Jan 1, 2008 12:00 PM

In an industry that has been flooded with an avalanche of bad news in the past 12 months, including sales declines, store closings and stalled or scrapped projects, the outlet center sector has proven to be one of the few bright spots.

For most of the U.S. retail universe, the Black Friday weekend of 2008 turned out to be a disappointment. During the three days starting Nov. 28, foot traffic at all U.S. retail establishments fell 19.3 percent compared to the same period in 2007, according to ShopperTrak, a Chicago-based provider of shopper traffic counting information. During that same weekend, however, traffic at the 21 outlet centers properties owned by Baltimore-based Prime Retail was up 8.3 percent, according to president Robert A. Brvenik. That story was repeated throughout the outlet center industry, which saw an influx of new shoppers in November and December, according to Lisa Quier Wagner, president of Quier Target Marketing, Inc., a Washington, D.C.-based consulting firm that specializes in outlet center marketing, and partner in EWB Development LLC, a Vermont-based developer of outlet centers.

“We are a truly counter-cyclical industry and I think it’s been borne out more than ever,” during this holiday season, Quier Wagner says. “We are hearing there are many people coming into outlet centers and saying this is the first time they’ve outlet-shopped. Traffic has been very strong every day since Black Friday.”

The trend of outlet centers outperforming regional malls and lifestyle properties began in the first half of 2008, when a barrage of negative news on the U.S. economy that coincided with a precipitous decline in the value of the dollar. U.S. consumers, hit with a triple whammy of rising layoffs, drops in home values and vanishing retirement accounts, cut back on discretionary spending and altered where they spent those dollars. Discount stores and outlet centers gained a boost as a result. At the same time, foreign tourists, many of them Europeans, booked quick trips to buy discounted designer items in the U.S., to take full advantage of the favorable currency exchange rates. The Euro to dollar exchange rate, for example, reached $1.59 in July 2008 (althought it has since retreated to below $1.30).

As a result, outlet center operators have been posting same-store net operating income (NOI) increases while regional mall operators’ have seen declining NOI. For the third quarter of 2008, Tanger Factory Outlet Centers, a Greensboro, N.C.-based outlet center REIT, registered a 4.7 percent in NOI compared to the same period in 2007. Chelsea Property Group, the outlet center division of Indianapolis-based Simon Property Group, reported an NOI increase of 7.7 percent for its centers, while the NOI for Simon’s regional mall portfolio grew only 1.9 percent.

On Oct. 23, 2008, the Standard & Poor’s rating agency upgraded the corporate credit rating for Tanger to a BBB from a BBB-, marking its first upgrade that year for the credit rating of any retail REIT. Part of the reason for the change was Tanger’s conservative balance sheet—at the end of September, the company had a debt to total market capitalization ratio of only 31.2 percent and it had managed to secure a $235 million three-year loan facility which effectively extended all of its debt maturities to 2011.

But the fact that Tanger, which owns 9.1 million square feet of space, concentrates on outlet centers also played a role. “We expect Tanger’s operating performance to remain relatively stable, as the company benefits from offering a value-oriented product to consumers and a relatively low-cost venue for retailers,” wrote Standard & Poor’s analyst Linda I. Phelps in her Oct. 23 note. (Tanger officials did not return calls seeking comment.) The company’s sales rose 0.3 percent in the third quarter (the most recent period for when figures are available), to $341 per square foot, and even as retailer after retailer has announced store closings, Tanger’s occupancy level rose 50 basis points from the second to the third quarters of last year, to 96.7 percent. Meanwhile, Chelsea’s sales rose 4.2 percent year-over-year during the third quarter to $520 per square foot. And although occupancy at Chelsea centers fell 80 basis points, its properties remain almost completely full with a 98.8 percent occupancy rate.

“We always say outlets are good in good times, but great in bad times,” says Quier Wagner. “A lot of people are trading down from the high-level department stores or specialty stores because they still want that brand, but they want to achieve better value. And of course we are working for it—every developer that understands the value of marketing is out there aggressively advertising. This is the time for us to remind people we are out there.”

As a result of the steady consumer traffic over the holiday season, the real estate industry has begun to view outlet properties as the silver lining of the massive cloud hanging over the sector. But how long will this outlook last? Going forward, outlet centers won’t be immune from what could be the worst recession since World War II, says Jeff Green, president of Jeff Green Partners, a Mill Valley, Calif.-based consulting firm. There might be a slight decrease in occupancy levels across the sector, as well as flat growth on rental rates. Brvenik, for example, expects that for the fourth quarter of 2008, same-store sales for outlet properties will be flat compared with last year’s, due to heavy discounting by many retailers. That may be worse than the sector is used to, but it would still be better than the retail universe as a whole where same-store sales dropped overall during the holiday shopping season.

