to more outlying areas which provide less frequent
customers to the center. Residents within the secondary trade area would be more
likely to shop closer to home due to time and travel constraints. Typically, an
additional 20 to 25 percent of a center's sales will be generated from within
the secondary area. The tertiary or peripheral trade area refers to more distant
areas from which occasional customers to the mall reside. These residents may be
drawn to the center by a particular service or store which is not found locally.
Industry experience shows that between 10 and 15 percent of a center's sales are
derived from customers residing outside of the trade area. This potential is
commonly referred to as inflow.
Before the trade area can be defined, it is necessary that we thoroughly
review the retail market and the competitive structure of the general
marketplace, with consideration given as to the subject's position therein.
Subsequent to our discussion of the area's retail structure, a profile of the
department stores which anchor the subject is presented in order to fully
acquaint the reader with its overall market position therein.
Retail Structure
With respect to regional mall competition, the subject appears to be well
positioned. In order to examine the subject property in its proper context, we
must first examine the nature of the competition. According to customer surveys,
the subject's principal competitor has been considered to be the Cross County
Shopping Center in Yonkers. However, J.W. O'Connor and Company opened The
Westchester, an 830,000+/- square foot upscale mall located along Westchester
Avenue approximately one mile south of the subject, in March of 1995. Due to its
relative newness in the marketplace, its impact cannot be properly gauged at
this time. Nonetheless, we view it as having a definitive impact on the subject,
at least for the short run. In addition, peripheral competition does exist
within its secondary and tertiary area with respect to certain other centers
mentioned above.
The following table identifies the larger alternative retail properties in
the area as well as the malls located outside the region within the secondary
trade areas that could overlap with that of the subject.
===================================================================================================================
Competitive Retail Shopping Centers
===================================================================================================================
Year
Map Opened/ Distance from
Key Center/Location Renovated Total GLA Anchor Stores Subject
===================================================================================================================
S Galleria at White Plains 1980/ 882,728 Stern's* N/A
100 Main St. 1993 JC Penney
White Plains, NY
-------------------------------------------------------------------------------------------------------------------
1 The Westchester 1995 830,000 Neiman Marcus 1+/- mile
125 Westchester Ave. Nordstrom
Westchester, NY
-------------------------------------------------------------------------------------------------------------------
2 Stamford Town Center 1982 1,200,000 Macy's 30+/- miles
100 Greyrock Place Filene's
Stamford, CT Saks Fifth Avenue
-------------------------------------------------------------------------------------------------------------------
3 Cross County S.C. 1954 1,190,000 Stern's 8+/- miles
6K Mall Walk Sears
Yonkers, NY
-------------------------------------------------------------------------------------------------------------------
4 Danbury Fair Mall 1986 1,450,000 Filene's, JCPenney 25+/- miles
I-84 Fairground Site & Rt. 7 Lord & Taylor
Danbury, CT Macy's, Sears
-------------------------------------------------------------------------------------------------------------------
5 Jefferson Valley Mall 1983 580,371 Macy's 40+/- miles
Route 6 and Taconic State Sears
Yorktown Heights, NY Service Merchandise
-------------------------------------------------------------------------------------------------------------------
6 Poughkeepsie Galleria 1987/1992 1,000,000 Filene's, JCPenney 45+/- miles
Interstate 84 & Route 9 Montgomery Ward
Poughkeepsie, New York Sears, Dicks, Lechmere
===================================================================================================================
Total 7,134,153
===================================================================================================================
* Will be converted to Macy's during July 1996
===================================================================================================================
Source: Shopping Center Directory -1995
===================================================================================================================
Retail Market Analysis
================================================================================
Subject Retail Center
Name: The Galleria at White Plains
Location: 100 Main St.
White Plains, New York
Owner The Cadillac Fairview Corporation
Distance and Time from Subject: N/A
Year Opened: 1980
Year(s) Expanded/Renovated: 1993
Total GLA: 882,728+/- SF
Mall GLA: 326,813+/- SF
Mall Shop Ratio: 37%
Anchor Tenants: Stern's/Macy's 328,599 SF
JCPenney 227,316 SF
-------- ----------
Total Anchor GLA 555,915 SF
Number of Mall Shops: 150+/-
Occupancy (Mall GLA): 81.4+/-%
Average Market Rent (Mall GLA): $32-$38/SF
Land Area: 9.15+/- AC
Parking/Ratio
Existing: 2,416; 2.7 spaces per 1,000 SF of GLA
Demographics: Effective Market Population: 698,222
Average Household Income: $85,799
Retail Sales: $344/SF -1995
The Galleria at White Plains is a four-level, urban regional mall in
downtown White Plains. It is anchored by Stern's and JCPenney with about 326,813
square feet of in-line mall shop space. Federated Department Stores has recently
announced that Stern's will be converted to a Macy's during July 1996. This
follows the 1995 conversion of A&S to Stern's. Macy's presently occupies a
free-standing location a block to the south in White Plains, which reportedly
posted sales in excess of $65-$70 million during 1995. The more diverse
merchandising of Macy's, which includes a wide array of moderate and upscale
soft goods and housewares, is anticipated to provide greater appeal to the
relatively affluent Westchester County shopper.
Originally developed in 1980, the center underwent extensive renovation and
reconfiguration between 1992 and 1993. Both interior and exterior renovation was
performed in conjunction with a remerchandising of the mall.
Vacancy at the Galleria is currently about 7.3 percent. During 1995,
average mall shop sales were $344 per square foot for comparable stores,
compared to $380 per square foot in 1994. This decrease in mall shop sales is
considered to have resulted form the confluence of several factors, including
increased competition via the entry of The Westchester into the White Plains
marketplace; the conversion of A&S to Stern's; and a downward sales trend
experienced by most apparel retailers during 1995. Average leasing rates for
stores less than 1,000 square feet are running between $50.00 and $70.00 per
square foot, while stores over 1,000 square feet range from $32.00 to $50.00 per
square foot. The mall average is approximately $35.00 per square foot.
Reportedly, JCPenney did $48.0+/- million in sales in 1994, equivalent to $211
per square foot. In 1995 JCPenney reportedly experienced a decline in sales to
$45.0+/- million. Estimated sales for Stern's were $30+/- million, or $91.30 per
square foot.
The Galleria serves a wide spectrum of shoppers and a substantial downtown
employment base. The existence of this center, coupled with The Westchester,
provides a formidable draw to the White Plains district.
Finally, it is noted that the Galleria has the potential to lose some
existing tenants to The Westchester over the next several years as leases
expire. To date, this has been a non-issue for the Galleria as many tenants have
renewed leases and remodeled stores at the subject. Several stores have actually
elected to open second units at The Westchester, including Athlete's Foot, The
Limited Group, and The Gap, indicating their belief that this market is strong
enough to support multiple stores. Although this additional risk of losing
tenants to The Westchester is noted, the two properties have a minimal overlap
of tenants, namely The Limited Group Stores, The Gap, and Athlete's Foot.
Retail Market Analysis
================================================================================
Competitive Retail Center No. 1
Name: The Westchester
Location: 125 Westchester Ave.
Westchester, New York
Owner: The O'Connor Group
Distance and Time from Subject: 1+/- miles south
(5+/- minute drive time)
Year Opened: 1995
Year(s) Expanded/Renovated: N/A
Total GLA: 830,000+/- SF
Mall GLA: 483,800+/- SF
Mall Shop Ratio: 58%
Anchor Tenants: Neiman-Marcus 143,200 SF
Nordstrom 203,000 SF
--------- ----------
Total Anchor GLA: 346,200 SF
Number of Mall Shops: 120+/-
Occupancy (Mall GLA): 93.0%
Average Rent (Mall GLA): $60-$65+/-/SF
Land Area: 12+/- AC
Parking/Ratio: 3,200+/- cars; 3.86 per 1,000+/- SF
Demographics: Primary Market Population: 700,000
Average Household Income: $100,000
(Source: Directory of Major Malls)
Retail Sales: $400+/SF
The Westchester Fashion Mall opened in March 1995 with over 830,000 square
feet and two anchor stores. This is the site of the former B. Altman and
existing Neiman-Marcus store in White Plains. The completed center consists of
an expanded and renovated Neiman-Marcus department store, a new Nordstrom
store, a five-story parking garage, and three levels of fashion-oriented mall
shop space. The total project cost was reported to be $275 million, including
the $16 million renovation of Neiman Marcus. In addition, The Limited Group
reportedly occupies nearly 140,000 square feet in the center.
The Westchester Fashion Mall competes for customers with the Galleria at
White Plains and Stamford Town Center. The Westchester's upscale orientation
has, and will likely continue to have some effect on certain fashion oriented
tenants at the Galleria as well as Stamford Town Center. In fact, The
Westchester will likely have a greater impact on Stamford Town Center due to the
similar merchandising mixes which overlap by approximately 50.0 percent. It has
been reported that The Westchester pulls much more from surrounding suburbs,
including western Connecticut and northern Westchester County. Their target
market is geared toward shoppers who have typically traveled to Stamford or into
Manhattan for shopping needs.
Tenancy at The Westchester includes (or will include) Tiffany's, Crate &
Barrel, Coach, Banana Republic, The Gap, Brooks Brothers, The Limited--Cacique,
Victoria's Secret, Structure, and The Limited, Sharper Image, The Museum
Company, Abercrombie & Fitch, and other fashion-oriented tenants.
It has been suggested that The Westchester has not performed to projected
sale levels and that some tenants have found occupancy costs too high. In fact,
occupancy costs are reported to be higher than the subject. CAM charges are
currently being quoted at $23.00 per square foot. Management has noted that the
high-end fashion tenants are performing well, but that other more local and
regional tenants are struggling with the costs of business. For this reason, a
near-term shake-out among underperforming tenants is likely at The Westchester,
not uncommon for newly opened malls. Nonetheless, many of the upscale,
fashion-oriented tenants have done well here.
First year sales have been reported at $390.00 per square foot, with sales
through the first four months of 1996 tracking between $430.00 and $440.00 per
foot on an annualized basis.
Retail Market Analysis
================================================================================
Competitive Retail Center No. 2
Name: Stamford Town Center
Location: 100 Greyrock Place
Stamford, Connecticut
Owner: Rich - Taubman Associates
Distance and Time from Subject: 30+/- miles
(45+/- minute drive time)
Year Opened: 1982
Year(s) Expanded/Renovated: 1995
Total GLA: 1,200,000+/- SF
Mail GLA: 705,000+/- SF
Mail Shop Ratio: 59%
Anchor Tenants: Macy's 250,000 SF
Filene's 170,000 SF
Saks Fifth Avenue 75,000 SF
----------------- ----------
Total Anchor GLA: 495,000 SF
Number of Mail Shops 145+/-
Occupancy (Mail GLA): 90%
Average Rent (Mail GLA): NA
Land Area: 11+/-AC
Parking/Ratio: 3,800+/- cars; 3.17 per 1,000+/- SF
Demographics: Primary Market Population: 350,000
Average Household Income: $45,000
(Source: Directory of Major Malls)
Retail Sales: $350-$400/SF (estimated)
The Stamford Town Center is located off Interstate 95 in downtown Stamford,
Connecticut. This urban regional mall is an integral part of the downtown
Stamford market and includes four levels of shopping, a multi-level parking
garage, and three anchor stores. The interior of the mall is illuminated by a
matrix of artificial skylights that cast fluorescent lighting onto the mall
concourse. In-line shops are decidedly upscale/fashion-oriented with very few
vacancies observed. Several suites are currently being remodeled or prepared for
opening.
JCPenney closed its 173,247 square foot store here in July 1994, citing
unrealized sales projections at the location. Since the mall's inception, the
upper-end stores have emerged as the dominant market at Stamford, cutting
support for JCPenney and some of the low to middle-end shops. The May Company
purchased the JCPenney store for a reported price of $18,950,000 ($109.38 per
square foot) and opened a Filene's department store during late 1995.
The owners of Stamford Town Center also control a 4.5 acre parcel across
from the mall. Plans had been in the works to expand the mall by 400,000 square
foot possibly with Nordstrom as an anchor. The owners have more recently decided
to develop the property as a two-level specialty center with discount and off
price oriented tenants. The idea is to bring in category killers that enhance
the overall draw of the mall by tapping that segment of the market it does not
now address.
Saks had sales of $16.6 million in 1994, equivalent to approximately $214
per square foot. Reportedly, Macy's did $61.0 million in 1993, equivalent to
$230 per square foot. The mall's management declined to release information
regarding 1995 results.
Stamford competes for the upscale customer which is located between the
wealthy suburbs of Greenwich and the towns of central Fairfield County,
including Norwalk and Darien. The center's more affluent clientele are generally
coming from the south and west in Westchester and even Manhattan. Occupancy is
estimated to be over 95.0 percent with sales in excess of $350 per square foot.
Retail Market Analysis
================================================================================
Competitive Retail Center No. 3
Name: Cross County Shopping Center
Location: 6K Mall Walk
Yonkers, New York
Owner. Brooks Shopping Centers, Inc.
Distance and Time from Subject: 8+/- miles southwest
(20+/- minute drive time)
Year Opened: 1954
Year(s) Expanded/Renovated: NA
Total GLA: 1,190,000+/- SF
Mall GLA: 718,971 +/- SF
Mall Shop Ratio: 60%
Anchor Tenants: Stern's 260,000 SF
Sears 211,029 SF
----- ----------
Total Anchor GLA: 471,029 SF
Number of Mall Shops: 108+/-
Occupancy (Mall GLA): 99%
Average Rent (Mall GLA) $20-$40 (estimated)
Land Area: 74+/- AC
Parking/Ratio: 5,400+/- cars; 4.5 per 1,000+/- SF
Demographics: Primary Market Population: 2,000,000
Average Household Income: $45,000
(Source: Directory of Major Malls)
Retail Sales: $250/SF (estimated)
Cross County is a two-level open-air mail located in Yonkers, one of the
southernmost towns in Westchester County and approximately 8 miles from The
Galleria. Cross County opened in 1954 and consists of 2 anchors (Stern's and
Sears) and 102 mall stores. While the Sears store (formerly Wanamaker's) is in
good condition, the majority of the center, including Stern's, is in poor to
average condition. In conjunction with the closing of Stern's at the Galleria at
White Plains, Federated Department Stores has announced it will substantially
renovate its Cross County store.
Cross County appeals to a client base similar to that of the more
moderate-income level Galleria shopper. Its tenant mix lacks consistency as
there are a large amount of lower end retailers that are local non-credit
tenants. The mall's management would not release any information about the
center. The Galleria and Cross County have significant overlap in their trade
areas, but the more affluent northern, eastern and western Westchester residents
are drawn to The Galleria in greater numbers. Cross County is not a competitor
for the daytime Downtown White Plains base. Although most competitive for the
lower to moderate end shopper, Cross County reports a sizable primary target
market of some 2,000,000 people with an average household income of over
$40,000.
Retail Market Analysis
================================================================================
Competitive Retail Center No. 4
Name: Danbury Fair Mall
Location: I-84 Fairground Site & Rt. 7
Danbury, Connecticut
Owner: Wilmorite, Inc.
Distance and Time from Subject: 25+/- miles northeast
(40+/- minute drive time)
Year Opened: 1986
Year(s) Expanded/Renovated: 1987/1988/1991/1992
Total GLA: 1,270,146+/- SF
Mall GLA: 462,146+/- SF
Mall Shop Ratio: 36%
Anchor Tenants: Filene's 173,000 SF
JCPenney 137,000 SF
Lord & Taylor 80,000 SF
Macy's 240,000 SF
Sears 178,000 SF
----- ----------
Total Anchor GLA: 808,000 SF
Number of Mall Shops: 210+/-
Occupancy (Mall GLA): 97%
Average Rent (Mall GLA) $30-$50 estimated
Land Area: 120+/- AC
Parking/Ratio: 6,500+/- cars; 4.5 per 1,000+/- SF
Demographics: Primary Market Population: 360,000
Average Household Income: $47,000
(Source: Directory of Major Malls)
Retail Sales: $420/SF
Danbury Fair Mall is a two-level, super-regional shopping center in
Danbury, Connecticut. Built in 1986, the mail is located at Interstate 84 and
Route 7 on the former Connecticut state fairgrounds. Danbury Fair is anchored by
Sears, Macy's, Lord & Taylor, Filene's, and JCPenney, and contains approximately
500,000+/-square feet of mall shop area. The total project includes 1,270,146+/-
square feet.
Danbury Fair serves an extensive trade area which encompasses areas of
Central Connecticut and Southeast New York State. The mall's primary trade area,
which encircles a 15-mile radius around the site, includes a population of over
360,000 with 128,281 households. Average household income is estimated to be
$81,669. The mall was reported to be 96 to 97 percent occupied and sales were
estimated at $420 per square foot.
Retail Market Analysis
================================================================================
Competitive Retail Center No. 5
Name: Jefferson Valley Mail
Location: Route 6 and Taconic State Parkway
Westchester County
Yorktown Heights, New York
Owner Melvin Simon & Associates
Distance and Time from Subject: 40+/- miles northwest; 60+/- minute
drive time
Year Opened: 1983
Year(s) Expanded/Renovated: N/A
Total GLA: 580,371+/- SF
Anchor Tenants: Jordan Marsh 119,900+/- SF
Sears 155,400+/- SF
Service Merchandise 32,815+/- SF
------------------- -------------
Total 308,115+/- SF
Number of Mall Shops: 108+/- stores
Land Area: 50+/- AC
Parking/Ratio: 2,950+/- cars/5.1+/- per 1,000+/- SF
Demographics: Primary Population: 152,821
Average Household Income: $63,500
(Source: Directory of Major Malls)
Jefferson Valley Mail is a two-level regional mall anchored by Jordan Marsh
and Sears in Yorktown Heights, New York. The mall contains approximately 580,371
square feet and was constructed in 1983.
Jefferson Valley Mall captures most of its sales from upper Westchester
County and neighboring Putnam County. Sears is clearly not a fashion leader and
Jordan Marsh is not a regional force in this market. The merchandising mix of
this center is not positioned to capture the market' more upscale potential.
Average mall shop sales in 1993 were $310 per square foot for comparable
stores. Leases range from $20.00 to $43.00 per square foot with average rent by
size category as follows: less than 1,000 feet, $43.00; 1,000 to 3,999 feet,
$30.00; 4,000 to 5,999, $25.00; and 6,000 to 30,000, $20.00. Food court rents
average approximately $70.00 per square foot, while kiosks average $190.00.
Retail Market Analysis
================================================================================
Competitive Retail Center No. 6
Name: Poughkeepsie Galleria
Location: I-84 and Route 9
Poughkeepsie, New York
Owner Pyramid Companies
Distance and Time from Subject: 45+/- miles northeast
(60+/ minute drive time)
Year Opened: 1987
Year(s) Expanded/Renovated: 1992
Total GLA: 1,000,000+/- SF
Mail GLA: 235,549+/- SF
Mall Shop Ratio: 24%
Anchor Tenants: Filene's 119,873 SF
JCPenney 179,953 SF
Montgomery Ward 150,000 SF
Sears 112,000 SF
Dick's Sporting Goods 125,000 SF
Lechmere 77,337 SF
-------- ----------
Total Anchor GLA: 764,000 SF
Number of Mall Shops: 145+/-
Occupancy (Mall GLA): 96%
Average Rent (Mall GLA) $20-$30/SF
Land Area: 120+/- AC
Parking/Ratio: 7,000+/- cars; 6.5 per 1,000+/- SF
Demographics: Primary Market Population: 450,000
Average Household Income: $45,000
(Source: Directory of Major Malls)
Retail Sales: $308/SF
The Poughkeepsie Galleria was constructed in 1987 and contains
approximately 1.0 million square feet. The center is located off Interstate 84
and Route 9 in Dutchess County and is anchored by six major tenants. This is a
two level enclosed mall with a traditional mix of tenants that cater to a broad
middle income market.
Current occupancy in this center is pegged at 96.0 percent. Average mall
shop sales are reported to be $308 per square foot with rents ranging from $20
to $30 on average. By virtue of its distance form the subject, it is only
indirectly competitive with The Galleria.
The mall properties cited above (inclusive of the subject) comprise
approximately 7.1+/- million square feet of mall space. Along with The
Westchester, the subject is one of two regional malls located within the White
Plains MSA, and together with the more remote Cross County Center and The
Jefferson Mall, one of four regional malls located within Westchester County.
Other Competition
As discussed, direct mall competition for the subject in its immediate
trade area is limited to The Westchester. In addition to the facilities
described, the balance of the retail inventory proximate to the Galleria at
White Plains consists of several free-standing department stores, as well as two
notable shopping centers located within the subject's primary trade area. A
brief description of these department stores and retail centers will serve to
portray the balance of the neighborhood retail alignment.
The eastern section of White Plains has long been a magnet for top
retailers. The nearby Saks and Bloomingdale's locations, along with Sears and
Macy's department stores in downtown White Plains, are free-standing units and
are not deemed to be directly competitive to The Galleria's full array of shops.
It is expected that they will continue to attract shoppers to the area, and
while they carry much of the same quality of merchandise, shoppers will prefer
the convenience of enclosed attached parking with a variety of specialty stores
in one location.
Bloomingdale's occupies a free-standing, three-story department store
constructed in 1975. The store is situated in the middle of an ample site
surrounded by open parking (this would permit additional development or
expansion if the parking were decked). The 240,000+/- square foot store
includes almost all of the departments found in its New York City store
including a gourmet food shop on a below grade level.
Saks was one of the first upscale Manhattan-based department stores to come
to Westchester when it opened its White Plains store in 1954. The
160,000+/- square foot store sits across Maple Avenue from The Westchester.
Parking is provided on two levels of open pavement, each of which serves
the stores two retail levels. A two-story enclosed deck was later added to
the property, however, it is not attached to the store.
Westchester Place has been a proposed 820,000 square foot mall in White
Plains to be developed around the existing Saks Fifth Avenue site at
Bloomingdale Road and Maple Avenue. The developer, Alex Conroy of
Greenwich, has reportedly purchased the former NYNEX property and has a
partnership agreement with Saks. The project was originally proposed to be
an 800,000+/- square foot regional mall with Saks and other anchors (to be
named). This project is not expected to go forward along the scale as
proposed but will likely be something much smaller. At this time, there is
no firm development plan. Saks' real estate personnel have advised us that
they are considering a number of options for the store at this time.
Macy's is a cornerstone of downtown White Plains retail. The 350,000+/-
square foot three-level store was opened in 1949. The building sits at the
corner of Main Street and Mamaroneck Avenue. Parking is provided by an
adjacent municipally-owned, decked structure which is attached to the top
level of the store by a covered walkway. Because of
the difficult vehicular access of its downtown location, Macy's relies more
on pedestrian traffic than do the other area department stores. Federated
Department Stores, owner of Stern's, Bloomingdale's and Macy's, has
announced that they will convert the Stern's located at the Galleria at
White Plains to a Macy's, and vacate the free-standing location. No firm
alternative use plans for the free-standing store have been announced. It
is believed that Federated will sell the property, which might be picked up
by a big box user or discount department store.
Sears has a free-standing unit near the White Plains Municipal Building.
Shoppers are inconvenienced with the fact that they have to pay to park to
shop at a Sears store when other suburban locations are free.
There are other retail projects which also compete to some degree with the
subject.
The Pavilion at White Plains
This four-level, 180,000+/- square foot enclosed power center is a re-use
of the former Alexander's department store a few blocks from The
Westchester Fashion Mall. Leases in the center range from $16 to $20 per
square foot for major tenants, and $20 to $25 per square foot for smaller
space users. The site was purchased for $16.0 million and the project
developed by The Fischer Group of New York and locally based Hamilton
Development. It was originally planned as a high-end anchorless center, but
its developers could not secure tenants or financing in the face of The
Westchester. They decided to reposition it as a power center. The center
reportedly leased relatively quickly under its repositioned merchandising
format. Nonetheless, the developers had encountered severe cost overruns
with estimates of $50.0 to $55.0 million in total development costs. As
such, they were forced to look for a buyer.
This project opened over the course of a six month time period between
December 1993 and June 1994. The buyer reportedly acquired the property
with a strong emphasis on in-place income. The project has covered parking
and development rights to expand by 70,000 square feet. The buyer has no
immediate plans to expand, but will want to gauge the impact of The
Westchester.
Vernon Hills Mall
Vernon Hills is a 350,000 square foot specialty center located in
Eastchester, approximately 5 miles south of The Galleria. It was built in
1958. Vernon Hills, owned by Salvatore Pepe, is an unenclosed combination
of small strip centers and free standing stores. It includes a limited
array of upscale merchants, including Lord & Taylor in an owned, 110,000+/-
square foot store, Brooks Brothers, Ann Taylor, Laura Ashley, and Talbot's.
A subsidiary of the May Company, Lord & Taylor crries a moderate to better
mix of merchandise. This two level store has a good assortment of moderate,
bridge, and between sportswear and dresses. Bonwit Teller, which occupied
one of the free-standing units in the center, closed in early 1990 due to
the chain's bankruptcy. This store has since been subdivided and leased to
The Gap, Gap Kids and Gap Shoes, Banana Republic and Brooks Brothers. This
center is 100 percent occupied; rents for small shop spaced are reported to
be between $35 to $50 per square foot, triple net.
The Pyramid Companies is currently constructing Palisades Center. Upon
completion in November 1996, this center will contain approximately 3.3 million
square feet of gross leasable area and will integrate tenants representing every
category of retail offering. Being developed on a 120 acre site off of
Interstate 87 in West Nyack, New York, Palisades will be a four level, 3.3
million square foot super-regional shopping center. Palisades will be comprised
of eight towers to be tenanted by big-box anchors, category retailers and/or
traditional department stores which will aggregate approximately 2.4 million
square feet and a mail shop area of up to 850,000 square feet.
Major stores include a 118,000 square foot BJ's Wholesale Club, The Home
Depot at 135,000 square feet, a 132,000 square foot Wal-Mart, Filene's at
200,000 square feet, Lord & Taylor at 118,000 square feet, and a 156,000 square
foot JC Penney.
Big-box tenants include a 100,000 square foot Toys R Us Superstore, a
55,000 square foot Dick's Clothing and Sporting Goods, a proposed 55,000 square
foot Nordstrom's Rack, a proposed 33,000 square foot Borders Books & Music, and
Bed, Bath and Beyond and Nobody Beats the Wiz, both of 48,000 square feet. The
mall will also include large space user tenants Gap Old Navy at 24,000 square
feet, a 23,000 Just for Fun, and a 30,000 square foot Crate & Barrel. The
project will comprise 752,000 square feet of mall shop space located on four
levels along with approximately 70,000 square feet of Disney concepts.
This center will also include a "thEATery" concept which was created to
maximize the impact of the entertainment facility that will be developed by
situating restaurants adjacent to a 20-screen cinema complex. Sony Theaters will
be locating on the fourth level of the mall. Up to 22 casual dining restaurants
may be incorporated within the 215,000 square foot "thEATery" and provide a
varied cross-section of dining choices for the consumer. Restaurants will
include several of the Brinker International concepts including Chili's and
Macaroni Grill, and such other notable eating establishments as Legal Seafood,
Champps Americana, Bice and The Palm.
Palisades Center is located approximately 15 miles northeast of the subject
and will likely have some impact on area shopping patterns. Management at the
subject noted that the Galleria only draws about 5.0 percent of its customers
from across the river in Nyack. They do not expect the Palisades to have a
material impact on sales at the subject.
GLA per Capita
The data presented summarizes the extent of existing regional mall
development inside the trade area. According to the National Research Bureau,
the average GLA per capita for the United States and State of New York were
5.5+/- and 4.2+/- square feet, respectively, for 1995. This statistic pertains
to centers in excess of 400,000 square feet
As noted previously, inclusive of the subject, Westchester County is the
location of four regional malls with a combined GLA of 3.5+/- million square
feet. With an estimated Westchester County population of 898,586, this results
in approximately 3.9+/- square feet of regional mall GLA per person. This is
below the composite state and national averages indicating that the market is
not saturated and could potentially absorb some additional regional mall space
and still be within the average parameters for the state.
Anchor Alignment
The anchor alignment of the subject also helps to define the potential
boundaries of the subject's trade area. The subject property is anchored by JC
Penney and Stern's. Stern's will be converted to a Macy's during 1996. The
following is a profile of each of these anchor tenants.
JC Penney, the fourth largest retailer in the United States (after
Wal-Mart, K-Mart and Sears), operates 1,233 JC Penney department stores and
526 drug stores (Thrift Drug and Treasury Drug) throughout all 50 states
and Puerto Rico. The $21 billion company has changed its historical image
as a discount dime store and has targeted upper-middle-class consumers by
adding brand-name soft goods and dropping hard goods from the in-store
product mix. Today the company's product mix centers on apparel, shoes,
jewelry, and home furnishings. In 1994, retail sales rose 7.4 percent to
$20.4 billion, surpassing the $20 billion mark for the first time. Net
income also exceeded $1 billion for the first time ever. Total revenues
were up 7.7 percent to $21.1 billion. The company has experienced a ten
year compound annual growth rate in retail sales (1984-1994) of about 4.2
percent. Overall, productivity among stores increased by 8.9 percent to
$159 per square foot from $146 per square foot in 1993, and $137 per square
foot in 1992. Catalog sales totaled $3.8 billion in 1994-95, accounting for
19 percent of total retail sales. Drug stores, under the Thrift Drug name,
totaled 526 units in 1994-95 and accounted for 7.6 percent of total sales
which achieved $243 per square foot. The company currently has
approximately 113 million square feet of store space. In February 1995, the
company acquired the 97 unit Kerr Drug Store chain. The company will
continue to expand its private brand lines. In addition, the catalog
operation is posed to continue to do well, coming off of its highest sales
in its 31 year history. The company did not fare as well in fiscal 1995
(year ending January 1995) with earnings falling by 20 percent and same
store sales declining by 2.5 percent in the fourth quarter and 1.4 percent
for the fiscal year. The company is planning a $700 capital expenditure
program over the next three years to help bolster store performance. Value
Line reports that the company's financial strength warrants an "B++"
rating. Standard & Poors has forecasted a continued modest rise in
comparable store sales. They rate the company "A-".
Federated Department Stores, Inc. is one of the leading full-line
department store companies in the United States. The year 1994 was a major
acquisition year for the company. On December 19, 1994 the company
completed a $4.1 billion purchase of Macy's and it has recently
consolidated the A&S/Jordan Marsh division into Macy's East. On May 26,
1994 the company purchased Joseph Home Co., a department store retailer
operating ten units in Pittsburgh and Erie, Pennsylvania
for $116.0 million, including the assumption of $40.0 million in debt and
acquisition costs. Upon completion of this merger with Macy's, Federated
operates 355 department stores in 35 states at urban or suburban sites,
principally in densely populated areas operating under the names of
Bloomingdale's, The Bon Marche, Bullocks, Burdines, Goldsmith's, Jordan
Marsh, Lazarus, Rich's, Stern's and Macy's. The company also operates more
than 135 specialty and clearance stores under the names of "Aeropostale,"
'Charter Club" and MCO" and a mail order catalog business under the name of
"Bloomingdale by Mail." The company recently announced the closure of the
MCO stores.
The properties consist primarily of stores and related retail facilities
including warehouse and distribution centers. Of the 355 stores, 181 stores
were entirely or mostly owned and 174 stores were entirely or mostly
leased. The company owns or leases other properties including office space
in New York and Cincinnati. During 1994, the company added 142 department
stores and 135 specialty and clearance stores. Of the 142 department store
additions, 121 were a result of the acquisition of Macy's and 10 as a
result of the acquisition of Horne's. All 135 specialty and clearance
stores were added through the Macy's acquisition. Federated's net sales for
1994 increased by 15 percent to $8,315.9 million, compared to $7,229.4
million reported in 1993. On a comparable store basis net sales increased
by 3.1 percent. The company's retail operating division sales as of January
28, 1995 were as follows:
========================================================================================================
Federated Department Stores Company
========================================================================================================
Number Gross Average Sales
of Stores 1994 Sales Square Feet Per Square Foot
========================================================================================================
Abraham & Straus/Jordan Marsh 34 $1,441.1 8,999 $160
--------------------------------------------------------------------------------------------------------
Bloomingdale's 16 $1,297.5 * 4,439 $292 ($268.57)
--------------------------------------------------------------------------------------------------------
The Bon Marche 40 $ 873.0 4,892 $178
--------------------------------------------------------------------------------------------------------
Burdines 46 $1,248.5 7,648 $163
--------------------------------------------------------------------------------------------------------
Lazarus 51 $1,130.3 10,212 $111
--------------------------------------------------------------------------------------------------------
Rich's/Goldsmith's 25 $ 999.7 4,991 $200
--------------------------------------------------------------------------------------------------------
Stern's 22 $ 707.4 3,946 $179
--------------------------------------------------------------------------------------------------------
Macy's East 64 $3,447.7 ** 17,162 $201
--------------------------------------------------------------------------------------------------------
Macy's West/Bullocks 57 $2,334.8 ** 11,845 $197
--------------------------------------------------------------------------------------------------------
Macy's Specialty 122 $ 128.4 ** 420 $395
--------------------------------------------------------------------------------------------------------
MCO 14 $ 83.1 ** 704 $118
--------------------------------------------------------------------------------------------------------
Total 491 $8.315.9 75,228
========================================================================================================
* Includes $105.3 million in sales of the company's Bloomingdale's By Mail subsidiary. Net of this
allocation, sales were equal to $269 per square foot.
** Represents sales of divisions acquired pursuant to merger.
========================================================================================================
Federated has a C++ rating from Value Line. By fiscal 1995, savings from
the closure of Macy's corporate office (second half of 1995) and other
consolidation benefits may help boost Federated's share net to $2.00 to
$2.10. Value Line's earning projections to 1998-2000 is that excess cash
flow will enable Federated to reduce its long term debt by about $1 billion
between fiscal 1995 and the end of the decade, and the operating margin
will gradually widen following a market improvement in fiscal 1996.
Federated's historical and projected sales are as follows:
Federated's management believes the department store business will continue
to consolidate and, accordingly, intends to consider the possible
acquisition of department store assets and companies from time-to-time.
Future acquisitions, if any, are expected to be financed through a
combination of cash on hand and from operations and possible long term debt
or other securities issuance. The company's budgeted capital expenditures
are approximately $2,800 million for 1995 to 1998, with approximately 68
percent budgeted for existing stores, 21 percent budgeted for new stores
and 11 percent for technology.
Trade Area Definition
The Galleria at White Plains is located in downtown White Plains in the
heart of the Central Business District. The Central Business District is
afforded three interchanges with I-287, the Cross Westchester Expressway. It is
also immediately proximate to the downtown office buildings and employment
centers. Market research indicates that approximately 20 percent of the mall's
customers walk to the mall. The property is also located within two blocks of
the White Plains train and bus terminals, both of which are major hubs. This
strategic location makes it one of the most accessible retail locations within
the New York MSA. The advantage of interstate access has the effect of expanding
the mall's trade area by virtue of reducing travel time for residents in more
distant locations.
As discussed in the previous section, the location and accessibility of
competing centers also has direct bearing on the formation and make-up of a
mall's trade area. To the south of the mall is the Cross County Shopping Center.
The center is most frequently cited and cross shopped by patrons of the
Galleria. As an open air center it lacks the ambiance and convenience of the
subject and its anchors are not as strong.
Also found to the south is the Vernon Hills Mall, an upscale open air
center that does well but is considered to be secondary competition. To the
north and northeast are both the Jefferson Valley and Danbury Fair Malls, which
combined, do a very good job at limiting the subject's northern penetration.
However, their sheer distance from the subject marks them as secondary
competition.
The Stamford Town Center to the east has positioned itself formidably as a
fashion center catering to the wealthier communities of southeastern Connecticut
and Westchester County. In view of the subject's more broad-based traditional
merchandising, it co-exists quite readily with Stamford Town Center. The recent
completion of The Westchester shows that it is merchandised to be upscale and as
such, should compete most directly with Stamford Town Center. Quite obviously,
there will be some effect on the Galleria through curiosity and cross shopping,
and some tenants will likely leave for the O'Connor project, but we feel
comfortable that both malls can co-exist in the White Plains market. We further
believe that the decision by Federated to convert the Stern's to a Macy's will
bode well for the subject's long term merchandising and direction. Effectively,
the Galleria is more clearly defining its traditional, broad based mass market
appeal, leaving the higher end market for its competitors. The balance of the
Central Business District retail structure is made up of the various department
and specialty stores that comprise the retail infill. In our opinion, they
collectively act as a traffic generator which in turn benefits the area in
general.
