Tuesday, June 23, 2009

National Retail Landlord Releases List of Risky Tenants

Madison Marquette has released a list of tenants with varying levels of risk associated with defaults, downturns in business and other factors. Santa Barbara does not have too many retail tenants that are in the high risk bracket. We have already lost most of those like Circuit City and Z Gallerie. However, on that list are companies such as Cost Plus World Market (which plans on closing 26 stores this year) and Chico's which operates brands like Chico's and White House/Black Market (both in Paseo Nuevo).

This doesn't mean that Santa Barbara will lose any of these stores anytime soon but it is interesting to see who is high on the list and who is low. The full list can be seen here:


Friday, June 19, 2009

California Unemployment Hits 11.5%

California's unemployment rate hit 11.5% for the month of May. That puts it at it's highest all time level. California is ranked 5th in the country of highest unemployment rates behind Michigan, Oregon, Rhode Island and South Carolina.

On a more local front, Santa Barbara County's unemployment level stands at 7.6%, the same level it was last month. More positive news is that Goleta and Santa Barbara's levels of unemployment remain below 5.5% while Lompoc and Santa Maria are in the double digit range. Overall, we are handling the current recession fairly well. Santa Barbara County ranks 2nd in the state for lowest unemployment levels behind Marin County. Ventura and San Luis Obispo are 9th and 4th respectively.

Z Gallerie Asks Leases To Be Cancelled

Z Gallerie has asked the US Bankruptcy Court to cancel 25 of its 77 leases around the United States, including the one at 917 State Street. I had previously reported that Z Gallerie was declaring bankruptcy and closing around a third of its stores in April.

The request by Z Gallerie would alleviate their responsibilities to the owners of the property who have a lease that runs for another 5 years. The owners have been marketing the property for lease on their own in hopes of finding a tenant to let Z Gallerie off of their lease but with this request into the court it probably means that Z Gallerie has stopped all payments of rent to the ownership.

There are always plusses and minuses when dealing with a national tenant. Typically, the plusses outweigh the minuses. This is an instance of when dealing with a big company with lots of lawyers will end up hurting a property owner. Most of the owners in Santa Barbara are smaller, more personal entities. They are not large corporations with massive holdings and often cannot afford to go after delinquent tenants. Sometimes that gets forgotten around here.

Thursday, June 18, 2009

Santa Barbara's Medical Office Market Could Expand

A report published by Marcus and Millichap forecasts the need for an additional 10 million square feet of medical office space, nationally, over the next few years.

The report sites the potential increase in the number of insured people that could be created if the Obama administration is successful in health care reform. Currently, baby boomers account for about 1/3 of doctor's visits but make up about 29% of all people uninsured. If the number of insured rises to the 90% to 95% levels that the government wants then we could see the number of physicians needing to grow by over 5,000 across the country.

Santa Barbara doesn't have a large number of baby boomers without insurance but we do have a large population of uninsured people across all age groups in the lower economic classes. That would mean additional medical offices throughout the area and an increase in the services that Cottage and others are able to offer.

Medical office space is already extremely tight in the South Coast. We are under 1% vacant for medical office throughout Santa Barbara and Goleta and the only new spaces coming on line are from Cottage's expansion efforts. Those will be directly tied to the hospital or for physicians associated with the hospital. There is definitely a market for private development of additional space locally. The question is will there be enough potential returns to attract the developers.

Wednesday, June 17, 2009

May CPI Numbers Released, No Signs of Inflation Yet

The May CPI numbers were released today and for the areas around Santa Barbara we saw a decrease of approximately 1.8% from May of last year to May of this year. The upside is that inflation is still not a concern yet, however that could change by the end of Summer.

What this means for local landlords is that any annual rent increases tied to CPI will see no change this year unless they have a minimum increase in their lease. This is the 4th decrease of the year so far. There was only month showing an increase and that was February.

We actually saw a 0.3% increase in the CPI from April to May. However, on a seasonally adjusted basis, the increase was only 0.1%.

Tuesday, June 9, 2009

Should California's Businesses Foot The Bill?

There has been a lot of talk lately about California's mounting debt problems. We have seen everything from talk of cutting education and health spending to closing state parks, selling state assets and privatizing some of the state prisons.

All of these discussions tend to lead back to Proposition 13 and the effects it has on the state budget. Prop 13 effectively put a cap on rising property taxes until a property changes hands. That happens a decent amount for residences around the state. Sure, there are lots of properties that stay in trusts for generations and evade the rules, but for the most part the housing market is dealing with Prop 13. The big issue tends to be in the commercial world where properties can sit for very long periods before changing hands. Some argue that there should be more incentive to shift the tax burden to businesses and commercial property owners by changing Prop 13 to allow commercial properties to be reassessed. In my opinion, this would be a nightmare.

We already have some of the strongest prohibitions in the country when it comes to operating a business in California. Besides the environmental controls, massive permitting issues involved and the NIMBY attitudes of many communities, we might now face the idea that taxes need to be increased. If owners of commercial properties are faced with this they will simply pass on the increased cost to their tenants. These tenants will find doing business in California that much harder and consider other states that aren't so strict. Maybe the state starts to see some increases in revenue due to the tax increase but what about sales taxes, income taxes and business taxes? Those are bound to decrease as companies abandon California.

Would the last company to leave California turn the lights off please? If you hear so much as an inkling of this from your local representatives, give them an earful. The current system of governance in California has to change but you cannot find one silver bullet to cure it all. Businesses need to be at the forefront of leading California forward.

Monday, June 8, 2009

J Jill Being Sold and Closing Some Stores

Talbots is selling their interest in the J. Jill stores around the U.S. to Golden Gate Capital. The sale price is expected to be about 15% of what Talbots paid for the stores in 2006. There are 279 stores total in the U.S. and Golden Gate Capital is buying 204 of them. The remaining 75 stores will be closed.

It is unclear whether the J. Jill store (targeting women 35 and over) at La Cumbre Plaza will remain open or close. The typical size for a store is approximately 3,800 SF. Golden Gate Capital is also known for their purchase of the Express chain of stores from The Limited in 2007.

Wednesday, June 3, 2009

MIT Enterprise Forum Central Coast Event June 17th

Please join us at our next MIT Enterprise Forum Central Coast event on June 17th at 5:00pm. The event will feature Richard Sanford of Sanford Winery and Alma Rosa Winery and Rob McMillan, Exec VP & Founder, Silicon Valley Bank Wine Practice to discuss entrepreneurs in the world of winemaking in Santa Barbara.

Here is the link to the event: http://www.mitcentralcoast.com/Event-Details.aspx?EventId=132

April Unemployment Drops

The unemployment numbers for California were released last week and the state saw a decrease in unemployment from 11.2% in March to 11% in April. Continuing the downward trend was Santa Barbara County which saw a decrease from 8.6% to 7.6% in the last month.

Overall, the Cities of Santa Barbara and Goleta remain relatively strong with unemployment numbers under 5.5%. There have not been any huge blows to the labor markets locally despite tourism numbers down and retail sales continuing to lag.

Historically, unemployment numbers tend to rise slightly in the summer months so we could see some indicators of that when May numbers are released two weeks from now.