Author: holdent869

One very interesting thing that HTR does is develop subdivisions. They have many subdivisions throughout eastern NC, with the majority in Johnston County. These residential developments are the freelance component of business, with the residential listings being the steady stream of income. Essentially, the subdivisions are the slam dunks, where there are multi-million-dollar profits, and the residential listings are the relatively consistent base.  To mitigate some of the risk, they will often buy land, develop the lots to the point where they are “contractor ready” and sell the individual house lots and construction plans to builders. Also, they set it up so that the builders are contractually obligated to list the finished houses with HTR agents, so they also turn a profit on the back end of the development. This method of development slightly reduces total profit, but seriously reduces financial risk, which is crucially important when funding projects with private money. The featured image for this post is the blueprint of a massive 318 lot HTR subdivision that is currently under development in Wendell, NC called Maggie Way that is being developed using the strategy that I highlighted earlier.  (https://www.maggieway.com/floor-plans). (look at the website if you want to see more about it).

On my fourth day, I was with Home Town Realty in Clayton. HTR has offices all over eastern NC, including one in Raleigh. They do almost $800 million in residential sales annually, making them a top 100 real estate firm nationally. In addition to residential sales, they also do a great deal of freelance development of residential communities, showing the diversity that is possible with private development when compared to the homogeneity of public corporations like Regency. HTR is built on residential sales, and the most important part of these transactions are the agents. On my first day with HTR, I got to sit in on an agent interview, and see what characteristics are important for an agent to be successful. I was told that the agents must not only be driven and put together, but also, they must be very personable, or else they will have a harder time interacting with buyers and sellers. Ultimately, the agents are responsible for the hundreds of millions of dollars of HTR annual sales, and therefore the success of the company is, to a large degree,  predicated on the aptitude and competence of the agents.

In additional to environmental obstacles, the price of raw materials, particularly steel and lumber, is extremely high right now due to supply and demand issues that have arisen as result of COVID. Regency has encountered some serious trouble with steel acquisition for their large scale projects, but have also had trouble because tenants are having to wait longer and pay more to finish spaces. This is currently happening at the nail salon that is under construction at Midtown East.

 

On my third day with Regency, I accompanied their project manager to a number of development sites, and we discussed some of the challenges he frequently encounters with developments. In one of his most recent projects, Midtown East, he encountered a number of serious unforeseen issues once construction had already started, all of which were challenging because they required involvement from the Department of Environment and Natural Resources. The first issue he encountered was the soil on the site was actually semi-toxic because there had been chemical pollution from a computer chip plant that had been there almost twenty years prior. The solution for this issue was to literally “get new dirt” which ended up costing nearly two million dollars, which was unforeseen. The second major issue encountered on this project was a culvert that ran underneath the site, which guided rainwater runoff into Crabtree Creek about half of a mile down the road. The culvert was far too small to handle all of the additional runoff from the new shopping center, so it had to be replaced, which made it into a City of Raleigh problem, but interestingly enough, the Regency was required to pay for it. The third issue with encountered with this development was the location of the retention pond for runoff. There wasn’t enough space for a traditional retention pond so they had to put it beneath the massive parking deck they were building. Ultimately, the project manager told me that the single most important part of big developments is allocated a decent chunk of money in the budget to unforeseen issues; it’s a win-win situation, because if it gets used you are on budget but if you don’t encounter any issues, you don’t have to spend it, and you are under budget.

Regency Centers is a publicly traded commercial real estate company. They hold 395 mixed use developments across the United States, of which roughly 85% are grocery-anchored retail sites. So essentially, Regency acquires grocery-anchored centers and re-develops them or they acquire land and develop their own grocery-anchored centers. Ultimately, they are continuously doing similar projects, but the most important part of these projects is the profit, and the most important part of turning a profit is spending the right amount on the front end. There were multiple interesting tools that Regency uses to determine value of existing centers and prospective developments. One of the tools used to evaluate existing centers is called PLACER. PLAER is a data analysis application that uses cell phone data to determine many different things about shopping centers, and even specific stores. The app displays data collected from the phones of customers, with and almost alarming amount of personal information; it tracks where the customer travelled from, how old they are, the amount of money they spend in the center, the amount of time they spend in the center, how many times per month they visit the center, their race, and their annual income, just to name a few. The data is compiled in the app so that it can be easily interpreted to help predict profitability and therefore value. Another important evaluation tool, used for both existing and prospective developments, is Cap Rate, which is a monetary equation: Annual Net Income/Total Cost of Investment. This is one of the primary tools used to evaluate centers.

On my first day working with Regency Centers, we covered at great length multiple aspects of commercial development property management. Two aspects which I found particularly interesting were the visual element of mixed use commercial developments, and the Halo effect. To begin with the visual element of retail, I was told that “retail is theater” and that bad “theater” ultimately made for less success in retail. Essentially, storefront appearance is incredibly important because it makes customers feel special; it makes them want to shop. So, when regency develops new shopping centers, or when they acquire existing centers and re-develop them, a great degree of attention is given to the little visual details that enhance the shopping experience. I got to see this “theater” at work in Cameron Village, which is owned and managed by Regency Centers. The Halo affect was also an incredibly intriguing detail that I learned about. Essentially, the Halo affect is something that occurs with tenants in shopping centers, when one tenant will pay higher rent to be near a premium tenant. As it pertains to Regency Centers, they experience this very often with Whole Foods Market; retailers will pay higher rent to be next to a Whole Foods because it attracts affluent customers. Additionally, the Whole Foods will expect to pay lower rent because they are aware that other tenants will pay inflated rent in order to be in close proximity to them.