Although located outside of the subject's effective trade area, it is
anticipated that Palisades Center, a 3.3+/- million square foot mega-mall
currently under construction in eastern Rockland County approximately 15+/-
miles from the subject, will certainly impact regional shopping dynamics.
Relative to the Galleria at White Plains, this center's strongest draw for
Westchester County shoppers will most likely be the depth of big box and
category killer tenants whose expansions have been inhibited in Westchester
County due to a scarcity of development sites. These retailers include Wal-mart,
BJ's Wholesale Club and Home Depot.
To summarize, the foundation of our analysis in the delineation of The
Galleria at White Plains trade area may be summarized as follows:
1. The Hudson River effectively defines the subject trade area's western
border. With the planned 1996 completion of Palisades Center,
competition will become much more intense in this area, with the
subject benefiting from the physical and psychological barriers posed
by the river.
2. Highway accessibility including area traffic patterns, geographical
constraints and nodes of residential development.
3. The position and nature of the area retail structure including the
location of destination retail centers and the strength and
composition of the retail infill as discussed above.
4. The size, anchor tenancy and merchandising composition of the mall
tenants enhances its total market penetration.
5. Adequate cross shopping occurs with various free-standing department
stores within the White Plains Central Business District, whose
overall presence compliments rather than competes with the mall.
Ownership has provided us with the results of their most recent customer
survey which has identified shopping patterns based upon origin by zip codes.
After reviewing this report in conjunction with our independent analysis of the
trade area, we are in concurrence with its findings. As such, we have elected to
rely on some of the demographic results it has
produced. An analysis of key demographic indicators can then be performed based
upon this defined trade area.
Population
Once the market area has been established, the focus of our analysis
centers on the trade area's population. Equifax National Decision Systems
provides historical, current and forecasted population estimates for the total
trade area. Patterns of development density and migration are reflected in the
current levels of population estimates. The chart on the Facing Page compares
these statistics.
Between 1990 and 1996, ENDS reports that the population within the primary
trade area increased by 7,929 to 383,211. This 2.11 percent increase (0.35
percent per annum) is consistent with of the effective trade area. Expanding to
the effective trade area, the current population increases to 698,228. The
current projection is for a continuation of this trend with additional growth of
0.37 percent per annum for the primary and effective trade areas. On balance, we
note that population growth throughout the trade area has outpaced that of the
New York MSA and New York State, although trails the national growth rate.
Provided on the Following Pages are graphic representations of the current
population distribution and projected population growth.
A household consists of all the people occupying a single housing unit.
While individual members of a household purchase goods and services, these
purchases actually reflect household needs and decisions. Thus, the household is
a critical unit to be considered when reviewing market data and forming
conclusions about the trade area as it impacts the retail center.
National trends indicate that the number of households are increasing at a
faster rate than the growth of the population. Several noticeable changes in the
way households are being formed have caused the acceleration in this growth,
specifically:
o The population in general is living longer on average. This results in
an increase of single and two person households.
o The divorce rate increased dramatically during the last decade, again
resulting in an increase in single person households.
o Many individuals have postponed marriage, thus also resulting in more
single person households.
Between 1990 and 1996, the primary trade area added 6,856 households,
increasing by 4.9 percent to 145,604 units. This growth is equivalent to a
compound annual increase of .81 percent. Alternatively, the secondary trade area
added 6,161 households to 121,318, indicating a slightly higher .87 percent
annual rate of growth. Combined, the total trade area is currently estimated to
contain 266,922 households.
Between 1996 and 2001, the primary trade area is expected to grow by 3.52
percent (.69 percent per annum) to 150,725 households. This rate of growth is
slightly less than that for the secondary area which is expected to grow by 3.79
percent. Overall, the total trade area is expected to grow by 3.64 percent to
nearly 277,000 households.
Trade Area Income
A significant statistic for retailers is the income potential of a trade
area's population. Income levels, either on a per capita, per family or
household basis, indicate the economic level of the residents of the market area
and form an important component of this total analysis. More directly, average
household income, when combined with the number of households, is a major
determinant of an area's retail sales potential. The trade area income figures
support the profile of an affluent, upper-middle income market. According to
ENDS, average household income within the primary trade area is currently
$90,118.
Available data shows an identifiable pattern of income levels throughout
the total trade area as shown below along with comparisons to the state and
United States.
=================================================
Average Household Income
=================================================
Survey Area Avg HH Income
=================================================
Primary Trade Area $90,118
-------------------------------------------------
Secondary Trade Area $80,457
-------------------------------------------------
Effective Trade Area $85,779
-------------------------------------------------
Westchester County $88,846
-------------------------------------------------
New York MSA $59,659
-------------------------------------------------
State of New York $57,348
-------------------------------------------------
United States $49,031
=================================================
Sources: Equifax National Decision Systems
These statistics show that the primary trade area has an average household
income of $90,118 which decreases to $85,779 with the inclusion of the lower
income, but still relatively affluent, areas in the secondary market. The
effective trade area's average household income is well above that of the MSA,
state and country.
Provided on the Following Page is a graphic presentation of the household
income distribution throughout the total trade area. As can be seen, the subject
lies near the middle of the upper income communities. Generally, the highest
concentrations of wealth (average incomes of $120,000 and higher) are found to
the south and east of the center, but quite proximate to the mall. We also note
that average household income throughout the total trade area is forecasted to
increase at compound annual rate of 4.49 percent.
Another measure of the ability of a trade area to support retail business
is the area's effective buying income (EBI). This data is not measured by
specific trade area, but rather by both the metropolitan statistical area (MSA),
as well as on a county basis as reported in Sales and Marketing Management's
Survey of Buying Power. At the onset of 1995, Westchester County had an
aggregate EBI of $25.6 billion. A comparison can be made to the total New York
consolidated area and New York State.
======================================================================================================================
Effective Buying Income
======================================================================================================================
1990 1995 Compound Annual Chg.
-----------------------------------------------------------------------------------------------------
Total EBI Median HH Total EBI Median HH Total EBI Med HH EBI
Area ($Bil) EBI ($Bil) EBI ('90-95) ('90-95)
======================================================================================================================
Westchester $19.1 $42,287 $25.6 $59,654 6.08% 7.12%
County
----------------------------------------------------------------------------------------------------------------------
New York $132.1 $25,129 $172.7 $40,569 5.51% 10.05%
MSA
----------------------------------------------------------------------------------------------------------------------
New York $269,608.7 $27,632 $347,315.8 $42,460 5.20% 8.97%
State
======================================================================================================================
Source, Sales & Marketing Management "Survey of Buying Power"
======================================================================================================================
The data above shows that the median household effective buying income for
Westchester County significantly exceeds that of the New York consolidated area
and New York State. Since 1990, the total EBI has grown at a compound annual
rate of 6.09 percent while the median household EBI has grown by 7.12 percent.
Both of these measures have exceeded inflation over this period.
Retail Sales
Retail sales growth for the Westchester County was compared to that of the
New York consolidated area and New York State. This Comparison is shown below.
=========================================================================================================================
Retail Sales
=========================================================================================================================
1990 1995 Compound Annual Chg.
--------------------------------------------------------------------------------------------------------
Total Sales Median HH Total Sales Median HH Total Sales Med HH
Area ($Mil) Sales ($Bil) Sales ('90-95) Sales('90-95)
=========================================================================================================================
Westchester $7,927.8 $24,431 $8,457.4 $26,144 1.30% 1.36%
County
-------------------------------------------------------------------------------------------------------------------------
New York $48,121.1 $13,810 $50,734.8 $15,080 1.06% 1.78%
MSA
-------------------------------------------------------------------------------------------------------------------------
New York $122,452.8 $17,871 $134,422.0 $20,523 1.88% 2.81%
State
=========================================================================================================================
Source: Sales & Marketing Management "Survey of Buying Power"
=========================================================================================================================
Total retail sales for Westchester County have increased at a compound
annual rate of 1.30 percent, while retail sales per household have increased at
an annual compound rate of 1.36 percent. While overall these growth rates trail
those of the state, we note that annual compound growth of total retail sales
has exceeded that of the New York Metro Area. Further, Westchester County's
retail sales per household of $26,144 exceeds that of the New York metro area by
over 70.0 percent and that of New York State by 27.0 percent.
While retail sales trends within the MSA and region lend insight into the
underlying economic aspects of the market, it is the subject's sales history
that is most germane to our analysis.
We have been provided with a summary of comparable mall shop sales for the
years 1991 to 1995. Per square foot sales figures represent the weighted average
sales for the calendar year for small shop tenants in continuous occupancy of
the same suite for the previous twenty four months. These results are summarized
below.
As illustrated above, comparable sales posted a noticeable decrease between
1994 and 1995 to $344 per square foot. This decrease in mall shop sales is
considered to have resulted from the confluence of several factors, including
increased competition via the entry of The Westchester into the White Plains
marketplace; the conversion of A&S to Stern's; and a downward sales trend
experienced by most apparel retailers during 1995.
Total reporting mall shop sales for 1995 were $88.6 million. Based on a
reporting GLA of 267,105 square feet, this results in mall shop sales of $331.61
per square foot. This measure shows reporting tenant performance only, since
some tenants do not report sales by lease agreement or fail to report sales for
a particular sales period. While the aggregate sales amount is reflective of the
total sales generated by the mall shops, it is important to recognize that this
includes all sales including sales from partial year tenants. Furthermore, since
the unit rate is based upon a full reporting year, it has the effect of
understating the mall shop sales performance on a unit rate basis.
By comparison, the Urban Land Institute's Dollars and Cents of Shopping
Centers (1995) reports national and regional sales averages for regional and
super-regional shopping malls. Nationally, average sales at super-regional
centers is reported at $203.09 per square foot, down 1.4 percent from 1993. For
regional malls, average sales are reported to be $176.16, virtually even from
1993. A comparison of national and regional figures is shown on the following
chart.
================================================================================
Regional/Super-Regional Centers
================================================================================
Area Average Median Lower Decile Upper Decile
================================================================================
United States $176.16/ $163.54/ $125.88/ $285.40/
$203.09 $198.93 $140.46 $305.23
--------------------------------------------------------------------------------
East $204.96/ $183.05/ $126.07/ $323.74/
$220.64 $183.81 $130.46 $379.81
--------------------------------------------------------------------------------
West $188.63/ $167.46/ $124.00/ $264.89/
$190.51 $187.64 $143.01 $258.68
--------------------------------------------------------------------------------
South $156.27/ $154.18/ $129.63/ $195.24/
$210.30 $207.99 $145.75 $293.70
--------------------------------------------------------------------------------
Midwest $178.99/ $179.24/ $125.50/ $290.57/
$195.03 $192.42 $148.18 $261.09
================================================================================
Source: Urban Land Institute Dollars and Cents of Shopping Centers (1995)
As a regional mall in the eastern part of the country, the subject's 1995
sales performance of $332 per square foot can be compared to its peers as shown
below.
===============================================================
Average Subject Variance
===============================================================
United States $176 $332 187%
---------------------------------------------------------------
East $205 $332 162%
===============================================================
On a relative basis, the subject is substantially outperforming its peer
group on average in terms of sales productivity, and ranks in the upper decile
on both a national and regional basis.
Anchor Store Sales
Neither JCPenney or Federated Department Stores (A&S/Stern's) is required
to report sales to mall management. Anecdotally, Stern's posted satisfactory
results during 1995, although both A&S and Macy's have historically reported
significantly higher sales volumes in the White Plains marketplace than their
more mid-market counterpart. The JCPenney store is considered to perform
well-above the company's national average. As noted earlier in this report,
JCPenney and Federated Department Stores (Macy's, A&S, Stern's) represent two of
the nation's leading department store companies.
It has been reported that JCPenney had sales of about $45.0 million in
1995, down from about $48.0 million in 1994. Stern's had sales of roughly $30.0
million in 1995, down from A&S sales of $45.0 million in 1994.
A comparison of the subject's department store performance can be made to
their peers. The Urban Land Institute also tracks sales of owned and non-owned
department stores by selected affiliation and region. This information is
summarized in the following chart.
========================================================================================
Department Store Sales Data
========================================================================================
Category/Region Average Sales PSF Top 10% PSF Top 2% PSF
========================================================================================
Super-Regional U.S.
Owned Dept. Stores $144.99 $247.99 $505.13
National Chain $146.89 $271.91 $532.63
Non-Owned Dept. Stores $154.34 $243.28 $367.33
National Chain $154.34 $243.28 $367.33
Eastern Region $152.35 --- ---
Western Region $147.26 --- ---
Midwestern Region $131.12 --- ---
Southern Region $159.23 --- ---
========================================================================================
Average - All Super-Regional Centers $148.82 $251.62 $443.11
========================================================================================
Regional Malls U.S.
Owned Dept. Stores $149.26 $245.53 $352.79
National Chain $149.03 $237.27 $343.94
Non-Owned Dept. Stores $162.14 $215.20 $266.01
National Chain $163.08 $215.32 $266.09
Eastern Region $174.78 --- ---
Western Region $165.36 --- ---
Midwestern Region $151.49 --- ---
Southern Region $150.39 --- ---
========================================================================================
Average - All Regional Centers $158.19 $228.33 $307.21
========================================================================================
Source: Urban Land Institute Dollars & Centers of Shopping Centers (1995)
========================================================================================
Data from ULI shows that the mean sales level for department stores in
super-regional malls varies from $131.12 to $159.23 per square foot with an
overall average of $148.82 per square foot. Stores in the top 10 percent of
their peers average (unweighted) approximately $252 while the top 2 percent
average approximately $443 per square foot.
Data for department stores in regional malls shows that the mean ranges
from $149.03 to $174.78 per square foot with an overall average of $158.19 per
square foot. The unweighted average for the top 10 percent and 2 percent is
approximately $228 and $307 per square foot, respectively.
Summary
Within the shopping center industry, a trend toward specialization has
evolved so as to maximize sales per square foot by deliberately meeting customer
preferences rather than being all things to all people. This market segmentation
is implemented through the merchandising of the anchor stores and the tenant mix
of the mall stores. While remaining clearly positioned to appeal to the broad
middle of the market, the subject property reflects this trend toward market
segmentation, as evidenced by the recent remerchandising of mall shop tenants
and the planned conversion of Stern's to Macy's. We believe that the conversion
of Stern's to Macy's later this year will bode well for the mall. Macy's is a
highly recognized name in the New York region, and a formidable presence in the
White Plains retail market. Macy's
broad merchandising mix provides for a wide array of soft goods and housewares
ranging from mid-market to more upscale price points. Macy's delivery of a
strong traditional merchandise base together with more upscale offerings is well
matched to the Galleria's position within the Westchester County marketplace - a
dominant mall for traditional merchandise that is also located in one of the
nation's most affluent markets.
JMB recently completed a fairly significant renovation of the mall, and its
re-tenanting program continues as of this writing. This plan is partly in
response to changing (advancing) demographics and follows a typical cycle for
the rejuvenation of the center which is now 15+/- years old. Equally as
important, however, is the fact that ownership has and continues to fortify the
subject's competitive position against The Westchester, which provides shoppers
a wide array of unique retailers together in a distinctly upscale and appealing
shopping environment.
Conclusion
We have analyzed the profile of the New York MSA and Westchester County in
order to make reasonable assumptions as to the continued performance of the
subjects trade area.
A metropolitan and locational overview was presented which highlighted
important points about the study area and demographic and economic data
specific to the trade area were presented. The trade area profile discussed
encompassed a zip code based analysis separating the primary and secondary
components that was established based upon a thorough study of the
competitive retail structure. Marketing information relating to these
sectors was presented and analyzed in order to determine patterns of change
and growth as it impacts The Galleria at White Plains. Next we discussed
the subject's retail sales history. This data is useful in giving
quantitative dimensions of the total trade area, while our comments serve
to provide qualitative insight into this market. A compilation of this data
provides the basis for our projections and forecasts particular to the
subject property. The following summarizes our key conclusions:
o The subject is benefited by its location in the nation's largest
metropolitan area. Within this component of the MSA, the subject is
the dominant destination retail center for a primary trade area of
nearly 380,000 people. It is also well positioned to serve a
substantial Central Business District population that dramatically
increases during business hours. These individuals have additional
purchasing power not measured in the trade area demographic
statistics.
o The MSA has excellent inter and intra-regional accessibility. The
subject is benefited by excellent regional accessibility being located
proximate to I-287 and the regional road network.
o The subject offers a cohesive merchandising mix with a strong
allocation of regional and national tenants. Therefore, merchants have
the benefit of stronger advertising budgets and are more familiar to
shoppers which typically results in higher sales levels.
o From a competitive standpoint, the mall dominates the market for
traditional merchandise. The decision by Federated Department Stores
to convert the subject Stern's to a Macy's format, is, in our opinion,
an important development that will serve to broaden the subject's
market appeal.
o Coincidental to the opening of The Westchester, an 830,000+/- square
foot regional mall anchored by Neiman Marcus and Nordstrom's tenanted
by an upscale mall shop tenant base, and the conversion of A&S to
Stem's, comparable mall shop sales posted a noticeable decrease during
1995. It is our opinion that with the conversion of Stern's to Macy's,
together with the declining novelty of The Westchester, sales should
mark an increase during 1996. We note that despite the recent decline
in mall shop sales, the mall shop's per square foot sales volumes
remain in the top decile on both a regional and national basis.
Our analysis concludes that the existing and planned merchandising mix of
the mall shops, its excellent Central Business District location, and the
popularity of the anchor department stores all combine to establish The Galleria
at White Plains as a major retail center in its trade area. We believe that with
competent management, aggressive marketing and a responsive maintenance program,
it should maintain and likely enhance its position throughout the foreseeable
future.
Marketability and Marketing Period
In this subsection, we consider the potential market appeal, marketability
and demand for a center like the subject in light of the current real estate
investment market. As discussed elsewhere in this report, the subject involves
an enclosed, two-level, regional mall containing 301,767 square feet of mall
shop GLA anchored by two anchor stores for a combined mall GLA of 883,782 square
feet.
We have considered the potential market demand and investor risk in our
analysis and valuation of the subject property through our selection of
investment parameters, growth rates, and various assumptions employed. In our
analysis, we have attempted to reflect current market conditions and investor
criteria. Most of the shopping center properties which have been offered for
sale at a "reasonable" price, have sold within twelve months exposure to the
open market or less. Properties for which seller expectations of value exceed
the market's perception have required more extended marketing periods and have
generally sold below the initial asking price, or have been pulled off the
market. A "reasonable" price is defined as that price which offers a sufficient
return to the investor relative to the demand for and the risk associated with
the property. These returns vary widely in the current market depending on the
particular investment, its occupancy level, the surrounding demographics, and
upside or downside of the income stream.
The subject is characterized as a well-located, established regional mall
which dominates the traditional merchandising format within its primary market.
The subject's primary trade area has a current population of approximately
383,221 people and is projected to experience moderate but steady population and
household growth in the foreseeable future. We believe that if the subject were
offered for sale, it would represent an important investment opportunity for a
well positioned center with some upside through lease rollover and continued
efforts to upgrade the tenant mix. Based on the above, it is our estimate that a
market sale of the subject property should be realized within twelve months
exposure on the market.
Site Description
Location: 100 Main Street, City of White Plains,
Westchester County, New York. The site
is bounded by Main Street to the north,
Martine Avenue to the south, Court
Street to the east, and Lexington Avenue
to the west.
Land Area
Mail Site: 5.44+/- acres
JCPenney Parcel (Ground Lease): 1.46+/- acres
------------------------------- -------------
Total Appraised Portion of Site: 6.90+/- acres
Stern's Parcel (Not Owned): 2.25+/- acres
--------------------------- -------------
Total Site: 9.15+/- acres
Shape/Topography: Generally rectangular. There are mild
topographic changes throughout the
property. For the most part, the
majority of the mall site is level,
occupied by existing improvements, and
functional for its use.
Frontage: The mall parcel has accessible frontage
along all fronting streets, including
Grove Street which bisects the subject
site and provides ingress/egress into
the adjacent parking structure.
Access: Access to the subject site is good by
virtue of its centralized Central
Business District location. The downtown
is served by two primary interstate
highways, I-287 and I-684. Other major
roadways include The Bronx River
Parkway, New York Post Road, and
Mamaroneck Road. The site is also served
by excellent rail and bus service.
Street Improvements: Paving, curbing, sidewalks, and
lighting.
Soil Conditions: We did not receive nor review a soil
report. However, we assume that the
soil's load-bearing capacity is
sufficient to support existing
structures. We did not observe any
evidence to the contrary during our
physical inspection of the property. The
tract's drainage appears to be adequate.
Utilities: All municipal utilities including water,
sewer, electric, gas, and telephone are
connected and in use.
Water: City of White Plains
Sewer: Con Edison
Gas: Con Edison
Telephone: NYNEX
Property Description
===============================================================================
Land Use Restrictions: We were not given a title report to
review. We do not know of any easements,
encroachments, or restrictions that
would adversely affect the site's use.
However, we recommend a title search to
determine whether any adverse conditions
exist.
The current leases in-place for anchor
and mall tenants dictate a retail use
for the property. Furthermore, the
operating covenants and OREA between
ownership and the respective anchor
stores are assumed to be in full force
and affect.
Flood Hazard: According to the City of White Plains
Planning Department, the subject site is
not located in a flood hazard zone.
Therefore, the property does not require
flood hazard insurance.
Wetlands: We were not given a wetlands survey. If
subsequent engineering data reveal the
presence of regulated wetlands, it could
materially affect property value. We
recommend a wetlands survey by a
competent engineering firm.
Seismic Hazard: To the best of our knowledge, the site
is not located in a Special Study Zone.
Hazardous Substances: We observed no evidence of toxic or
hazardous substances during our
inspection of the site. However, we are
not trained to perform technical
environmental inspections and recommend
the services of a professional engineer
for this purpose.
Site Improvements: Parking is provided in an adjacent
municipal-owned garage. Other site
improvements include minimal
landscaping, concrete sidewalks,
concrete curbing, yard lighting,
signage, and underground and overhead
utilities.
Comments: Overall, the subject site is of
sufficient size to accommodate existing
improvements. It offers a utilitarian
shape, relatively level topography, and
has good access.
Subject improvements consist of a four-level enclosed urban regional mall
containing 882,728+/- square feet. A leasing plan for each level is provided in
the Addenda. Provided below is a detailed description of existing construction
at the subject property.
Building Area
Stern's*: 328,599+/- square feet
JCPenney*: 227.316+/- square feet
---------- ----------------------
Total Anchor Stores: 555,915+/- square feet
Mall Shop GLA: 326,813+/- square feet
-------------- ----------------------
Total GLA: 882,728+/- square feet
*Stores separately owned; JCPenney
subject to ground lease; Stern's will
become Macy's in mid-July 1996.
Year Built/Renovated: 1980/1993
Building Height: Approximately 75' to top of roof
Construction Detail
Foundations: Reinforced concrete footings on
engineered fill.
Framing: Reinforced concrete column and beam.
Ceiling Height: Approximately 16-18 feet along mall
concourse.
Floor System: Reinforced concrete slab on grade lower
level and reinforced concrete and
concrete beam on upper levels.
Exterior Walls: Pre-cast concrete panels with aggregate
finish.
Roof Structure/Cover: Single-ply roofing over concrete deck.
The roof was replaced in 1993-94 at a
cost of approximately $1.6 million. The
roof has a 10-year guarantee.
Skylights: Series of decorative skylights
throughout.
Doors
Exterior: Customer entrances are anodized aluminum
and glass. Receiving and service doors
are metal and steel roll-up.
Interior: Hollow metal and fire-rated metal.
Loading: Both anchor tenants have loading dock
areas.
Property Description
===============================================================================
Mechanical Detail
Heating and Air Conditioning: Mall stores and corridors are served by
three (3) York Centrifugal chillers; two
(2) 550 ton and one (1) 275 ton unit.
There is also a supplemental 300 ton
McQuay unit. Heat is supplied by an
oil-fired boiler to individually
controlled units for tenant usage.
Anchor stores have individual units for
which they are separately metered. The
central plant was upgraded in 1995-96,
replacing the chillers with absorbers
under an energy savings program
sponsored by Con Edison. The cost of the
upgrade was about $1.2 million. Con
Edison provided a rebate of $500,000,
indicating a net cost of $700,000. The
new system is projected to save about
$250,000 per year to the cost of energy.
Plumbing: A complete sanitary sewer system and
domestic water system serves all
required fixtures of each tenant and is
tapped into the municipal water and
sewer distribution lines. All roof areas
are drained to rain water conductors
which are connected to the site storm
water system. Sewers under buildings are
cast iron per code; water lines are
copper and PVC per code requirements.
Electric: Service to all tenants is from a primary
distribution system through secondary
pad-mounted transformers; 277/480 volt,
3-phase, 4-wire. The local supplier is
Con Edison. Lighting is generally a mix
of fluorescent, incandescent, mercury
vapor, and sodium vapor fixtures.
Electric work is assumed to be in
accordance with National Electric Code.
Vertical Transportation: Vertical transportation consists of one
(1) bank of escalators at the JCPenney
throat near the food court, serving all
four levels (Main Street to Fashion
Level 2). There is a second set at
Stern's end which serves Fashion Levels
1 and 2.
A feature elevator in the food court
serves all four levels. Departments
stores each have escalators and
elevators. In addition, there are three
(3) elevator banks that serve the
attached municipal parking garage which
connects to the mall.
Property Description
===============================================================================
Life Safety/Security: A complete and fully automatic sprinkler
system is installed throughout
the property. Fire alarms and pull
stations are located throughout, along
with an electronically wired smoke
detector system which is centralized and
tied into the local municipal
authorities.
There is also 24-hour on-premise
security. Closed circuit T.V. monitors
the mall (interior and exterior) and all
perimeter doors. There is an emergency
power generator with sufficient capacity
to maintain the lighting and ventilation
system in the event of power loss.
Interior Detail
Layout/Renovations: The subject's open, four-level interior
makes a dramatic presentation, with a
large open center court featuring
abundant natural light, decorative
trees, and seating areas. Diverse mall
shop store fronts provide a "street
scape" shopping experience. JCPenney
occupies a four-level store, while
Stern's operates on three levels.
The interior renovation which occurred
between 1992-93 generally involved
replacing flooring and mirrored
ceilings, re-glazing of the skylights,
and improved lighting. The effect has
been a much improved, contemporary look
to the mall which enhances its appeal.
Street Level: The Street Level was reconfigured in
1992-93 to accommodate Filene's Basement
in the former General Cinema space.
Herman's and Emigrant Savings already
occupied space on this level. Both
Filene's Basement and Herman's have
vacated because of parent company
financial troubles. Bunny's children's
store will be taking the former Filene's
space. Emigrant has suggested that they
would like to take space inside the
mall. Negotiation has been underway to
bring in a restaurant user for their
space, including TGI Fridays. Overall,
the street level has more appeal to
incoming pedestrian traffic since
renovation. Escalators facilitate
customer movement into the center and
provide an open view to the levels
above. We are advised that Bunny's will
add exterior display windows which
should further compliment this entrance
to the property.
Property Description
===============================================================================
Garden Level: The Garden Level is the second level of
the mall. It primarily houses the food
court which is one of the subject's
strong features. The food court has been
refurbished, including a retrofit and
redesign of the seating area. Seating
has been reconfigured and the Grove
Street entrance re-worked with a pop-out
atrium. The net effect has increased
seating from 600 to 700 seats, with a
slight decrease in GLA. The Main Street
access point has also been improved with
an atrium pop-out that affords a
friendlier appearance.
Fashion Level 1: Fashion Level 1 is a full mall floor
that runs the full distance between
JCPenney and Stern's. In addition to the
interior cosmetic renovation, the most
significant move on this level included
Victoria's Secret's relocation and
expansion to Space 314 which added new
GLA from former cutouts in the floor
outside of the current demising wall.
Lerner also had a significant expansion.
Fashion Level 2: Fashion Level 2 is the upper-most level.
It is also a full selling floor running
the length of the mall. The most
significant changes to this level during
renovation involved relocation and
expansion of Limited Express. The Gap
also expanded from 3,868 square feet to
7,511 square feet.
Floor Coverings: Mall corridors are generally a mix a
travertine marble, quarry file, and
glazed ceramic tile. Stores are a
mixture of carpet, vinyl tile, and
marble.
Ceilings: A mixture of painted sheetrock, mylar,
or alkane mirrored ceilings.
Lighting: The mall concourse is lighted primarily
with incandescent fixtures. Exterior
lighting is mounted, high pressure
sodium.
Partitions: Generally gypsum wallboard on metal
studs, fire code sheetrock from floor to
roof deck on all party walls separating
each tenant.
Property Description
===============================================================================
Tenant Areas: Tenant suites are improved in accordance
with individual tenant specifications.
Generally, vacant suites are in
semi-finished condition having been
previously occupied. Mall management has
been offering early renewal leases to
older tenants in exchange for
tenant-paid upgrades. These offerings
continue as of this writing.
Restrooms: Department stores have public and
employee toilet facilities with
provisions for handicapped. Generally,
each tenant has facilities that do not
have to be made available for public use
by code. Large shops and eating
establishments have additional
facilities as necessary to meet code
requirements. In addition, a bank of
public toilet facilities for both men
and women are provided at the food
court. Both men's and women's facilities
were improved during the renovation.
Site Improvements
On-Site Parking: On-site parking is provided by a
city-owned parking garage which can
accommodate 2,416 cars. The resulting
parking ratio is 2.7 spaces per 1,000
square feet of GLA.
Landscaping: There is minimal landscaping surrounding
the property.
Other Improvements: Other site improvements consist of
concrete curbing and asphalt paving,
yard lighting, all underground and
overhead utilities, and signage. Other
mall features include a customer service
area for coat and package check, gift
wrapping, stroller rental, and community
information. A community room is also
available for public use.
Comments: The subject features a modem design. Our
inspection revealed high quality
materials and workmanship. Analysis of
the structural integrity of the building
is beyond the scope of our expertise and
best made by a professional engineer.
Our analysis of improvements concludes
that the layout and design are
functional and conducive for retail
utilization.
At the time of inspection, some tenant
areas were in the process of being
prepared for tenant occupancy. It is our
assumption that future and proposed
construction and fit-out will be done in
conformance with ownership's commitment
to state-of-the-art retailing concepts.
As noted, Stern's will be converted to
Macy's in July 1996. Federated
Departments Stores will reportedly do
some renovation of the store and close
it for approximately one week. This
conversion to Macy's is considered to by
positive for the property.
Our review of the local environs reveals
that there are no external influences
which negatively impact the value of the
subject property.
The subject property is currently assessed for taxation purposes by the
City of White Plains. Properties in White Plains are assessed as of January 1 of
each year, with taxes levied on a fiscal basis from July 1 to June 30. The
following chart presents an overview of the subject's current assessment and tax
liability.
==============================================================================================
Subject Assessment
Tax Map Parcel No/ Land A.V./ Millage 1995/96
Account No. Description Total A.V. Rate* Taxes
==============================================================================================
125.75-4-2/ Main St. Reg. Shop. Ctr. $ 564,200/ 0.36282 $2,221,311
30010002106 2.39 acres $6,122,350
----------------------------------------------------------------------------------------------
125.75-4-3/ Main St. Reg. Shop. Ctr. $ 46,800/ 0.36282 $ 372,852
30030002005 3.05 acres $1,027,650
==============================================================================================
Total $7,150,000 0.36282 $2,594,163
==============================================================================================
*Bronx Valley District
==============================================================================================
As can be seen, a total assessment of $7,150,000 yields a tax liability of
$2,594,163 for 1995/96 at the subject. This assessment does not include JCPenney
or Stern's which are separately assessed and pay their own taxes.
Mill Rate History
The subject's assessment of $7,150,000 has not changed since 1984/85, the
last assessment available from the city tax roll. However, tax rates in White
Plains have increased over this same period as shown on the following chart.
As shown, tax rates in the Bronx Valley District of White Plains have grown
at a compound annual rate of 7.62 percent. This historical growth helps to
project a tax growth rate for our cash flow analysis following.
For 1996, management has budgeted a tax expense of $2,631,484, up from
$2,504,654 in 1995 and $2,367,435 in 1994. Based upon the 1995/96 billing and a
mid-year increase for the 1996/97 billing, this projection appears to be
reasonable.
Conclusion
For our analysis, we have utilized a real estate tax expense of $2,672,000
for calendar year 1996. This accounts for six months of the fiscal 1995/96
billing ($2,594,163), and six months of our projected 1996/97 billing of
$2,749,813 (6.0% growth over 1995/96).
The subject site is zoned B-6 (UR-3) Enclosed Mall District by the City of
White Plains. According to the ordinance, this district is designed for
super-regional enclosed shopping malls, with accompanying parking and other
facilities commonly found accessory to such uses.
For projects of the subject's magnitude and caliber, specific site plan
review is required for a number of factors that come to bear within the approval
process. Accordingly, while certain bulk area requirements may come into
consideration, it is the full plan review that considers all influencing factors
that has primary weight. The district permits a maximum floor area ratio (FAR)
of 6.0. Parking is required at a ratio of 3.0 cars per 1,000 square feet. We
note that the current parking ratio of 2.7 spaces is below the required amount
by zoning. A representative of the city zoning office indicated that the project
either received a variance when it was built, or the parking requirement has
been changed since its construction.
We are not experts in the interpretation of such mixed use zoning
ordinances. However, the subject improvements appear to be a conforming use
based on our review of public information and conversations with the planning
department. The city has allowed construction of the subject property to its
current configuration. Furthermore, renovation of the mall between 1992/93,
including exterior work, has received approval by the City of White Plains.
We know of no deed restrictions, private or public, that further limit the
subject property's use. The research required to determine whether or not such
restrictions exist, however, is beyond the scope of this appraisal assignment.
Deed restrictions are a legal matter and only a title examination by an attorney
or title company can usually uncover such restrictive covenants. Thus, we
recommend a title search to determine if any such restrictions do exist.
Highest and best use analysis evaluates existing land use for the subject
property and seeks to determine if alternative uses would prove more profitable.
The definition and analysis apply specifically to the land. The analysis further
examines whether the land value at its highest and best use exceeds the total
value of the property under its existing use or as improved. Highest and best
use identifies the most profitable, competitive use to which the property can be
put. Therefore, highest and best use is a market-driven concept.
Definition
Highest and best use is defined as follows:
The reasonably probable and legal use of vacant land or an improved
property, which is physically possible, appropriately supported,
financially feasible, and that results in the highest value. The four
criteria the highest and best use must meet are legal permissibility,
physical possibility, financial feasibility, and maximum profitability
(Dictionary of Real Estate Appraisal, Third Edition, 1993).
The definition indicates that there are two types of highest and best use
analysis required; the site as though vacant, and the site as currently
improved. In each case, the highest and best use must generally meet four
criteria. The use must be (1) physically possible, (2) legally permissible, (3)
financially feasible, and (4) maximally productive.
A. Highest and Best Use of Site As Though Vacant
According to the Dictionary of Real Estate Appraisal, Third Edition (1993),
a publication of the Appraisal Institute, the highest and best use of the site
as though vacant is defined as:
Among all reasonable, alternative uses, the use that yields the highest
present land value, after payments are made for labor, capital, and
coordination. The use of a property based on the assumption that the parcel
of land is vacant or can be made vacant by demolishing any improvements.
Physical Constraints
The first constraint imposed on the possible use of the site is dictated by
the physical aspects of the parcel itself. Physical factors influencing the use
of the site include location, size, shape, topography, soils, abutting uses, the
availability of utilities, and other characteristics.
The subject site contains a total of 9.15+/- acres (2.25+/- not owned) in
the heart of downtown White Plains, New York. The parcel is bounded by Main
Street to the north, Martine to the south, Court Street to the east, and
Lexington Avenue to the west. Topography is generally level, with good
accessibility via local streets. The downtown central business district has good
regional access by virtue of the infrastructure and public transportation
serving it. Surrounding development is predominantly office in nature, with a
heavy concentration of retail product along Mamaroneck, including Macy's
department store and Sears further up Main Street.
All necessary utilities are available to the site, including public water,
gas, electricity, and telephone services. Physical characteristics--i.e. size,
shape, subsoil conditions, and location--support various types of development,
including commercial, retail, and office uses. Abutting uses reflect a mix of
commercial development.
