California Centers

MAY 2017

California Centers Magazine serves retailers, developers, shopping center owners, investment sales brokers and tenant representation firms throughout the state of California.

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Page 22 of 56

20 California Centers Magazine | May 2017 C C different reasons. "Juicero offers a fresh, high-quality, cold-pressed juice bar for a fraction of the space and costs associated with a traditional juice bar," he says of the Whole Foods roll-out. "Tradition- al juice bars often need at least 100 square feet of space, as well as expen- sive industrial equipment and staff to manage produce inventory, prep ingredients and make juice to order. In contrast, multiple Juicero presses can fit on a two- to three-foot counter and require significantly less staff to manage them." Connell is also quick to point out that this collaboration is just one of the many ways grocers are altering their services and offerings in an at- tempt to nab customers on not just the price of goods, but convenience, luxury and an overall pleasant expe- rience. "Grocers are investing in dining ar- eas, music, TVs and bars — all places for people to congregate," he contin- ues. "Juicero fits into this model nice- ly, because it's more than just a juice bar; it's a modern, interactive and unique destination within the store. Trends like these tend to start in Cali- fornia, which is the leader, particular- ly in the premium food space. This is because the demographics support it — California consumers are willing to spend for these new opportunities." Supermarkets are also clearly will- ing to spend in pursuit of new op- portunities to capture — and keep — these California consumers. And for good reason. "California is blessed with pop- ulation density that is often three times as large as suburban densities elsewhere in the country," says Erik Coslik, vice president at the Wood- mont Company. "These densities al- low individual stores to incorporate physical amenities and décor that el- evates the customer experience. It is a natural progression of store remodels that keep the stores clean and inviting and positioned to compete with new- er construction. This category is more about keeping business than increas- ing business." These remodels, upgrades, and the introduction of new services and of- ferings may be a great way for a cur- rent chain to stay relevant against new grocer competition, but just who pays for it can be a tricky subject. The standard revamping tends to cause little ruckus among landlords, Mondez explains. "Remodels are fairly easy," she says. "Anchor tenants usually have a clause in their lease that they can do alterations to a certain dollar value without landlord's consent." But what happens if the renova- tions are larger in size? "I think all stakeholders want to see these improvements," Coslik contin- ues. "The challenge juggles the want, need, when and who pays. In gener- al, all landlords want these improve- ments and are challenged to capi- talize them within the provisions of 10-year mortgages." With that in mind, Coslik recom- mends that a grocer anchor address any desire to upgrade or remodel sev- en or eight years into the lease. That way, they can be carried out after the 10-year lease is up for renewal and re-examined within that timeframe every 10 years after that. He also notes that many grocers are publicly traded companies with lower costs of capital than landlords, giving them the ability to fund their own improve- ments while enjoying lower rent. For those that cannot go this route, how- ever, timing is everything. "When windows of opportunity are missed or other timeframes are dictat- ed by circumstance, the grocer must typically self-fund the costs," Coslik says. "Within these timeframes, the landlord and grocer often address these improvements and incorporate them into a lease renewal, extension and/or rent amounts." Some significant renovations also impact others. A bar can sound great to the anchor, but the build out, li- censes and patio space may garner a city's attention, especially in Cali- fornia. Likewise, a build-your-own ramen station can be a new and inno- vative way to keep people in the su- permarket, but the ramen restaurant three doors down might not be as ex- cited. In these instances, experience can be essential. "Landlords with active develop- ment experience versus passive in- vestors are betters agents of change," Coslik says. "When circumstances require approvals and agreements with third parties, such as cities and other tenants or occupants within the shopping center, it is better to have a hands-on investor." The notion of sudden competition from a grocer to a center 's restaurant tenants can definitely ruffle some

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