There is a reason why outlet center owners should be wary, despite the solid performance of the sector so far. Retailers tend to close outlet stores last, so a wave of closings at outlet centers may still come. Furthermore, outlet center developers have not pulled back on new projects as quickly as developers of other types of retail properties, which could lead to some issues if occupancy levels do begin to drop dramatically.

However, many outlet center owners that there remains room for growth even in the face of the recession. One reason is that unlike regional malls, outlet centers have not yet become ubiquitous, according to Quier Wagner. For example, a handful of states, including Arkansas, Nebraska and Wyoming, don’t have any outlet centers at all, she noted.

Brvenik, whose firm plans to break ground on two outlet centers, in Grand Prairie, Texas and Livermore Valley, Calif., this year. “We look at this as a period similar to the early 1990s,” he says. “It was a difficult time for retailers also, but it was one of the greatest growth periods for outlet properties.”

Value proposition
Among the primary reasons outlet centers have been able to maintain occupancy levels at a time when the retail sector has been overrun with bankruptcies, store closings and liquidations, is the unique rent structure employed at outlets. In enclosed malls, tenants have to pay steep common area maintenance (CAM) charges, in addition to helping pay for store build-outs. Since outlet centers tend to be open-air and employ minimalist designs, buildout and CAM expenses are lower, says Brett Robinson, vice president of development with Continental Retail Development, a Columbus, Ohio-based developer.

In addition, the base rental rates for outlet centers tend to be 20 percent to 50 percent lower than those at regional malls in the same trade area, depending on the age of the property and proximity to a major metropolitan center, notes Green. As a result, outlet center stores often become the most profitable locations for retailers, so even if Gap or Ann Taylor are closing stores, those companies would look at outlet centers last, not first, Green says.

Also, developers of outlet centers tend to have less trouble securing tenants for new projects than those of regional malls or lifestyle centers. Prime Retail, for example, has already signed leases for 50 percent of its 485,000-square-foot development in Grand Prairie, Texas. This during a time when many developers of other retail formats have been forced to postpone or scrap some projects altogether because of inadequate leasing levels. During the boom years, lenders were willing to grant loans on properties built entirely on speculative demand, says David L. Wing, vice president and general manager with Graycor Construction Co., Inc., a Homewood, Ill.-based construction firm. Now, concerned about a severe contraction in the retail sector, they require pre-leasing levels no lower than 50 percent before even considering a request for financing.

Prime Retail (a subsidiary of New York-based Lightstone Group) is still in the process of securing financing for Prime Outlets Grand Prairie, but it has already found an equity partner for the project. The company plans to break ground for the center this summer.

Still, outlet center owners have had some troubles. During the second quarter of last year, sporting goods retailer Camp Coleman, apparel seller Geoffrey Beene and sportswear store Big Dog notified Tanger they were exiting their leases early. With a total of 32 stores, those tenants accounted for 92,000 square feet of Tanger’s 9.1-million-square-foot portfolio.

Moreover, the credit crisis and recession are global phenomenons. As a result, the flow of foreign tourists coming to the U.S. has waned. During October 2008, the most recent month for which data is available, the Office of Travel and Tourism Industries reported the number of U.S. tourists from abroad totalled 4.0 million visitors, down 2.4 percent from the 4.1 million visitors during October 2007. With foreign visitors likely to stay home and domestic consumers focused on necessities, the amount spent at outlet centers has dropped and is expected to continue to decline in the coming months, says Green.

The record crowds that attended the 2007 International Construction and Utility Equipment Exposition (ICUEE) saw a wide range of new truck bodies, trailers, and truck equipment.

Known as The Demo Expo, ICUEE 2007 attracted 17,950 utility and construction industry professionals with electric, sewer/water, phone/cable, gas, general construction, government, and landscaping jobs. Attendance grew by more than 9.5% over the last show held in 2005.

“Every business operation wants to increase productivity and is looking for efficiencies. ICUEE 2007 provided show visitors with convenient access to the newest technologies and safety enhancements to achieve these goals,” noted ICUEE Show Manager Nicole Hallada.