Physically, the site could accommodate a number of potential uses.
Surrounding land use patterns suggest an office or retail development of the
property. Finally, there appear to be no physical constraints limiting
development of the subject property as though vacant. The site's size, location,
and configuration support a retail or office use for the subject as though
vacant.
Legal Considerations
Legal factors influencing the highest and best use of the subject property
involve local land use guidelines, including comprehensive plans, zoning, and
building codes. The intensity of development may also be affected by surrounding
land uses, neighborhood concerns, and the local planning process.
The subject site is zoned B-6 (UR-3), an enclosed mall district designation
by the City of White Plains. This zoning district allows for a variety of retail
uses, but is specifically designed for enclosed shopping mall development, with
accompanying parking and other facilities commonly found accessory to such uses.
As discussed in the Zoning section of this report, various bulk area
requirements are set forth under the zone. However, specific site plan review is
required for the approval process.
Considering surrounding uses, it is clear that a retail or office use of
the site would be most appropriate. Under the current zoning, however, only
retail uses are allowed.
There are no other known land use regulations, easements, or encumbrances
which might impact development on the subject. Further, the site does not appear
to possess any significant natural, cultural, recreational, or scientific
attributes which may influence its use. Based upon this analysis, the legally
permissible development of the subject site as though vacant would be an
enclosed regional mall, assuming proper parking requirements are met.
Financial Feasibility/Economic Considerations
After determining those uses which are physically possible and legally
permissible, the uses considered must be analyzed in light of their financial
feasibility. Based on the foregoing discussion, potential uses for the subject
site include retail and office development. For a potential use to be seriously
considered, it must have the potential to provide a sufficient return to attract
investment capital over alternative forms of investment. A positive net income
or acceptable rate of return would indicate that a use is financially feasible.
As discussed in the Neighborhood Analysis, the current office market in
downtown White Plains has an overall vacancy rate of 26.4 percent, with Class A
buildings showing a vacancy rate of 23.7 percent. This level of vacancy,
although lower than year-ago levels, is prohibitive to new speculative office
development. For this reason, office development is not believed to be feasible
in the central business district at this time.
As will be discussed in the Income Approach section of this report, a
retail use of the subject site provides a sufficient return to the land and is
thus believed to be the most highly productive, feasible use of the site.
Maximum Productivity
Finally, of the financially feasible, physically possible, and legally
permissible uses considered, the use that produces the highest price or value
consistent with the rate of return warranted by the market for that use is the
highest and best use. While this test of maximum productivity implies a
quantitative analysis, it is often most qualitative and sensitive to community,
social, political, and governmental concerns.
In the case of the subject, the site is located in a downtown area that has
a variety of uses, primarily retail and office in nature, with supporting
residential development. Existing neighborhood uses support both an office and
retail use of the site. The subject's size, accessibility, and location lead us
to the conclusion that the highest and best use of the subject property, as
though vacant, is for retail development. Convenient access and parking are also
overriding issues for potential development of the site.
A developer mindful of the prospective lot coverage, yet savvy as to the
market's potential for absorbing new product, would consider the site's feasible
potential. Parking is an overriding constraint that dictates the ultimate size
of a potential development. Accordingly, our retail use premise assumes that
parking would be provided to a level sufficient for the total project.
Conclusion As Though Vacant
Based on the preceding analysis, the highest and best use of the subject
property, as though vacant, is for regional mall development built to the site's
maximum feasible F.A.R.
B. Highest and Best Use of Property As Improved
According to the Dictionary of Real Estate Appraisal, highest and best use
of the property as improved is defined as:
The use that should be made of a property as it exists. An existing
property should be renovated or retained as is so long as it continues to
contribute to the total market value of the property, or until the return
from a new improvement would more than offset the cost of demolishing the
existing building and constructing a new one.
Physical Constraints
In considering the physical characteristics of the subject as improved, the
existing use must also meet criteria in order to maintain the property's highest
and best use. Existing improvements can be analyzed three ways: 1) they can be
retained as is; 2) they can be modified, altered, or rehabilitated; and 3) they
can be demolished in favor of an alternative use.
The subject site is currently improved with an enclosed regional shopping
center. Built in 1980 and renovated in 1993, subject improvements are considered
to be in good condition. The layout and design are conducive for its existing
use, with good linkage and access within the downtown. Regional access to the
property is also good.
There do not appear to be any other physical factors such as soil or
drainage conditions or other physical characteristics that adversely affect the
continued utility and/or existence of subject improvements. Thus, the subject
site, as currently improved, is a physically possible use. Although the property
could altered for alternative property types, such uses would be costly and
prove infeasible.
Legal Considerations
The subject site as currently improved represents a legal, conforming use.
There do not appear to be any public or private use restrictions or covenants
which adversely affect the current use of the property. Although the subject
building could legally be modified or possibly demolished for an alternative
use, this would not be a logical progression since the subject does not suffer
from prohibitive functional or physical problems which inhibit its current use.
Furthermore, the leases and operating agreements in-place dictate a retail use
for the property. Therefore, the subject site, as improved, is legally
permissible.
Financial Feasibility/Economic Considerations
As will be discussed in the Income Approach section of this report, the
subject property, as improved, is capable of producing a sufficient return to
the land. Moreover, analysis of the subject property as if vacant indicates that
the highest and best use of the site is for retail development. This
determination has been made by comparing alternative uses for the property and
establishing which use provides the greatest return to the land. Demolishing
existing improvements would not be financially feasible due to the cost involved
and the potential return an alternative use would bring. Thus, current
improvements to the subject provide the most financially feasible use of the
site.
Maximum Productivity
Based upon the foregoing analysis, the subject parcel, as currently
improved, represents the maximally productive use of the site. Although the site
could be developed with an alternative configuration by demolishing existing
improvements, this scenario would not be economically justifiable and, as a
result, fail the test of financial feasibility and maximum productivity. In our
opinion, no other use of the site would provide as great a return.
Conclusion As Improved
The highest and best use of the subject property is therefore as currently
improved. The existing use is physically possible, legally permissible,
financially feasible, and maximally productive. Market conditions in White
Plains indicate demand for properties of the subject's stature, with vacancy and
rental rates which justify the financial feasibility of existing improvements.
Appraisers typically use three approaches in valuing real property: The
Cost Approach, the Income Approach and the Sales Comparison Approach. The type
and age of the property and the quantity and quality of data effect the
applicability in a specific appraisal situation.
The Cost Approach renders an estimate of value based upon the price of
obtaining a site and constructing improvements, both with equal desirability and
utility as the subject property. Historically, investors have not emphasized
cost analysis in purchasing investment grade properties such as regional malls.
The estimation of obsolescence for functional and economic conditions as well as
depreciation on improvements makes this approach difficult at best. Furthermore,
the Cost Approach fails to consider the value of department store commitments to
regional shopping centers and the difficulty of site assemblage for such
properties. As such, the Cost Approach will not be employed in this analysis due
to the fact that the marketplace does not rigidly trade leased shopping centers
on a cost/value basis.
The Sales Comparison Approach is based on an estimate of value derived from
the comparison of similar type properties which have recently been sold. Through
an analysis of these sales, efforts are made to discern the actions of buyers
and sellers active in the marketplace, as well as establish relative unit values
upon which to base comparisons with regard to the mall. This approach has a
direct application to the subject property. Furthermore, this approach has been
used to develop investment indices and parameters from which to judge the
reasonableness of our principal approach, the Income Approach.
By definition, the subject property is considered an income/ investment
property. Properties of this type are historically bought and sold on the
ability to produce economic benefits, typically in the form of a yield to the
purchaser on investment capital. Therefore, the analysis of income capabilities
are particularly germane to this property since a prudent and knowledgeable
investor would follow this procedure in analyzing its investment qualities.
Therefore, the Income Approach has been emphasized as our primary methodology
for this valuation.
This valuation concludes with a final estimate of the subject's market
value based upon the total analysis as presented herein.
The Sales Comparison Approach provides an estimate of market value by
comparing recent sales of similar properties in the surrounding or competing
area to the subject property. Inherent in this approach is the principle of
substitution, which holds that, when a property is replaceable in the market,
its value tends to be set at the cost of acquiring an equally desirable
substitute property, assuming that no costly delay is encountered in making the
substitution.
By analyzing sales that qualify as arms-length transactions between willing
and knowledgeable buyers and sellers, market value and price trends can be
identified. Comparability in physical, locational, and economic characteristics
is an important criterion when comparing sales to the subject property. The
basic steps involved in the application of this approach are as follows:
1. Research recent, relevant property sales and current offerings
throughout the competitive marketplace;
2. Select and analyze properties considered most similar to the subject,
giving consideration to the time of sale, change in economic
conditions which may have occurred since date of sale, and other
physical, functional, or locational factors;
3. Identify sales which include favorable financing and calculate the
cash equivalent price; and
4. Reduce the sale prices to a common unit of comparison, such as price
per square foot of gross leasable area sold;
5. Make appropriate adjustments between the comparable properties and the
property appraised;
6. Interpret the adjusted sales data and draw a logical value conclusion.
The most widely-used, market-oriented units of comparison for retail
properties such as the subject are the sale price per square foot of gross
leasable area (GLA) purchased, and the overall capitalization rate extracted
from the sale. This latter measure will be addressed in the Income Approach
which follows this methodology. An analysis of the inherent sales multiple also
lends additional support to the Sales Comparison Approach.
Market Overview
The typical purchaser of properties of the subject's caliber includes both
foreign and domestic insurance companies, large retail developers, pension
funds, and real estate investment trusts (REIT's). The large capital
requirements necessary to participate in this market and the expertise demanded
to successfully operate an investment of this type, both limit the number of
active participants and, at the same time, expand the geographic boundaries of
the marketplace to include the international arena. Due to the relatively small
number of market participants and the moderate amount of quality product
available in the current marketplace, strong demand exists for the nation's
quality retail developments.
Most institutional grade retail properties are existing, seasoned centers
with good inflation protection. These centers offer stability in income and are
strongly positioned to the extent that they are formidable barriers to new
competition. They tend to be characterized as having three to five department
store anchors, most of which are dominant in the market. Mall shop sales are at
least $300 per square foot and the trade area offers good growth potential in
terms of population and income levels. Equally important are centers which offer
good upside potential after face-lifting, renovations, or expansion. With new
construction down substantially, owners have accelerated their renovation and
remerchandising programs. Little competition from over-building is likely in
most mature markets within which these centers are located. Environmental
concerns and "no-growth" mentalities in communities continue to be serious
impediments to new retail developments.
Over the past 18+/- months, we have seen real estate investment return to
favor as an important part of many institutional investors' diversified
portfolios. Banks are aggressively competing for business, trying to regain
market share lost to Wall Street, while the more secure life insurance companies
are also reentering the market. The re-emergence of real estate investment
trusts (REITs) has helped to provide liquidity within the real estate market,
pushing demand for well-tenanted, quality property, particularly regional malls.
Currently, REITs are one of the most active segments of the industry and are
particularly attractive to institutional investors due to their liquidity.
The market for dominant Class A institutional quality malls is tight, as
characterized by the limited amount of good quality product available. It is the
consensus that Class A property would trade in the 7.0 to 8.0 percent
capitalization rate range. Conversely, there are many second tier and lower
quality malls offered on the market at this time. With limited demand from a
much thinner market, cap rates for this class of malls are felt to be in the
much broader 8.5 to 15.0 percent range. Reportedly, there are 50+/- malls on the
market currently. Pessimism about the long term viability of many of these lower
quality malls has been fueled by the recent turmoil in the retail industry. It
is felt that the subject resides on the better quality end of this latter
category.
To better understand where investors stand in today's marketplace, we have
surveyed active participants in the retail investment market. Based upon our
survey, the following points summarize some of the more important "hot buttons"
concerning investors:
1. Occupancy Costs - This "health ratio" measure is of fundamental
concern today. Investors like to see ratios under 13.0 percent and
become quite concerned when they exceed 15.0 percent. This appears to
be by far the most important issue to an investor today. Investors are
looking for long term growth in cash flow and want to realize this
growth through real rent increases. High occupancy costs limit the
amount of upside through lease rollovers.
2. Market Dominance - The mall should truly be the dominant mall in the
market, affording it a strong barrier to entry. Some respondents feel
this is more important than the size of the trade area itself.
3. Strong Anchor Alignment - Having at least three department stores, two
of which are dominant in that market. The importance of the
traditional department store as an anchor tenant has returned to favor
after several years of weak performance and confusion as to the
direction of the industry. As a general rule, most institutional
investors would not be attracted to a two-anchor mall.
4. Dense Marketplace - Several of the institutional investors favor
markets of 300,000 to 500,000 people (at least 150,000 households) or
greater within a 5 to 7 mile radius. Population growth in the trade
area is also very important. One advisor likes to see growth 50.0
percent better than the U.S. average. Another investor cited that they
will look at trade areas of 200,000+/- but that if there is no
population growth forecasted in the market, a 50+/- basis point
adjustment to the cap rate at the minimum is warranted.
5. Income Levels - Household incomes of $50,000+ which tends to be
limited in many cases to top 50 MSA locations.
6. Good Access - Interstate access with good visibility and a location
within or proximate to the growth path of the community.
7. Tenant Mix - A complimentary tenant mix is important. Mall shop ratios
of 35+/- percent of total GLA are considered average with 75.0 to 80.0
percent allocated to national tenants. Mall shop sales of at least
$250 per square foot with a demonstrated positive trend in sales is
also considered to be important.
8. Physical Condition - Malls that have good sight lines, an updated
interior appearance, and a physical plant in good shape are looked
upon more favorably. While several developers are interested in
turnaround situations, the risk associated with large capital
infusions can add at least 200 to 300 basis points onto a cap rate.
9. Environmental Issues - The impact of environmental problems cannot be
understated. There are several investors who won't even look at a deal
if there are any potential environmental issues no matter how
seemingly insignificant.
10. Operating Covenants - Some buyers indicated that they would not be
interested in buying a mall if the anchor store operating covenants
were to expire over the initial holding period. Others weigh each
situation on its own merit. If it is a dominant center with little
likelihood of someone coming into the market with a new mall, they are
not as concerned about the prospects of loosing a department store. If
there is a chance of loosing an anchor, the cost of keeping them must
be weighed against the benefit. In many of their malls they are
finding that traditional department stores are not always the optimum
tenant but that a category killer or other big box use would be a more
logical choice.
In the following section we will discuss trends which have become apparent
over the past several years involving sales of regional malls.
Evidence has shown that mall property sales which include anchor stores
have lowered the square foot unit prices for some comparables, and have affected
investor perceptions. In our discussions with major shopping center owners and
investors, we learned that capitalization rates and underwriting criteria have
become more sensitive to the contemporary issues affecting department store
anchors. Traditionally, department stores have been an integral component of a
successful shopping center and, therefore, of similar investment quality if they
were performing satisfactorily.
During the 1980's a number of acquisitions, hostile takeovers and
restructurings occurred in the department store industry which changed the
playing field forever. Weighted down by intolerable debt, combined with a
slumping economy and a shift in shopping patterns, the end of the decade was
marked by a number of bankruptcy filings unsurpassed in the industry's history.
Evidence of further weakening continued into 1991-1992 with filings by such
major firms as Carter Hawley Hale, P.A. Bergner & Company, and Macy's. In early
1994, Woodward & Lothrop announced their bankruptcy involving two department
store divisions that dominate the Philadelphia and Washington D.C. markets.
Recently, most of the stores were acquired by the May Department Stores Company,
effectively ending the existence of the 134 year old Wanamaker name, the
nation's oldest department store company. More recently, however, department
stores have been reporting a return to profitability resulting from increased
operating economies and higher sales volumes. Sears, once marked by many for
extinction, has more recently won the praise of analysts. Federated Department
Stores has also been acclaimed as a text book example on how to successfully
emerge from bankruptcy. They have merged with Macy's and more recently acquired
the Broadway chain to form one of the nation's largest department store
companies.
With all this in mind, investors are looking more closely at the strength
of the anchors when evaluating an acquisition. Most of our survey respondents
were of the opinion that they were indifferent to acquiring a center that
included the anchors versus stores that were independently owned if they were
good performers. However, where an acquisition includes anchor stores, the
resulting cash flow is typically segregated with the income attributed to
anchors (base plus percentage rent) analyzed at a higher cap rate then that
produced by the mall shops.
However, more recent data suggests that investors are becoming more
troubled by the creditworthiness of the mall shops. With an increase in
bankruptcies, store closures and consolidations, we see investors looking more
closely at the strength and vulnerabilities of the in-line shops. As a result,
there has been a marked trend of increasing capitalization rates.
Cushman & Wakefield has extensively tracked regional mall transaction
activity for several years. In this analysis we will show sales trends since
1991. Summary charts for the older sales (1991-1993) are provided in the
Addenda. The more recent sales (1994/1995) are provided herein. These sales are
inclusive of good quality Class A or B+/- properties that are dominant in their
market. Also included are weaker properties in second tier cities that have a
narrower investment appeal. As such, the mall sales presented in this analysis
show a wide
(1) Inclusive of $2.4 million held back for deferred maintenance.
(2) Inclusive of partnership units.
(3) Net of allocation to excess land.
(4) Sale includes 75,712 square foot professional building.
(5) Adjusted to reflect 100% interest.
variety of prices on a per unit basis, ranging from $59 per square foot up to
$556 per square foot of total GLA purchased. When expressed on the basis of mall
shop GLA acquired, the range is more broadly seen to be $93 to $647 per square
foot. Alternatively, the overall capitalization rates that can be extracted from
each transaction range from 5.60 percent to rates in excess of 11.0 percent.
One obvious explanation for the wide unit variation is the inclusion (or
exclusion) of anchor store square footage which has the tendency to distort unit
prices for some comparables. Other sales include only mall shop area where small
space tenants have higher rents and higher retail sales per square foot. A
shopping center sale without anchors, therefore, gains all the benefits of
anchor/small space synergy without the purchase of the anchor square footage.
This drives up unit prices to over $250 per square foot, with most sales over
$300 per square foot of salable area. A brief discussion of historical trends in
mall transactions follows.
o The fourteen sales included for 1991 show a mean average price per
square foot sold of $282. On the basis of mall shop GLA sold, these
sales present a mean of $357. Sales multiples range from .74 to 1.53
with a mean of 1.17. Capitalization rates range from 5.60 to 7.82
percent with an overall mean of 6.44 percent. The mean terminal
capitalization rate is approximately 100 basis points higher, or 7.33
percent. Yield rates range between 10.75 and 13.00 percent, with a
mean of 11.52 percent for those sales reporting IRR expectancies.
o In 1992, the eleven transactions display prices ranging from $136 to
$511 per square foot of GLA sold, with a mean of $259 per square foot.
For mall shop area sold, the 1992 sales suggest a mean price of $320
per square foot. Sales multiples range from .87 to 1.60 with a mean of
1.07. Capitalization rates range between 6.00 and 7.97 percent with
the mean cap rate calculated at 7.31 percent for 1992. For sales
reporting a going-out cap rate, the mean is shown to be 7.75 percent.
Yield rates range from 10.75 to around 12.00 percent with a mean of
11.56 percent.
o For 1993, a total of sixteen transactions have been tracked. These
sales show an overall average sale price of $242 per square foot based
upon total GLA sold and $363 per square foot based solely upon mall
GLA sold. Sales multiples range from .65 to 1.82 and average 1.15.
Capitalization rates continued to rise in 1993, showing a range
between 7.00 and 10.10 percent. The overall mean has been calculated
to be 7.92 percent. For sales reporting estimated terminal cap rates,
the mean is also equal to 7.92 percent. Yield rates for 1993 sales
range from 10.75 to 12.50 percent with a mean of 11.53 percent for
those sales reporting IRR expectancies. On balance, the year was
notable for the number of dominant Class A malls which transferred.
o Sales data for 1994 shows fourteen confirmed transactions with an
average unit price per square foot of $197 per square foot of total
GLA sold and $288 per square foot of mail shop GLA. Sales multiples
range from .57 to 1.43 and average .96. The mean going-in
capitalization rate is shown to be 8.37 percent. The residual
capitalization rates average 8.13 percent. Yield rates range from
10.70 to 11.50 percent and average 11.17 percent. During 1994, many of
the closed transactions involved second and third tier malls. This
accounted for the significant drop in unit rates and corresponding
increase in cap rates. Probably the most significant sale involved the
Riverchase Galleria, a 1.2 million square foot center in Hoover,
Alabama. LaSalle Partners purchased the mall of behalf of the
Pennsylvania Public School Employment Retirement System for $175.0
million. The reported cap rate was approximately 7.4 percent.
o Cushman & Wakefield has researched 14 mall transactions for 1995. With
the exception of Sale No. 95-1 (Natick Mall) and 95-2 (Smith Haven
Mall), by and large the quality of malls sold are lower than what has
been shown for prior years. For example, the average transaction price
has been slipping. In 1993, the peak year, the average deal was nearly
$133.8 million. Currently, it is shown to be $90.7 million which is
even skewed upward by Sale Nos. 95-1 and 95-2. The average price per
square foot of total GLA is calculated to be $152 per square foot. The
range in values of mall GLA sold are $93 to $607 with an average of
$275 per square foot. Characteristic of these lesser quality malls
would be higher initial capitalization rates. The range for these
transactions is 7.47 to 11.1 percent with a mean of 9.14 percent, the
highest average over the past five years. market participants feel
that continued turmoil in the retail industry will force cap rates to
move higher over the ensuing year.
While these unit prices implicitly contain both the physical and economic
factors affecting the real estate, the statistics do not explicitly convey many
of the details surrounding a specific property. Thus, this single index to the
valuation of the subject property has limited direct application. The price per
square foot of mall shop GLA acquired yields one common form of comparison.
However, this can be distorted if anchor and/or other major tenants generate a
significant amount of income. The following chart summarizes the range and mean
for this unit of comparison by year of sale.
As discussed, one of the factors which may influence the unit rate is
whether or not anchor stores are included in the total GLA which is transferred.
Thus, a further refinement can be made between those malls which have
transferred with anchor space and those which have included only mall GLA. Chart
A, shown below makes this distinction.
===============================================================================================================
CHART A
Regional Mall Sales
Involving Mall Shop Space Only
===============================================================================================================
1991 1992 1993 1994
===============================================================================================================
Sale Unit NOI Sale Unit NOI Sale Unit NOI Sale Unit NOI
No. Rate Per SF No. Rate Per SF No. Rate Per SF No. Rate Per SF
===============================================================================================================
91-1 $257 $15.93 92-2 $348 $25.27 93-1* $355 $23.42 94-1 $136 $11.70
---------------------------------------------------------------------------------------------------------------
91-2 $232 $17.65 92-9 $511 $33.96 94-4 $471 $32.95 94-3 $324 $22.61
---------------------------------------------------------------------------------------------------------------
91-5 $203 $15.89 92-11 $283 $19.79 93-5 $396 $28.88 94-12 $136 $14.00
---------------------------------------------------------------------------------------------------------------
91-6 $399 $24.23 93-8 $265 $20.55 94-14 $241 $18.16
---------------------------------------------------------------------------------------------------------------
91-7 $395 $24.28 93-16 $268 $19.18
---------------------------------------------------------------------------------------------------------------
91-8 $320 $19.51
---------------------------------------------------------------------------------------------------------------
91-10 $556 $32.22
===============================================================================================================
Mean $337 $21.39 Mean $381 $26.34 Mean $351 $25.00 Mean $209 $16.62
===============================================================================================================
*Sale included peripheral GLA.
===============================================================================================================
From the above we see that the mean unit rate for sales involving mall shop
GLA only has ranged from approximately $209 to $381 per square foot. We
recognized that these averages may be skewed somewhat by the size of the sample.
To date, there have been no 1995 transactions involving only mall shop GLA.
Alternately, where anchor store GLA has been included in the sale, the unit
rate is shown to range widely from $53 to $410 per square foot of salable area,
indicating a mean of $227 per square foot in 1991, $213 per square foot in 1992,
$196 per square foot in 1993, $193 per square foot in 1994 and $145 per square
foot in 1995. Chart B following depicts this data.
Within Charts A and B, we have presented a summary of recent transactions
(1991-1995) involving regional and super-regional-sized retail shopping malls
from which price trends may be identified for the extraction of value
parameters. These transactions have been segregated by year of acquisition so as
to lend additional perspective on our analysis. Comparability in both physical
and economic characteristics are the most important criteria for analyzing sales
in relation to the subject property. However, it is also important to recognize
the fact that regional shopping malls are distinct entities by virtue of age and
design, visibility and accessibility, the market segmentation created by anchor
stores and tenant mix, the size and purchasing power of the particular trade
area, and competency of management. Thus, the "Sales Comparison Approach", when
applied to a property such as the subject can, at best, only outline the
parameters in which the typical investor operates. The majority of these sales
transferred either on an all cash (100 percent equity) basis or its equivalent
utilizing market-based financing. Where necessary, we have adjusted the purchase
price to its cash equivalent basis for the purpose of comparison.
As suggested, sales which include anchors typically have lower square foot
unit prices. In our discussions with major shopping center owners and investors,
we learned that capitalization rates and underwriting criteria have become more
sensitive to the contemporary issues dealing with the department store anchors.
As such, investors are looking more closely than ever at the strength of the
anchors when evaluating an acquisition.
As the reader shall see, we have attempted to make comparisons of the
transactions to the subject primarily along economic lines. For the most part,
the transactions have involved dominant or strong Class A centers in top 50 MSA
locations which generally have solid, expanding trade areas and good income
profiles. Some of the other transactions are in decidedly inferior second tier
locations with limited growth potential and near term vacancy problems. These
sales tend to reflect lower unit rates and higher capitalization rates.
"As Is" Valuation
Because the subject is theoretically selling mall shop GLA only, we will
look at the recent sales in Chart A more closely. As a basis for comparison, we
will analyze the subject based upon projected NOI. First year NOI has been
projected to be $26.21 per square foot (FY 1997), based upon 326,813+/- square
feet of owned GLA. Derivation of the subject's projected net operating income is
presented in the "Income Approach" section of this report as calculated by the
Pro-Ject model. With projected NOI of $26.21 per square foot, the subject falls
toward the low end of the range exhibited by the comparable sales.
Since the income that an asset will produce has direct bearing on the price
that a purchaser is willing to pay, it is obvious that a unit price which falls
toward the middle of the range indicated by the comparables would be applicable
to the subject. The subject's anticipated net income can be initially compared
to the composite mean of the annual transactions in order to place the subject
in a frame of reference. This is shown on the following chart.
===============================================================
Sales Year Mean NOI Subject Forecast Subject Ratio
===============================================================
1991 $12.39 $26.21 211.5%
---------------------------------------------------------------
1992 $26.34 $26.21 99.5%
---------------------------------------------------------------
1993 $25.00 $26.21 104.8%
---------------------------------------------------------------
1994 $16.62 $26.21 157.7%
---------------------------------------------------------------
1995 $12.35 $26.21 ---
===============================================================
*All 1995 sales include anchor space.
With first year NOI forecasted at approximately 99.5 to 211.5 percent of
the mean of these sales in each year, the unit price which the subject property
would command should be expected to fall within a relative range.
Net Income Multiplier Method
Many of the comparables were bought on expected income, not gross leasable
area, making unit prices a somewhat subjective reflection of investment behavior
regarding regional malls. In order to quantify the appropriate adjustments to
the indicated per square foot unit values, we have compared the subject's first
year pro forma net operating income to the pro forma income of the individual
sale properties. In our opinion, a buyers criteria for the purchase of a retail
property is predicated primarily on the property's income characteristics. Thus,
we have identified a relationship between the net operating income and the sales
price of the property. Typically, a higher net operating income per square foot
corresponds to a higher sales price per square foot. Therefore, this adjustment
incorporates factors such as location, tenant mix, rent levels, operating
characteristics, and building quality.
Provided below, we have extracted the net income multiplier from each of
the improved sales. We have included only the recent sales data (1993-94). The
equation for the net income multiplier (NIM), which is the inverse of the
equation for the capitalization rate (OAR), is calculated as follows:
Valuation of the subject property utilizing the net income multipliers
(NIMs) from the comparable properties accounts for the disparity of the net
operating incomes ($NOI's) per square foot between the comparables and the
subject. Within this technique, each of the adjusted NIM's are multiplied by the
$NOI per square foot of the subject, which produces an adjusted value indication
for the subject. The net operating income per square foot for the subject
property is calculated as the first year of the holding period, as detailed in
the Income Approach section of this report.
From the process above, we see that the indicated net income multipliers
range from 9.71 to 15.16 with a mean of 13.22. The adjusted unit rates range
from $254 to $397 per square foot of owned GLA with a mean of $346 per square
foot. The comparables with $NOIs/SF comparable to the subject show multipliers
between 13.71 and 15.16, resulting in adjusted unit rates for the subject from
$359 to $397 per square foot.
We recognize that the sale price per square foot of gross leasable area,
including land, implicitly contains both the physical and economic factors of
the value of a shopping center. Such statistics by themselves, however, do not
explicitly convey many of the details surrounding a specific income producing
property like the subject. Nonetheless, the process we have undertaken here is
an attempt to quantify the unit price based upon the subject's income producing
potential.
Considering the above average characteristics of the subject relative to
the above, we believe that a unit rate range of $310 to $320 per square foot is
appropriate. Applying this unit rate range to 326,813+/- square feet of owned
GLA results in a value of approximately $98.0 million to $101.3 million for the
subject as shown:
326,813 SF 326,813 SF
x $310 x $320
------------ ------------
$101,300,000 $104,600,000
Rounded Value Estimate - Market Sales Unit Rate Comparison
$101,300,000 to $104,600,000
Arguably, it is the mall shop GLA sold and its intrinsic economic profile
that is of principal concern in the investment decision process. A myriad of
factors influence this rate, perhaps none of which is more important than the
sales performance of the mall shop tenants. Accordingly, the abstraction of a
sales multiple from each transaction lends additional perspective to this
analysis.
The sales multiple measure is often used as a relative indicator of the
reasonableness of the acquisition price. As a rule of thumb, investors will look
at a sales multiple of 1.0 as a benchmark, and will look to keep it within a
range of .75 to 1.25 times mall shop sales performance unless there are
compelling reasons why a particular property should deviate.
The sales multiple is defined as the sales price per square foot of mall
GLA divided by average mall shop sales per square foot. As this reasonableness
test is predicated upon the economics of the mall shops, technically, any income
(and hence value) attributed to anchors that are acquired with the mall as
tenants should be segregated from the transaction. As an income (or sales)
multiple has an inverse relationship with a capitalization rate, it is
consistent that, if a relatively low capitalization rate is selected for a
property, it follows that a correspondingly above-average sales (or income)
multiple be applied. In most instances, we are not privy to the anchor's
contributions to net income. As such, the sales multiples reported may be
slightly distorted to the extent that the imputed value of the anchor's
contribution to the purchase price has not been segregated.
The sales that are being compared to the subject show sales multiples that
range from 0.68 to 1.16 with a mean of about 0.96. As is evidenced, the more
productive malls with higher sales volumes on a per square foot basis tend to
have higher sales multiples. Furthermore, the higher multiples tend to be in
evidence where an anchor(s) is included in the sale.
Based upon forecasted 1995 performance, as well as anticipated changes to
the market area, the subject is projected to produce comparable sales of $344
per square foot for all reporting tenants.
In the case of the subject, the overall capitalization rate being utilized
for this analysis is considered to be in the mid- to high-range of those rates
exhibited by the comparable sales. As such, we would be inclined to utilize a
multiple below the mean indicated by the sales. As such, we will utilize a lower
sales multiple to apply to just the mall shop space. Applying a ratio of say,
0.90 to 0.95 percent to the forecasted sales of about $344 per square foot in
fiscal year 1997, the following range in value is indicated.
Unit Sales Volume (Mall Shops) $344 $344
Sales Multiple x 0.90 x 0.95
------------ ------------
Adjusted Unit Rate $309.00 $327.00
Mall Shop GLA x 326,813 x 326,813
------------ ------------
Value Indication $101,000,000 $106,900,000
------------ ------------
The analysis shows an adjusted value range of approximately $101.0 to
$106.9 million. Inherent in this exercise are mall shop sales which are
projections based on our investigation into the market which might not fully
measure investors expectations. It is clearly difficult to project with any
certainty what the mall shops might achieve in the future, particularly as the
lease-up is achieved and the property brought to stabilization. While we may
minimize the weight we place on this analysis, it does, nonetheless, offer a
reasonableness check against the other methodologies.
Giving consideration to all of the above, the following value range is
warranted for the subject property based upon the sales multiple analysis.
Estimated Value - Sales Multiple Method
Rounded to $101,000,000 to $106,900,000
We have considered all of the above relative to the physical and economic
characteristics of the subject. It is difficult to relate the subject to
comparables that are in such widely divergent markets with different cash flow
characteristics. The subject has above average sales levels compared to its
peers, with a typical anchor alignment and good representation of national
tenants.
We also recognize that an investor may view the subject's position as being
vulnerable to near-term competition and investment risk from The Westchester.
After considering all of the available market data in conjunction with the
characteristics of the subject property, the indices of investment that
generated our value ranges are as follows:
Unit Price Per Square Foot
Salable SF: 326,813+/-
Price Per SF of Salable Area: $310 to $320
Indicated Value Range: $101,300,000 to $104,600,000
Sales Multiple Analysis
Indicated Value Range $101,000,000 to $106,900,000
The parameters above show a value range of approximately $101.0 to $106.9
million for the subject on an "As Is" basis. Based on our total analysis,
relative to the strengths and weaknesses of each methodology, it would appear
that the Sales Comparison Approach indicates a prospective market value within
the more defined range of $101.0 to $103.0 million for the subject as of May 14,
1996.
The Income Approach is based upon the economic principle that the value of
a property capable of producing income is the present worth of anticipated
future net benefits. The net income projected is translated into a present value
indication using the capitalization process. There are various methods of
capitalization that are based on inherent assumptions concerning the quality,
durability and pattern of the income projection. Where the pattern of income is
irregular due to existing leases that will terminate at staggered, future dates,
or to an absorption or stabilization requirement on a newer development,
discounted cash flow analysis is the most accurate.
Discounted Cash Flow Analysis (DCF) is a method of estimating the present
worth of future cash flow expectancies by individually discounting each
anticipated collection at an appropriate discount rate. The indicated market
value by this approach is the accumulation of the present worth of future
projected years' net income (before income taxes and depreciation) and the
present worth of the reversion (the estimated property value at the end of the
projection period). The estimated value of the reversion at the end of the
projection period is based upon capitalization of the next years projected net
operating income. This is the more appropriate method to use in this assignment,
given the step up in lease rates and the long term tenure of retail tenants.
A second method of valuation, using the Income Approach, is to directly
capitalize a stabilized net income based on rates extracted from the market or
built up through mortgage equity analysis. This is a valid method of estimating
the market value of the property as of the achievement of stabilized operations.
This becomes difficult for a property such as the subject since it is not
operating at a stabilized level of operation. As such, this methodology will not
be utilized for this analysis.
Discounted Cash Flow Analysis
The Discounted Cash Flow (DCF) produces an estimate of value through an
economic analysis of the subject property in which the net income generated by
the asset is converted into a capital sum at an appropriate rate. First, the
revenues which a fully informed investor can expect the subject to produce over
a specified time horizon are established through an analysis of the current rent
roll, as well as the rental market for similar properties. Second, the projected
expenses incurred in generating these gross revenues are deducted. Finally, the
residual net income is discounted into a capital sum at an appropriate rate
which is then indicative of the subject property's current value in the
marketplace.
In this Income Approach to the valuation of the subject, we have utilized a
10 year holding period for the "As Is" investment with the cash flow analysis
commencing on June 1, 1996. Although an asset such as the subject has a much
longer useful life, investment analysis becomes more meaningful if limited to a
time period considerably less than the real estate's economic life, but of
sufficient length for an investor. A 10-year holding period for this investment
is long enough to model the asset's performance and benefit from its continued
lease-up and performance, but short enough to reasonably estimate the expected
income and expenses of the real estate. It is noted that we will discuss income
and expenses based upon calendar year 1996 for consistency with the budget.
The revenues and expenses which an informed investor may expect to incur
from the subject property will vary, without a doubt, over the holding period.
