As director of relationships at Miami-based Us Construction, Sophia Reyes understands just how high the demand is today for experiential retail and mixed-use projects. These are two commercial sectors that are steadily building momentum today, both when it comes to new development and leasing activity.
Reyes was in Chicago this May attending the National Restaurant Association Show at the city’s McCormick Place convention center. We spoke with her about the state of the retail and mixed-use sectors, which type of projects in these classes are still receiving financing and why consumers are flocking to experiential retail.
Here is some of what Reyes had to say.
Qualifying for financing for commercial real estate projects can still be a challenge. What kinds of projects are getting financing today?
Sophia Reyes: We are seeing a lot of demand for mixed-use developments. Many of those projects are being funded by institutions. They have institutional investors backing them. We do see that a lot here in South Florida. The mixed-use projects are having a lot of success attracting institutional financing.
Those struggling to get financing tend to be the smaller, independent restaurants and retailers. As construction costs have gone up, it is becoming difficult for these independent contractors to get the financing that projects backed by bigger groups can get.
Sophia Reyes, Us Construction
Has this always been the way when it comes to commercial financing? Or is it even more difficult for independent retailers and restaurants to find financing today?
Reyes: It can be more difficult today given how expensive it is to develop a project. Some projects rely on crowdfunding to help cover the gaps. Other owners are going to friends and family for extra help. We are seeing more smaller, independent projects turning to SBA loans. We have three projects right now that have turned to SBA loans instead of construction loans. Most of the projects relying on SBA loans are being run by independent operators.
Some independent operators are self-funded. They like to handle the financing by themselves.
The rising expenses of opening a retail shop or restaurant have made securing enough financing especially important today, I’d guess.
Reyes: The barriers to entry for, say, opening a restaurant are so much higher today. There is such a significant upfront cost. A lot of people don’t expect to spend quite as much as they end up spending. Sometimes when these independent operators open a restaurant, they only have about one month of operating cash left by the time their doors open. That makes it very difficult to keep these businesses going. The ramp-up period for opening a restaurant can take so long.
When you sign a lease, you only get a certain amount of free rent. Landlords are not open to holding off on collecting rent while they wait for you to open. It doesn’t work like that. Paying all that dead rent while they are waiting to open can be a challenge. Operators need to prepare for that.
How strong is the demand for mixed-use projects today? Those projects are often not struggling to gain financing, right?
Reyes: In Miami, we’ve seen an influx of people from cities like New York and Chicago who are used to these live-work-play areas. We are seeing, then, an increased demand for these lifestyle centers with ground-floor retail, office, residential and top amenities.
I have quite a few friends who don’t have cars. They live in one of these mixed-use centers. They work across the street from their apartment. The grocery store is two blocks away. That kind of grouping and consolidating in one area helps grow neighborhoods and grow businesses, too. Businesses opening in mixed-use areas have this built-in clientele. Their customers live and work right there. That is becoming a trend here and across the country.
Are you also seeing strong demand for experiential retail?
Reyes: Yes, that has become more popular, too. Places like Puttshack, SPIN and Pinstripes are all becoming more popular. It’s no secret that alcohol sales have gone down during the last few years. People are not as interested in hanging out at a bar or club. They would rather do something fun like have an experience and maybe have a drink there or dinner there. That is very popular.
People are craving that human connection again. It’s incredible how experiential retail has exploded. We had that e-commerce scare where we thought that every mall was going to become obsolete. But since COVID, people want to get out of the house. They realized that being in front of a screen and shopping online was not as much fun as being in the store where you can try things. It’s not as much fun as trying a new experiential concept. The retail world took an unexpected turn after COVID.
