Andy Hochberg has more than 20 years of diverse real estate industry experience in the areas of site selection, acquisitions and operations.
Prior to forming Next Realty LLC, Hochberg served as CEO of Sportmart, a $450 million sporting goods retailer where he led the company’s expansion to 70 stores nationwide. Illinois Real Estate Journal recently spoke to Hochberg about the strength of the retail market in Chicago. Here’s what he had to say.
Illinois Real Estate Journal: What is the general state of the retail industry in the Chicago metro area and how does it compare to one year ago?
Andy Hochberg: It depends on where you are and what you own. I’d say the northern in-fill suburbs are strong. Markets that were counting on population growth are weak. The southern part of Cook County is weak. The Oak Street and Michigan Avenue markets are strong. It just depends on where you are. It’s hard to get a snapshot of the metro area as a whole. It is certainly better than a year ago.
IREJ: What has led to the improvement?
Hochberg: I think the economy in general is better. Some of the properties that had problems and were sold to people who could fix the problems have led to better transaction volume. More leases are getting done because there is a landlord who can deliver space, for example. I’d also say that there is some natural growth and there is not a lot of new supply. Supply got absorbed over the last year or so and some new properties opened, mostly in the grocery sector. If you take in those three factors, I’d say it’s mostly space absorption, a little bit of problems resolving themselves and a little bit of the economy.
IREJ: What are some of the acquisition opportunities that are prevalent in the marketplace today?
Hochberg: There is still a plethora of opportunities from banks and financial institutions. There is definitely more trading going on among private owners. I think that with capital gains rates being low still, sellers are selling. A lot of money from funds and investors who are tired of low returns is driving the buy side. So there are more transactions than there were, but they’re expensive. There’s a lot of competition in the market for deals, but I think it’s a decent acquisition market right now.
IREJ: What are the trends in the size requirements of retailers? Are they shrinking to be more efficient and to cost less or staying the same?
Hochberg: You’re starting to see the office parks having smaller concepts. Best Buy, which was talked about a lot last year, we’re seeing them hold and serve and creating stores within stores. I’d say most retailers are going to want less space. The grocery stores are actually growing a little bit in size. Retail is evolving with the Internet, but I don’t think the Internet is putting anyone out of business. I’m a Best Buy believer, but I think downsizing is something we’ll probably continue to see.
IREJ: What is the state of suburban downtown retail, a segment particularly hard hit in the recent downturn?
Hochberg: I don’t know whether on average they’ve been harder hit than anybody else. I think you have high tax rates, especially in Cook County. Most retail leases are net leases, meaning the tenant pays the taxes. You tend to have a higher than average percentage of independent retailers. I think that segment in general has been harder hit by the economy. I think that for suburban downtown retail, if you’re on a major shopping street in the downtown, you’re having good luck, but if you’re off the main street of a downtown, you’ve got a problem. Also the financial institutions such as the banks and brokerage houses that took a lot of that space have put their expansion on hold pretty much.
IREJ: What is the role of grocery anchors in today’s marketplace?
Hochberg: It was a very stable and static market for 20 years. You’re seeing a lot of expansion in the gourmet segment. I don’t know if there’s enough for everybody in that space. When you’re in the middle of the market these days in any segment, you have a problem. The middle is having challenges, but Jewel and Dominick’s stores do a lot of business. They’re still really the biggest force in the market by far.