Major investors active in the market for this type of real estate establish
certain parameters in the computation of these cash flows and criteria for
decision making which this valuation analysis must include if it is to be truly
market-oriented. These current computational parameters are dependent upon
market conditions in the area of the subject property as well as the market
parameters for this type of real estate which we view as being national in
scale.
By forecasting the anticipated income stream and discounting future value
at reversion into a current value, the capitalization process may be applied to
derive a value that an investor would pay to receive that particular income
stream. Typical investors price real estate on their expectations of the
magnitude of these benefits and their judgment of the risks involved. Our
valuation endeavors to reflect the most likely actions of typical buyers and
sellers of property interest similar to the subject. In this regard, we see the
subject as a long term investment opportunity for a competent owner/developer.
An analytical real estate computer model that simulates the behavioral
aspects of property and examines the results mathematically is employed for the
discounted cash flow analysis. In this instance, it is the PRO-JECT Plus+
computer model. Since investors are the basis of the marketplace in which the
subject property will be bought and sold, this type of analysis is particularly
germane to the appraisal problem at hand. On the Facing Page is a summary of the
expected annual cash flows from the operation of the subject over the stated
investment holding period.
A general outline summary of the major steps involved may be listed as
follows:
1. Analysis of the income stream: establishment of an economic (market)
rent for tenant space; projection of future revenues annually based
upon existing and pending leases; probable renewals at market rentals;
and expected vacancy experience;
2. Estimation of a reasonable period of time to achieve stabilized
occupancy of the existing property and make all necessary improvements
for marketability;
3. Analysis of projected escalation recovery income based upon an
analysis of the property's history as well as the experiences of
reasonably similar properties;
4. Derivation of the most probable net operating income and pre-tax cash
flow (net income less reserves, tenant improvements, leasing
commissions and any extraordinary expenses to be generated by the
property) by subtracting all property expenses from the effective
gross income; and
5. Estimation of a reversionary sale price based upon capitalization of
the net operating income (before reserves, tenant improvements and
leasing commissions or other capital items) at the end of the
projection period.
Following is a detailed discussion of the components which form the basis
of this analysis.
The total potential gross revenues generated by the subject property are
composed of a number of distinct elements: minimum rent determined by lease
agreement; additional overage rent based upon a percentage of retail sales;
reimbursement of certain expenses incurred in the ownership and operation of the
real estate; and other miscellaneous revenues.
The minimum base rent represents a legal contract establishing a return
to investors in the real estate, while the passing of certain expenses onto
tenants serves to maintain this return in an era of continually rising costs of
operation. Additional rent based upon a percentage of retail sales experienced
at the subject property serves to preserve the purchasing power of the residual
income to an equity investor over time. Finally, miscellaneous income adds an
additional source of revenue in the complete operation of the subject property.
First year forecasted revenues may be allocated to the following components:
Revenue Summary
Initial Year of Investment - Fiscal Year 1997
Revenue Component Amount Unit Rate* Income Ratio
--------------------------------------------------------------------------------
Minimum Rent $ 9,125,386 $ 27.92 53.4%
--------------------------------------------------------------------------------
Overage Rent $ 113,699 $ 0.35 0.7%
--------------------------------------------------------------------------------
Expense Recoveries $ 7,541,690 $ 23.08 44.1%
--------------------------------------------------------------------------------
Miscellaneous Income $ 303,750 $ 0.93 1.8%
--------------------------------------------------------------------------------
Total $17,084,525 $ 52.28 100.0%
================================================================================
* Reflects total owned GLA of 326,813 SF
Minimum Rental Income
Minimum rent produced by the subject property is derived from that paid
by the various tenant types. The projection utilized in this analysis is based
upon the actual rent roll and our projected leasing schedule in place as of the
date of appraisal, together with our assumptions as to the absorption of the
vacant space, market rent growth, and renewal/turnover probability. We have also
made specific assumptions regarding deals that are in progress and have a strong
likelihood of coming to fruition. In this regard, we have worked with management
and leasing personnel to analyze each pending deal on a case by case basis. We
have incorporated all executed leases in our analysis. For those pending leases
that are substantially along in the negotiating process and are believed to have
a reasonable likelihood of being completed, we have reflected those terms in our
cash flow. These transactions represent a reasonable and prudent assumption from
an investor's standpoint.
The rental income which an asset such as the subject property will
generate for an investor is analyzed as to its quality, quantity and durability.
The quality and probable duration of income will affect the amount of risk which
an informed investor may expect over the property's useful life. Segregation of
the income stream along these lines allows us to control the variables related
to the center's forecasted performance with greater accuracy. Each tenant type
lends itself to a specific weighting of these variables as the risk associated
with each varies.
The minimum rents forecasted at the subject property are essentially
derived from various tenant categories, namely mall tenant revenues consisting
of all in-line mall shops and food court tenants. In our investigation and
analysis of the marketplace, we have surveyed, and ascertained where possible,
rent levels being commanded by competing centers. However, it should be
recognized that large retail shopping centers are generally considered to be
separate entities by virtue of age and design, accessibility, visibility, tenant
mix, and the size and purchasing power of its trade area. Consequently, the best
measure of minimum rental income is its actual rent roll leasing schedule.
As such, our a analysis of recently negotiated leases for new and
relocation tenants at the subject provides important insight into perceived
market rent levels for the mall. Insomuch as a tenant's ability to pay rent is
based upon expected sales achievement, the level of negotiated rents is directly
related to the individual tenant's perception of their expected performance at
the mall. This is particularly true for the subject where sales levels have
fallen over the past year.
Mall Shop Tenants
Rent from all interior mall tenants comprise the majority of minimum
rent. Aggregate rent from these tenants is forecasted to be $9,055,386, or
$27.71 per square foot. Minimum rent may be allocated to the following
components:
================================================================================
Minimum Rent Allocation
Interior Mall Shops
================================================================================
FY 1997 Revenue Applicable GLA* Unit Rate (SF)
================================================================================
Mall Shops $8,002,308 315,688 SF $ 25.35
--------------------------------------------------------------------------------
Food Court $ 705,807 9,693 SF $ 72.82
--------------------------------------------------------------------------------
Kiosks $ 347,271 1,432 SF $242.51
--------------------------------------------------------------------------------
Total $9,005,386 326,813 SF $ 27.71
================================================================================
* Represents leasable area as opposed to actual leased or occupied area;
exclusive of anchor space.
In-Line Shops
Our analysis of market rent levels for in-line shops has resolved itself
to a variety of influencing factors. Although it is typical that larger tenant
spaces are leased at lower per square foot rates and lower percentages, the type
of tenant as well as the variable of location within the mall can often distort
this size/rate relationship.
The following chart presents an analysis of in-line shop rents based upon
existing leases on an annualized basis for 1996:
Income Approach
================================================================================
================================================================================
1996 Leases In-Place*
================================================================================
Size Category Annualized Rent Applicable GLA Rent/SF
================================================================================
< 750 $ 424,988 6,981 SF $60.88
--------------------------------------------------------------------------------
751 - 1,200 $ 745,680 15,705 SF $47.48
--------------------------------------------------------------------------------
1,201 - 2,000 $ 1,212,153 32,273 SF $37.56
--------------------------------------------------------------------------------
2,001 - 3,500 $ 1,828,887 57,673 SF $31.71
--------------------------------------------------------------------------------
3,501 - 5,000 $ 1,542,446 54,395 SF $28.36
--------------------------------------------------------------------------------
5,001 - 15,000 $ 1,605,324 50,569 SF $31.75
--------------------------------------------------------------------------------
< 15,000 $ 261,000 26,100 SF $10.00
--------------------------------------------------------------------------------
Total $ 7,620,478 243,696 SF $31.27
--------------------------------------------------------------------------------
Total (Excl. > 15,000) $ 7,359,478 217,596 SF $33.82
* Includes existing leases for calendar year 1996. Partial year tenants
have been annualized to reflect the full 12 months
As can be seen, lease rates generally have an inverse relationship with
suite size and show an overall average rent of $31.27 per square foot. Excluding
Tenants Over 15,000 square feet (new Bunnie's lease), the average attained rent
is calculated to be $33.82.
Recent Leasing Activity (By Size Category)
Since existing rents can be skewed by older leases within the mall, an
analysis of recent leasing activity can provide a better understanding of
current rental rates. The chart on the Facing Page presents an overview of
recent in-line shop leasing for the subject property. As shown, 32 leases
(excluding Tenants > 15,000 SF) reflect an overall average rent of $35.35 per
square foot. The highest rent is attained from Group 1 (Tenants < 750 SF) with
an average of $64.30 per square foot. The averages generally decline by size
category to $33.31 per square foot for Group 6 (Tenants 5,001 - 10,000 SF).
Group 1 (Tenants < 750 SF) - This size category includes four leases
which show an average rental rate of $64.30 per square foot. The leases
range from $60.00 to $70.47, with Auntie Anne's having the highest
attained initial rent.
Group 2 (Tenants 751-1,200 SF) - Six leases have been included for this
grouping, ranging from $30.21 to $70.00 per square foot. The overall
weighted average is $48.67 per foot. The highest rent has been obtained
from Major Jewelers who has, or is expected to have, above average sales.
Nails & More has the lowest rental rate, but leased a difficult space
adjacent to the parking garage entrance with limited visibility.
Group 3 (Tenants 1,201-2,000 SF) - This group has a total of five leases
which range between $30.00 and $82.70 per square foot with an average
rent of $43.99. Candie's is the most recent lease in this category. Their
rent starts at $30.00 per square foot, increasing to $48.00 by the end of
the lease term, with no Tls given.
Group 4 (Tenants 2,001-3,500 SF) - Seven leases in the category range
from $20.00 (Radio Shack) to $56.87 (Hair Design). The weighted average
for Group 4 is calculated to be $37.46 per square foot. Two of the most
recent leases show rates between $32.00 to $38.00 per square foot.
Group 5 (Tenants 3,501-5,000 SF) - This category includes six leases
which reflect an overall average rent of $26.81 per square foot. The
highest rents ($32.00) have been attained from Limited Too and American
Eagle, each of whom signed leases at the subject in the face of The
Westchester opening. Child Place is the most recent lease at $25.00 per
square foot.
Group 6 (Tenants 5,001-15,000 SF) - A total of four leases have been
included in this grouping, including two older leases to Express & Bath
and Victoria's Secret. Leases range from $32.00 to $35.00 per square
foot, with a weighted average of $33.31 for the category.
Group 7 (Tenants > 15,000 SF) - This category is represented by only one
lease. Bunnie's, a children's store, will be leasing the former Filene's
Basement space beginning August 1996 on a gross basis of $10.00 per foot.
Filene's previously occupied the space at $12.00 per square foot, net, on
a lease which began in November 1992. Herman's formerly paid $7.75 per
square foot for a 15,451 square foot space in this category. The lease,
however, dated back to 1980.
Market Comparisons - Occupancy Cost Ratios
In further support of developing a forecast for market rent levels, we
have undertaken a comparison of minimum rent to projected sales and total
occupancy costs to sales ratios. Generally, our research and experience with
other regional malls shows that the ratio of minimum rent to sales falls within
the 7.0 to 10.0 percent range in the initial year of the lease, with 7.5 percent
to 8.5 percent being most typical. By adding additional costs to the tenant,
such as real estate tax and common area maintenance recoveries, a total
occupancy cost may be derived. Expense recoveries and other tenant charges can
add up to 100 percent of minimum rent and comprise the balance of total tenant
costs.
The typical range for total occupancy cost-to-sales ratios falls between
11.0 and 15.0 percent. As a general rule, where sales exceed $250 to $275 per
square foot, 14.0 to 15.0 percent would be a reasonable cost of occupancy.
Experience and research show that most tenants will resist total occupancy costs
that exceed 15.0 to 18.0 percent of sales. However, ratios of upwards to 20.0
percent are not uncommon. Obviously, this comparison will vary from tenant to
tenant and property to property.
In higher end markets where tenants are able to generate sales above
industry averages, tenants can generally pay rents which fall toward the upper
end of the ratio range. Moreover, if tenants perceive that their sales will be
increasing at real rates that are in excess of inflation, they will typically be
more inclined to pay higher initial base rents. Obviously, the opposite would be
true for poorer performing centers in that tenants would be squeezed by the thin
margins related to below average sales. With fixed expenses accounting for a
significant portion of the tenants contractual obligation, there would be little
room left for base rent.
In this context, we have provided an occupancy cost analysis for several
regional malls with which we have had direct insight over the past year. This
information is provided on the Following Page. On average, these ratio
comparisons provide a realistic check against projected market rental rate
assumptions.
From this analysis we see that the ratio of base rent to sales ranges
from 7.1 to 10.6 percent, while the total occupancy cost ratios vary from 9.6 to
17.3 percent when all recoverable expenses are included. The surveyed mean for
the malls and industry standards analyzed is 8.3 percent and 13.4 percent,
respectively. Some of the higher ratios are found in older malls situated in
urban areas that have higher operating structures due to less efficient layout
and designs, older physical plants, and higher security costs, which in some
malls can add upwards of $2.00 per square foot to common area maintenance.
These relative measures can be compared with two well known publications,
The Score (1996) by the International Council of Shopping Centers and Dollars &
Cents of Shopping Centers (1995) by the Urban Land Institute. The most recent
publications indicate base rent-to-sales ratios of approximately 7.0 to 8.0
percent and total occupancy cost ratios of 10.1 and 12.3 percent, respectively.
In general, while the rental ranges and ratio of base rent to sales vary
substantially from mall to mall and tenant to tenant, they do provide general
support for the rental ranges and ratio which is projected for the subject
property.
Conclusion - Market Rent Estimate for In-Line Shops
Previously, in the Retail Market Analysis section of the appraisal, we
discussed the subject's sales potential. Comparable mall sales in calendar year
1995 reportedly dropped to $344 per square foot. In light of the mall's
performance and recent stabilizing of sales through the first three months of
1996, we are forecasting sales to be $344 per square foot in 1996. Based upon a
ratio of, say, 8.5 to 9.0 percent, an average rent for the subject between
$29.25 and $31.00 is indicated. We also recognize that the subject has the
potential to recoup sales as the general retail environment improves.
The following chart presents a comparison of existing leases with recent
leasing and our projected market rental rate for each property.
In-Line Rent Comparisons and Conclusions - Retail Component
After considering all of the above, we have developed a weighted average
rental rate of approximately $32.64 per square foot based upon a relative
weighting of tenant space by size (excluding Tenants > 10,000 SF). The average
rent is a weighted average rent for all in-line mall tenants only. This average
market rent has been allocated to space as shown on the Facing Page.
Occupancy Cost - Test of Reasonableness
Our weighted average rent can next be tested against total occupancy
costs in the mall based upon the standard recoveries for new mall tenants. Our
total occupancy cost analyses can be found on the following chart.
Total Occupancy Cost Analysis-1996
Tenant Cost Estimated Expenses/SF
================================================================================
Economic Base Rent $ 32.64
(Weighted Average)
--------------------------------------------------------------------------------
Occupancy Costs (A)
Common Area Maintenance (1) $ 14.30
--------------------------------------------------------------------------------
Real Estate Taxes (2) $ 9.78
--------------------------------------------------------------------------------
Other Costs (3) $ 1.76
--------------------------------------------------------------------------------
Total Tenant Costs $ 58.48
--------------------------------------------------------------------------------
Projected Average Sales (1996) $344.00
--------------------------------------------------------------------------------
Rent to Sales Ratio 9.49%
--------------------------------------------------------------------------------
Cost of Occupancy Ratio 17.00%
================================================================================
(A) Costs that are occupancy sensitive will decrease for new tenants on a
unit rate basis as lease-up occurs and the property stabilizes. Average
occupied area for mall tenant reimbursement varies relative to each major
recovery type.
(1) CAM expense is based on gross leasable occupied area (GLOA). Generally,
the standard lease clause provides for an administrative fee to be passed
through with CAM less certain exclusions, including anchor contributions.
The standard denominator is based on leased or occupied area. A complete
discussion of the standard recovery formula is presented later in this
report.
(2) Tax estimate is based upon gross leasable occupied area (GLOA) which is
the recovery basis for taxes.
(3) Other recoverable costs include tenant contributions for utilities: HVAC
($1.66/SF); Water/Sewer ($.10/SF).
Total costs, on average, are shown to be 17.0 percent of projected
average 1996 retail sales which we feel is high but relatively typical of urban
located properties. It is noted that recoverable expenses are occupancy
sensative and, as occupancy increases, the pass-through obligation to tenants
will ultimately decline, reducing the overall occupancy cost burden to tenants.
Nonetheless, the high occupancy costs tend to limit the potential for rent
growth in the near-term until both occupancy increases and sales begin to edge
back to previously experienced levels within the property.
The food court contains thirteen spaces totaling 9,693 square feet (an
average of 746 square feet per unit). Acropolis and JB's Texas Grill are the two
most recent leases in the food court with rents of $82.85 and $91.10 per square
foot, respectively, or $43,000 per unit. The overall average rent is calculated
to be $74.58 per square foot for the food court. We are advised that Sbarro has
reached an agreement to buy out Bizzarre Pizza's lease and operate a Sbarro's
and Umberto's in the food court area. Sbarro was forced to close at lease
expiration earlier this year because of a non-competing clause in Bizzarre
Pizza's lease. We have ascribed a market rental rate of about $80.00 per square
foot for food court tenants. Food court tenants pay additional costs for food
court expenses based upon a pro-rata share of the expense.
Kiosk Tenants
We have also segregated permanent kiosk rental rates within our analysis
since they typically pay higher rents than in-line and food court tenants. The
leasing plan provides for nine permanent kiosks at the subject, including Dime
Savings ATM. Combined, these units total 1,432 square feet (179 square feet per
kiosk). The overall average rent attained from existing kiosks is $217.00 per
square foot ($38,900 annually), excluding the ATM. Vitamin Works is the most
recent kiosk lease, occupying 163 square feet at an initial rent of $40,000 per
year, or $245.40 per square foot. Quintex has renewed their lease for one year
at their current rent of $37,000 ($226.99/SF). Another recent lease is Jewel Hut
who leases 156 square feet at a rent of $40,000 per year, or $256.41 per square
foot. We have ascribed a market rental rate of $40,000 for kiosks in our
analysis.
Concessions
Free rent is an inducement offered by developers to entice a tenant to
locate in their project over a competitors. This marketing tool has become
popular in the leasing of office space, particularly in view of the
over-building which has occurred in many markets. As a rule, most major retail
developers have been successful in negotiating leases without including free
rent. Our experience with regional malls shows that free rent is generally
limited to new projects in marginal locations without strong anchor tenants that
are having trouble leasing, as well as older centers that are losing tenants to
new malls in their trade area. Management reports that free rent has been a
relative non-issue with new retail tenants. A review of the most recent leasing
confirms this observation. It has generally been limited to one or two months to
prepare a suite for occupancy when it has been given.
Accordingly, we do not believe that it will be necessary to offer free
rent to retail tenants at the subject. It is noted that, while we have not
ascribed any free rent to the retail tenants, we have, however, made rather
liberal allowances for tenant workletters which acts as a form of inducement to
convince a tenant to locate at the subject. These allowances are liberal to the
extent that ownership has been relatively successful in leasing space "as is" to
tenants. In addition, it is ownership's policy upon lease renewal to require
tenants to remodel space at their own cost. We have made allowances of $8.00 per
square foot to new tenants (currently vacant) and for future turnover space. We
have also ascribed a rate of $1.00 per square foot to rollover space. This
assumption offers further support for the attainment of the rent levels
previously cited.
Finally, our analysis concludes that the current vacant retail space will
be absorbed over a three year period through July 1999. We have identified
60,892+/- square feet of vacant space, net of newly executed leases and pending
deals which have good likelihood of coming to fruition. This is equivalent to
18.6 percent of mall shop GLA. The chart on the Facing Page details our
projected absorption schedule. The absorption of the in-line space over a three
year period is equal to 5,074+/- square feet per quarter. We have assumed that
the space will all lease at 1996 base date market rent estimates as previously
referenced. Effectively, this assumes no rent inflation for absorption space.
Based on this lease-up assumption, the following chart tracks retail
occupancy through July 1, 1999, the first full year of fully stabilized
occupancy.
The final category of minimum rent involves anchor department stores. As
noted, Stern's is not owned and required only to pay contributions for common
area maintenance. JCPenney is on ground lease terms based upon an annual payment
of $70,000 per year. JCPenney also pays a contribution for CAM.
Rent Growth Rates
Market rent will, over the life of a prescribed holding period, quite
obviously follow an erratic pattern. A review of investor's expectations
regarding income growth shows that projections generally range between 3.0 and
4.0 percent for retail centers. Cushman & Wakefield's Winter 1995 survey of
pension funds, REITs, bank and insurance companies, and institutional advisors
reveals that current income forecasts are utilizing average annual growth rates
between zero and 5.0 percent. The low and high mean is shown to be 2.8 and 3.9
percent, respectively. The Peter F. Korpacz Investor Survey (First Quarter 1996)
shows slightly more conservative results with average annual rent growth of 2.96
percent.
It is not unusual in the current environment to see investors structuring
no growth or even negative growth in the short term. The White Plains area in
general has been negatively impacted by the last recession and difficult retail
environment. Sales at many retail establishments have been down this past year.
The subject has also been impacted by the global problems of many of its
retailers. The tenants' ability to pay rent is closely tied to its increases in
sales. However, rent growth can be more impacted by competition and management's
desire to attract and keep certain tenants that increase the mall's synergy and
appeal. As such, we have been conservative in our rent growth forecast.
* Indicated growth rate over the previous year's rent
Releasing Assumption
The typical lease term for new in-line retail leases in centers such as
the subject generally ranges from five to twelve years. Market practice dictates
that it is not uncommon to get rent bumps throughout the lease terms either in
the form of fixed dollar amounts or a percentage increase based upon changes in
some index, usually the Consumer Price Index (CPI). Often the CPI clause will
carry a minimum annual increase and be capped at a higher maximum amount.
For new leases in the regional malls, ten year terms are most typical.
Essentially, the developer will deliver a "vanilla" suite with mechanical
services roughed in and minimal interior finish. This allows the retailer to
finish the suite in accordance with their individual specifications. Because of
the up-front costs incurred by the tenants, they require a ten year lease term
to adequately amortize these costs. In certain instances, the developer will
offer some contribution to the cost of finishing out a space over and above a
standard allowance.
Upon lease expiration, it is our best estimate that there is a 70.0
percent probability that an existing tenant will renew their lease while the
remaining 30.0 percent will vacate their space at this time. While the 30.0
percent may be slightly high by some historic measures, we think that it is a
prudent assumption in light of what has happened over the past year. An
exception to this assumption exists with respect to existing tenants who, at the
expiration of their lease, have sales that are substantially below the mail
average and have no chance to ever achieve percentage rent. In these instances,
it is our assumption that there is a 100.0 percent probability that the tenant
will vacate the property. This is consistent with ownership's philosophy of
carefully and selectively weeding out under-performers.
As stated above, it is not uncommon to get increases in base rent over
the life of a lease. Our global market assumptions for non-anchor tenants may be
summarized as shown on the following page.
================================================================================
Renewal Assumptions
================================================================================
Lease Free Tenant Lease
Tenant Type Term Rent Steps Rent Alterations Commissions
================================================================================
Mail Shops 10 yrs. 10% in 6th year No Yes Yes
--------------------------------------------------------------------------------
Food Court 10 yrs. 10% in 6th year No Yes Yes
--------------------------------------------------------------------------------
Kiosks 5 yrs. 10% in 3rd year No No Yes
================================================================================
Upon lease rollover/turnover, space is forecasted to be released at the
higher of the last effective rent (defined as minimum rent plus overage rent if
any) and the ascribed market rent as detailed previously increasing by our
market rent growth rate assumption.
In the initial full year of the investment (FY 1997), it is projected
that the subject property will produce approximately $9,125,386 in minimum
rental income. This estimate of base rental income is equivalent to $27.92 per
square foot of total owned GLA. Alternatively, minimum rental income accounts
for 53.4 percent of all potential gross revenues. Further analysis shows that
over the holding period (FY 1997-2006), minimum rent advances at an average
compound annual rate of 3.4 percent. This increase is a synthesis of the mall's
lease-up, fixed rental increases, as well as market rents from rollover or
turnover of space. On a more stabilized basis (1999-2006), minimum rent
increases at an annual rent of 1.7 percent per year.
Overage Rent
In addition to minimum base rent, many tenants at the subject property
have contracted to pay a percentage of their gross annual sales over a
pre-established base amount as overage rent. Many leases have a natural
breakpoint although a number have stipulated breakpoints. The average overage
percentage for small space retail tenants is in a range of 5.0 to 6.0 percent,
with food court and kiosk tenants generally at 8.0 to 10.0 percent. Anchor
tenants typically have the lowest percentage clauses with ranges of 1.5 to 3.0
percent being common.
Traditionally, it takes a number of years for a retail center to mature
and gain acceptance before generating any sizable percentage income. As a center
matures, the level of overage rents typically becomes a larger percentage of
total revenue. It is a major ingredient protecting the equity investor against
inflation.
In the Retail Market Analysis section of this report, we discussed the
historic and forecasted sales levels for the mall tenants. Because the mall has
seen some decline in sales over the past year, it is difficult to predict with
accuracy what sales will be on an individual tenant level. As such, we have
employed the following methodology:
o For existing tenants who report sales, we have forecasted that
sales will continue at our projected sales growth rate as
discussed herein.
o For tenants who do not report sales or who do not have percentage
clauses, we have assumed that a non-reporting tenant will always
occupy that particular space.
o For new tenants, we have projected sales at the forecasted average
for the center at the start of the lease. In 1996 this would be
approximately $344 per square foot.
Thus, in the initial full year of the investment holding period, overage
revenues are estimated to amount to $113,699 (net of any recaptures) equivalent
to $0.35 per square foot of owned GLA and 0.67 percent of potential gross
revenues. On balance, our forecasts for overage rent are deemed to be reasonable
and never exceed 0.67 percent of gross revenues during the holding period.
In the Retail Market Analysis section of this report, we discussed that
retail specialty store sales at the subject property have declined over the past
year.
Retail sales in White Plains have been flat-declining in recent years,
while sales in Westchester County have been increasing at a compound annual rate
of 3.0 percent per annum since 1985, according to Sales and Marketing
Management. According to both the Cushman & Wakefield and Korpacz surveys, major
investors are looking at a range of growth rates of 0 percent initially to a
high of 5 percent in their computational parameters. Most typically, growth
rates of 3 percent to 4 percent are seen in these surveys.
Nationally, total retail sales have been increasing at a compound annual
rate of 6.2 percent since 1980 and 4.9 percent per annum since 1990. Between
1990 and 1994, GAFO sales have grown at a compound annual rate of 5.83 percent
per year. Through 2000, total retail sales are forecasted to increase by 4.12
percent per year nationally, while GAFO sales are projected to grow by 5.04
percent annually.
After considering all of the above, combined with the potential for
increased competition with The Westchester, we have forecasted sales growth
based upon the following schedule.
In all, we believe our sales growth forecast is reasonable. For new
tenants, sales are established based upon the mall's average sales level.
Generally, for existing tenants, we have assumed that sales continue subsequent
to lease expiration at their previous level unless they are under-performers
that prompt a 100.0 percent turnover probability; then sales are reset to the
corresponding mall overage.
In most instances, no overage rent is generated from new tenants due to
our forecasted rent steps which serve to change the breakpoint.
Expense Reimbursement/Miscellaneous Income
By lease agreement, tenants are required to reimburse the lessor for
certain operating expenses. Included among these operating items are real estate
taxes, common area maintenance (CAM), utilities (HVAC/Water & Sewer), and a
common seating charge for food court tenants. Miscellaneous income is
essentially derived from specialty leasing for temporary tenants, Christmas
kiosks and other charges. In the first full year of the investment, it is
projected that the subject property will generate approximately $7,541,690 in
reimbursements for these operating expenses, $232,875 for temporary leasing, and
$70,875 in other miscellaneous income.
Under the standard lease, mall tenants pay their pro-rata share of the
balance of the CAM expense after anchor contributions are deducted and
management fees are added. Provided below is a summary of the standard clause
that exists for a new tenant at the mall.
================================================================================
Common Area Maintenance Recovery Calculation
================================================================================
CAM Expense Actual hard cost for year, inclusive of
interest and depreciation
--------------------------------------------------------------------------------
Add Administrative
Fee
--------------------------------------------------------------------------------
Less Contributions from Department Stores
& Majors > 15,000 SF
--------------------------------------------------------------------------------
Equals: Net pro-ratable CAM billable to mall tenants on the basis of
gross leasable occupied area (GLO).
================================================================================
Department Store/Major Tenant Obligations
Department stores at the subject property are obligated to pay
contributions for common area maintenance expenses. JCPenney pays $0.15 per
square foot (1980-90), $0.25 per square foot (1991-2000), and $0.35 per square
foot for the remainder of the lease term. Stern's pays a flat contribution of
$15,000 per year towards CAM. Both Herman's and Filene's Basement formerly paid
CAM contributions which were typically deducted before mall shop pass-throughs.
Bunnie's (former Filene's space) will not pay any CAM contribution.
Real Estate Taxes
Mall tenants pay real estate tax recoveries based upon a pro-rata share
of the expense. The pass-through is based upon pro-rata share of gross leasable
occupied area (GLOA). The tax recovery has a similar structure wherein major
tenant contributions are deducted before mall shop tenants are billed.
Other Recoveries/Income
Other recoveries and income consist of common seating charges for food
court tenants, HVAC and water/sewer charges, temporary leasing, and
miscellaneous income. Common seating charges are assessed to food court tenants
for operation of the food court area. This charge is in addition to the regular
mall common area maintenance and is billed based upon occupied area of the food
court.
Individual tenant electric usage is billed directly by Con Edison.
However, other utilities are recoverable from tenants. Included here are HVAC
charges, electricity for operation of the central plant, gas/fuel charges, and
water/sewer expenses. Individual usage for HVAC is assessed by usage surveys.
The current charge for operation of the central plant is budgeted at $1.66 per
square foot. Usage varies by tenant but averages about $5.01 per square foot.
Water and sewer is also billed to tenants and currently averages about $0.10 per
square foot.
The final revenue categories consist of temporary leasing of in-line
space, revenue from temporary kiosks at Christmas time, and miscellaneous
income. Temporary leasing is related to temporary tenants that occupy vacant
in-line space. Other sources of miscellaneous revenues include temporary
seasonal kiosk rentals, forfeited security deposits, phone revenues, and
interest income. Our forecast for these additional revenues is net of a
provision for vacancy and credit loss. Overall, it is our assumption that these
other revenues will increase by 3.0 percent per annum over the holding period.
Allowance for Vacancy and Credit Loss
The investor of an income producing property is primarily interested in
the cash revenues that an income-producing property is likely to produce
annually over a specified period of time rather than what it could produce if it
were always 100.0 percent occupied with all tenants paying rent in full and on
time. It is normally a prudent practice to expect some income loss, either in
the form of actual vacancy or in the form of turnover, non-payment or slow
payment by tenants. We have reflected a 4.5 percent stabilized contingency for
both stabilized and unforeseen vacancy and credit loss. Please note that this
vacancy and credit loss provision is applied to all mall tenants equally. We
have phased in the 4.5 percent factor as the mall leases up.
In this analysis we have also forecasted that there is a 70.0 percent
probability that an existing tenant will renew their lease. Upon turnover, we
have forecasted that rent loss equivalent to six months would be incurred to
account for the time and/or costs associated with bringing space back on line.
Thus, minimum rent as well as overage rent and certain other income has been
reduced by this forecasted probability.
We have calculated the effect of the total provision of vacancy and
credit loss on the in-line shops. Through the 10 years of this cash flow
analysis, the total allowance for vacancy and credit loss, including provisions
for downtime, ranges from a low of 5.11 percent (2000) of total potential gross
revenues to a high of 24.76 percent (1996). On average, the total allowance for
vacancy and credit loss over the 10 year projection period averages 9.30
percent of these revenues.
While 9.30 percent average vacancy over the projection period might be
considered high by investment surveys, we believe it to be a prudent assumption
in light of the risks associated with the subject property and its new
competition from The Westchester.
As discussed, if an existing mall tenant is a consistent under-performer
with sales substantially below the mail average, then the turnover probability
applied is 100.0 percent. This assumption, while adding a degree of conservatism
to our analysis, reflects the reality that management will continually strive to
replace under performers. On balance, the aggregate deductions of all gross
revenues reflected in this analysis are based upon overall long-term market
occupancy levels and are considered what a prudent investor would allow for
credit loss. The remaining sum is effective gross income which an informed
investor may anticipate the subject property to produce. We believe this is
reasonable in light of overall vacancy in this subject's market area as well as
the current leasing structure at the subject.
Effective Gross Income
In the initial full year of the investment, FY 1997, effective gross
revenues ("Total Income" line on cash flow) are forecasted to amount to
approximately $16,883,665, equivalent to $51.66 per square foot of total owned
GLA.
Effective Gross Revenue Summary - Retail Component
Initial Year of Investment - Fiscal Year 1997
Aggregate Sum Unit Rate Income Ratio
================================================================================
Potential Gross Income $17,084,525 $52.28 100.0%
--------------------------------------------------------------------------------
Less: Vacancy and Credit Loss ($ 200,860) ($ 0.61) 1.2%
Effective Gross Income $16,883,665 $51.66 98.8%
Expenses
Total expenses incurred in the production of income from the subject
property are divided into two categories: reimbursable and non-reimbursable
items. The major expenses which are reimbursable include real estate taxes,
common area maintenance, water and sewer, central plant costs, HVAC, and common
seating charges. The non-reimbursable expenses associated with the subject
property include certain general and administrative expenses, ownership's
contribution to the merchants association/marketing fund, management charges,
and miscellaneous expenses. Other expenses include a reserve for the replacement
of short-lived capital components, alteration costs associated with bringing
space up to occupancy standards, leasing commissions, and a provision for
capital expenditures.
The various expenses incurred in the operation of the subject property
have been estimated from information provided by a number of sources. We have
reviewed the subject's component operating history for prior years as well as
the 1996 Budget. This information is provided in the Addenda. We have compared
this information to published data which are available, as well as comparable
expense information. Finally, this information has been tempered by our
experience with other regional shopping centers.
We have analyzed each item of expense individually and attempted to
project what the typical investor in a property like the subject would consider
reasonable, based upon informed opinion, judgment and experience. The following
is a detailed summary and discussion of the reimbursable operating expenses
incurred in the operation of the subject property during the initial year of the
investment holding period. These expense estimates are forecasted to grow by our
expense growth rate of 3.5 percent per year.
Common Area Maintenance - This expense category includes the annual cost
of miscellaneous building maintenance contracts, recoverable labor and
benefits, security, insurance, landscaping, snow removal, cleaning and
janitorial, exterminating, supplies, trash removal, exterior lighting,
common area energy, gas and fuel, equipment rental, interest and
depreciation, and other miscellaneous charges. In addition, ownership can
pass-through and administrative fee along with the billable expense. As
discussed, the standard lease agreement allows management to pass along
the CAM expense to tenants on the basis of gross leasable occupied area.
The following chart presents an itemized budget for CAM expenses in 1996
as well as the 1995 actual expense:
* Excludes exterior tenants and tenants > 15,000 SF
As can be seen, a total CAM cost of $3,024,360 is budgeted for 1996. This
reflects a CAM expense of about $9.25 per square foot of mall shop area.
Overall, we believe that CAM expenses at the subject are reasonable. Our
CAM expense advances to $3,069,115 in FY 1997.
Real Estate Taxes - The projected taxes to be incurred in 1996 are equal
to $2,672,000. As discussed, the standard recovery for this expense is
charged on the basis of gross leasable occupied area of non-anchor mall
tenant GLA. The tax expense increases to $2,738,800 for fiscal year 1997.
Food Court CAM (Common Seating) - The cost of maintaining the food court
is estimated at $344,958 in the initial year of the holding period.
Included here are such items as payroll for administration, maintenance
and security, supplies, and other miscellaneous expenses. As articulated,
food court tenants are assessed a separate charge for this expense.
Central Plant/Water and Sewer - This expense includes the repair and
maintenance of central plant facilities, electricity, and water/sewer
expenses at the subject. In 1995, these expenses totaled $1,592,561. For
1996, a budgeted expense of $1,519,146 is indicated. Our FY 1997 expense
amounts to $1,532,667.