More than 845 exhibitors used more than 1.155 million net square feet of exhibit space to display and demonstrate the latest equipment, technology, and product innovations. (That's 107,299 net square meters -more than 26.5 acres.)

ICUEE 2007 featured expanded working-equipment demonstration areas, and a New Product and Technology program gave exhibitors the chance to spotlight their new-to-market offerings since the last ICUEE, held in 2005.

ICUEE is owned and produced by the Association of Equipment Manufacturers (AEM), the North American-based international trade and business development group serving the off-road equipment manufacturing industry. The show is in its fifth decade, having started in 1964. The next Demo Show is scheduled for October 6-8, 2009 at the Kentucky Fair and Exposition Center in Louisville, Kentucky.

Here is a sample of the products at this year's show:

New line of composite bodies was displayed by Synergy Composites Group, Chesterfield, Quebec. Body is one piece molded by injection. It has an automotive finish inside and exterior. The composite combines fiberglass vinylester and Kevlar, 3/16" (5mm) thick. The result is a lightweight body: approximate weights include 825 pounds for a 108" body and 1,250 for the 162" model. Representing the company are Jerry Sabourin and Mario Desrochers.

Array of dump bodies: TBEI, Eden Prairie MN, displayed its line-up of dump body brands, including (left to right) Crysteel, Heil, and Ox. In prior ICUEE shows, those brands were owned by separate companies and exhibited in different locations.

Biting the Bullet: The new Sterling Bullet provides upfitters with a new chassis to equip, but the rear fuel tank may pose problems for some applications. But this demo unit has a special extension at the rear that provides clearance, says Dwight Allen. The body was built by Warner Bodies, Noblesville IN.

Brand new body from Brand FX Body Company. The 84 LS has recessed doors with no drip rail. Automotive gaskets seal out moisture. Doors open with a remote that can be programmed to open with the truck cab. The 84 completes the company's LS series. With it, Brand FX offers LS Series bodies for 40", 56", 60", and 84" CA chassis. Representing Brand FX, Fort Worth TX, is Susie Finley.

Parkhurst Manufacturing, Sedalia MO, introduced its line of two- and three-cu-yd dump bodies. Available with fold-down or fixed sides, the bodies include structural understructure, heavy-duty hardware, and powder-coat finish. Parkhurst offers the bodies in five lengths ranging from 8'4" to 12'.

Monroe Truck Equipment (MTE), Monroe WI, is producing its own line of steel service bodies. The MTE MSS (Monroe Service Solution) service body has a powder-coat finish inside and out — available either in red or white. The body is made of 16-gauge galvanneal steel. It measures 98" long, 80" wide, and 40" high and comes with a five-year warranty.

Enclosed lube truck is designed to maintain viscosity during cold weather and to combat contamination. Equipment is installed inside an insulated, heated body. The result: warmer lubricants that pump faster. It is a product of Iowa Mold Tooling, Garner IA.

They may look white, but the new fiberglass service bodies from Astoria Industries in Osceola IA have gone green. The company now uses recycled fiberglass for the core, providing a variety of advantages — including a reduction of material that otherwise need to be disposed. In addition, the company now offers Gatorhyde spray-on lining for additional protection of compartment interiors, according to Scott Metzger.

Reading Truck Body, Reading PA, known for its line of service bodies, showed that it can produce dump bodies also. The bodies start with A-60 galvanneal steel and are then primed with e-coat and topped off with powder coat paint. In addition to the triple protection against corrosion, the dump bodies have double-wall construction, fully boxed top rails, and dirt-shedding outer rails. The dump bodies are designed for GM, Ford, and Dodge chassis cabs, either 60" or 84" cab-to-axle dimensions. Philip Pfister, a winner of the world's strongest man contest, attests that this is one strong dump body.

Convertible crane body is available from Auto Crane, Tulsa OK. The company's Titan 16 service body can be upgraded to a crane body through an aftermarket crane box. The backbone of the kit is a pair of six-inch beams that pass through the rear compartment and integrate with the truck frame. The result is a body that compares favorably in strength with that of a body designed to accommodate a crane, according to Kyle Whiteis. The new patent-pending Titan 16 is constructed of 10-gauge galvanneal and utilizes Auto Crane's patented one-piece side pack design, along with internal stainless steel hinges, advanced T-handle door latches, and 19-diode LED lights on stop/tail/turn/marker lights.

