Rick Chichester, president and CEO of Faris Lee Investments.
IRVINE, CA—The specter of technology has cast a gloom over the retail sector in recent years. But as each store announces closings, other retailers are working creatively and embracing experiential and other alternative strategies to keep consumers walking through the doors. They’re also helped by some of the best locations in their communities, reminds Rick Chichester, president and CEO of Faris Lee Investments. GlobeSt.com spoke with Chichester to get his thoughts on the sector, what he sees happening in the next 18 months and why the partnership with the X Team Retail Advisors helps Faris Lee better able to address the needs of its clients.
GlobeSt.com: What are two things you see as being most important for investors in retail property today?
Rick Chichester: First, from a real estate perspective, retail properties typically occupy the best locations in their communities. Consequently, the fundamentals of real estate are ever more critical as retail is goes through structural challenges and changes. The unique locational attributes of retail provide opportunities to re-think and re-engineer the property on multiple fronts, such as with new retail concepts and experiential or alternative uses (medical, creative office, multifamily, senior care hospitality, self-storage, vertical last mile-distribution on in-fill sites and distribution in the suburbs).
Secondly, it is key to clearly understand that retail is not passive, but distinctly creative, dynamic and fluid business. Ownership needs to be passionate and engaged in partnering with tenants for success. This includes appropriately understanding the influences and challenges of technology. Online is real and technology is impactful. It is making owners and tenants better. Online is impersonal and transactional by its nature, but it is efficient and effective. Bricks and mortar, on the other hand, brings people together to interact, experience, entertain, explore and socialize. The best evidence of the value of the physical store are technology companies that are creating a more personal and human relationship with their customers such as Apple Store, Amazon Fresh, Amazon Books, Whole Foods/Amazon. The real objective of retail property ownership is to know the tenants’ businesses and customer strategies for building a personal relationship of integrity and value, and to align the experience at the property level with this.
GlobeSt.com: How are you advising clients to prepare for market dynamics 12 to 18 months from now?
Chichester: From an economic perspective, interest rates are rising, the stimulus strategies of the Federal Reserve and the government’s tax reform (stimulus) have been impactful, but the costs (debt and lower revenues) have been substantial relative to economic growth and inflation. The yield curve, a meaningful proxy for forward-looking market expectations, has tightened to less than 50 basis points. Global debt according to the IMF is now worse than before the financial crisis, and these, coupled with increasing geo-political uncertainties and the challenges within retailing, warrant caution and discipline. Although we are not suggesting a recession, we are advising our clients to be well informed from the macro to the granular levels, and plan with rigor and discipline at the property investment level. Without a comprehensive understanding of the complexities and the intricacies of the real estate, the retail asset’s value cannot be maximized.
GlobeSt.com: You recently partnered with X Team. What was the impetus for that?
Chichester: Retail real estate – especially larger, multi-tenant assets – is uniquely complex and sophisticated, financially, operationally, at the tenant and real estate levels. The retailer, real estate and capital markets are the glue that binds successful retail properties. Appropriately, the partnership with X Team provides for a fully integrated and holistic, retail-specialized, national platform. The operating structure of the organization is specifically designed and skilled to solve the complexities and nuances of retail real estate by integrating the intelligence of each business segment (tenant representation, landlord leasing, and investment advisory and sales), in every market, across the platform. This approach is a game changer as most corporate firms are full-service, but not truly integrated, and most all firms speak to integration, but culturally and politically are not able to execute. With X Team, when a client hires us, the whole organization shows up and we can offer extensive, retail specific, skills and competencies of each of its members.
GlobeSt.com: How does Faris Lee fit into this platform?
Chichester: Faris Lee Investments provides investment advisory, financial underwriting, and sales execution across the X Team national platform, and the organization provides the expertise of local market intelligence, and the specialized competencies of tenant representation and landlord leasing. As we already share many of the same clients, and we have complementary skills, we see the partnership as strategic and valuable, and designed specifically for the benefit of the client…we think this as especially relevant today in this time of change, challenges, and uncertainties.
Rick Chichester: First, from a real estate perspective, retail properties typically occupy the best locations in their communities. Consequently, the fundamentals of real estate are ever more critical as retail is goes through structural challenges and changes. The unique locational attributes of retail provide opportunities to re-think and re-engineer the property on multiple fronts, such as with new retail concepts and experiential or alternative uses (medical, creative office, multifamily, senior care hospitality, self-storage, vertical last mile-distribution on in-fill sites and distribution in the suburbs).
Secondly, it is key to clearly understand that retail is not passive, but distinctly creative, dynamic and fluid business. Ownership needs to be passionate and engaged in partnering with tenants for success. This includes appropriately understanding the influences and challenges of technology. Online is real and technology is impactful. It is making owners and tenants better. Online is impersonal and transactional by its nature, but it is efficient and effective. Bricks and mortar, on the other hand, brings people together to interact, experience, entertain, explore and socialize. The best evidence of the value of the physical store are technology companies that are creating a more personal and human relationship with their customers such as Apple Store, Amazon Fresh, Amazon Books, Whole Foods/Amazon. The real objective of retail property ownership is to know the tenants’ businesses and customer strategies for building a personal relationship of integrity and value, and to align the experience at the property level with this.
GlobeSt.com: How are you advising clients to prepare for market dynamics 12 to 18 months from now?
Chichester: From an economic perspective, interest rates are rising, the stimulus strategies of the Federal Reserve and the government’s tax reform (stimulus) have been impactful, but the costs (debt and lower revenues) have been substantial relative to economic growth and inflation. The yield curve, a meaningful proxy for forward-looking market expectations, has tightened to less than 50 basis points. Global debt according to the IMF is now worse than before the financial crisis, and these, coupled with increasing geo-political uncertainties and the challenges within retailing, warrant caution and discipline. Although we are not suggesting a recession, we are advising our clients to be well informed from the macro to the granular levels, and plan with rigor and discipline at the property investment level. Without a comprehensive understanding of the complexities and the intricacies of the real estate, the retail asset’s value cannot be maximized.
GlobeSt.com: You recently partnered with X Team. What was the impetus for that?
Chichester: Retail real estate – especially larger, multi-tenant assets – is uniquely complex and sophisticated, financially, operationally, at the tenant and real estate levels. The retailer, real estate and capital markets are the glue that binds successful retail properties. Appropriately, the partnership with X Team provides for a fully integrated and holistic, retail-specialized, national platform. The operating structure of the organization is specifically designed and skilled to solve the complexities and nuances of retail real estate by integrating the intelligence of each business segment (tenant representation, landlord leasing, and investment advisory and sales), in every market, across the platform. This approach is a game changer as most corporate firms are full-service, but not truly integrated, and most all firms speak to integration, but culturally and politically are not able to execute. With X Team, when a client hires us, the whole organization shows up and we can offer extensive, retail specific, skills and competencies of each of its members.
GlobeSt.com: How does Faris Lee fit into this platform?
Chichester: Faris Lee Investments provides investment advisory, financial underwriting, and sales execution across the X Team national platform, and the organization provides the expertise of local market intelligence, and the specialized competencies of tenant representation and landlord leasing. As we already share many of the same clients, and we have complementary skills, we see the partnership as strategic and valuable, and designed specifically for the benefit of the client…we think this as especially relevant today in this time of change, challenges, and uncertainties.