Non-Reimbursable Expenses
Total non-reimbursable expenses at the subject property are projected
from accepted practices and industry standards. Again, we have analyzed each
item of expenditure in an attempt to project what the typical investor in a
property similar to the subject would consider reasonable, based upon actual
operations, informed opinion, and experience. The following is a detailed
summary and discussion of non-reimbursable expenses incurred in the operation of
the subject property for the initial year. Expenses are forecasted to increase
3.5 percent per annum through the remainder of the holding period.
General and Administrative - Expenses related to the administrative
aspects of the mall include costs particular to operation of the mall,
including salaries, travel and entertainment, and dues and subscriptions.
A provision is also made for professional services (legal and accounting
fees and other professional consulting services). In FY 1997, we reflect
general and administrative expenses of $263,792, or $0.81 per square
foot.
Marketing - These costs include expenses related to the temporary tenant
program, including payroll for the promotional and leasing staff. It also
contains ownership's contribution to the merchant association which is
net of tenant contributions. In order to assist in the lease-up of vacant
suites, in the initial year marketing cost is forecasted to amount to
$81,167, or $0.25 per square foot of mall shop GLA.
Miscellaneous - This catch-all category is provided for various
miscellaneous and sundry expenses that ownership will typically incur.
Such items as unrecovered repair costs, preparation of suites for
temporary tenants, certain non-recurring expenses, expenses associated
with maintaining vacant space, and bad debts in excess of our credit loss
provision would be included here. In the initial year, these
miscellaneous items are forecasted to amount to approximately $10,000,
which increases to $10,146 in FY 1997.
Management - The annual cost of managing the subject property is
projected to be 3.0 percent of minimum and percentage rent. In the
initial year of our analysis, this amount is shown to be $277,173.
Alternatively, this amount is equivalent to approximately 1.6 percent of
effective gross income. Our estimate is reflective of a typical
management agreement with a firm in the business of providing
professional management services. This amount is considered typical for a
retail complex of this size. Our investigation into the market for this
property type indicates an overall range of fees of 3.0 to 5.0 percent.
Since we have reflected a structure where ownership separately charges
leasing commissions, we have used the mid-point of the range as providing
for compensation for these services.
Alterations - The principal component of this expense is ownership's
estimated cost to prepare a vacant suite for tenant use. At the
expiration of a lease, we have made a provision for the likely
expenditure of some monies on ownership's part for tenant improvement
allowances. In this regard, we have forecasted a cost of $8.00 per square
foot for turnover space (initial cost growing at expense growth rate)
weighted by our turnover probability of 30.0 percent. We have forecasted
a rate of $1.00 per square foot for renewal (rollover) tenants, based on
a renewal probability of 70.0 percent. The blended rate based on our
70/30 turnover probability is therefore $3.10 per square foot. These
costs are forecasted to increase at our implied expense growth rate.
Leasing Commissions - Ownership has recently been charging leasing
commissions internally. A typical structure is $3.50 per square foot for
new tenants and $1.50 per square foot for renewal tenants. These rates
are increased by $0.50 and $0.25 per square foot, respectively, every
five years. This structure implies a payout up front at the start of a
lease. The cost is weighted by our 70/30 percent renewal/turnover
probability. Thus, upon lease expiration a leasing commission charge of
$2.10 per square foot would be incurred.
Capital Repairs - Regional malls are typically remodeled every five to
ten years. The last renovation of the subject was completed in 1993. In
view of the subject's condition, we have not made an additional allowance
for capital repairs/cosmetic remodeling. However, ownership has made
provisions for certain capital items over the next two years which we
have included in our analysis. In 1996, a cost of $256,000 has been
budgeted for service corridor, food court, lighting/electrical, and
escalator improvements. For 1997, a figure of $200,000 has been budgeted
for painting and plumbing work.
Replacement Reserves - It is customary and prudent to set aside an amount
annually for the replacement of short-lived capital items such as the
roof, parking lot and certain mechanical items. The repairs and
maintenance expense category has historically included some capital items
which have been passed through to the tenants. This appears to be a
fairly common practice among most malls. However, we feel that over a
holding period some repairs or replacements will be needed that will not
be passed on to the tenants. For purposes of this report, we have
estimated an expense of approximately $0.15 per square foot of owned GLA
during the first year ($50,000), thereafter increasing by our expense
growth rate.
Expense Growth Rates
Expense growth rates are generally forecasted to be more consistent with
inflationary trends than with competitive market forces. The Winter 1995 Cushman
& Wakefield survey of regional malls found the low and high mean from each
respondent to be 3.75 percent. The First Quarter 1996 Korpacz survey reports
that the range in expense growth rates runs from 3.0 percent to 4.5 percent with
an average of 3.92 percent, down 13 basis points from one year ago. Expenses are
forecasted to grow by 3.5 percent per annum over the remainder of the holding
period, except for taxes which are projected to grow by 6.0 percent in 1997, 5.0
percent in 1998, and 4.0 percent thereafter.
Net Income/Net Cash Flow
The total expenses of the subject property, including alterations,
commissions, capital expenditures, and reserves, are annually deducted from
total income, thereby leaving a residual net operating income or net cash flow
to the investors in each year of the holding period before debt service. The
following chart presents an overview of projected net operating income and net
income at the subject property for the first full year of investment.
Operating Summary
Initial Year of Investment - Fiscal Year 1997
Aggregate Sum Unit Rate* Operating Ratio
================================================================================
Effective Gross Income $16,883,665 $51.66 100.0%
Operating Expenses $8,317,818 $25.45 49.3%
Net Operating Income $8,565,847 $26.21 50.7%
Other Expenses $778,830 $2.38 4.6%
Cash Flow $7,787,017 $23.83 46.1%
================================================================================
* Based on total owned GLA of 326,813 square feet.
After projecting the income and expense components of the subject
property, investment parameters must be set in order to forecast property
performance over the holding period. These parameters include the selection of
capitalization rates (both initial and terminal) and application of the
appropriate discount or yield rate, also referred to as the internal rate of
return (IRR).
Selection of Capitalization Rates
Overall Capitalization Rate
The overall capitalization rate bears a direct relationship between net
operating income generated by the real estate in the initial year of investment
(or initial stabilized year) and the value of the asset in the marketplace.
Overall rates are also affected by the existing leasing schedule of the
property, the strength or weakness of the local rental market, the property's
position relative to competing properties, and the risk/return characteristics
associated with competitive investments. Our selection of rates utilizes rates
selected for each property component. These rates are then weighted for each
component's contribution to net operating income.
For retail properties, the trend has been for rising capitalization
rates. We feel that much of this has to do with the quality of the product that
has been selling. Sellers of the better performing dominant Class A malls have
been unwilling to waver on their pricing. Many of the malls which have sold over
the past 18 to 24 months are found in less desirable second or third tier
locations or represent turnaround situations with properties that are posed for
expansion or remerchandising. With fewer buyers for the top performing assets,
sales have been somewhat limited.
The data above shows that, with the exception of 1989, the average cap
rate has shown a rising trend each year. Between 1988 and 1989, the average rate
declined by 11 basis points. This was partly a result of dramatically fewer
transactions in 1989 as well as the sale of Woodfield Mall at a reported cap
rate of 4.58 percent. In 1990, the average cap rate jumped 28 basis points to
6.33 percent. Among the 16 transactions we surveyed that year, there was a
marked shift of investment criteria upward, with additional basis point risk
added due to the deteriorating economic climate for commercial real estate.
Furthermore, the problems with department store anchors added to the perceived
investment risk.
Much of the buying over the past 18 to 24 months has been opportunistic
acquisitions involving properties selling near or below replacement cost. Many
of these properties have languished due to lack of management focus or
expertise, as well as a limited ability to make the necessary capital
commitments for growth. As these opportunities become harder to find, we believe
that investors will again begin to focus on the stable returns of the dominant
Class A product.
The Cushman & Wakefield's Winter 1995 survey reveals that going-in cap
rates for regional shopping centers range between 7.0 and 9.0 percent with a low
average of 7.47 and high average of 8.25 percent, respectively; a spread of 78
basis points. Generally, the change in average capitalization rates over the
Spring 1995 survey shows that the low average decreased by 3 basis points, while
the upper average increased by 15 points. Terminal, or going-out rates are now
averaging 8.17 and 8.83 percent, representing a decrease of 22 basis points and
23 basis points, from Spring 1995 averages.
The First Quarter 1996 Peter F. Korpacz survey finds that cap rates have
remained relatively stable. They recognize that there is extreme competition for
the few premier malls that are offered for sale which should exert downward
pressure on rates. However, most of the available product is B or C quality
which are not attractive to most institutional investors. The survey did,
however, note a dramatic change for the top tier investment category of 20 to 30
true "trophy" assets in that investors think it is unrealistic to assume that
cap rates could fall below 7.0 percent.
=============================================================================================
NATIONAL REGIONAL MALL MARKET
FIRST QUARTER 1996
=============================================================================================
KEY INDICATORS CURRENT LAST
Free & Clear Equity IRR QUARTER QUARTER YEAR AGO
=============================================================================================
RANGE 10.00%-14.00% 10.00%-14.00% 10.00%-14.00%
AVERAGE 11.50% 11.55% 11.59%
---------------------------------------------------------------------------------------------
CHANGE (Basis Points) - - 5 - 9
---------------------------------------------------------------------------------------------
Free & Clear Going-In Cap Rate
---------------------------------------------------------------------------------------------
RANGE 6.25%-11.00% 6.25%-11.00% 6.25%-11.00%
AVERAGE 8.11% 7.86% 7.78%
---------------------------------------------------------------------------------------------
CHANGE (Basis Points) - + 25 + 33
---------------------------------------------------------------------------------------------
Residual Cap Rate
---------------------------------------------------------------------------------------------
RANGE 7.00%-11.00% 7.00%-11.00% 7.00%-11.00%
AVERAGE 8.56% 8.45% 8.38%
---------------------------------------------------------------------------------------------
CHANGE (Basis Points) - + 11 + 18
=============================================================================================
Source: Peter Korpacz Associates, Inc. - Real Estate Investor Survey First Quarter - 1996
As can be seen from the above, the average IRR has decreased by 5 basis
points to 11.50 percent from one year ago. However, it is noted that this
measure has been relatively stable over the past three months. The quarter's
average initial free and clear equity cap rate rose 33 basis points to 8.11
percent from a year earlier, while the residual cap rate increased 18 basis
points to 8.56 percent.
Most retail properties that are considered institutional grade are
existing, seasoned centers with good inflation protection that offer stability
in income and are strongly positioned to the extent that they are formidable
barriers to new competition. Equally important are centers which offer good
upside potential after face-lifting, renovations, or expansion. With new
construction down substantially, owners have accelerated renovation and
re-merchandising programs. Little competition from over-building is likely in
most mature markets within which these centers are located. Environmental
concerns and "no-growth" mentalities in communities are now serious impediments
to new retail development.
Finally, investors have recognized that the retail landscape has been
fundamentally altered by consumer lifestyles changes, industry consolidations
and bankruptcies. This trend was strongly in evidence as the economy enters 1996
in view of the wave of retail chains whose troublesome earnings are forcing
major restructures or even liquidations. (The reader is referred to the National
Retail Overview in the Addenda of this report). Trends toward more casual dress
at work and consumers growing pre-occupation with their leisure and home lives
have created the need for refocused leasing efforts to bring those tenants to
the mall that help differentiate them from the competition. As such,
entertainment, a loosely defined concept is one of the most common directions
malls have taken. A trend toward bringing in larger specialty and category
tenants to the mall is also in evidence. The risk from an owners standpoint is
finding that mix which works the best.
Nonetheless, the cumulative effect of these changes has been a rise in
rates as investors find it necessary to adjust their risk premiums in their
underwriting.
Based upon this discussion, we are inclined to group and characterize
regional malls into the general categories following:
Cap Rate Range Category
7.0% to 7.5% Top 20 to 25+/- malls in the country.
7.5% to 8.5% Dominant Class A investment grade property, high sales
levels, relatively good health ratios, excellent
demographics (top 50 markets), and considered to present
a significant barrier to entry within its trade area.
8.5% to 10.5% Somewhat broad characterization of investment quality
properties ranging from primary MSAs to second tier
cities. Properties at the higher end of the scale are
probably somewhat vulnerable to new competition in their
market.
10.5% to 12.0% Remaining product which has limited appeal or
significant risk which will attract only a smaller,
select group of investors.
Based upon this analysis, we can develop a going-in capitalization rate
for the subject based upon its tenancy, investment appeal, quality, and inherent
risks. As discussed, the subject performs above regional norms for sales
productivity, but has been impacted by The Westchester opening and generally
poor retail environment. Although there remains uncertainty with respect to the
full impact of The Westchester, we believe that the two properties have the
capability to co-exist within the market. However, an investor in the subject
property would be cognizant of this risk and factor additional basis points into
the going-in rate to account for this risk. On balance, we have looked toward a
going-in capitalization rate between 8.75 and 9.25 percent for the subject based
upon a stabilized operating basis.
Terminal Capitalization Rate
The residual cash flows generated annually by the subject property
comprise only the first part of the return which an investor will receive. The
second component of this investment return is the pre-tax cash proceeds from the
resale of the property at the end of a projected investment holding period.
Typically, investors will structure a provision in their analyses in the form of
a rate differential over a going-in capitalization rate in projecting a future
disposition price. The view is that the improvement is then older and the future
is harder to visualize; hence a slightly higher rate is warranted for added
risks in forecasting. On average, our rate survey shows a 38 basis point
differential.
Therefore, to the range of stabilized overall capitalization rates, we
have added 25 basis points to arrive at a projected terminal capitalization rate
ranging from 9.00 to 9.50 percent. This provision is made for the risk of
lease-up and maintaining a certain level of occupancy in the center, its level
of revenue collection, the prospects of future competition, as well as the
uncertainty of maintaining the forecasted growth rates over such a holding
period. In our opinion, this range of terminal rates would be appropriate for
the subject. Thus, this range of rates is applied to the following years net
operating income before reserves, capital expenditures, leasing commissions and
alterations as it would be the first received by a new purchaser of the subject
property. Applying a rate of say 9.25 percent for disposition, a current
investor would dispose of the subject property at the end of the investment
holding period for an amount of approximately $126.6 million based on fiscal
year 2007 net income of approximately $11.71 million.
From the projected reversionary value to an investor in the subject
property, we have made a deduction to account for the various transaction costs
associated with the sale of an asset of this type. These costs consist of 5.0
percent of the total disposition price of the subject property as an allowance
for transfer taxes, professional fees, the Cuomo tax, and other miscellaneous
expenses including an allowance for alteration costs that the seller pays at
final closing. Deducting these transaction costs from the computed reversion
renders pre-tax the net proceeds of sale to be received by an investor in the
subject property at the end of the holding period.
==================================================================================
Net Proceeds at Reversion
==================================================================================
Less Costs of Sale and
Net Income FY 2007 Gross Sale Price Miscellaneous Expenses @ 5.0% Net Proceeds
==================================================================================
$11,713,920 $126,636,973 ($6,331,849) $120,305,124
==================================================================================
The discounted cash flow analysis makes several assumptions which reflect
typical investor requirements for yield on real property. These assumptions are
difficult to directly extract from any given market sale or by comparison to
other investment vehicles. Instead, investor surveys of major real estate
investment funds and trends in bond yield rates are often cited to support such
analysis.
A yield or discount rate differs from an income rate, such as
cash-on-cash (equity dividend rate), in that it takes into consideration all
equity benefits, including the equity reversion at the time of resale and annual
cash flow from the property. The internal rate of return is the single-yield
rate that is used to discount all future equity benefits (cash flow and
reversion) into the initial equity investment. Thus, a current estimate of the
subject's present value may be derived by discounting the projected income
stream and reversion year sale at the property's yield rate.
Yield rates on long term real estate investments range widely between
property types. As cited in Cushman & Wakefield's Winter 1995 survey, investors
in regional malls are currently looking at broad rates of return between 10.0
and 12.00 percent, down slightly from our last two surveys. The indicated low
and high means are 10.72 and 11.33 percent, respectively. Peter F. Korpacz
reports an average internal rate of return of 11.50 percent for the First
Quarter 1996, down 9 basis points from the year ago level.
The yield rate on a long term real estate investment can also be compared
with yield rates offered by alternative financial investments since real estate
must compete in the open market for capital. In developing an appropriate risk
rate for the subject, consideration has been given to a number of different
investment opportunities. The following is a list of rates offered by other
types of securities.
===================================================
Market Rates and Bond Yields(%) June 6, 1996
===================================================
Reserve Bank Discount Rate 5.00
---------------------------------------------------
Prime Rate (Monthly Average) 8.25
---------------------------------------------------
3-Month Treasury Bills 5.07
---------------------------------------------------
U.S. 1O-Year Notes 6.80
---------------------------------------------------
U.S. 30-Year Bonds 6.95
---------------------------------------------------
Telephone Bonds 8.08
---------------------------------------------------
Municipal Bonds 6.12
===================================================
Source: New York Times
===================================================
This compilation of yield rates from alternative investments reflects
varying degrees of risk as perceived by the market. Therefore, a riskless level
of investment might be seen in a three month treasury bill at 5.07 percent. A
more risky investment, such as telephone bonds, would currently yield a much
higher rate of 8.08 percent. The prime rate is currently 8.25 percent, while the
discount rate is 5.00 percent. Ten year treasury notes are currently yielding
around 6.80 percent, while 30-year bonds are at 6.95 percent.
Real estate investment typically requires a higher rate of return (yield)
and is much influenced by the relative health of financial markets. A retail
center investment tends to incorporate a blend of risk and credit based on the
tenant mix, the anchors that are included (or excluded) in the transaction, and
the assumptions of growth incorporated within the cash flow analysis. An
appropriate discount rate selected for a retail center thus attempts to consider
the underlying credit and security of the income stream, and includes an
appropriate premium for liquidity issues relating to the asset.
There has historically been a consistent relationship between the spread
in rates of return for real estate and the 'safe' rate available through
long-term treasuries or high-grade corporate bonds. A wider gap between return
requirements for real estate and alternative investments has been created in
recent years due to illiquidity issues, the absence of third party financing,
and the decline in property values.
Investors have suggested that the regional mall market has become
increasingly "tiered" over the past two years. The country's premier malls are
considered to have the strongest trade areas, excellent anchor alignments, and
significant barriers of entry to future competitive supply. These and other
"dominant" malls will have average mall shop sales above $300 per square foot
and be attractive investment vehicles in the current market. It is our opinion
that the subject would attract high interest from institutional investors if
offered for sale in the current marketplace. There is not an abundance of
regional mall assets of comparable quality currently available, and many
regional malls have been included within REITs, rather than offered on an
individual property basis. However, we must further temper our analysis due to
the fact that there remains some risk that the inherent assumptions employed in
our model come to full fruition.
Finally, application of these rate parameters to the subject should
entail some sensitivity to the rate at which leases will be expiring over the
projection period. Provided below is a summary of the forecasted lease
expiration schedule for the subject. A complete expiration report is included in
the Addenda.
From the above, we see that a low percentage (21.2 percent) of retail GLA
will expire by 2000. Over the total projection period, the mall will turnover
about 72.1 percent of mall shop space. Overall, consideration is given to this
in our selection of an appropriate risk rate. We would also note that much of
the risk factored into such an analysis is reflected in the assumptions employed
within the cash flow model, including rent and sales growth, turnover, reserves,
and vacancy provisions.
We have briefly discussed the investment risks associated with the
subject. On balance, it is our opinion that an investor in the subject property
would require an internal rate of return between 11.00 and 11.50 percent for
the mall.
Present Value Analysis
Analysis by the discounted cash flow method is examined over a holding
period that allows the investment to mature, the investor to recognize a return
commensurate with the risk taken, and a recapture of the original investment.
Typical holding periods usually range from 10 to 20 years and are sufficient for
the majority of institutional grade real estate such as the subject to meet the
criteria noted above. In the instance of the subject, we have analyzed the cash
flows anticipated over a ten year period commencing on June 1, 1996 for the "As
Is" analysis.
A sale or reversion is deemed to occur at the end of the 10th year (May
31, 2006), based upon capitalization of the following year's net operating
income. This is based upon the premise that a purchaser in the 10th year is
buying the following year's net income. Therefore, our analysis reflects this
situation by capitalizing the first year of the next holding period.
The present value is formulated by discounting the property cash flows at
various yield rates. The yield rate utilized to discount the projected cash flow
and eventual property reversion has been based on an analysis of anticipated
yield rates of investors dealing in similar investments. The rates reflect
acceptable expectations of yield to be achieved by investors currently in the
marketplace shown in their current investment criteria and as extracted from
comparable property sales.
Cash Flow Assumptions
Our cash flows forecasted for the property have been presented. To
reiterate, the formulation of these cash flows incorporate the following general
assumptions in our computer model:
1. The pro forma is presented on a fiscal year basis commencing on
June 1, 1996. The present value analysis is based on a 10 year
holding period. This period reflects 10 years of operations and
follows an adequate time for the property to proceed through an
orderly lease-up and continue to benefit from any remerchandising.
In this regard, we have projected that the investment will be sold
at the year ending May 31, 2006.
2. Existing lease terms and conditions remain unmodified until their
expiration. At expiration, it has been assumed that there is a
70.0 percent probability that existing retail tenants will renew
their lease. Executed and high probability pending leases have
been assumed to be signed in accordance with negotiated terms as
of the date of valuation.
3. 1996 base date market rental rates for existing tenants have been
established according to tenant size with consideration given to
location, the specific merchandise category, as well as the
tenants sales history. Lease terms throughout the total complex
vary but for new in-line mall tenants are generally 5 to 12 years.
While some have been flat, others have one or two step-ups over
the course of the term. Upon renewal, it is assumed that new
retail leases are written for an average of 10 years with a rent
step of 10.0 percent in year 6.
4. Market rents have been established for 1996. Subsequently, it is
our assumption that market rental rates for mall tenants will
increase by 2.0 percent in 1998, 3.0 percent in 1999, and 3.5
percent per year thereafter.
5. Most retail tenants have percentage rent clauses providing for the
payment of overage rent. We have relied upon average sales data as
provided by management. In our analysis, we have forecasted that
sales will grow by 2.0 percent in 1997, 3.0 percent in 1998, and
3.5 percent per year throughout the balance of the holding period.
6. Expense recoveries are based upon terms specified in the various
lease contracts. The standard lease contract for real estate taxes
and common area maintenance billings for interior mall tenants is
based upon a tenants pro rata share of leased or occupied area.
Tenants also pay for utilities, water/sewer, and HVAC charges.
7. Income lost due to vacancy and non-payment of obligations has been
based upon our turnover probability assumption as well as a global
provision for credit loss. Our stabilized global vacancy provision
is 4.5 percent.
8. Specialty leasing and miscellaneous income consists of several
categories. Specialty leasing is generated by the mall's temporary
in-line tenant program which fill in during periods of downtime
between permanent in-line tenants. Miscellaneous income is
generated by chargebacks for tenant work, forfeited security
deposits, telephones, etc. We have grown all miscellaneous
revenues by 3.0 percent per annum.
9. Operating expenses have been developed with management's budget
from which we have recast certain expense items. Expenses have
also been compared to industry standards as well as our general
experience. Operating expenses are forecasted to increase by 3.5
per year except for management which is based upon a percentage of
income. Taxes are forecasted to grow by 6.0 percent in 1997, 5.0
percent in 1998, and 4.0 percent per year thereafter. Alteration
costs are assumed to escalate at our forecasted expense inflation
rate.
10. A provision for initial capital reserves has been reflected based
upon a rate of about $0.15 per square foot of owned GLA. An
alteration charge of $8.00 per square foot has been utilized for
new mall tenants. Renewal tenants have been given an allowance of
$1.00 per square foot. Leasing commissions reflect a rate
structure of $3.50 per square foot for new leases and $1.50 per
square foot for renewal leases. A contingency provision for other
capital expenditures has been made for the mall component.
For a property such as the subject, it is our opinion that an investor
would require an all cash discount rate in the range of 11.00 to 11.50 percent.
Accordingly, we have discounted the projected future pre-tax cash flows to be
received by an equity investor in the subject property to a present value so as
to yield 11.00 to 11.50 percent at 25 basis point intervals on equity capital
over the holding period. This range of rates reflects the risks associated with
the investment. Discounting these cash flows over the range of yield and
terminal rates now being required by participants in the market for this type of
real estate places additional perspective upon our analysis. A valuation matrix
for the subject appears on the Facing Page.
Through such a sensitivity analysis, it can be seen that the present
value of the subject property varies from approximately $95.0 to $103.1 million.
Giving consideration to all of the characteristics of the subject previously
discussed, we feel that a prudent investor would require a yield which falls
near the middle of the range outlined above for this property. Accordingly, we
believe that based upon all of the assumptions inherent in our cash flow
analysis, an investor would look toward as IRR around 11.25 percent and a
terminal rate around 9.25 percent as being most representative of the subject's
value in the market.
In view of the analysis presented here, it becomes our opinion that the
discounted cash flow analysis indicates a market value of $99,000,000 for the
subject property as of May 14, 1996.
We note that the computed equity yield is not necessarily the true rate
of return on equity capital. This analysis has been performed on a pre-tax
basis. The tax benefits created by real estate investment will serve to attract
investors to a pre-tax yield which is not the full measure of the return on
capital.
Application of the Sales Comparison and Income Approaches used in the
valuation of the subject property has produced results which fall within a
reasonably acceptable range. Restated, these are:
===============================================================
"As Is" Valuation
===============================================================
Methodology Market Value Conclusion
===============================================================
Sales Comparison Approach $101,000,000 to $103,000,000
---------------------------------------------------------------
Income Approach
Discounted Cash Flow $99,000,000
Direct Capitalization N/A
===============================================================
These value indications are considered to be a narrow range given the
magnitude of the value estimates. Both approaches are well supported by data
extracted from the market. There are, however, strengths and weaknesses in each
of these two approaches which require reconciliation before a final conclusion
of value can be rendered.
Sales Comparison Approach
The Sales Comparison Approach arrived at a value indicted for the
property by analyzing historical arms-length transaction, reducing the gathered
information to common units of comparison, adjusting the sale data for
differences with the subject and interpreting the results to yield a meaningful
value conclusion. The basis of these conclusions was the cash-on-cash return
based on net income and the adjusted price per square foot of gross leasable and
net rentable area sold. An analysis of the subject on the basis of its implicit
sales multiple was also utilized.
The process of comparing historical sales data to assess what purchasers
have been paying for similar type properties is weak in estimating future
expectations. Although the unit sale price yields comparable conclusions, it is
not the primary tool by which the investor market for a property like the
subject operates. In addition, no two properties are alike with respect to
quality of construction, location, market segmentation and income profile. As
such, subjective judgment necessarily becomes a part of the comparative process.
The usefulness of this approach is that it interprets specific investor
parameters established in their analysis and ultimate purchase of a property. In
light of the above, the writers are of the opinion that this methodology is best
suited as support for the conclusions of the Income Approach. It does provide
useful market extracted rates of return such as overall rates to simulate
investor behavior in the Income Approach.
Income Approach
Discounted Cash Flow Analysis
The subject property is highly suited to analysis by the discounted cash
flow method as it will be bought and sold in investment circles. The focus on
property value in relation to anticipated income is well founded since the basis
for investment is profit in the form of return or yield on invested capital. The
subject property, as an investment vehicle, is sensitive to all changes in the
economic climate and the economic expectations of investors. The discounted cash
flow analysis may easily reflect changes in the economic climate of investor
expectations
by adjusting the variables used to qualify the model. In the case of the subject
property, the Income Approach can analyze existing leases, the probabilities of
future rollovers and turnovers and reflect the expectations of overage rents.
Essentially, the Income Approach can model many of the dynamics of a complex
property. The writers have considered the results of the discounted cash flow
analysis because of the applicability of this method in accounting for the
particular characteristics of the property, as well as being the tool used by
many purchasers.
Capitalization
Direct capitalization has its basis in capitalization theory and uses the
premise that the relationship between income and sales price may be expressed as
a rate or its reciprocal, a multiplier. This process selects rates derived from
the marketplace, in much the same fashion as the Sales Comparison Approach, and
applies this to a projected net operating income to derive a sale price. The
weakness here is the idea of using one year of cash flow as the basis for
calculating a sale price. This is simplistic in its view of expectations and may
sometimes be misleading. If the year chosen for the analysis of the sale price
contains an income stream that is over or understated, this error is compounded
by the capitalization process. For this reason, Direct Capitalization has not
been used in the "As Is" analysis because the subject property is operating
below stabilized performance.
Conclusion
We have briefly discussed the applicability of each of the methods
presented. Because of certain vulnerable characteristics in the Sales Comparison
Approach, it has been used as supporting evidence and as a final check on the
value conclusion indicated by the Income Approach methodology. The value
exhibited by the Income Approach is consistent with the leasing profile of the
property. Overall, it indicates complimentary results with the Sales Comparison
Approach, the conclusions being supportive of each method employed, and neither
range being extremely high or low in terms of the other.
As a result of our analysis, we have formed an opinion that the market
value of the leased fee and leasehold estate in the referenced property, subject
to the assumptions, limiting conditions, certifications, and definitions, as of
May 14, 1996, was:
"Appraisal" means the appraisal report and opinion of value stated therein; or
the letter opinion of value, to which these Assumptions and Limiting Conditions
are annexed.
"Property" means the subject of the Appraisal.
"C&W" means Cushman & Wakefield, Inc. or its subsidiary which issued the
Appraisal.
"Appraiser(s)" means the employee(s) of C&W who prepared and signed the
Appraisal.
This appraisal is made subject to the following assumptions and limiting
conditions:
1. This is a Complete Appraisal Report which is intended to comply with the
reporting requirements set forth under Standards Rule 2-2(b) of the
Uniform Standards of Professional Appraisal Practice for a Complete
Appraisal Report.
2. No opinion is intended to be expressed and no responsibility is assumed
for the legal description or for any matters which are legal in nature or
require legal expertise or specialized knowledge beyond that of a real
estate appraiser. Title to the Property is assumed to be good and
marketable and the Property is assumed to be free and clear of all liens
unless otherwise stated. No survey of the Property was undertaken.
3. The information contained in the Appraisal or upon which the Appraisal is
based has been gathered from sources the Appraiser assumes to be reliable
and accurate. Some of such information may have been provided by the
owner of the Property. Neither the Appraiser nor C&W shall be responsible
for the accuracy or completeness of such information, including the
correctness of estimates, opinions, dimensions, sketches, exhibits and
factual matters.
4. The opinion of value is only as of the date stated in the Appraisal.
Changes since that date in external and market factors or in the Property
itself can significantly affect property value.
5. The Appraisal is to be used in whole and not in part. No part of the
Appraisal shall be used in conjunction with any other appraisal.
Publication of the Appraisal or any portion thereof without the prior
written consent of C&W is prohibited. Except as may be otherwise stated
in the letter of engagement, the Appraisal may not be used by any person
other than the party to whom it is addressed or for purposes other than
that for which it was prepared. No part of the Appraisal shall be
conveyed to the public through advertising, or used in any sales or
promotional material without C&Ws prior written consent. Reference to the
Appraisal Institute or to the MAI designation is prohibited.
6. Except as may be otherwise stated in the letter of engagement, the
Appraiser shall not be required to give testimony in any court or
administrative proceeding relating to the Property or the Appraisal.
7. The Appraisal assumes (a) responsible ownership and competent management
of the Property; (b) there are no hidden or unapparent conditions of the
Property, subsoil or structures that render the Property more or less
valuable (no responsibility is assumed for such conditions or for
arranging for engineering studies that may be required to discover them);
(c) full compliance with all applicable federal, state and local zoning
and environmental regulations and laws, unless noncompliance is stated,
defined and considered in the Appraisal; and (d) all required licenses,
certificates of occupancy and other governmental consents have been or
can be obtained and renewed for any use on which the value estimate
contained in the Appraisal is based.
8. The forecasted potential gross income referred to in the Appraisal may be
based on lease summaries provided by the owner or third parties. The
Appraiser assumes no responsibility for the authenticity or completeness
of lease information provided by others. C&W recommends that legal advice
be obtained regarding the interpretation of lease provisions and the
contractual rights of parties.
9. The forecasts of income and expenses are not predictions of the future.
Rather, they are the Appraiser's best estimates of current market
thinking on future income and expenses. The Appraiser and C&W make no
warranty or representation that these forecasts will materialize. The
real estate market is constantly fluctuating and changing. It is not the
Appraiser's task to predict or in any way warrant the conditions of a
future real estate market; the Appraiser can only reflect what the
investment community, as of the date of the Appraisal, envisages for the
future in terms of rental rates, expenses, supply and demand.
10. Unless otherwise stated in the Appraisal, the existence of potentially
hazardous or toxic materials which may have been used in the construction
or maintenance of the improvements or may be located at or about the
Property was not considered in arriving at the opinion of value. These
materials (such as formaldehyde foam insulation, asbestos insulation and
other potentially hazardous materials) may adversely affect the value of
the Property. The Appraisers are not qualified to detect such substances.
C&W recommends that an environmental expert be employed to determine the
impact of these matters on the opinion of value.
11. Unless otherwise stated in the Appraisal, compliance with the
requirements of the Americans With Disabilities Act of 1990 (ADA) has not
been considered in arriving at the opinion of value. Failure to comply
with the requirements of the ADA may adversely affect the value of the
property. C&W recommends that an expert in this field be employed.
We certify that, to the best of our Knowledge and belief:
1. Jay F. Booth inspected the property. Richard W. Latella, MAI did not
inspect the property for this assignment but has reviewed and approved
the report.
2. The statements of fact contained in this report are true and correct.
3. The reported analyses, opinions, and conclusions are limited only by the
reported assumptions and limiting conditions, and are our personal,
unbiased professional analyses, opinions, and conclusions.
4. We have no present or prospective interest in the property that is the
subject of this report, and we have no personal interest or bias with
respect to the parties involved.
5. Our compensation is not contingent upon the reporting of a predetermined
value or direction in value that favors the cause of the client, the
amount of the value estimate, the attainment of a stipulated result, or
the occurrence of a subsequent event. The appraisal assignment was not
based on a requested minimum valuation, a specific valuation or the
approval of a loan.
6. No one provided significant professional assistance to the persons
signing this report.
7. Our analyses, opinions, and conclusions were developed, and this report
has been prepared, in conformity with the Uniform Standards of
Professional Appraisal Practice of the Appraisal Foundation and the Code
of Professional Ethics and the Standards of Professional Appraisal
Practice of the Appraisal Institute.
8. The use of this report is subject to the requirements of the Appraisal
Institute relating to review by its duly authorized representatives.
9. As of the date of this report, Richard W. Latella has completed the
requirements of the continuing education program of the Appraisal
Institute.
/s/ Jay F. Booth
Jay F. Booth
Retail Valuation Group
/s/ Richard W. Latella, MAI
Richard W. Latella, MAI
Senior Director
Retail Valuation Group
CUSHMAN & WAKEFIELD, INC.
NATIONAL RETAIL OVERVIEW
Retail Valuation Group
Richard W. Latella, MAI
Senior Director
NATIONAL RETAIL MARKET OVERVIEW
Introduction
Shopping centers constitute the major form of retail activity in the
United States today. Approximately 55 percent of all non-automotive retail sales
occur in shopping centers. It is estimated that consumer spending accounts for
about two-thirds of all economic activity in the United States. As such, retail
sales patterns have become an important indicator of the country's economic
health.
During the period 1980 through 1995, total retail sales in the United
States increased at a compound annual rate of 6.16 percent. Data for the period
1990 through 1995 shows that sales growth has slowed to an annual average of
4.93 percent. This information is summarized on the following chart. The
Commerce Department reports that total retail sales fell three-tenths of a
percent in January 1996.
(1)1985 - 1995 data reflects recent revisions by the U.S. Department of
Commerce: Combined Annual and Revised Monthly Retail Trade.
Source: Monthly Retail Trade Reports Business Division, Current Business
Reports, Bureau of the Census, U.S. Department of Commerce
The early part of the 1990s was a time of economic stagnation and
uncertainty in the country. The gradual recovery, which began as the nation
crept out of the last recession, has shown some signs of weakness as corporate
downsizing has accelerated. But as the recovery period reaches into its fifth
year and the retail environment remains volatile, speculation regarding the
nation's economic future remains. It is this uncertainty which has shaped recent
consumer spending patterns.