Morgan Olson has redesigned its walk-in vans with a sloped windshield for improved aerodynamics. The vans are produced in Sturgis MI.

Complete package. Lid system from Masterack, Atlanta GA, did not yet have a brand name at the time it was displayed at ICUEE, but it is part of the company's plan to roll as many products as possible into a complete package of commercial truck products — combining with sister operations such as ABC Body, Team Fenex, and Gamber-Johnson. Also installed on this Chevrolet Colorado pickup is a MidBox storage system from SV Commercial Products. The box creates a 20-cu-ft enclosure between the cab and the pickup box. It can be configured with a variety of equipment, including slide-out tray or the drawer system shown here.

A secure bed cover is what Gary Thacker calls the contractor series tonneau produced by Thacker Manufacturing, Tucson AZ. The cover, made of 18-gauge galvanneal steel, can be opened from either side. The cover is counter-balanced on torsional springs so that it opens easily. An electric version of the cover is also available.

Dodge continued to display different applications for its Sprinter chassis cab. This Sprinter is shown equipped with a Knapheide KSS service body.

Slip-on truck bodies were on display at the Fleetwest booth. The company's Load ‘N Go provides 60 cubic feet of storage along the sides of the pickup box and in the roll-out drawer that rests on the floor. The body comes with white acrylic urethane finish, 16-gauge S-10 Jet-Kote steel compartments with double panel doors, heavy-duty floor with spray-on load liner, two 16-gauge 150-pound capacity adjustable shelves, forklift tunnels for mounting and removal, and a 48.5" bed width capable of hauling 4'×8' sheet material. Tom Johnson and David Black demonstrate for Fleetwest, Phoenix AZ.

Heavy tool lift is designed to take the strain out of loading service body compartments. The lift can be installed by cutting out the bottom of the compartment. Several sizes will be offered as part of the MCB line of accessories, according to Dennis Cowan. The lift is a product of Monroe Custom Utility Bodies, Greenfield IN.

Mini Mule is designed to distribute mulch and other landscape materials. It comes complete with 11-hp Honda engine, direct-drive hydraulic motors, and 7,000-lb torsion bar axles with brakes, and even a marketing kit for the customer to use to promote his landscaping business. Its 9,000-lb GVW rating means that the trailer can be towed without the need for a CDL. The 10-cu-yd trailer can be pulled by a ¾-ton truck. A vacuum system designed to pick up leaves and other debris is optional. It is a product of Green Industry Innovators, Louisville OH.

Wabash National is not the only company manufacturing trailers with Duraplate panels. The new Trademaster trailer also is made with the popular composite. The trailer is made by Utilimaster, which holds a licensing agreement with Wabash, and is marketed by Wells Cargo, Elkhart IN.

Tilt-tag trailer from Landoll Corporation, Marysville KS, has an 18,350 GVWR and 14,000-lb payload capacity. The trailer spans 82-1/2" between the fenders for added deck space. The deck is 20 ft long and can be tilted to a 10-degree load angle. Like all tag trailers produced by Landoll, this model has a powder-coat finish.

Commercial can be cool. Who says trendy vehicles can't be used for commercial applications? Adrian now has a line of products for the Chevrolet HHR, including partitions and slide-out trays. They are available from Adrian Steel, Adrian MI.

Getting organized. RKI, Houston TX, has some new ways for truck users to get their stuff together, including a new drop-in tray option available for side boxes or cross boxes. Bob Ducharme provides details.

A convertible utility body. Truckhugger Soft Shell, Aurora CO and Houston TX, displayed this tarp system that can turn even a utility body into a convertible. The tarp can be positioned either electrically or by hand crank. Width and height are adjustable to tailor the tarp system to the dimensions of the particular utility body.

Under control. Herb Koenig demonstrates the radio control operation of cranes produced by Liftmoore Inc, Houston TX. The controls can be used on both electric and hydraulic models. The radio control system includes transmitter, receiver, Control Area Network wire, and a 12-volt DC battery charger. A 110-volt AC charger is available as an option.

Plastic platform? Not quite, but this platform body from America's Body Company, Oakwood Village OH, makes liberal use of engineered materials such as the rotomold stake sides and the single-piece 3/8" resin floor and bulkhead. Individual stake sides lock together when inserted into the stake pockets, eliminating the need for locking hardware. The translucent floor, when the body is elevated, enables the driver to see if the entire load has been dumped. The resin floor remains cool in the summer, helping protect tender plant roots when the body is used by landscapers. It also is slow to freeze in the winter, allowing loads to dump more easily.

