Reprinted from the San Diego Daily Transcript

Tracking Land For Future Retail Sites Takes Detective Work
By William Thaxton, CCIM
Senior Vice President

Flocke & Avoyer Commercial Real Estate

If there are certain characteristics that make for success in retail real estate brokerage, they might include the instincts of a bloodhound, the persuasive powers of a hypnotist and the patience of Job -- especially when you are projecting areas of growth, particularly their retail sites and needs, 10 years down the line.

William R. Thaxton, first vice president of Flocke & Avoyer Commercial Real Estate, has been a self-described tracker of land in San Diego County during a career of 19 years.

"I track future retail sites, analyze where growth is expected in the county over the next decade and determine what the retail needs will be," Thaxton said. "Many times I've worked with property owners for 10 years or more before their sites are developed."

As an expert in real estate for retail users, Thaxton works with landowners, developers and their design teams, retail users' real estate representatives, municipalities and community residents. There is much to do and many interests to be coordinated in the evolution of a property into a shopping center. If the new retail center or facility is an in-fill project in a long-established neighborhood, the process may be even more challenging.

For the Food 4 Less at 7420 Broadway in Lemon Grove, Thaxton worked for more than two years to assemble 28 parcels with 15 different owners.

"Sometimes it took sitting with the property owners at 8 o'clock at night at their kitchen tables to determine what would motivate them to sell," Thaxton recalls. "None of the properties actually were listed for sale at the time, so we worked with the existing property owners. Ultimately, each owner had his own motivation for selling the land that enabled development of the Food 4 Less."

Recently, Thaxton has negotiated the transactions that will enable the expansion of an existing Vons near San Diego State University, as well as represented the developers for a Food 4 Less that will be an anchor of Market Creek Plaza at Market and Euclid streets, and the combined Lucky/Sav-On store to be built at Fairmont and University avenues to anchor the redevelopment of City Heights.

He acknowledges land assembly in long-established neighborhoods is trickier than in future growth and master-planned suburban areas.

"It becomes risky for the proposed development team," he said. "It's riskier and more time consuming to assemble such properties because if any one owner decides he's not going to sell, or the price gets too high, then the proposed retail center just can't happen no matter how much the neighborhood may want and need it."

With a strong economy, the highly competitive supermarket industry is vying for sites in the established neighborhoods as well as future growth areas, he said.

"We're looking at areas that are under served," Thaxton said. "Maybe these established areas already have grocery stores, but they are the smaller, older stores of about 20,000 square feet, which is too small to be competitive."

To make a new supermarket-anchored retail center work, he said, requires careful analysis of the surrounding community's present and future needs and development of strong relationships with landowners as well as the supermarket chain's real estate executives.

This is where the instincts of the bloodhound come in.

"We look at competition maps, where the retailers are located, at future zoning and at community plans," Thaxton said. "We look at traffic patterns and circulation, the road systems and how they work.

"When I evaluate a site, I ask who's your customer going to be? Where will they come from? Will they have to drive past a competitor? Where's the nearest competition?" he continued. "I put myself in the place of the retailers and think, 'Would I go here if I owned the business? Where would my customers come from and what's their income? What are they likely to spend?'"

Working with the retail client, Thaxton and the client's executives evaluate potential sales volume for a given site to arrive at a projected sales study.

"The retailer will look at the projected sales study and at how much will have to be spent to open the store to calculate its return on investment," he said. "If the projected return on investment meets a certain threshold, then the retailer will typically go forward with the project. One has to think along these lines because retail development is 100 percent tenant-driven."

By doing the research and keeping abreast with the growth and community plans in the county, Thaxton and his colleagues can point both developer and retailer clients to sites that will succeed.

"The planning departments of the cities and the county can be a big help," he said. "They'll pull out the maps and tell you where they're processing tentative maps for new residential developments, which is the first step, and where they expect to see growth. The planners at the cities know a lot about where the pockets of growth are."

Another part of the evaluation and analysis process is the character of a community. This is especially the case for supermarket-anchored centers. The supermarket industry is a volatile one whose characteristics seem to change on a daily basis via mergers and internal brand diversification. Once a Vons was a Vons and a Ralph's a Ralph's, but today it is not unusual for a major supermarket chain to have several grades of supermarkets, some even sporting different names.

For instance in the Golden Triangle area, a 68,000-square-foot Ralph's coexists with a Whole Foods because each appeals to different market segments. The success, of such upscale or trendy chains as Harvest Ranch, Whole Foods and, of course, Trader Joe's, is causing traditional chains to create competitive concepts, which in the case of Ralph's will be called Fresh Fare.

"Trader Joe's, which is quite successful, has a very interesting site strategy," Thaxton said. "The company positions itself for a college-educated clientele. The greater the education of the residents in an area, the more likely they will shop at Trader Joe's. Book stores often employ a similar strategy.

"Once the supermarket has been established, we begin working with a number of other potential retail tenants," Thaxton continued. "There are retailers such as video stores and dry cleaners that like to be in supermarket-anchored centers due to the steady traffic generated by the grocery store. Our goal, of course, is to create the best mix of tenants, which will be a win-win for all interests."

Potential retail tenants are not the only interests with which the retail real estate broker works at this stage.

"We closely track the process of government approvals," Thaxton said. "We go to community planning group meetings.

Once a site plan is crafted that is acceptable to the developer, tenants and community leaders, the retail center project is processed by the municipality of jurisdiction.

Currently, the "hot" San Diego County areas for supermarket-anchored retail include the Highway 56 corridor, as well as the South Bay and Carlsbad. The South Bay in particular is hot because of the sizzling housing market at Otay Ranch, Sunbow and Eastlake.

"The South Bay also has another thing going for it," Thaxton said. "It's more affordable than most areas. For $180,000 you can buy a pretty nice home on Otay Mesa. If the economy stays favorable, the South Bay area will continue to be hot next year."

Five years down the road, he still sees demand for South Bay sites, but also retailer interest in urbanized metro areas such as downtown San Diego, Mission Valley and the University Towne Center area.

A decade from now, Thaxton sees a lot of growth and a lot of opportunity.

"Civic leaders are promoting 'smart growth' -- greater density in established areas -- and that means that you'll have more and more retailers looking for in-fill sites," he said. "If you take a macro view of San Diego's potential for population growth, you have to realize that the Baby Boomers will start retiring around 2010, and there will be a lot of retirees from other states wanting to live in a climate such as San Diego's."