Personal Income and Consumer Spending
Americans' personal income advanced by six-tenths of a percent in
December, which helped raise income for all of 1995 by 6.1 percent, the highest
gain since 6.7 percent in 1990. This growth far outpaced the 2.5 percent in 1994
and 4.7 percent in 1993. Reports for February 1996 however, reported that income
grew at an annual rate of eight-tenths of a percent, the biggest gain in
thirteen months, and substantially above January's anemic growth rate of
one-tenth of a percent.
-1-
National Retail Market Overview
Consumer spending is another closely watched indicator of economic
activity. The importance of consumer spending is that it represents two-thirds
of the nation's economic activity. Total consumer spending rose by 4.8 percent
in 1995, slightly off of the 5.5 percent rise in 1994 and 5.8 percent in 1993.
These increases followed a significant lowering on unemployment and bolstered
consumer confidence. The Commerce Department reported that spending rose at a
1.1 percent annual pace, the largest gain in two years, in February 1996, led by
a sharp increase in automobile sales.
Unemployment Trends
The Clinton Administration touts that its economic policy has
dramatically increased the number of citizens who have jobs. Correspondingly,
the nation's unemployment rate continues to decrease from its recent peak in
1992. Selected statistics released by the Bureau of Labor Statistics are
summarized as follows:
(1) Year ending December 31
Source: Bureau of Labor Statistics U.S. Department of Labor
During 1995, the labor force increased by 1,281,000 or approximately 1.0
percent. Correspondingly, the level of employment increased by 1,866,000 or 1.5
percent. As such, the year end unemployment rate dropped by five-tenths of a
percent to 5.6 percent. For 1995, monthly job growth averaged 144,000. On
balance, over 8.0 million jobs have been created since the recovery began.
Evidence of continued strengthening continues into 1996 with first quarter job
growth averaging 206,000. At the end of March 1996 the nation's unemployment
rate stood at 5.6 percent.
Housing Trends
Housing starts were down in 1995 by 7 percent from 1994 with 1.35 million
units started. This compared with 1.46 million units in 1994 and 1.29 million in
1993. Single-family starts totaled 1.07 million units in 1995, down 10 percent
from 1994. Multi-family starts, however, reversed this trend with their second
consecutive yearly increase to 277,000 units.
-2-
National Retail Market Overview
For 1995, sales of new homes slipped nine-tenths of a percent to 664,000
from 670,000 in 1994. This was the lowest level since 610,000 new homes were
sold in 1992. In a surprise to most analysts, new home sales rose by 4.2 percent
in January 1996 to a seasonally adjusted annual rate of 693,000. The 381,000
homes for sale represented a supply of six to seven months, the highest since
1980. The median new home price of new homes sold in the first nine months of
1995 was $132,000. The median was $130,000 for all of 1994. The Commerce
Department reported that construction spending rose 2.9 percent in October to an
annual rate of $207.7 billion, compared to $217.9 billion in all of 1994.
The home ownership rate seems to be rising, after remaining stagnant over
the last decade. For 1995, the share of households that own their homes was 64.8
percent, compared to 64.0 percent for a year earlier. Lower mortgage rates are
cited as a factor.
Gross Domestic Product
The report on the gross domestic product (GDP) showed that output for
goods and services expanded at an annual rate of just .9 percent in the fourth
quarter of 1995. Overall, the economy gained 2.0 percent in 1995. the weakest
showing in four years since the 1991 recession. The .5 percent rise in the
fourth quarter was much slower than the 1.7 percent expected by most analysts.
Revised first quarter 1996 data shows that the economy grew at an annual rate of
2.3 percent which was in line with most forecasts by private economists. The Fed
sees the U.S. economy expanding at a 2.0 to 2.25 percent pace during 1996 which
is in-line with White House forecasts.
The following chart cites the annual change in real GDP since 1990.
================================================================================
Real GDP
================================================================================
Year % Change
================================================================================
1990 1.2
--------------------------------------------------------------------------------
1991 -.6
--------------------------------------------------------------------------------
1992 2.3
--------------------------------------------------------------------------------
1993 3.1
--------------------------------------------------------------------------------
1994 4.1
--------------------------------------------------------------------------------
1995* 2.0
================================================================================
* Reflects new chain weighted system of measurement. Comparable 1994
measure would be 3.5 %
Source: Bureau of Economic Analysis
Consumer Prices
The Bureau of Labor Statistics has reported that consumer prices rose by
only 2.5 percent in 1995, the fifth consecutive year in which inflation was
under 3.0 percent. This was the lowest rate in nearly a decade when the overall
rate was 1.1 percent in 1986. All sectors were down substantially in 1995
including the volatile health care segment which recorded inflation of only 3.9
percent, the lowest rate in 23 years.
-3-
National Retail Market Overview
The following chart tracks the annual change in the CPl since 1990.
Source: Dept. of Labor, Bureau of Labor Statistics
Data through April 1996 shows the consumer prices are increasing in-line
with expectations. The index was up four-tenths of a percent in April due to
changes in energy prices. Excluding food and energy, the underlying inflation
rate was only one-tenth of a percent.
Other Indicators
The government's main economic forecasting gauge, the Index of Leading
Economic Indicators is intended to project economic growth over the next six
months. The Conference Board, an independent business group, reported that the
index increased two-tenths of a percent in March following the increase of 1.3
percent in February 1996, the biggest jump in 20 years. It has become apparent
that the Federal Reserve's conservative monetary policy has had an effect on the
economy and some economists are calling for a further reduction in short term
interest rates. In recent months, evidence has been mounting that the economy is
in the midst of a pick-up.
The Conference Board also reported that consumer confidence rebounded in
February 1996, following reports suggesting lower inflation. The board's index
of consumer confidence rose 9 points to 97 over January when consumers worried
about the government shutdown, the stalemate over the Federal budget and the
recent flurry of layoff announcements by big corporations.
In another sign of increasingly pinched household budgets, consumers
sharply curtailed new installment debt in September 1995, when installment
credit rose $5.4 billion, barely half as much as August. Credit card balances
increased by $2.8 billion, the slimmest rise of the year. For the twelve months
through September 1995, outstanding credit debt rose 13.9 percent, down from a
peak of 15.3 percent in May. Still, installment debt edged to a record 18.8
percent of disposable income, indicating that consumers may be reaching a point
of discomfort with new debt.
-4-
National Retail Market Overview
The employment cost index is a measure of overall compensation including
wages, salaries and benefits. In 1995 the index rose by only 2.9 percent, the
smallest increase since 1980. This was barely ahead of inflation and is a sign
of tighter consumer spending over the coming year. However, the productivity of
American workers grew 1.1 percent in 1995, the largest gain since a 3.2 percent
advance in 1992. Productivity is a key element in measuring the standard of
living since increased efficiency allows businesses to increase workers
compensation without having to raise prices.
Economic Outlook
The WEFA Group, an economic consulting company, opines that the current
state of the economy is a "central bankers" dream, with growth headed toward the
Fed's 2.5 percent target, accompanied by stable if not falling inflation. They
project that inflation will remain in the 2.5 to 3.0 percent range into the
foreseeable future. This will have a direct influence on consumption (consumer
expenditures) and overall inflation rates (CPI).
Potential GDP provides an indication of the expansion of output, real
incomes, real expenditures, and the general standard of living of the
population. WEFA estimates that real U.S. GDP will grow at an average annual
rate between 2.0 and 2.5 percent over the next year and at 2.3 percent through
2003 as the output gap is reduced between real GDP and potential GDP. After
2003, annual real GDP growth will moderate, tapering to 2.2 percent per annum.
Consumption expenditures are primarily predicated on the growth of real
permanent income, demographic influences, and changes in relative prices over
the long term. Changes in these key variables explain much of the consumer
spending patterns of the 1970s and mid-1980s, a period during which baby boomers
were reaching the asset acquisition stages of their lives; purchasing
automobiles and other consumer and household durables. Increases in real
disposable income supported this spending spurt with an average annual increase
of 2.9 percent per year over the past twenty years. Real consumption
expenditures increased at an average annual rate of 3.1 percent during the 1970s
and by an average of 4.0 percent from 1983 to 1988. WEFA projects that
consumption expenditure growth will slow to 2.0 percent per year by 2006 as a
result of slower population growth and aging. It is also projected that the
share of personal consumption expenditures relative to GDP will decline over the
next decade. Consumer spending as a share of GDP peaked in 1986 at 67.4 percent
after averaging about 63.0 percent over much of the post-war period. WEFA
estimates that consumption's share of aggregate output will decline to 64.5
percent by 2003 and 62.7 percent by 2018.
Retail Sales
In their publication, NRB/Shopping Centers Today 1995 Shopping Center
Census, the National Research Bureau reports that overall retail conditions
continued to improve in 1995. Total shopping center sales increased 5.0 percent
to $893.8 billion in 1995, up from $851.3 billion in 1994. Retail sales in
shopping centers (excluding automotive and gasoline service station sales) now
account for about 55.0 percent of total retail sales in the United States.
-5-
National Retail Market Overview
Total retail sales per square foot have shown positive increases over the
past several years, rising by 26.5 percent from approximately $161 per square
foot in 1990, to $180 per square foot in 1995. It is noted that the increase in
productivity has exceeded the increase in inventory which bodes well for the
industry in general. This data is summarized on the following table.
=============================================================================================================================
Selected Shopping Center Statistics
1990-1995
=============================================================================================================================
% Compound
Change Annual
1990 1991 1992 1993 1994 1995 1990-95 Growth
=============================================================================================================================
Retail Sales in Shopping Centers $706.40 $716.90 $768.20 $806.60 $851.30 $893.81 36.5% 4.8%
-----------------------------------------------------------------------------------------------------------------------------
Total Leasable Area** 4.39 4.56 4.68 4.77 4.86 4.97 13.2% 2.5%
-----------------------------------------------------------------------------------------------------------------------------
Unit Rate $160.89 $157.09 $164.20 $169.08 $175.13 $179.94 11.8% 2.3%
=============================================================================================================================
* Billions of Dollars
** Billions of Square Feet
=============================================================================================================================
Source: National Research Bureau
=============================================================================================================================
To put retail sales patterns into perspective, the following discussion
highlights key trends over the past few years.
o As a whole, 1993 was a good year for most of the nation's major
retailers. Sales for the month of December were up for most,
however, the increase ranged dramatically from 1.1 percent at
Kmart to 13.3 percent at Sears for stores open at least a year. It
is noted that the Sears turnaround after years of slippage was
unpredicted by most forecasters.
o With the reporting of December 1994 results, most retailers posted
same store gains between 2.0 and 6.0 percent. The Goldman Sachs
Retail Composite Comparable Store Sales Index, a weighted average
of monthly same store sales of 52 national retail companies rose
4.5 percent in December. The weakest sales were seen in women's
apparel, with the strongest sales reported for items such as
jewelry and hard goods. Most department store companies reported
moderate increases in same store sales, though largely as a result
of aggressive markdowns. Thus, profits were negatively impacted
for many companies.
o For 1995, specialty apparel sales were lackluster at best, with
only .4 percent comparable sales growth. This is of concern to
investors since approximately 30.0 percent of a mall's small shop
space is typically devoted to apparel tenants. Traditional
department stores experienced 3.4 percent same store growth in
1995, led by Dillard's 5.0 percent increase. Mass merchants' year-
to-year sales increased by 6.7 percent in 1994, driven by Sears'
7.9 percent increase. Mass merchants account for 35.0 to 55.0
percent of the anchors of regional malls and their resurgence
bodes well for increased traffic at these centers.
-6-
National Retail Market Overview
o Sales at the nation's largest retailer chains saw reasonably good
increases in May 1996, evidencing a pent up demand for soft goods.
Discounters such as Target, Wal-Mart and Kmart did particularly
well among department stores. Sears and May had a strong
performance while Federated and JC Penney were off. Appliance
sales were very good as evidenced by Best Buy with a 7 percent
increase in comparable store sales. The Goldman Sachs retail
composite index of same store sales rose 4.6 percent, well above
the 3.5 percent rise in May 1995.
Provided on the following chart is a summary of overall and same store
sales growth for selected national merchants for the most recent period.
Same Store Sales for the Month of May 1996
% Change: From Previous Year
Name of Retailer Overall Same Store Basis
================================================================================
Wal-Mart +12.0% + 5.0%
--------------------------------------------------------------------------------
Kmart + 3.0% + 5.4%
--------------------------------------------------------------------------------
Sears, Roebuck & Company +14.0% +10.2%
--------------------------------------------------------------------------------
J.C. Penney .0% - 0.8%
--------------------------------------------------------------------------------
Dayton Hudson Corporation +10.0% + 3.3%
--------------------------------------------------------------------------------
May Department Stores +14.0% + 7.2%
--------------------------------------------------------------------------------
Federated Department Stores +10.0% + 2.1%
--------------------------------------------------------------------------------
The Limited Inc. +14.0% + 4.0%
--------------------------------------------------------------------------------
Gap Inc. +27.0% + 8.0%
--------------------------------------------------------------------------------
Ann Taylor + 1.0% -11.2%
--------------------------------------------------------------------------------
Woolworths - 3.0% - 1.8%
--------------------------------------------------------------------------------
Best Buy +34.0% + 7.0%
================================================================================
Source: New York Times
================================================================================
The outlook for retail sales growth is one of cautious optimism. It
appears as if the low price department stores and off price apparel segment is
poised to continue to do well, as they tend to be representative of those
industry segments which have gone through mergers and are benefiting from fewer
competitors. Some analysts point to the fact that consumer confidence has
resulted in increases in personal debt which may be troublesome in the long run.
Consumer loans by banks continue to rise. But data gathered by the Federal
Reserve on monthly payments suggest that debt payments are not taking as big a
bite out of income as in the late 1980s, largely because of the record
refinancings at lower interest rates in recent years and the efforts by many
Americans to repay debts.
GAFO and Shopping Center Inclined Sales
In a true understanding of shopping center dynamics, it is important to
focus on both GAFO sales or the broader category of Shopping Center Inclined
Sales. These types of goods comprise the overwhelming bulk of goods and products
carried in shopping centers and department stores and consist of the following
categories:
-7-
National Retail Market Overview
o General merchandise stores including department and other stores;
o Apparel and accessory stores;
o Furniture and home furnishing stores; and
o Other miscellaneous shoppers goods stores.
Shopping Center Inclined Sales are somewhat broader and include such
classifications as home improvement and grocery stores.
Total retail sales grew by 7.8 percent in the United States in 1994 to
$2.237 trillion, an increase of $162 billion over 1993. This followed an
increase of $125 billion over 1992. Automobile dealers captured $69+/- billion
of total retail sales growth last year, while Shopping Center Inclined Sales
accounted for nearly 40.0 percent of the increase ($64 billion). GAFO sales
increased by $38.6 billion. This group was led by department stores which posted
an $18.0 billion increase in sales. The following chart summarizes the
performance for this most recent comparison period.
Retail Sales by Major Store Type
1993-1994 ($MIL.)
1993-1994
Store Type 1994 1993 % Change
GAFO:
General Merchandise $282,541 $264,617 6.8%
Apparel & Accessories 109,603 107,184 2.3%
Furniture & Furnishings 119,626 105,728 13.1%
Other GAFO 80,533 76,118 5.8%
--------------------------------------------------------------------------------
GAFO Subtotal $592,303 $553,647 7.0%
--------------------------------------------------------------------------------
Convenience Stores:
Grocery $376,330 $365,725 2.9%
Other Food 21,470 19,661 9.2%
--------------------------------------------------------------------------------
Subtotal $397,800 $385,386 3.2%
Drug 81,538 79,645 2.4%
--------------------------------------------------------------------------------
Convenience Subtotal $479,338 $465,031 3.1%
--------------------------------------------------------------------------------
Other:
Home Improvement &
Building Supplies Stores $122,533 $109,604 11.8%
Shopping Center-Inclined $1,194,174 $1,128,282 5.8%
Subtotal 526,319 456,890 15.2%
Automobile Dealers 142,193 138,299 2.8%
Gas Stations 228,351 213,663 6.9%
Eating and Drinking Places 145,929* 137,365* 6.2%
All Other
--------------------------------------------------------------------------------
Total Retail Sales $2,236,966 $2,074,499 7.8%
================================================================================
* Estimated sales
================================================================================
Source: U.S. Department of Commerce and Dougal M. Casey: Retail Sales and
Shopping Center Development Through The Year 2000 (ICSC White Paper)
-8-
National Retail Market Overview
GAFO sales grew by 7.0 percent in 1994 to $592.3 billion, led by
furniture and furnishings which grew by 13.1 percent. From the above it can be
calculated that GAFO sales accounted for 26.5 percent of total retail sales and
nearly 50.0 percent of all shopping center-inclined sales.
The International Council of Shopping Centers (ICSC) publishes a Monthly
Mall Merchandise Index which tracks sales by store type for more than 400
regional shopping centers. The index shows that sales per square foot rose by
1.8 percent to $256 per square foot in 1994. The following chart identified the
most recent year-end results.
-9-
National Retail Market Overview
Index Sales per Square Foot
1993-1994 Percent Change
Fast Food $365 $358 + 2.0%
Restaurants 250 245 + 2.2%
Other 300 301 - 0.4%
SUBTOTAL $304 $298 + 1.9%
--------------------------------------------------------------------------------
OTHER NON-GAFO:
Supermarkets $236 $291 -18.9%
Drug/HBA 254 230 +10.3%
Personal Services 264 253 + 4.1%
Automotive 149 133 +12.2%
Home Improvement 133 127 + 4.8%
Mall Entertainment 79 77 + 3.2%
Other Non-GAFO Miscellaneous 296 280 + 5.7%
SUBTOTAL $192 $188 + 2.4%
TOTAL NON-GAFO $233 $228 + 2.5%
TOTAL $256 $252 + 1.8%
================================================================================
Note: Sales per square foot numbers are rounded to whole dollars. Three
categories illustrated here have limited representation in the ICSC
sample: Automotive, +12.2%; Home Improvement, +4.8%; and Supermarkets,
-18.9%.
Source: U.S. Department of Commerce and Dougal M. Casey.
GAFO sales have risen relative to household income. In 1990 these sales
represented 13.9 percent of average household income. By 1994 they rose to 14.4
percent. Projections through 2000 show a continuation of this trend to 14.7
percent. On average, total sales were equal to nearly 55.0 percent of household
income in 1994.
-10-
National Retail Market Overview
====================================================================================
Determinants of Retail Sales Growth and U.S. Retail Sales by Key Store Type
====================================================================================
1990 1994 2000(P)
====================================================================================
Determinants
Population 248,700,000 260,000,000 276,200,000
Households 91,900,000 95,700,000 103,700,000
Average Household Income $37,400 $42,600 $51,600
Total Census Money Income $3.4 Tril. $4.1 Tril. $5.4 Tril.
------------------------------------------------------------------------------------
% Allocations of Income to Sales
GAFO Stores 13.9% 14.4% 14.7%
Convenience Stores 12.9% 11.7% 10.7%
Home Improvement Stores 2.8% 3.0% 3.3%
Total Shopping Center-Inclined Stores 29.6% 29.1% 28.8%
Total Retail Stores 54.3% 54.6% 52.8%
------------------------------------------------------------------------------------
Sales ($Billion)
GAF0 Stores $472 $592 $795
Convenience Stores 439 479 580
Home Improvement Stores 95 123 180
Total Shopping Center-Inclined Stores $1,005 $1,194 $1,555
TOTAL RETAIL SALES $1,845 $2,237 $2,850
====================================================================================
Note: Sales and income figures are for the full year, population and household
figures are as of April 1 in each respective year. P = Projected.
====================================================================================
Source: U.S. Census of Population, 1990; U.S. Bureau of the Census Current
Population Reports: Consumer Income P6-168, 174, 180, 184 and 188,
Berna Miller with Linda Jacobsen, "Household Futures", American
Demographics, March 1995; Retail Trade sources already cited; and
Dougal M. Casey: ICSC White Paper
====================================================================================
GAFO sales have risen at a compound annual rate of approximately 6.8
percent since 1991 based on the following annual change in sales.
According to a recent study by the ICSC, GAFO sales are expected to grow
by 5.0 percent per annum through the year 2000, which is well above the 4.1
percent growth for all retail sales. This information is presented in the
following chart.
-11-
National Retail Market Overview
=============================================================================================
Retail Sales in the United States, by Major Store Type
=============================================================================================
1994 2000(P) Percent Change
Compound
Store Type ($ Billions) ($ Billions) Total Annual
=============================================================================================
GAFO:
General Merchandise $283 $370 30.7% 4.6%
Apparel & Accessories 110 135 22.7% 3.5%
Furniture/Home Furnishings 120 180 50.0% 7.0%
Other Shoppers Goods 81 110 35.8% 5.2%
---------------------------------------------------------------------------------------------
GAFO Subtotal $592 $795 34.3% 5.0%
---------------------------------------------------------------------------------------------
CONVENIENCE GOODS:
Food Stores $398 $480 20.6% 3.2%
Drugstores 82 100 22.0% 3.4%
---------------------------------------------------------------------------------------------
Convenience Subtotal $479 $580 21.1% 3.2%
---------------------------------------------------------------------------------------------
Home Improvement 123 180 46.3% 6.6%
---------------------------------------------------------------------------------------------
Shopping Center-Inclined Subtotal $1,194 $1,555 30.2% 4.5%
---------------------------------------------------------------------------------------------
All Other 1,043 1,295 24.2% 3.7%
---------------------------------------------------------------------------------------------
Total $2,237 $2,850 27.4% 4.1%
=============================================================================================
Note: P = Projected. Some figures rounded.
=============================================================================================
Source: U.S. Department of Commerce, Bureau of the Census and Dougal M. Casey.
=============================================================================================
In considering the six-year period January 1995 through December 2000, it
may help to look at the six-year period extending from January 1989 through
December 1994 and then compare the two time spans.
Between January 1989 and December 1994, shopping center-inclined sales in
the United States increased by $297 billion, a compound growth rate of 4.9
percent. These shopping center-inclined sales are projected to increase by $361
billion between January 1995 and December 2000, a compound annual growth rate of
4.5 percent. GAFO sales, however, are forecasted to increase by 34.3 percent or
5.0 percent per annum.
Industry Trends
According to the National Research Bureau, there were a total of 41,235
shopping centers in the United States at the end of 1995. During this year, 867
new centers opened, an 18.0 percent increase over the 735 that opened in 1994.
This followed a 10 percent increase in 1994. The greatest growth came in the
small center category (less than 100,000 square feet) where 551 centers were
constructed. In terms of GLA added, new construction in 1995 was up 2.2 percent
resulting in an addition of 106.2 million square feet of GLA from approximately
4.86 billion to 4.97 billion square feet. In other important trends, the
development of regional and super-regional malls hit a three year high in 1995
with the opening of eight centers, twice as many as in 1994. This boosted the
nation's total of regionals to 301 and super-regionals to 380. Power and
community center development in 1995 was up 17.9 percent in terms of the number
of centers opening. The following chart highlights trends over the period 1987
through 1995.
-12-
National Retail Market Overview
====================================================================================================================================
Census Data: 9-Year Trends
====================================================================================================================================
Total Average Average % Change % Increase
No.of Total Sales GLA per Sales per in Sales New in Total
Year Centers GLA (Billions) Center Sq. Ft. per Sq. Ft. Centers Centers
====================================================================================================================================
1987 30,641 3,722,957,095 $602,294,426 121,502 $161.78 2.41% 2,145 7.53%
1988 32,563 3,947,025,194 $641,096,793 121,212 $162.43 0.40% 1,922 6.27%
1989 34,683 4,213,931,734 $682,752,628 121,498 $162.02 -0.25% 2,120 6.51%
1990 36,515 4,390,371,537 $706,380,618 120,235 $160.89 -0.70% 1,832 5.28%
1991 37,975 4,563,791.215 $716,913,157 120,179 $157.09 -2.37% 1,460 4.00%
1992 38,966 4,678,527,428 $768,220,248 120,067 $164.20 4.53% 991 2.61%
1993 39,633 4,770,760,559 $806,645,004 120,373 $169.08 2.97% 667 1.71%
1994 40,368 4,860,920,056 $851,282,088 120,415 $175.13 3.58% 735 1.85%
1995 41,235 4,967,160,331 $893,814,776 120,460 $179.94 2.75% 867 2.15%
Compound
Annual
Growth +3.78% +3.67% +5.06% -.11% +1.34% N/A N/A N/A
====================================================================================================================================
Source: National Research Bureau Shopping Center Database and Statistical Model
====================================================================================================================================
From the chart we see that both total GLA and total number of centers
have increased at a compound annual rate of approximately 3.7 percent since
1987. New construction was up 2.2 percent in 1995, a slight increase over 1994
but still well below the peak year 1987 when new construction increased by 7.5
percent. California was by far the most active state with 139 new centers
opening, followed by North Carolina (64) and Florida (53).
Among the 41,235 centers in 1995, the following breakdown by size can be
shown.
Source: National Research Bureau (some numbers slightly rounded).
According to the National Research Bureau, total sales in shopping
centers have grown at a compound rate of 5.06 percent since 1987. With sales
growth outpacing new construction, average sales per square foot have been
showing positive increases since the last recession. Aggregate sales were up 5.5
percent nationwide from $851.3 billion (1994) to $893.8 billion (1995). In 1995,
average sales were $179.94 per square foot, up nearly 2.7 percent over 1994 and
1.34 percent (compound growth) over the past several years. The biggest gain
came in the super-regional category (more than 1.0 million square feet) where
sales were up 4.10 percent to $201.05 per square foot.
-13-
National Retail Market Overview
The following chart tracks the change in average sales per square foot by
size category between 1993 and 1995.
=========================================================================================================================
Sales Trends by Size Category
1993-1995
=========================================================================================================================
Average Sales Per Square Foot % Change
===================================================================================
Category 1993 1994 1995 1994-95 1993-95*
=========================================================================================================================
Less than 100,000 SF $193.10 $199.70 $204.94 +2.6% +3.0%
-------------------------------------------------------------------------------------------------------------------------
100,001 to 200,000 SF $156.18 $161.52 $166.00 +2.8% +3.1%
-------------------------------------------------------------------------------------------------------------------------
200,001 to 400,000 SF $147.57 $151.27 $153.96 +1.8% +2.1%
-------------------------------------------------------------------------------------------------------------------------
400,001 to 800,000 SF $157.04 $163.43 $168.21 +2.9% +3.5%
-------------------------------------------------------------------------------------------------------------------------
800,001 to 1,000,000 SF $194.06 $203.20 $210.40 +3.5% +4.1
-------------------------------------------------------------------------------------------------------------------------
More than 1,000,000 SF $183.90 $193.13 $201.05 +4.1% +4.6
-------------------------------------------------------------------------------------------------------------------------
Total $169.08 $175.13 $179.94 +2.75% +3.2%
=========================================================================================================================
* Compound Annual Change
Source: National Research Bureau
=========================================================================================================================
Empirical data shows that the average GLA per capita is increasing. In
1995, the average for the nation was 18.9. This was up 17 percent from 16.1 in
1988 and more recently, 18.7 square feet per capita in 1994. Among states,
Arizona surpassed Florida and now has the highest GLA per capita with 28.1
square feet. South Dakota has the lowest at 9.08 square feet. Per capita GLA for
regional malls (defined as all centers in excess of 400,000 square feet) has
also been rising from 5.0 in 1988 to 5.5 in 1995. This information is presented
on the following chart.
Source: International Council of Shopping Center: The Scope of The Shopping
Center Industry and NationalResearch Bureau
The Urban Land Institute, in the 1995 edition of Dollars and Cents of
Shopping Centers, reports that vacancy rates range from a low of 2.0 percent in
neighborhood centers to 14.0 percent for regional malls. Super-regional malls
reported a vacancy rate of 7.0 percent and community centers were 4.0 percent
based upon their latest survey.
-14-
National Retail Market Overview
The retail industry's importance to the national economy can also be seen
in the level of direct employment. According to F.W. Dodge, the construction
information division of McGraw-Hill, new projects in 1994 generated $2.6 billion
in construction contract awards and supported 41,600 jobs in construction trade
and related industries. This is nearly half of the construction employment level
of 95,360 for new shopping center development in 1990. It is estimated that
10.18 million people are now employed in shopping centers, equal to about one of
every nine non-farm workers in the country. This is up 2.9 percent over 1991.
Market Shifts - Contemporary Trends in the Retail Industry
During the 1980s, the department store and specialty apparel store
industries competed in a tug of war for consumer dollars. Specialty stores
emerged largely victorious as department store sales steadily declined as a
percentage of total GAFO sales during the decade, slipping from 47.0 percent in
1979 to 44.0 percent in 1989. During this period, many anchor tenants teetered
from high debt levels incurred during speculative takeovers and leveraged
buyouts of the 1980s. Bankruptcies and restructuring, however, have forced major
chains to refocus on their customer and shed unproductive stores and product
lines. At year end 1994, department store sales, as a percentage of GAFO sales,
were approximately 37.5 percent.
The continued strengthening of some of the major department store chains,
including Sears, Federated/Macy's, May and Dayton Hudson, is in direct contrast
to the dire predictions made by analysts about the demise of the traditional
department store industry. This has undoubtedly been brought about by the
heightened level of merger and acquisition activity in the 1980s which produced
a burdensome debt structure among many of these entities. When coupled with
reduced sales and cash flow brought on by the recession, department stores were
unable to meet their debt service requirements.
Following a round of bankruptcies and restructurings, the industry has
responded with aggressive cost-cutting measures and a focused merchandising
program that is decidedly more responsive to consumer buying patterns. The
importance of department stores to mall properties is tantamount to a successful
project since the department store is still the principal attraction that brings
patrons to the center.
On balance, 1994/95 was a continued period of transition for the retail
industry. Major retailers achieved varying degrees of success in meeting the
demands of increasingly value conscious shoppers. Since the onset of the
national economic recession in mid-1990, the retail market has been
characterized by intense price competition and continued pressure on profit
margins. Many national and regional retail chains have consolidated operations,
closed underperforming stores, and/or scaled back on expansion plans due to the
uncertain spending patterns of consumers. Consolidations and mergers have
produced a more limited number of retail operators, which have responded to
changing spending patterns by aggressively repositioning themselves within this
evolving market. Much of the recent retail construction activity has involved
the conversion of existing older retail centers into power center formats,
either by retenanting or through expansion. An additional area of growth in the
retail sector is in the "supercenter" category, which consists of the combined
grocery and department stores being developed by such companies as Wal-Mart and
Kmart. These formats require approximately 150,000 to 180,000 square feet in
order to carry the depth of merchandise necessary for such economies of scale
and market penetration.
-15-
National Retail Market Overview
Some of the important developments in the industry over the past year can
be summarized as follows:
o The discount department store industry emerged as arguably the most
volatile retail sector, lead by regional chains in the northeast.
Jamesway, Caldor and Bradlees each filed for Chapter 11 within six
months and Hills Stores is on the block. Jamesway is now in the
process of liquidating all of its stores. Filene's Basement was
granted relief from some covenant restrictions and its stock price
plummeted. Ames, based in Rocky Hill, Connecticut, will close 17 of
its 307 stores. Kmart continues to be of serious concern. Its debt has
been downgraded to junk bond status. Even Wal- Mart, accustomed to
double digit sales growth, has seen some meager comparable sales
increases. These trends are particularly troubling for strips since
these tenants are typical anchors.
o The attraction of regional malls as an investment has diminished in
view of the wave of consolidations and bankruptcies affecting in-line
tenants. Some of the larger restructurings include Melville with plans
to close up to 330 stores, sell Marshalls to TJX Companies, split into
three publicly traded companies, and sell Wilsons and This End Up;
Petrie Retail, which operates such chains as M.J. Carroll, G&G, Jean
Nicole, Marianne and Stuarts, has filed for bankruptcy protection;
Edison Brothers (Jeans West, J. Riggins, Oak Tree, 5-7-9 Shops, etc.)
announced plans to close up to 500 stores while in Chapter 11, J.
Baker intends to liquidate Fayva Shoe division (357 low-price family
footwear stores); The Limited announced a major restructuring,
including the sale of partial interests in certain divisions; Charming
Shoppes will close 290 Fashion Bug and Fashion Bug Plus stores; Trans
World Entertainment (Record Town) has closed 115 of its 600 mall shop
locations. Other chains having trouble include Rickel Home Centers
which filed Chapter 11; Today's Man, a 35 store Philadelphia based
discount menswear chain has filed; nine subsidiaries of Fretta,
including Dixon's, U.S. Holdings and Silo, filed Chapter 11; and
Clothestime, also in bankruptcy will close up to 140 of its 540
stores. Merry-Go-Round, a chain that operates 560 stores under the
names Merry-Go-Round, Dejaiz and Cignal is giving up since having
filed in January 1994 and will liquidate its assets. Toys "R" Us has
announced a global reorganization that will close 25 stores and cut
the number of items it carries to 11,000 from 15,000. Handy Andy, a 50
year old chain of 74 home improvement centers which had been in
Chapter 11, has decided to liquidate, laying off 2,500 people.
o Overall, analysts estimate that 4,000 stores closed in 1995 and as
many as 7,000 more will close in 1996. Mom-and-Pop stores, where 75
percent of U.S. retailers employ fewer than 10 people have been
declining for the past decade. Dun and Bradstreet reports that retail
failures are up 1.4 percent over Last year - most of them small stores
who don't have the financial flexibility to renegotiate payment
schedule.
-16-
National Retail Market Overview
o With sales down, occupancy costs continue to be a major issue facing
many tenants. As such, expansion oriented retailers like The Limited,
Ann Taylor and The Gap, are increasingly shunning mall locations for
strip centers. This has put further pressure on mall operators to be
aggressive with their rent forecasts or in finding replacement
tenants.
o While the full service department store industry led by Sears has seen
a profound turnaround, further consolidation and restructuring
continues. Woodward & Lothrop was acquired by The May Department
Stores Company and JC Penney; Broadway Stores was acquired by
Federated Department Stores; Elder Beerman has filed Chapter 11 and
will close 102 stores; Steinbach Stores will be acquired by Crowley,
Milner & Co.; Younkers will merge with Proffitts; and Strawbridge and
Clothier has hired a financial advisor to explore strategic
alternatives for this Philadelphia based chain.
o Aside from the changes in the department store arena, the most notable
transaction in 1995 involved General Growth Properties' acquisition of
the Homart Development Company in a $1.85 billion year-end deal.
Included were 25 regional malls, two current projects and several
development sites. In November, General Growth arranged for the sale
of the community center division to Developers Diversified for
approximately $505 million. Another notable deal involved Rite Aid
Corporation's announcement that it will acquire Revco Drug Stores in a
$1.8 billion merger to form the nation's largest drug store company
with sales of $11 billion and 4,500+/- stores.
o As of January 1, 1995 there were 311 outlet centers with 44.4 million
square feet of space. Outlet GLA has grown at a compound annual rate
of 18.1 percent since 1989. Concerns of over-building, tenant
bankruptcies, and consolidations have now negatively impacted this
industry as evidenced by the hit the outlet REIT stocks have taken.
Outlet tenants have not been immune to the global troubles impacting
retail sales as comparable store sales were down 3.1 percent through
November 1995.
o Category Killers and discount retailers have continued to drive the
demand for additional space. In 1995, new contracts were awarded for
the construction or renovation of 260 million square feet of stores
and shopping centers, up from 173 million square feet in 1991
according to F.W. Dodge, matching the highest levels over the past two
decades. It is estimated that between 1992 and 1994, approximately
55.0 percent of new retail square footage was built by big box
retailers. In 1994, it is estimated that they accounted for 80.0
percent of all new stores. Most experts agree that the country is
over-stored. Ultimately, it will lead to higher vacancy rates and
place severe pressure on aging, capital intensive centers. Many
analysts predict that consolidation will occur soon in the office
products superstores category where three companies are battling for
market share - OfficeMax, Office Depot and Staples.
-17-
National Retail Market Overview
o Entertainment is clearly the new operational requisite for property
owners and developers who are incorporating some form of entertainment
into their designs. With a myriad of concepts available, ranging from
mini-amusement parks to multiplex theater and restaurant themes, to
interactive high-tech applications, choosing the right formula is a
difficult task.
Investment Criteria and Institutional Investment Performance
Investment criteria for mall properties range widely. Many firms and
organizations survey individuals active in this industry segment in order to
gauge their current investment criteria. These criteria can be measured against
traditional units of comparison such as price (or value) per square foot of GLA
and overall capitalization rates.
