WELCO REALTY, INC. Finds tenant rep business picking up as retailers are popping up

Posted on June 10th, 2010 in Current Issue of The Dealmakers, Dealmakers - Everything Retail Real Estate

Profile — A monthly column featuring retailers and retail real estate companies

Welco Realty, Inc. is a real estate consulting and brokerage firm offering market analysis, site selection, demographics, competition evaluation and lease negotiation services for retail clients, as well as landlord and shopping center representation. The company has leased millions of square feet of retail space in shopping centers and central business districts throughout CT, NJ, NY and PA, representing both landlords and tenants, and has done it all with an insider’s perspective – the product of its key executives’ strong background in retail prior to forming the company. Principal Jerry Welkis handled operations along the East Coast and eventually an expansion program throughout the northeastern U.S. for Baskin Robbins, and also served as head of real estate in the U.S. for Consumers Catalog Showroom. Principal David Sternschuss served as head of real estate for Lane Bryant for 12 years, as well as assisting general counsel for Bloomingdale’s, and principal Allen Cooperman served with Federated Department Stores and Shopco Development Co. Welco’s business initially focused on tenant representation because of this retailer-oriented past; eventually, the company moved into landlord representation as well, as developers came to Welco requesting help leasing their centers. The company also invests in properties itself on a small level.

“We found that diversification for us as a company is good,” Welkis said. “In times when retailers are doing great and they can’t get enough locations, the retail tenant rep side of our business brings in a lot of revenue. When retailers are not doing well, our landlords find they need us even more because they find it tough to lease and market space, and are looking for people with the relationships, expertise and marketing capability we have.” Over the past year or so, he said, the landlord representation aspect of the business had been much more successful than tenant representation, but within the past several months retailers have been “kicking the tires” and looking to do deals. “I think retailers are seeing some good signs of the economy recovering, and are now taking advantage of some of the reduced rents that might be out there in markets [they] want to get into,” he added.

The recession has had some impact on occupancy at shopping centers the company handles, Welkis said, estimating that lease rates have been reduced by about 10 to 20% overall as retailers – particularly big-box tenants such as Circuit City or Linens ‘N Things – have gone out of business. However, Welco has weathered this and other troubled economic times by remaining “lean and mean” and resisting the urge to overexpand. “During the good times, we were able to service our clients well, but not operate so extravagantly that we had to have a certain amount of income to cover our overheads,” he said. “In the tough times, because we were lean, our cost was in proper ratio to our income.” Also, the loss of some tenants afforded the company the chance to re-merchandise and upgrade the tenancy of centers that had previously lacked available space.

As a tenant representative, Welco tries to function as though it were the client’s in-house real estate department. This entails observing potential sites on weekdays and weekends, talking to other retailers at the site, and generally making sure that the deal is one they would make for themselves, as though it were their company looking at the space. Welco also tries to involve itself in short- and long-term goals for their retail clients, offering input not just regarding real estate, but distribution, advertising within the market in question and other aspects of the business. “I wore several hats with different retail companies,” Welkis said, “and I think that the retailers have a certain respect for us; they know we’ve been in their shoes before. When we look at a site, we look at the company as a whole. We’re not just salespeople; we’re not just trying to lease a space and get a commission. We believe in long-term relationships, and we want the retailer to be successful so that he grows, and grows with us.”

On the opposite side of the business, the company specializes in the handling of difficult leasing projects, and Welkis sited as an example the demalling of Mill Creek Mall, located in Secaucus, NJ, which reopened as a specialty center last year. Initially a 400,000 sq.ft. enclosed mall anchored by a Kohl’s and a supermarket on opposite sides of the structure, the center was having difficulty contending with new major shopping centers opening nearby, and sales had begun to suffer. Welco arranged the buyout or termination of leases at the mall, coordinated the departure of the mall tenants and tore down everything apart from the anchors in order to recreate the mall as a specialty center. New tenants were brought in, including a Toys “R” Us/Babies “R” Us superstore, The Sports Authority, T.J. Maxx, and a Bob’s Furniture that signed recently. “We made lemonade out of lemons,” Welkis said of the project. “It was very difficult because of all the nuances of working with the tenants, and demalling, and convincing big-box retailers that this was a place to be. We created a major retail development in Secaucus; we took a mall that was antiquated and declining, and made a very successful
specialty center.”

Current projects for Welco include a 70,000 sq.ft. to 80,000 sq.ft. expansion underway at Summer Hills Shopping Center, located in East Brunswick, NJ. The first phase of the Toys “R” Us/Babies “R” Us-anchored center opened last year, and the expansion, which is slated to include apparel retailers, a sporting goods chain and numerous restaurants, will open during 2011. Welco is also redeveloping a former Loehmann’s-anchored shopping center in Florham Park, NJ. Tenants at the center will include dressbarn and a recently-signed Trader Joe’s. Other projects include a new 100,000 sq.ft. center in Hawthorne, NJ; an expansion of Commerce Plaza in North Brunswick, NJ to feature BJ’s Wholesale Club, and Edison Town Center, a new development with Sam’s Club slated to open as its first tenant.

Most companies have had to revisit the way they approach new opportunities in the past few years, and Welco is no exception. Welkis cited the company’s work with pop-up stores as a creative and beneficial new undertaking, as they allow Welco’s retailer clients to enter into locations on a short-term basis with very little capital expenditure as a means of testing a market. “Retailers in this economy want to take advantage of having a lot more available space in areas that wouldn’t normally have space for them,” he said. “They can go into a market and test it, and not lock themselves in…if the store does well, it gives [the retailer] the comfort level to enter into a longer-term lease.” Also, in cases where centers have large vacancies and are having trouble filling them, the company will often try to enter into short-term leases with pop-up retailers to provide a temporary solution. “It can be a win-win for the landlord and the tenants,” he explained. “It’s a live body in the store, bringing traffic to the center.”

The company has handled temporary leases for companies such as Nine West and Halloween USA, and was recently named master broker throughout the northeastern U.S. for Toys “R” Us Express, Toys “R” Us’ pop-up store program. The company’s area of coverage stretches from the Baltimore and Washington, DC area through New England. Welco is able to address this wider area of coverage thanks to their affiliation with the X-Team, a nationwide, 30-office organization of retail brokers that assist one another with clients and share information, technology and support. “If we didn’t have a relationship with X-Team, it’d be difficult for us to handle that wide an area,” Welkis said. “Our area of dominance is primarily CT, NJ and NY.”

The Toys “R” Us Express stores typically occupy spaces of 5,000 sq.ft. but can range in size from 3,000 sq.ft. to over 10,000 sq.ft., and suitable locations are either vacant or soon to be vacant, and require no tenant improvements. “We have to be somewhat opportunistic, because obviously we need to get these stores open very quickly, and in a very short period of time,” Welkis said.

The benefits for Welco in handling these types of deals are numerous, he explained. The company is able to associate itself with major brands with strong reputations, but short-term lease deals also allow them to establish a relationship with landlords for future projects, should the same center that brought in a pop-up store have other vacancies to fill. Also, he added, short-term leases often lead to other deals the company never would’ve made otherwise. “As we’re looking for locations for these tenants, we’re coming up with sites for other retailers on permanent deals that offshoot from that,” he said. “It gives us a lot of exposure, both on the retail side and on the developer side.”

For more information, contact Jerry Welkis, Welco Realty, Inc., 2525 Palmer Avenue, New Rochelle, NY 10801; 914-576-7500, Fax 914-576-7596; Web site: www.welcorealty.com.