The price that an investor is willing to pay represents the current or
present value of all the benefits of ownership. Of fundamental importance is
their expectation of increases in cash flow and the appreciation of the
investment. Investors have shown a shift in preference to initial return,
placing probably less emphasis on the discounted cash flow analysis (DCF). A DCF
is defined as a set of procedures in which the quantity, variability, timing,
and duration of periodic income, as well as the quantity and timing of
reversions, are specified and discounted to a present value at a specified yield
rate. Understandably, market thinking has evolved after a few hard years of
reality where optimistic cash flow projections did not materialize. The DCF is
still, in our opinion, a valid valuation technique that when properly supported,
can present a realistic forecast of a property's performance and its current
value in the marketplace.
Equitable Real Estate Investment Management, Inc. reports in their Emerging
Trends in Real Estate - 1996 that their respondents give retail investments
generally poor performance forecasts in their latest survey due to the
protracted merchant shakeout which will continue into 1996. While dominant,
Class A malls are still considered to be one of the best real estate investments
anywhere, only 13.0 percent of the respondents recommended buying malls. Rents
and values are expected to remain flat (in real terms) and no one disputes their
contention that 15 to 20 percent of the existing malls nationwide will be out of
business by the end of the decade. For those centers that will continue to
reposition themselves, entertainment will be an increasingly important part of
their mix.
Investors do cite that, after having been written off, department stores
have emerged from the shake-out period as powerful as ever. The larger chains
such as Federated, May and Dillard's, continue to acquire the troubled regional
chains who find it increasingly difficult to compete against the category
killers. Many of the nations largest chains are reporting impressive profit
levels, part of which has come about from their ability to halt the double digit
sales growth of the national discount chains. Mall department stores are
aggressively reacting to power and outlet centers to protect their market share.
Department stores are frequently meeting discounters on price.
While power centers are considered one retail property type currently in a
growth mode, most respondents feel that the country is over-stored and value
gains with these types of centers will lag other property types, including
malls, over five and ten year time frames.
-18-
National Retail Market Overview
The following chart summarizes the results of their current survey.
=========================================================================================
Retail Property Rankings and Forecasts
=========================================================================================
Investment Potential Predicted Value Gains
-------------------- ---------------------
Property Type 1996
Rating(1) Ranking(2) Rent increase 1 Yr. 5 Yrs. 10 Yrs.
=========================================================================================
Regional Malls 4.9 8th 2.0% 2% 20% 40%
-----------------------------------------------------------------------------------------
Power Centers 5.3 6th 2.3% 1% 17% 32%
-----------------------------------------------------------------------------------------
Community Centers 5.4 5th 2.4% 2% 17% 33%
=========================================================================================
(1) Scale of 1 to 10
(2) Based on 9 property types
1=========================================================================================
The NCREIF Property Index represents data collected from the Voting Members
of the National Council of Real Estate Investment Fiduciaries. As shown in the
following table, data through the third quarter of 1995 shows that the retail
index posted a positive 1.23 percent increase in total return. Increased
competition in the retail sector from new and expanding formats and changing
locational references has caused the retail index to trail all other property
types. As such, the -2.01 percent decline in value reported by the retail
subindex for the year were in line with investors' expectations.
================================================================================
Retail Property Returns
NCREIF Index
Third Quarter 1995(%)
================================================================================
Period Income Appreciation Total Change in CPI
================================================================================
3rd Qtr 1995 1.95 -.72 1.23 .46
--------------------------------------------------------------------------------
One Year 8.05 -2.01 5.92 2.55
--------------------------------------------------------------------------------
Three Years 7.54 -3.02 4.35 2.73
--------------------------------------------------------------------------------
Five Years 7.09 -4.61 2.23 2.92
--------------------------------------------------------------------------------
Ten Years 6.95 .54 7.52 3.53
================================================================================
Source: Real Estate Performance Report
National Council of Real Estate Investment Fiduciaries
It is noted that the positive total return continues to be affected by the
capital return component which has been negative for the last five years.
However, as compared to the CPI, the total index has performed relatively well.
Real Estate Investment Trust Market (REITs)
To date, the impact of REITs on the retail investment market has been
significant, although the majority of Initial Property Offerings (IPOs)
involving regional malls, shopping centers, and outlet centers did not enter the
market until the latter part of 1993 and early 1994. It is noted that REITs have
dominated the investment market for apartment properties and have evolved into a
major role for retail properties as well.
-19-
National Retail Market Overview
As of November 30, 1995, there were 297 REITs in the United States, about
79.0 percent (236) which are publicly traded. The advantages provided by REITs,
in comparison to more traditional real estate investment opportunities, include
the diversification of property types and location, increased liquidity due to
shares being traded on major exchanges, and the exemption from corporate taxes
when 95.0 percent of taxable income is distributed.
There are essentially three kinds of REITs which can either be
"open-ended", or Finite-life (REITs) which have specified liquidation dates,
typically ranging from eight to fifteen years.
o Equity REITs center around the ownership of properties where ownership
interests (shareholders) receive the benefit of returns from the
operating income as well as the anticipated appreciation of property
value. Equity REITs typically provide lower yields than other types of
REITs, although this lower yield is theoretically offset by property
appreciation.
o Mortgage REITs invest in real estate through loans. The return to
shareholders is related to the interest rate for mortgages placed by
the REIT.
o Hybrid REITs combine the investment strategies of both the equity and
mortgage REITs in order to diversify risk.
The influx of capital into REITs has provided property owners with an
significant alternative marketplace of investment capital and resulted in a
considerably more liquid market for real estate. A number of "non-traditional"
REIT buyers, such as utility funds and equity/income funds, established a major
presence in the market during 1993/94.
1995 was not viewed as a great year for REITs relative to the advances seen
in the broader market. Through the end of November, equity REITs posted a 9.3
percent total return according to the National Association of Real Estate
Investment Trusts (NAREIT). The best performer among equity REITs was the office
sector with a 29.4 percent total return. This was followed by self-storage
(27.3%), hotels (26.7%), triple-net lease (20.6%), and health care (18.8%). Two
equity REIT sectors were in the red - outlet centers and regional malls.
Retail REITs
As of November 30, 1995, there were a total of 47 REITs specializing in
retail, making up approximately 16 percent of the securities in the REIT market.
Depending upon the property type in which they specialize, retail REITs are
divided into three categories: shopping centers, regional malls, and outlet
centers. The REIT performance indices chart shown as Table A on the following
page, shows a two-year summary of the total retail REIT market as well as the
performance of the three composite categories.
-20-
National Retail Market Overview
Table A - REIT Performance Indicies
Y-T-D Total Dividend No. of REIT Market
Return Yield Securities Capitalization*
================================================================================
As of November 30,1995
--------------------------------------------------------------------------------
TOTAL RETAIL 0.49% 8.36% 47 $14,389.1
Strip Centers 2.87% 8.14% 29 $ 8,083.3
Regional Malls -2.47% 9.06% 11 $ 4,886.1
Outlet Centers -2.53% 9.24% 6 $ 1,108.7
--------------------------------------------------------------------------------
As of November 30, 19 94
--------------------------------------------------------------------------------
TOTAL RETAIL -3.29% 8.35% 46 $12,913.1
Strip Centers -4.36% 7.98% 28 $ 7,402.7
Regional Malls 2.84% 8.86% 11 $ 4,459.1
Outlet Centers -16.58% 8.74% 7 $ 1,051.4
--------------------------------------------------------------------------------
* Number reported in thousands.
Source: Realty Stock Review
As can be seen, the 47 REIT securities have a market capitalization of
approximately $14.4 billion, up 11.5 percent from the previous year. Total
returns were positive through November 1995, reversing the negative return for
the comparable period 12 months earlier. It is noted that the positive return
was the result of the strength of the shopping center REITS which constitute
nearly 60 percent of the market capitalization. Total retail REITS dividend
yields have remained constant over the last year at approximately 8.36 percent.
Regional mail and shopping center REITS dominate the total market, making up
approximately 85 percent of the 47 retail REITs.
While many of the country's best quality malls and shopping centers have
recently been offered in the public market, this heavily capitalized marketplace
has provided sellers with an attractive alternative to the more traditional
market for large retail properties.
Regional Mall REITs
The accompanying exhibit Table B summarizes the basic characteristics of
eight REITS and one publicly traded real estate operating company (Rouse
Company) comprised exclusively or predominantly of regional mail properties.
Excluding the Rouse Company (ROUS), the 1POs have all been completed since
November 1992. The nine public offerings with available information have a total
of 281 regional or super regional malls with a combined leasable area of
approximately 229 million square feet. This figure represents more than 14.0
percent of the total national supply of this product type.
-21-
National Retail Market Overview
The nine companies are among the largest and best capitalized domestic real
estate equity securities, and are considerably more liquid than more traditional
real estate related investments. Excluding the Rouse Company, however, these
companies have been publicly traded for only a short period, and there is not an
established track record. General Growth was the star performer in 1995 with a
15 percent increase in its stock price following the acquisition of the Homart
retail portfolio from Sears for $1.85 billion - the biggest real estate
acquisition of the decade.
Source: Salomon Bothers and Realty Stock Review, Annual Reports
* Super Regional Center(> = 800,000 Sq. Ft)
** Numbers in thousands (000) includes malls only
*** Numbers in millions
**** Funds From Operations is defined as net income (loss) before
depreciation, amortization, other non-cash items, extraordinary items,
gains or losses on sales of assests and before minority interests in
the Operating Partnership.
-22-
National Retail Market Overview
Shopping Center REITs
Shopping center REITs comprise the largest sector of the retail REIT market
accounting for 29 out of the total 47 securities. General characteristics of
eight of the largest shopping center REITs are summarized on Table C. The public
equity market capitalization of the eight companies totaled $6.1 billion as of
December 15, 1995. The two largest, Kimco Realty Corp. and New Plan Realty Trust
have a market capitalization equal to approximately 34.5 percent of the group
total.
While the regional mail and outlet center REIT markets struggled through
1995, shopping center REITs showed a positive November 30, 1995 year-to-date
return of 2.87%. Through 1995, transaction activity in the national shopping
center market has been moderate. Most of the action in this market is in the
power center segment. As an investment, power centers appeal to investors and
REITs because of the high current cash returns and long-term leases. However,
with their popularity, the potential for overbuilding is high. Also creating
skepticism within this market is the stability of several large discount
retailers such as Kmart, and other discount department stores which typically
anchor power centers. Shopping center REITs which hold numerous properties where
struggling retailers are located are currently keeping close watch over these
centers in the event of these anchor tenants vacating their space.
Similar to the regional mall REITs, shopping center REITs have been
publicly traded for only a short period and do not have a defined track record.
While the REITs have been in existence for a relatively short period, the growth
requirements of the companies should place upward pressure on values due to
continued demand for new product.
-23-
National Retail Market Overview
------------------------------------------------------------------------------------------------------------------------------------
Table C - SHOPPING CENTER REIT ANALYSIS
Cushman & Wakefield, Inc.
------------------------------------------------------------------------------------------------------------------------------------
REIT PORTFOLIO DDR FRT GRT JPR KIM NPR VNO WRI
Devel. Federal Glimcher JP Kimco New Plan Vornado Weingarten
Diversified Realty Inv Realty Realty Inc Realty Corp Realty Realty Realty
====================================================================================================================================
Company 0verview
Total Properties 111 53 84 46 193 123 65 161
Total Retail Centers 104 53 84 40 193 102 56 141
Total Retail GLA* 23,600 11,200 12,300 6,895 26,001 14,500 9,501 13,293
Avg. Total GLA/Center* 227 211 146 172 135 142 170 94
------------------------------------------------------------------------------------------------------------------------------------
Mall Operations
Reporting Year -- -- 1994 -- 1994 -- -- 1994
Total Rental income -- -- $71,101 -- $125,272 -- -- $112,233
Average Rent/Square Foot $6.04 -- $5.78 -- $4.82 -- -- $8.44
Total Operating Expenses -- -- $45,746 -- $80,563 -- -- $76,771
Operating Expenses/Square Foot -- -- $3.72 -- $3.10 -- -- $5.78
Operating Expense Ratio -- -- 64.3% -- 64.3% -- -- 68.4%
Total Occupancy Level 96.6% 95.1% 96.3% 94.0% 94.7% 95.4% 94.0% 92.0%
------------------------------------------------------------------------------------------------------------------------------------
Share Prices
IPO Date 1992 1993 1994 1994 1991 1973 1993 1985
IPO Price $19.50 $17.25 $14.75 $22.00 $19.00 -- $22.25 --
Current Price (12/15/97) $29.88 $23.38 $17.75 $20.63 $42.25 $21.63 $36.13 $36.13
52 -Week High $32.00 $23.75 $22.38 $21.38 $42.25 $23.00 $38.13 $38.13
52 - Week Low $26.13 $19.75 $16 63 $17 38 $35.00 $18.75 $32.75 $32.75
------------------------------------------------------------------------------------------------------------------------------------
Capitalization & Yields
Outstanding Shares** 18.96 32.22 24.48 19.72 22.43 53.26 24.20 26.53
Market Capitalization** $567 $753 $435 $407 $948 $1,152 $874 $959
Annual Dividend $2.40 $1.64 $1.92 $1.68 $2.16 $1.39 $2.24 $2.40
Dividend Yield (12/15/95) 8.03% 7.01% 10.82% 8.14% 5.11% 6.43% 6.20% 6.64%
FF0 1995*** $2.65 $1.78 $2.25 $1.83 $3.15 $1.44 $2.67 $2.80
FFO Yield (12/15/95) 8.87% 7.61% 12.68% 8.87% 7.46% 6.66% 7.39% 7.75%
------------------------------------------------------------------------------------------------------------------------------------
Source Salomon Bothers and Realty Stock Review, Annual Reports
* Numbers in thousands (000) includes retail properties only.
** Numbers in millions.
*** Funds From Operations is defined as net income (loss) before
depreciation, amortization, other non-cash items, extraordinary items,
gains or losses on sales of assests and before minority interests in
the Operating Partnership
------------------------------------------------------------------------------------------------------------------------------------
-24-
National Retail Market Overview
Outlook
A review of various data sources reveals the intensity of the development
community's efforts to serve a U.S. retail market that is still growing,
shifting and evolving. It is estimated 25-30 power centers appear to be capable
of opening annually, generating more than 12 million square feet of new space
per year. That activity is fueled by the locational needs of key power center
tenants, 27 of which indicated in recent year-end reports to shareholders an
appetite for 900 new stores annually, an average of 30 new stores per firm.
With a per capita GLA figure of 19 square feet, most analysts are in
agreement that the country is already over-stored. As such, new centers will
become feasible through the following demand generators:
o The gradual obsolescence of some existing retail locations and retail
facilities;
o The evolution of the locational needs and format preferences of
various anchor tenants; and
o Rising retail sales generated by increasing population and household
levels.
By the year 2000, total retail sales are projected to rise from $2.237
trillion in 1994 to almost $2.9 trillion; shopping center-inclined sales are
projected to rise by $361 billion, from $1.194 trillion in 1994 to nearly $1.6
trillion in the year 2000. Those increases reflect annual compound growth rates
of 4.1 percent and 4.5 percent, respectively, for the six-year period.
On balance, we conclude that the outlook for the retail industry is one of
cautious optimism. Because of the importance of consumer spending to the
economy, the retail industry is one of the most studied and analyzed segments of
the economy. One obvious benefactor of the aggressive expansion and promotional
pricing which has characterized the industry is the consumer There will continue
to be an increasing focus on choosing the right format and merchandising mix to
differentiate the product from the competition and meet the needs of the
consumer. Quite obviously, many of the nations' existing retail developments
will find it difficult if not impossible to compete. Tantamount to the success
of these older centers must be a proper merchandising or repositioning strategy
that adequately considers the feasibility of the capital intensive needs of such
an undertaking. Coincident with all of the change which will continue to
influence the industry is a general softening of investor bullishness. This will
lead to a realization that the collective interaction of the fundamentals of
risk and reward now require higher capitalization rates and long term yield
expectations in order to attract investment capital.
-25-
[GRAPHIC OMITTED]
FLOOR PLAN OF THE GALLERIA
MAIN STREET LEVEL
[GRAPHIC OMITTED]
FLOOR PLAN OF THE GALLERIA
GARDEN LEVEL
[GRAPHIC OMITTED]
FLOOR PLAN OF THE GALLERIA
FASHION LEVEL LEVEL 1
[GRAPHIC OMITTED]
FLOOR PLAN OF THE GALLERIA
FASHION LEVEL LEVEL 2
THE GALLERIA AT WHITE PLAINS
PROPERTY NO. 9130
1/1/96 - 12/31/96
OPERATING BUDGET
REVISION DATE: SEPTEMBER 1,1995
RETAIL BUDGET - 1996
INDEX PAGE
SECTION PAGE
1 GENERAL INFORMATION
---------------------------------------------------------------------
SUMMARY NARRATIVE 3
FACT SHEET 6
2 BUDGET SUMMARY
---------------------------------------------------------------------
YEAR-TO-YEAR BUDGET COMPARISON (Budget page B1) 8
VARIANCE ANALYSIS 9
TWELVE MONTH SPREADSHEET (Budget page B2) 22
SUMMARY BY MINOR CODE 3
3 RECOVERABLE EXPENSE DETAIL 24
---------------------------------------------------------------------
4 INCOME DETAIL 31
---------------------------------------------------------------------
5 EXPENSE DETAIL 92
---------------------------------------------------------------------
6 MARKETING FUND (If Applicable) N/A
---------------------------------------------------------------------
SUMMARY OF CONTRACT EXPENSES 107
THE GALLERIA AT WHITE PLAINS
1996 COMMERCIAL OPERATING BUDGET
SUMMARY NARRATIVE
The Galleria at White Plains has a GLA of 326,449 square feet and two department
store anchors totaling 555,915 square feet, for a combined total for the center
of 882,363 square feet. The two department stores are Stern's formally Abraham &
Straus) and JCPenney, both middle-market stores. Filene's Basement, the
Massachusettes based discounter, opened a 26,100 square foot store on the Main
Street level of the mail in November 1992. In addition, there are 144 small
stores including a 13 unit food court. The four-level enclosed mall has an
attached 2,416 space parking garage which is owned and operated by the City of
White Plains.
The mall was built in 1990 as the centerpiece of an ambitious downtown urban
renewal project. Since that time the entire downtown White Plains area has
developed into a vital commercial and retail center for Westchester County. The
daytime population of the City of White Plains is 250,000 with a resident
population of approximately 47,000. White Plains is the county seat of
Westchester County, with a relatively strong economy and low unemployment. The
Galleria benefits from a dual urban/suburban customer base. Located within
walking distance of almost 6 million square feet of office space, The Galleria's
food court is an excellent noontime attraction for the local office worker
trade. This additional benefit of excellent highway access and close proximity
to public transportation also contributed to The Galleria's high sales volume of
$390 per square foot for the rolling twelve month period ended December 1994.
The trade area for The Galleria covers an extensive geographic area with a
population of approximately 1.5 million. Over 50% of The Galleria's shoppers
originate in White Plains and Southern Westchester. The estimated 1994 average
household income in the primary trade area was $55,479. The median household
income in Westchester County ranks within the top 1% of the nation.
For the past ten years, The Galleria has enjoyed tremendous success due
primarily to the lack of direct competition in the immediate market area
However, in March 1995, "The Westchester", an upscale regional mall developed by
the O'Connor Group of New York City, opened within one mile from The Galleria.
The 850,000 square foot mall is anchored by Nordstrom and Neiman Marcus with
tenants including Tiffany, Gucci, Brooks Brothers and William Sonoma.
Although The Galleria is anticipated to experience a negative sales impact
initially due to the opening of "The Westchester", this is expected to dissipate
over the long term. The two malls are positioned very differently with respect
to tenant mix and customer base, with each property focusing on a distinct
portion of the retail market.
To further establish and secure its place in the market, The Galleria completed
a major $12 million renovation in 1993. The renovation included new mall street
entrances and signage, new interior floor finishes, lighting, skylight
reglazing, landscaping, interior graphics, and additional food court seating.
The dramatic improvements to the appearance of The Galleria have reinforced
retailer confidence and customer perceptions, and will help ensure that The
Galleria maintains its market niche and continues to be as successful throughout
the 90s as it was in the previous decade.
THE GALLERIA AT WHITE PLAINS (#9130)
1996 COMMERCIAL OPERATING BUDGET
BUDGET OVERVIEW
Total income for the 1996 budget period is projected at $17,534,098.
Occupancy in January 1996 is anticipated to be 92.4% and is projected to
decrease to 83.5% by the end of the year with the average occupancy at 82.0%
for the budget period. The lower occupancy results in a decrease in base rent
for 1996, and similarly impacts percentage rent, common area, real estate tax,
and utility income for the period.
The total expenses for 1996 am projected at $8,265,686 representing a decrease
of 0.5% from the 1995 projected actual expenses. 1995 was the final year that
the $100,000 payment towards the parking garage deficit was required under the
terms of the Reciprocal Operating Agreement with the City, which favorably
impacts expenses for 1996.
Capital improvements budgeted for 1996 include tiling of the five garage
elevator vestibules and food court neutral piers at a cost of $85,000;
replacement of badly deteriorated exterior service doors at a cost of $50,000;
installation of additional closed circuit security cameras for the exterior
entrances and roof areas at a cost of $36,000 and a lighting retrofit of the
common areas at the 3 West entrance and public restroom hallway at a cost of
S45,000. In addition, a complete retrofit and upgrade of the mall's central
plant HVAC system has been budgeted at a cost of $750,000, along with the
installation of a new natural gas line and gas conversion of the boilers at a
cost of $140,000 and the in-place closure of the two underground oil tanks at a
cost of $30,000.
(CONTINUED) ..........
Page 2
Budget Overview
Continued
1996 BILLING RATES ARE AS FOLLOWS:
1996 1995
---- ----
CHARGE PER SQUARE FOOT CHARGE PER SQUARE FOOT
---------------------- ----------------------
Mall Tenants Food Court Mall Tenants Food Court
------------ ---------- ------------ ----------
Common Area Maintenance $ 14.30 $ 14.30 $ 13.48 $ 13.48
Real Estate Taxes 9.78 9.78 8.12 8.12
Mall HVAC 1.66 1.66 1.66 1.66
Marketing Fund 1.75 1.75 1.75 1.75
Water/Serer* 0.10 0.10 0.10 0.10
Food Court 34.81 34.81
--------- --------- --------- ---------
TOTAL EXTRA CHARGES- $ 27.59 $ 62.40 $ 25.11 $ 59.92
*NOTE: Food court tenants are billed at $4.87 psf for water.
Cash flow for the 1996 budget period is projected to be $3,038,956.
CENTER: The Galleria at White Plains CO. #:9130
OWNERSHIP: C.F. White Plains Associates
% INTEREST
PARTNERSHIP: CFSCP (New York) 99.66%
C.F. Properties (Shannon) 5.34%
MAILING ADDRESS: 100 Main Street
White Plains, NY 10601
MANAGEMENT COMPANY: Cadillac Fairview Shopping Centers (US) Limited
LOCATION: Downtown White Plains, New York
MAJOR ACCESS HIGHWAYS: Cross Westchester Expressway (Rte. 287)
Interstate 684
OPENING DATE: August 1, 1980
RENOVATION DATE(S): June 1992-October 1993
DEVELOPER: Cadillac Fairview Shopping Centers (US) Limited
DATE PURCHASED: January 1,1988
ACQUISITION PURCHASE PRICE: N/A
MORTGAGE AMOUNT OUTSTANDING: 37,599,392 AS OF: 8/1/95
WHEN IS LOAN DUE: July 1, 2016
LENDER: Teachers Insurance and Annuity Association
DESCRIPTION: Urban, four-level enclosed mall
SITE ACRES: 9.9
MAJOR STORES: NAME SQUARE FOOTAGE NON-OWNED/OWNED
---- -------------- ---------------
Stern's 328,599 Non-Owned
JC Penney 227,316 Ground Lease
-------- Owned
(Owned-Owned by shopping ctr.)
Total 555,915
-------
(Non-Owned=Owned by major)
SMALL SHOP GLA: 326,448
PAD TENANTS: N/A
GROSS LEASABLE AREA: 882,363
WITH MAJOR STORES
GROSS LEASABLE AREA: 326,448
OWNED BY SHOPPING CENTER
NUMBER OF SMALL SHOPS: 144
SMALL SHOP OCCUPANCY AS OF 8/1/95: 91.60%
PARKING SPACES: 2,416 (Municipal Garage)
PARKING RATIO: 2.7 per 1,000 sq. ft. 99.66%
SALES HISTORY: YEAR $SF
---- ---
1993 $388
1994 $390
Projected 1995 $351
PRIMARY TRADE AREA: North twelve miles to town of Ossining in Westchester
County; East five miles bounded by NY/CT state line; West
seven miles to the Hudson River; and south Fifteen miles
into the Bronx.
PRIMARY TRADE AREA
POPULATION: 1.5%
% OF EXPECTED INCREASE
NEXT 5 YEARS: 1.5%
PRIMARY TRADE AREA
AVERAGE HOUSEHOLD INCOME: $55,478.00
COMPETITION:
CENTER Stamford Town Center
LOCATION Downtown Stamford, CT
DISTANCE FROM MALL 15 miles
GLA 900,000 SF
NUMBER OF MALL SHOPS 170
NUMBER OF ANCHORS 3
ANCHORS Macy's, Filene's, Saks
OPENING DATE 1982
CENTER The Westchester
LOCATION White Plains, NY
DISTANCE FROM MALL 1/2 mile
GLA 850,000 SF
NUMBER OF MALL SHOPS 150
NUMBER OF ANCHORS 2
ANCHORS Nordstrom, Neiman Marcus
OPENING DATE 1995
CENTER Danbury Fair Mall
LOCATION Danbury, CT
DISTANCE FROM MALL 25 miles
GLA 1,200,000 SF
NUMBER OF MALL SHOPS 215
NUMBER OF ANCHORS 5
ANCHORS Macy's Sears, JC Penney, Lord & Taylor, Filene's
OPENING DATE 1986
DATE PREPARED: August 10,1995
URBAN RETAIL PROPERTIES CO.
PAGE B-1
1996 COMMERCIAL OPERATIG BUDGET
Property: THE GALLERIA AT WHITE PLAINS DATE: 09/01/95
Company #: 9130 TIME: 05:06PM
GLA - Small Shop: 326,448
GLA With All Department Stores = 882,363
GLA With Owned Dept. Stores = 326,448
DEPARTMENT STORES SQUARE FT/
----------------- ----------
1. J.C. PENNY 277,316 (NONALLOWED)
2. STERN'S 328,599 (NONALLOWED)
3. ( )
4. ( )
5. ( )
6. ( )
---------------------------- ---------
DEPT. STORE TOTAL 555,915
Date of Purchase: 01-Jan-80
Purchase Price: N/A
Ownership: CF WHITE PLAINS ASSOC.
Cash Invested: N/A
Sales PSF (Rolling 12 Months): $382.55 /psf
1996 STANDARD
PRO RATA TENANT CHARGES
$/PSF
------
CAM $14.30
NW 0.00
Escalations 0.00
RET 9.78
Utilities 1.66
Marketing 1.75
Other 0.10
--------------------------
Sub Total $27.59
--------------------------
Food Court 34.81
--------------------------
1996 Total $62.40
==========================
1995 Total $59.92
PAYROLL NOTES
1995 Budgeted Payroll : 265,602
/Sq. Ft. : $0.81
1995 Projected Actual Payroll : 228,380
/Sq. Ft. : $0.70
1996 Budget Payroll : 235,672
/Sq. Ft. : $0.72
Variance - 1996 Budget vs 1995 Proj Act : 7,292
% Difference : 3.19%
MARKETING FUND NOTES
Marketing Fund Income : 341,055
Owner's Contribution & Subsidies : 85,264
Media Fund Income : 457,800
----------------------------------------------------------------
TOTAL INCOME : 884,119
----------------------------------------------------------------
Marketing & Media Express : 884,119
----------------------------------------------------------------
Net Marketing & Media Funds : 0
================================================================
PAGE B-3 Co#: 9130 DATE: 01-Sep-95 1996 COMMERCIAL OPERATING BUDGET
-----------------------------------------------------------------------------------------------------------------------------
Jan-96 Feb-96 Mar-96 Apr-96 May-96 Jun-96 Jul-96
=============================================================================================================================
OCCUPANCY
% Occupancy 92,36% 79.96% 79.96% 80.48% 81.08% 81.08% 80.32%
Sq. Ft. GLA Occupied 301,498 261,033 261,033 262,725 264,688 264,688 262,190
Sq. Ft. GLA Vacant 24,950 65,415 65,415 63,723 61,760 61,760 64,258
=============================================================================================================================
INCOME:
Base Rent (4001) 769,414 734,847 734,847 741,146 750,454 750,454 744,209
CPI Income (4021) 0 0 0 0 0 0 0
Temporary Kiosk Income (4006) 13,950 13,950 13,950 13,950 13,950 13,950 13,950
Lease Termination Charges (4078) 0 251,266 0 0 0 0 0
Storage Charges (4008) 650 250 250 250 250 250 250
-----------------------------------------------------------------------------------------------------------------------------
TOTAL RENT 784,014 1,000,313 749,047 755,346 764,654 764,654 758,409
=============================================================================================================================
Property: THE GALLERIA AT WHITE PL Sq. Ft.: 326,448 05:06 PM
-----------------------------------------------------------------------------------------------------------------------------
Aug-96 Sep-96 Oct-96 Nov-96 Dec-96 TOTAL 1995 PROJ
=============================================================================================================================
OCCUPANCY
% Occupancy 80.08% 80.94% 80.94% 83.45% 83.45% 82.01% 91.98%
Sq. Ft. GLA Occupied 261,432 264,237 264,237 272,414 272,414 300,488
Sq. Ft. GLA Vacant 65,016 62,211 62,211 54,034 54,034
=============================================================================================================================
INCOME:
Base Rent (4001) 747,107 753,382 755,219 774,553 775,267 9,030,899 9,155,440
CPI Income (4021) 0 0 0 0 0 0 0
Temporary Kiosk Income (4006) 13,950 13,950 13,950 42,800 42,80 225,100 262,700
Lease Termination Charges (4078) 0 0 0 0 0 251,266 0
Storage Charges (4008) 250 250 250 250 250 3,400 7,800
-----------------------------------------------------------------------------------------------------------------------------
TOTAL RENT 761,307 767,582 769,419 817,603 818,317 9,510,665 9,425,940
=============================================================================================================================
NOTES: (4001) BASED UPON LEASING PROJECTIONS.
(4006) SEVEN TEMPORARY PUSHCARTS AT $1,000/MONTH EACH FOR JAN THRU OCT AND $10,000-$12,000
EACH DURING HOLIDAY SEASON. ALSO, INCLUDES TWO TEMPORARY TENANTS $6950 PER
MONTH/$15,600 DURING HOLIDAY SEASON.
(4008) TENANT STORAGE INCOME FROM SBARRO (JAN) AND THINGS REMMBERED.
(4078) TERMINATION FEE TO BE PAID BY MELVILLE FOR "GARAGE" SPACE $251,266/FEBRUARY.
Jan-96 Feb-96 Mar-96 Apr-96 May-96 Jun-96 Jul-96
=============================================================================================================================
=============================================================================================================================
Percentage Rental Income (4002) 15,717 20,188 46,657 81,132 13,339 13,339 16,604
=============================================================================================================================
Aug-96 Sep-96 Oct-96 Nov-96 Dec-96 TOTAL 1995 PROJ
=============================================================================================================================
Percentage Rental Income (4002) 22,536 11,610 11,740 11,740 11,790 276,392 394,100
=============================================================================================================================
NOTES: (4002) LEASE YEAR ENDED JANUARY 1996 COLLECTED IN APRIL 1996.
Jan-96 Feb-96 Mar-96 Apr-96 May-96 Jun-96 Jul-96
=============================================================================================================================
=============================================================================================================================
Common Area Maintenance (4022) 318,371 281,496 281,496 283,513 275,272 274,886 283,167
Mall Area Maintenance (4023) 0 0 0 0 0 0 0
Escalation Charges (4020) 0 0 0 0 0 0 0
Food Court Charges (4024) 29,110 25,377 25,377 25,377 7,942 7,942 31,287
-----------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON AREA INCOME 347,481 306,873 306,873 308,890 283,214 282,828 314,454
=============================================================================================================================
Aug-96 Sep-96 Oct-96 Nov-96 Dec-96 TOTAL 1995 PROJ
=============================================================================================================================
Common Area Maintenance (4022) 282,612 285,954 295,698 295,700 295,700 3,453,865 3,800,891
Mall Area Maintenance (4023) 0 0 0 0 0 0
Escalation Charges (4020) 0 0 0 0 0
Food Court Charges (4024) 31,287 31,287 31.287 31,287 31,287 308,847 280,594
-----------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON AREA INCOME 313,899 317,241 326,985 326,987 326,987 3,762,712 4,081,485
=============================================================================================================================
NOTES: (4022) 1995 LUMP SUM CREDIT ADJUSTMENT OF $(21,421) BUDGETED 50% IN MAY AND 50% IN JUNE.
NEW MONTHLY CHARGES BUDGETED AS OF 1/1/96 BASED UPON 1996 BUDGETED EXPENSES.
(4024) 1995 LUMP SUM CREDIT ADJUSTMENT $(37,978) BUDGETED 50% IN MAY AND 50% IN JUNE.
NEW MONTHLY CHARGES BUDGETED AS OF 1/1/96 BASED UPON 1996 BUDGETED EXPENSES.
Jan-96 Feb-96 Mar-96 Apr-96 May-96 Jun-96 Jul-96
=============================================================================================================================
=============================================================================================================================
REAL ESTATE TAX INCOME (4040) 231,745 201,474 201,474 202,853 239,079 239,078 202,855
=============================================================================================================================
Aug-96 Sep-96 Oct-96 Nov-96 Dec-96 TOTAL 1995 PROJ
=============================================================================================================================
REAL ESTATE TAX INCOME (4040) 202,873 205,158 211,822 211,821 211,822 2,562,054 2,631,151
=============================================================================================================================
NOTES: (4040) 1995 LUMP SUM ADJUSTMENT BILLING OF $68,721 BUDGETED 50% IN MAY AND 50% IN JUNE.
NEW MONTHLY CHARGES BUDGETED AS OF 1/1/96 BASED UPON 1996 BUDGETED EXPENSES.
PAGE 31
=============================================================================================================================
MAR 11,1996 10:34 PROPERTY MANAGEMENT INFORMATION SYSTEM PAGE 1
RENT ROLL FOR 9130 GALLERIA, THE - 00
AS OF MAR 11, 96
CPI
% RENT Base Operating Pro-
Unit - Square Lease ------Annual Base Rent------ Brkpnt-$ Year Expense Rata Base
Ten # Tenant Feet Term Amount Start PSF % (&Cat) & % Type Share Amount Options
------------------------------------------------------------------------------------------------------------------------------------
KOI-02 SILVER AND GOLD C 156 NOV 01, 94 39,999 NOV 01, 95 256.41 400,000 CAM 01 .0636
DEC 31, 97 42,000 NOV 01, 96 269.23 10.00 RET 02 .0524
(STEP-UP)
K02-02 SUNGLASS HUT 156 DEC 01, 94 39,999 DEC 01, 94 256.41 500,000 CAM 01 .0636
JAN 31, 00 42,999 DEC 01, 96 275.64 8.00 RET 02 .0524
STEP-UP)
K03-01 JEWEL HUT 156 MAY 01, 95 39,999 MAY 01, 95 256.41 400,000 CAM 84000 .0636
APR 30, 00 42,000 MAY 01, 98 269.23 10.00 RET 02 .0524
(STEP-UP)
K04-01 VALENTI FRAGRANCE 156 NOV 14, 90 42,000 DEC 01, 95 269.23 420,000 CAM 03 .0636
JUL 31, 96 10.00 RET 02 .0524
K05-01 QUINTEX MOBILE CO 163 NOV 01, 93 CAM 03 .0664
DEC 31, 95 RET 02 .0547
K06-01 ROSE JEWELRY 166 NOV 01, 89 39,999 NOV 01, 94 240.96 500,000 CAM 03 .0676
OCT 31, 99 42,999 NOV 01, 96 259.04 8.00 RET 02 .0558
(STEP-UP)
K07-04 THE VITAMIN WORKS 163 DEC 01, 95 39,999 DEC 01, 95 245.40
DEC 31, 00 42,000 DEC 01, 98 257.67
KO8-04 SUNGLASS SOURCE 166 JUL 01, 94 32,000 JUL 01, 94 192.77 320,000 CAM 04 .0558
DEC 31, 99 35,000 JAN 01, 97 210.84 10.00 RET 02 .0558
38,000 JAN 01, 98 228.92 (STEP-UP)
0101 VACANT UNIT 26,100
0106-02 LIBERTY TRAVEL 1,100 SEP 12, 80 CAM 04 .2603
JAN 31, 96 RET 02 .2603
0110 VACANT UNIT 15,451
0113-01 EMIGRANT SAVINGS 10,000 AUG 06, 80 279,999 AUG 01, 80 28.00 0 CAM 04 3.3587 3/5YR
JAN 31, 06 0.00 RET 02 3.3587
0201-01 SOFTWARE ETC. 1,808 JAN 27, 87 59,664 FEB 01, 92 33.00 1,193,280 CAM 03 .7367
JAN 31, 97 5.00 RET 02 .6073
0202-02 SAM GOODY 4,807 FEB 01, 91 177,858 FEB 01, 94 37.00 2,540,842 CAM 03 1.9588
JAN 31, 98 7.00 RET 05 1.6145
0205-02 RADIO SHACK 3,157 FEB 01, 93 78,924 FEB 01, 96 25.00 1,984,086 CAM 03 1.2791
JAN 31, 03 3.00 RET 02 1.0604
(STEP-UP)
MAR 11,1996 10:34 PROPERTY MANAGEMENT INFORMATION SYSTEM PAGE 2
RENT ROLL FOR 9130 GALLERIA, THE - 00
AS OF MAR 11, 96
CPI
% RENT Base Operating Pro-
Unit - Square Lease ------Annual Base Rent------ Brkpnt-$ Year Expense Rata Base
Ten # Tenant Feet Term Amount Start PSF % (&Cat) & % Type Share Amount Options
------------------------------------------------------------------------------------------------------------------------------------
0206-02 GENERAL NUTRITION 1,944 FEB 01, 91 69,999 FEB 01, 96 36.01 1,000,000 CAM 03 .7922
JAN 31, 00 7.00 RET 02 .6529
0209-04 MY FAVORITE MUFFI 750 DEC 01, 95 45,999 DEC 01, 95 61.33
NOV 30, 03 50,000 DEC 01, 97 66.67
54,000 DEC 01, 99 72.00
57,999 DEC 01, 01 77.33
0210-02 WALDENBOOKS #1340 4,833 FEB 01, 91 159,489 FEB 01, 96 33.00 2,658,150 CAM 03 1.9582
JAN 31, 01 6.00 RET 02 1.6233
0213-05 CLAIRE'S BOUTIQUE 717 NOV 01, 92 50,190 NOV 01, 95 70.00 627,375 CAM 03 .2196
DEC 31, 02 53,775 NOV 01, 99 75.00 8.00 RET 02 .2408
(STEP-UP)
0214-02 JEAN'S HALLMARK 2,829 AUG 22, 80 113,160 SEP 01, 95 40.00 1,414,500 CAM 03 1.1462
JAN 31, 99 8.00 RET 02 .9502
0218 VACANT UNIT 603
0221-02 CINNABON 925 NOV 15, 90 46,999 DEC 01, 95 50.81 587,500 CAM 03 .3769
NOV 30, 98 8.00 RET 02 .3107
0222 VACANT UNIT 2,036
0225-02 GREAT AMERICAN CO 675 SEP 01, 92 54,999 FEB 01, 96 81.48 550,000 CAM 04 .2267
JUN 30, 02 60,000 FEB 01, 99 88.89 10.00 RET 02 .2267
(STEP-UP)
0226-01 QUICK -N- NATURAL 331 OCT 01, 82 32,000 FEB 01, 90 96.68 260,000 CAM 03 .1349
JAN 31, 00 10.00 RET 02 .1112
0229-01 MR GREEN JEANS 6,500 OCT 07, 80 97,500 OCT 01, 80 15.00 CAM 03 2.3702 1/5YR
JAN 31, 01 RET 02 1.9904
0230-02 MANCHU WOK 845 DEC 01, 91 57,999 DEC 01, 94 68.64 828,571 CAM 06 .3111
JAN 31, 02 60,999 DEC 01, 98 72.19 7.00 RET 02 .2838
(STEP-UP)
0233 VACANT UNIT 1,747
0234-02 ARTHUR TREACHERS 561 FEB 28, 93 54,999 FEB 01, 93 98.04 750,000 CAM 03 .2286
MAR 31, 03 60,000 APR 01, 96 106.95 10.00 RET 02 .1884
65,000 APR 01, 00 115.86 (STEP-UP)
0237-01 GENROKU 1,323 MAY 23, 80 CAM 03 .5391
JAN 31, 96 RET 02 .4444
MAR 11,1996 10:34 PROPERTY MANAGEMENT INFORMATION SYSTEM PAGE 3
RENT ROLL FOR 9130 GALLERIA, THE - 00
AS OF MAR 11, 96
CPI
% RENT Base Operating Pro-
Unit - Square Lease ------Annual Base Rent------ Brkpnt-$ Year Expense Rata Base
Ten # Tenant Feet Term Amount Start PSF % (&Cat) & % Type Share Amount Options
------------------------------------------------------------------------------------------------------------------------------------
0238-03 BIZZARRE PIZZERIA 607 OCT 01, 89 54,630 FEB 01, 96 90.00 546,300 CAM 03 .2473
SEP 30, 05 62,824 OCT 01, 98 103.50 10.00 RET 02 .2039
80,730 OCT 01, 00 133.00 (STEP-UP)
87,408 OCT 01, 02 144.00
0241-02 ACROPOLIS 519 FEB 01, 96 42,999 FEB 01, 96 82.85 430,000
JAN 31, 06 45,000 FEB 01, 99 86.71 10.00
47,000 FEB 01, 03 90.56 (STEP-UP)
0242-02 ROY ROGERS 1,200 OCT 01, 89 111,600 OCT 01, 95 93.00 1,860,000 CAM 03 .489
SEP 30, 05 123,600 OCT 01, 98 103.00 6.00 RET 02 .403
143,199 OCT 01, 00 119.33 (STEP-UP)
156,300 OCT 01, 02 130.25
0245-02 J.B.'S TEXAS GRIL 472 FEB 01, 96 42,999 FEB 01, 96 91.10 430,000
JAN 31, 06 45,000 FEB 01, 99 95.34 10.00
47,000 FEB 01, 03 95.58 (STEP-UP)
0249-03 BIG EASY CAJUN 414 NOV 21, 95 48,000 NOV 01, 95 115.94 600,000
JAN 31, 06 51,000 NOV 01, 98 123.19 8.00
54,000 NOV 01, 02 130.43 (STEP-UP)
0250-03 EVERYTHING YOGURT 455 OCT 01, 89 40,950 OCT 01, 95 90.00 409,500 CAM 03 .1854
SEP 30, 05 47,092 OCT 01, 98 103.50 10.00 RET 02 .1528
66,429 OCT 01, 00 146.00 (STEP-UP)
75,075 OCT 01, 02 165.00
0253-01 CHOWDER'S SEAFOOD 405 OCT 01, 86 38,000 OCT 01, 92 93.83 380,000 CAM 03 .165
SEP 30, 96 10.00 RET 02 .1360
0254-02 THE COMPLETE ATHL 1,100 SEP 15, 90 49,999 FEB 01, 96 45.45 714,285 CAM 03 .4482
JAN 31, 99 7.00 RET 02 .3695
0257-03 NATHAN'S 968 APR 01, 89 85,008 OCT 01, 93 87.82 944,444 CAM 03 .3945
MAR 31, 99 95,004 APR 01, 97 98.14 10.00 RET 02 .3251
(STEP-UP)
0265-01 MCDONALD'S #31-10 1,593 NOV 07, 85 63,720 NOV 01, 85 40.00 1,062,000 CAM 03 .6454
JAN 31, 01 6.00 RET 02 .535
0269-02 FRIENDLY RESTAURA 4,065 NOV 01, 88 75,202 NOV 01, 93 18.50 1,504,050 CAM 03 1.3831
OCT 31, 03 83,332 NOV 01, 98 20.50 5.00 RET 02 1.3653
(STEP-UP)
0300-01 SENA HANDBAGS 546 NOV 01, 80 15,287 NOV 01, 80 28.00 0 CAM 03 .2212
JAN 31, 06 0.00 RET 02 .1834
0301-02 CPI PHOTO FINISH 974 FEB 01, 91 CAM 03 .3969
JAN 31, 96 RET 02 .3271
MAR 11,1996 10:34 PROPERTY MANAGEMENT INFORMATION SYSTEM PAGE 3
RENT ROLL FOR 9130 GALLERIA, THE - 00
AS OF MAR 11, 96
CPI
% RENT Base Operating Pro-
Unit - Square Lease ------Annual Base Rent------ Brkpnt-$ Year Expense Rata Base
Ten # Tenant Feet Term Amount Start PSF % (&Cat) & % Type Share Amount Options
------------------------------------------------------------------------------------------------------------------------------------
0302-01 LANE BRYANT 4,274 APR 25, 05 CAM 03 1.7317
JAN 31, 96 RET 02 1.4355
0305-01 LERNER STORES #75 9,955 AUG 06, 80 298,650 FEB 01, 96 30.00 5,973,000 CAM 06 3.6649 7.5%CAP
JAN 31, 03 5.00 RET 02 3.3436
0306-03 ART EXPO 1,820 MAY 01, 92
DEC 31, 49
0310-01 CHARADE FASHION 3,873 AUG 22, 80 CAM 03 1.5692
JAN 31, 96 RET 02 1.300
0313-02 THE DISNEY STORE 3,765 MAY 25, 93 94,125 JUN 01, 93 25.00 2,353,125 CAM 03 1.4452
MAY 30, 03 101,655 JUN 01, 98 27.00 4.00 RET 02 1.2646
(STEP-UP)
0314-02 VICTORIA'S SECRET 5,282 NOV 01, 92 184,869 NOV 01, 92 35.00 3,697,400 CAM 06 1.9445 7.5%CAP
JAN 31, 03 195,434 NOV 01, 97 37.00 5.00 RET 02 1.774
(STEP-UP)
0318-02 HARWYN 1,958 JAN 20, 89 44,055 JAN 01, 89 22.50 734,250 CAM 03 .7933
JAN 31, 01 6.00 RET 02 .6576
0319-01 PACIFIC SUNWEAR 0 2,215 MAY 01, 94 88,599 MAY 01, 94 40.00 1,495,333 CAM 84600 .7440
APR 30, 04 94,137 MAY 01, 97 42.50 6.00 RET 02 .7440
99,675 MAY 01, 01 45.00 (STEP-UP)
0320-02 GAME STOP 537 APR 15, 93 36,000 APR 01, 93 67.04 720,000 CAM 03 .2188
MAR 31, 03 40,999 APR 01, 96 76.35 5.00 RET 02 .1804
45,999 APR 01, 00 85.66 (STEP-UP)
0322-01 WILD PAIR 1,969 AUG 06, 80 CAM 03 .7978
JAN 31, 96 RET 02 .6613
0325-04 GATSBY AT GALLERI 3,116 OCT 25, 80 93,480 OCT 01, 94 30.00 1,558,000 CAM 03 1.2625
JAN 31, 01 109,059 OCT 01, 98 35.00 6.00 RET 02 1.0466
(STEP-UP)
0326-01 WILSON SUEDE & LE 1,810 OCT 15, 87 65,160 FEB 01, 96 36.00 1,086,000 CAM 03 .7334
JAN 31, 97 6.00 RET 02 .6079
0329-03 MAJOR JEWELERS 1,000 SEP 01, 94 69,999 SEP 01, 94 70.00 1,166,666 CAM 84000 .3681
AUG 31, 04 75,000 SEP 01, 99 75.00 6.00 RET 02 .3359
(STEP-UP)
0330-02 OVER THE COUNTER 1,196 OCT 16, 80 CAM 03 .4846
JAN 31, 96 RET 02 .4017
0333-03 PRECIS 2,121 NOV 27, 92 74,235 DEC 01, 92 35.00 1,237,250 CAM 04 .07124 7.5%CAP
NOV 30, 02 6.00 RET 02 .7124
MAR 11,1996 10:34 PROPERTY MANAGEMENT INFORMATION SYSTEM PAGE 5
RENT ROLL FOR 9130 GALLERIA, THE - 00
AS OF MAR 11, 96
CPI
% RENT Base Operating Pro-
Unit - Square Lease ------Annual Base Rent------ Brkpnt-$ Year Expense Rata Base
Ten # Tenant Feet Term Amount Start PSF % (&Cat) & % Type Share Amount Options
------------------------------------------------------------------------------------------------------------------------------------
0334-02 THOM MCAN 3,011 FEB 01, 96 96,351 FEB 01, 96 32.00 1,605,866
JAN 31, 06 108,396 FEB 01, 01 36.00 6.00
(STEP-UP)
0337-02 COBBIE SHOP 1,247 AUG 01, 89 35,864 JAN 01, 96 28.76 1,143,083 CAM 03 .5081
JUL 31, 98 68,580 JUL 01, 96 55.00 6.00 RET 02 .4188
0338-01 PANTS PLACE PLUS 3,399 AUG 06, 80 108,768 JAN 01, 93 32.00 1,812,800 CAM 03 1.3772
JAN 31, 98 5.00 RET 02 1.1416
0341-02 PRINTS PLUS 1,392 NOV 24, 89 58,464 DEC 01, 92 42.00 974,400 CAM 03 .5672
NOV 30, 99 64,032 DEC 01, 96 46.00 6.00 RET 02 .4675
(STEP-UP)
0342-03 NATURE'S ELEMENTS 904 NOV 28, 92 45,200 DEC 01, 92 50.00 753,333 CAM PR-INS/AM .3036
JAN 31, 03 49,719 DEC 01, 97 55.00 6.00 RET 02 .3036
(STEP-UP)
0345-03 ATHLETE'S FOOT 1,451 JAN 01, 94 120,000 FEB 01, 94 82.70 1,714,285 CAM 84600 .4874
JAN 31, 02 125,000 FEB 01, 97 86.15 7.00 RET 02 .4874
(STEP-UP)
0346 VACANT UNIT 3,348
0349-01 JUST SHIRTS 886 DEC 11, 82 38,984 FEB 01, 95 44.00 649,733 CAM 03 .3590
JAN 31, 98 6.00 RET 02 .2976
0350-02 THIS END UP 2,242 FEB 01, 96 85,196 FEB 01, 96 38.00 1,703,920
JAN 31, 06 89,679 FEB 01, 99 40.00 5.00
94,164 FEB 01, 03 42.00 (STEP-UP)
0354 VACANT UNIT 1,794
0357-02 THE LIMITED 6,353 JUL 01, 93 222,354 JUL 01, 93 35.00 4,447,100 CAM 06 2.3388 7.5%CAP
JAN 31, 06 235,061 JUL 01, 99 37.00 5.00 RET 02 2.1338
(STEP-UP)
0358-02 THE CHILDREN'S PL 4,577 FEB 01, 95 114,425 FEB 01, 96 25.00 1,907,083
JAN 31, 05 128,156 FEB 01, 00 28.00 6.00
(STEP-UP)
0361-02 THE COFFEE BEANER 742 OCT 15, 91 42,999 NOV 01, 93 57.95 614,285 CAM 03 .3024
JAN 31, 02 45,000 NOV 01, 96 60.65 7.00 RET 02 .2492
48,000 NOV 01, 01 64.69 (STEP-UP)
0364-02 JEAN COUNTRY 2,664 NOV 15, 89 109,224 FEB 01, 96 41.00 1,820,400 CAM 03 1.0856
JAN 31, 00 114,552 FEB 01, 98 43.00 6.00 RET 02 .8948
(STEP-UP)
MAR 11,1996 10:34 PROPERTY MANAGEMENT INFORMATION SYSTEM PAGE 6
RENT ROLL FOR 9130 GALLERIA, THE - 00
AS OF MAR 11, 96
CPI
% RENT Base Operating Pro-
Unit - Square Lease ------Annual Base Rent------ Brkpnt-$ Year Expense Rata Base
Ten # Tenant Feet Term Amount Start PSF % (&Cat) & % Type Share Amount Options
------------------------------------------------------------------------------------------------------------------------------------
0365-01 THINGS REMEMBERED 682 SEP 02, 86 37,509 SEP 01, 86 55.00 468,875 CAM 03 .2779
AUG 31, 96 8.00 RET 02 .2291
0368-04 MERRY G0 ROUND 3,316 MAR 01, 91 109,428 MAR 01, 94 33.00 1,823,800 CAM 03 1.3435
FEB 28, 01 112,743 MAR 01, 98 34.00 6.00 RET 02 1.1138
(STEP-UP)
0369-03 SPENCER GIFTS 1,757 SEP 15, 94 66,765 SEP 01, 94 38.00 1,112,766 CAM 85000 .5901
JAN 31, O5 70,280 SEP 01, 97 40.00 6.00 RET 02 .5901
73,794 SEP 01, 01 42.00 (STEP-UP)
0370-02 TRU STRIDE 1,449 FEB 01, 96 52,164 FEB 01, 96 36.00 869,400
JAN 31, 06 55,062 FEB 01, 00 38.00 6.00
57,960 FEB 01, 02 40.00 (STEP-UP)
0373-03 LADY FOOT LOCKER 1,683 JAN 01, 90 82,467 JAN 01, 96 49.00 1,374,450 CAM 03 .6858
DEC 31, 98 6.00 RET 02 .5653
0374-02 NATURALIZER 1,227 FEB 01, 91 45,000 FEB 01, 91 36.67 CAM 03 .4971
JAN 31, 97 RET 02 .4121
0375-02 G & G 1,985 JUN 15, 92 59,550 JUN 01, 92 30.00 992,500 CAM 04 .6667
JAN 31, 03 79,400 FEB 01, 97 40.00 6.00 RET 02 .6667
1,323,333
6.00
0377-01 OAK TREE 2,642 AUG 06, 80 CAM 03 1.0705
JAN 31, 96 RET 02 .8874
0378-03 EXPRESSLY PORTRAI 1,261 OCT 01, 93 5O,439 OCT 01, 93 40.00 650,203 CAM 04 .4235
SEP 30, 03 56,745 OCT 01, 96 45.00 8.00 RET 02 .4235
63,O5O OCT 01, 00 5O.00 (STEP-UP)
0381-02 STRUCTURE 5,709 AUG 19, 94 182,688 AUG 01, 94 32.00 3,653,760 CAM 04 1.9175
JAN 31, 05 194,106 SEP 01, 97 34.00 5.00 RET 02 1.9175
205,524 SEP 01, 01 36.00 (STEP-UP)
0382-02 RALPH JOBEN 1,635 FEB 01, 92 65,400 FEB 01, 92 40.00 1,090,000 CAM 04 .5492
JAN 31, 97 6.00 RET 02 .5492
0387-01 OVERLAND TRADING 1,592 NOV 08, 80 44,576 FEB 01, 92 28.00 CAM 03 .6450
JAN 31, 98 RET 02 .5347
0389 VACANT UNIT 2,040
0391-03 HAIR STYLISTS 1,401 OCT 01, 91 42,030 OCT 01, 91 30.00 600,428 CAM 03 .5709
SEP 30, 01 47,634 OCT 01, 96 34.00 7.00 RET 02 .4706
(STEP-UP)
MAR 11,1996 10:34 PROPERTY MANAGEMENT INFORMATION SYSTEM PAGE 7
RENT ROLL FOR 9130 GALLERIA, THE - 00
AS OF MAR 11, 96
CPI
% RENT Base Operating Pro-
Unit - Square Lease ------Annual Base Rent------ Brkpnt-$ Year Expense Rata Base
Ten # Tenant Feet Term Amount Start PSF % (&Cat) & % Type Share Amount Options
------------------------------------------------------------------------------------------------------------------------------------
0393-04 TAILOR'S TOUCH 1,167 APR 01, 93 42,012 JAN 01, 96 36.00 583,500 CAM 04 .3920
MAR 31, 00 46,680 APR 01, 96 40.00 8.00 RET 02 .3920
0395-02 COHEN FASHION OPT 1,692 FEB 01, 93 71,064 FEB 01, 96 42.00 1,184,400 CAM 04 .5683
JAN 31, 03 74,448 FEB 01, 98 44.00 6.00 RET 02 .5683
77,832 FEB 01, 00 46.00 (STEP-UP)
81,216 FEB 01, 02 48.00
0401-02 IDEAL JEWELERS 760 JAN 01, 89 46,800 NOV 01, 95 60.00 780,000 CAM 03 .3178
DEC 31, 01 6.00 RET 02 .2620
0402 VACANT UNIT 1,654
0403-01 DIME BANK-ATM 150 OCT 01, 95
MAR 31, 96
0405 VACANT UNIT 3,412
0406-03 FAMILY PET CENTER 2,798 OCT 01, 94
DEC 31, 96
0409-01 HALLMARK PARTY BA 3,164 AUG 06, 80 63,279 AUG 01, 80 20.00 1,054,666 CAM 03 1.2819
JAN 31, 01 6.00 RET 02 1.0627
0410-03 MUSICLAND 3,159 FEB 01, 91 135,360 FEB 01, 94 42.85 1,933,714 CAM 03 1.2799
JAN 31, 01 142,086 FEB 01, 98 44.98 7.00 RET 02 1.0610
(STEP-UP)
0413 VACANT UNIT 6,624
0414-01 PETITE SOPHISTICA 2,182 AUG 29, 80 CAM 03 .8884
JAN 31, 96 RET 02 .7329
0417-01 CASUAL CORNER #47 4,898 AUG 06, 80 CAM 03 1.9845
JAN 31, 96 RET 02 1.6451
0418-01 LOTS TO LOVE 2,896 JUL 23, 84 72,399 JUL 01, 84 25.00 1,206,667 CAM 03 1.1734
JAN 31, 97 6.00 RET 02 .9727
0421-05 NORTHERN LIGHTS C 794 AUG 01, 95
APR 15, 96
0422 VACANT UNIT 1,342
0424-03 NAILS & MORE BY D 993 FEB 01, 96 30,000 FEB 01, 96 30.21 375,000
JAN 31, 06 35,000 FEB 01, 98 35.25 8.00
38,000 FEB 01, 02 38.27 (STEP-UP)
MAR 11,1996 10:34 PROPERTY MANAGEMENT INFORMATION SYSTEM PAGE 8
RENT ROLL FOR 9130 GALLERIA, THE - 00
AS OF MAR 11, 96
CPI
% RENT Base Operating Pro-
Unit - Square Lease ------Annual Base Rent------ Brkpnt-$ Year Expense Rata Base
Ten # Tenant Feet Term Amount Start PSF % (&Cat) & % Type Share Amount Options
------------------------------------------------------------------------------------------------------------------------------------
0425-02 FOOTLOCKER #7635 2,441 NOV 22, 94 120,000 NOV 01, 94 49.16 2,000,000 CAM 84700 .8199
AUG 31, 04 125,000 SEP 01, 97 51.21 6.00 RET 02 .8199
129,999 SEP 01, 01 53.26 (STEP-UP)
0426-02 ACCESSORY PLACE 1,086 NOV 20, 87 54,300 NOV 01, 92 50,00 678,750 CAM 03 .4400
NOV 30, 97 8.00 RET 02 .3648
0430-02 JOHN DAVID TOBACC 400 OCT 01, 91 33,999 OCT 01, 95 85.00 425,000 CAM 04 .1343
JAN 31, 00 36,000 OCT 01, 97 90.00 8.00 RET 02 .1343
(STEP-UP)
0433-04 AMERICAN EAGLE OU 3,935 NOV 25, 94 125,919 FEB 01, 95 32.00 2,098,666 CAM 84000 1.4487
AUG 31, 04 133,790 SEP 01, 97 34.00 6.00 RET 02 1.3217
141,660 SEP 01, 01 36.00 (STEP-UP)
0434-02 AUNTIE ANNE'S 596 MAY 01, 94 42,000 MAY 01, 94 70.47 525,000 CAM 84000 .2194
APR 30, 04 45,000 MAY 01, 97 75.50 8.00 RET 02 .200
48,000 MAY 01, 01 80.54 (STEP-UP)
0436-02 SUNCOAST PICTURES 2,692 JUN 01, 91 94,220 FEB 01, 94 35.00 1,884,400 CAM 03 1.0907
JAN 31, 02 99,604 FEB 01, 00 37.00 5.00 RET 02 .9042
(STEP-UP)
0440 VACANT UNIT 1,265
0441 VACANT UNIT 1,556
0446-03 LIMITED TOO 3,949 MAY 30, 95 126,368 JUN 01, 95 32.00 2,527,360 CAM 04
MAY 31, 05 134,265 JUN 01, 98 34.00 5.00 RET 02
142,165 JUN 01, 02 36.00 (STEP-UP)
0449-02 THE BOMBAY COMPAN 4,052 OCT 01, 93 101,300 OCT 01, 95 25.00 1,730,541 CAM 03 1.6511
SEP 30, 03 111,429 OCT 01, 96 27.50 6.00 RET 02 1.361
121,560 OCT 01, 00 30.00 (STEP-UP)
0450-01 AUGUST MAX WOMAN 3,226 OCT 07, 80 CAM 03 1.307
JAN 31, 96 RET 02 1.0835
0453-01 CIGNAL 2,632 JUL 31, 86 78,960 JUL 01, 86 30.00 1,579,200 CAM 03 .8955
JUL 31, 96 5.00 RET 02 .8840
0454 VACANT UNIT 960
0457-02 KAY BEE TOYS 3,322 JUN 01, 93 119,592 JUN 01, 93 36.00 1,993,200 CAM 03 1.346
MAY 30, 03 126,236 MAY 01, 96 38.00 6.00 RET 02 1.1158
132,878 MAY 01, 00 40.00 (STEP-UP)
0458-02 CONTEMPO CAUSALS 3,677 APR 01, 92 139,725 APR 01, 92 38.00 2,794,520 CAM 04 1.235
MAR 31, 02 147,080 APR 01, 97 40.00 5.00 RET 02 1.235
(STEP-UP)
MAR 11,1996 10:34 PROPERTY MANAGEMENT INFORMATION SYSTEM PAGE 9
RENT ROLL FOR 9130 GALLERIA, THE - 00
AS OF MAR 11, 96
CPI
% RENT Base Operating Pro-
Unit - Square Lease ------Annual Base Rent------ Brkpnt-$ Year Expense Rata Base
Ten # Tenant Feet Term Amount Start PSF % (&Cat) & % Type Share Amount Options
------------------------------------------------------------------------------------------------------------------------------------
0461-05 AFTERTHOUGHTS BOU 586 APR 19, 92 39,999 AUG 01, 94 68.26 500,000 CAM PR-INS/AM .2157
APR 30, 02 42,000 AUG 01, 98 71.67 8.00 RET 02 .1968
(STEP-UP)
0462-01 ASPASIA 750 AUG 06, 80 CAM 03 .3039 2/5YR.
JAN 31, 96 RET 02 .2519
0464-01 MOTHERTIME 2,805 AUG 06, 80 CAM 03 1.1365
JAN 31, 96 RET 02 .9421
0465-01 D.J.'S FASHION CE 2,498 JUN 20, 86 74,940 JUN 01, 86 30.00 1,249,000 CAM 03 .8499
JUN 30, 96 6.00 RET 02 .8390
0468-02 LECHTER'S 3,234 AUG 06, 80 CAM 03 1.3103
JAN 31, 96 RET 02 1.0862
0472-01 KAPPA SPORT 781 JUL 01, 84 CAM 15100-STL .2989
JAN 31, 91 RET 02 .2551
0473-04 EXPRESS AND BATH 9,259 OCT 15, 92 296,288 NOV 01, 92 32.00 5,925,760 CAM 06 3.4087 7.5%CAP
JAN 31, 05 314,805 NOV 01, 96 34.00 5.00 RET 02 3.1099
333,324 NOV 01, 00 36.00 (STEP-UP)
0474-02 THE GAP #751 7,511 NOV 01, 91 322,973 JUN 01, 94 43.00 5,382,883 CAM 06 2.7651 6%CAP
MAY 31, 04 337,995 JUN 01, 97 45.00 6.00 RET 02 2.5227
360,528 JUN 01, 00 48.00 (STEP-UP)
0480-03 GYMBOREE 979 JAN 01, 95 51,000 JAN 01, 95 52.09 850,000 CAM 04 .3989
JUN 30, 00 6.00 RET 02 .3288
(STEP-UP)
0483-02 KINNEY SHOES #03 2,543 FEB 01, 92 64,638 FEB 01, 92 25.42 1,077,300 CAM PR-INS/AM .9362
JAN 31, 01 6.00 RET 02 .8541
0484-02 HEROES WORLD 1,054 SEP 01, 91 47,499 SEP 01, 93 45.07 593,750 CAM 03 .4295
AUG 31, 99 47,499 AUG 01, 96 45.07 8.00 RET 02 .354
52,500 SEP 01, 96 49.81 (STEP-UP)
0486-08 CELTIC IMPORTS 1,635 MAR 01, 93
DEC 31, 49
0489-03 AEROPOSTAL 3,690 MAY 01, 93 121,770 MAY 01, 95 33.00 2,435,400 CAM 04 1.2394
APR 30, 03 132,840 MAY 01, 98 36.00 5.00 RET 02 1.2394
140,220 MAY 01, 00 38.01 (STEP-UP)
0491 VACANT UNIY 2,042
0495-01 HAIR DESIGNERS SA 2,110 APR 04, 85 CAM 03 .8598
JAN 31, 96 RET 02 .7087
MAR 11,1996 10:34 PROPERTY MANAGEMENT INFORMATION SYSTEM PAGE 10
RENT ROLL FOR 9130 GALLERIA, THE - 00
AS OF MAR 11, 96
CPI
% RENT Base Operating Pro-
Unit - Square Lease ------Annual Base Rent------ Brkpnt-$ Year Expense Rata Base
Ten # Tenant Feet Term Amount Start PSF % (&Cat) & % Type Share Amount Options
------------------------------------------------------------------------------------------------------------------------------------
0497-02 PILDES OPTICAL 884 FEB 01, 96 54,999 FEB 01, 96 62.22
JAN 31, 06
9001-01 JC PENNEY 227,316 MAR 22, 81 CAM 07 0 47003
JAN 31, 11 RET 07 0 0
9002-01 STERN'S 328,599 AUG 10, 81 CAM 07 0 15000
APR 21, 30 RET 07 0 0
K021-11 TREND SETTERS 0 FEB 01, 96
APR 30, 96
K022 VACANT UNIT 0
K023 VACANT UNIT 0
K024 VACANT UNIT 0
K025 VACANT UNIT 0
K026-09 ELEGANCE 0 APR 01, 95
MAR 31, 96
K027-06 MAGIC PENS 0 JAN 01, 96
MAR 31, 96
K026-05 MUGS & KISSES 0 JAN 17, 94
MAR 31, 96
K029-07 CAPTIONS.INC. 0 JUL 01, 95
MAR 31, 96
K030-08 CONNECT A BEEP 0 JUL 01, 95
MAR 31, 96
K031-01 DOLCE VITA CAFE 0 JUL 01, 95
FEB 29, 96
K032 VACANT UNIT 0
K033-04 T.TIME 0 MAY 01, 94
MAR 31, 96
-------
TOTAL SQUARE FEET 882,692
** EXPENSE TYPE LEGEND **
01 PRORATA +15%
MAR 11,1996 10:34 PROPERTY MANAGEMENT INFORMATION SYSTEM PAGE 11
RENT ROLL FOR 9130 GALLERIA, THE - 00
AS OF MAR 11, 96
CPI
% RENT Base Operating Pro-
Unit - Square Lease ------Annual Base Rent------ Brkpnt-$ Year Expense Rata Base
Ten # Tenant Feet Term Amount Start PSF % (&Cat) & % Type Share Amount Options
------------------------------------------------------------------------------------------------------------------------------------
02 PRORATA
03 PRORATA +15* NET OF MAJORS, THEATERS & STORES NOT FRONTING MALL
04 PRORATA +15% NET OF MAJORS
05 PRORATA NET OF MAJORS
06 PRORATA +15% NET OF MAJORS AND STORES OVER 20,000 SF
07 FIXED BILLING
PROPERTY MANAGEMENT INFORMATION SYSTEM PAGE 1
SALES ANALYSIS FOR PERIOD ENDING DEC. 95
9130: GALLERIA, THE
--------------- DECEMBER ---------------- --------------- YEAR TO DATE ---------------
AREA 1995 1994 +/-% AREA 1995 1994 +/-%
------- -------- -------- ------- ------- ------- -------- ------
ALL COMPARABLE TENANTS EXCLUDING ANCHORS ***
229,727 14,411,974 16,837.14 -14.4 215,349 74,134,501 85,571,109 -13.4
--------------------------------------------------------------------------------------------------------------------------------
ALL COMPARABLE TENANTS INCLUDING ANCHORS ***
229,727 14,411,974 16,837,143 -14.4 215,349 74,134.50 85,571,109 -13.4
--------------------------------------------------------------------------------------------------------------------------------
NON COMPARABLE TENANTS***
ACTIVE MALL SHOPS 37,378 77,477 1,874.64 -95.9 51,756 12,590,207 13,677,360 -7.9
ACTIVE MALL SHOPS 4,046 348,949 639,556 -45.4 4,046 1,850,310 4,547,594 -59.3
ACTIVE MAJORS 26,100 0 1,016,317 -130.0 26,100 4,420,988 5,865,289 -24.6
ACTIVE MAJORS 0 0 0 0.0 0 0 0 0.0
---------------- ROLLING 12 MONTHS THROUGH -----------------
AREA 12/95 PSF 12/94 PSF +/-%
------ ------- ------- ------- ------- -------
ALL COMPARABLE TENANTS EXCLUDING ANCHORS ***
215,349 74,134,501 344.25 85,571,109 397.36 -13.4
---------------------------------------------------------------------------------------------------------------
ALL COMPARABLE TENANTS INCLUDING ANCHORS ***
215,349 74,134,501 344.25 85,571,109 397.36 -13.4
NON COMPARABLE TENANTS
---------------------------------------------------------------------------------------------------------------
ACTIVE MALL SHOPS 51,756 12,590,207 243.26 13,677,360 264.27 -7.9
ACTIVE MALL SHOPS 4,046 1,850,310 457.32 4,547,594 1,123.97 -59.3
ACTIVE MAJORS 26,100 4,420,988 169.39 5,865,289 224.72 -24.6
ACTIVE MAJORS 0 0 0.00 0 0.00 0.0
FIVE NONCOMPARABLE TENANTS are tenants which DO NOT have sales reported for each
month of the reporting period (month, year-to-date, rolling-12) but which are
still operating the center. INACTIVE NONCOMPARABLE TENANTS are tenants which
have CLOSED in the last twenty four months.
TOTAL MALL SHOP SALES ***
LEASED SALES AREA 267,105 14,838,400 19,351,343 -23.3 267,105 88,575,097 103,796,062 -14.7
--------------------------------------------------------------------------------------------------------------------------------
LEASED SALES AREA uses area of open sales reporting tenants as the sales per
square foot divisor, and sales from all stores.
TOTAL SALES***
SALES REPORTING AREA 293,205 14,838,400 20,367,660 -27.1 293,205 92,996,085 109,661,351 -15.2
--------------------------------------------------------------------------------------------------------------------------------
SALES REPORTING AREA uses area of open sales reporting tenants INCLUDING MAJORS
as the sales per square foot division.
TOTAL SALES IN 1994: 109,661,351 COMPARABLE MALL SHOP SALES PER SQUARE FOOT
REPORTING SQUARE FOOTAGE: 31,900 CURENT YEAR PREVIOUS YEAR
LOSS LEASABLE ARES OF MALL: 303,051 MONTHLY: 62.73 73.29
PERCENTAGE OF MALL AREA WITH 12-MONTH COMPARABLE SHOPS 71.06 YEAR TO DATE: 344.25 397.36
PERCENTAGE OF SALES REPORTING TENANTS THAT ARE 12-MONTH COMPARABLE: 76.10 ROLLING YEAR: 344.25 397.36
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