Stellar's new underground utility service crane is rated at 38,000 ft-lb. Standard boom length measures 10' 9" with 60" first- and second-stage extensions. Remote control comes standard. Stellar Industries, Garner IA.

National Crane displayed its 995H model crane featuring a capacity of 27 U S tons. It comes complete with 95-ft boom length, load moment indicator with work area definition system, and multi-position operator controls. It is a product of Manitowoc Crane Group, Manitowoc WI.

Aichi USA exhibited at ICUEE for the first time. The company's line of aerial devices includes the INH30 and the INU38. The INH30 measures 30 feet to the bottom of the basket and offers a working height of 35 feet. It has a 440-lb basket capacity. The INU38 also has a 440-lb bucket capacity, but it extends the reach slightly — 38 feet to the bottom of the basket and a 43-ft working height. The aerial devices are built in Japan by Aichi Corporation and distributed in the US through Aichi USA, Glen Burnie MD.

Duralift expanded its lineup with the DPM-32DU aerial device. Providing a 37-ft working height and a 26-ft side reach, the aerial device can be configured either for two operators or for one operator and a winch. It is a product of Dur-A-Lift Inc, George IA.

Dejana Truck and Utility Equipment, Kings Park NY, displayed this hub-drive cable puller that the company assembles and mounts. The truck equipment distributor employed an outside engineering firm to help develop the concept, a process that began more than two years ago. However, the effort produced a patent-pending pulling cap with level wind. Consisting of readily available components, the reel unit can travel laterally 30 inches. This helps position the cable puller directly over the manhole, increasing safety and productivity. Dejana also displayed a tandem reel loader designed to work in conjunction with the cable puller.

Everything in place. OK Champion, Hammond IN, displayed its underground cable resources vehicle designed for cable placement and removal. Intended for use on a Class 7 or 8 truck, the vehicle includes a boom that extends from 25 ft to 57 ft.

Nose that's new. Workhorse Custom Chassis, Union City IN, has redesigned the nose of its walk-in vans (background) and has beefed up its lineup with the addition of its W63 chassis. The W62, introduced at last year's Work Truck Show, is available with a choice of gas or diesel engines.

Two from one. VMAC's new underhood air compressor generates enough volume (150 cfm) to power two 90-lb jackhammers at a 100% duty cycle. It is designed for use on a Ford equipped with 6.4-liter diesels. VMAC, Nanaimo BC, also introduced a digitally controlled 40-cfm hydraulic compressor. The compressor, tested all last winter in the cold of Alberta, performed without problems. It shuts down automatically if no air is used in two minutes.

Pure sine power is produced by the 5-kW Blackbird generator from Raven Technology, Brunswick ME. Now available for the 2008 Ford 6.4-liter Power Stroke diesel, the Blackbird can also be installed on Ford 6.0-liter, 7.3-liter, and 6.8-liter engines, along with selected GM Duramax and Vortec engines; International DT and MaxForce series; and Freightliner MBE 900 engines.

White LEDs are now being used to provide DC-powered work lights for ambulances and other applications, says Marty Hetherington. Grote Industries, Madison IN, offers white LED work lamps with output rated in excess of 150,000 candela.

Buyers Products, Mentor OH, has a diverse line of truck equipment and related products, including electrical items. This new recessed amber strobe is an example, says Dan Doerr, who also is displaying the polyethylene housing into which it can be installed.

Truck-Lite has expanded its line of LED by going small. The Model 33 marker light fits in a ¾" hole, yet it is visible on a 180° plane, says Kent Conger. It is available in either red or amber from Truck-Lite Company, Falconer NY.

Fully protected. Muncie Power Products, Muncie IN, introduced the SPD-1000A system protection device. The electronic speed control monitors vehicles speed, temperature and pressure signals, position indicators, brake interlock, and other factors, according to Andy Squillante.

Power without drivelines. Vanair introduced its EZ 70 direct-drive air compressor that mounts directly to Allison automatic transmissions without the need for drivelines. The patent-pending compressor produces 70 cfm in volume and 175 psi pressure. According to the company, it saves 70% in installation labor. Vanair Manufacturing Inc, New Buffalo MI.

New PTO. Chelsea Products Division of Parker Hannifin, Cleveland OH, announces the release of its CAT-H Series Powershift PTO for the rearmount opening on Caterpillar transmissions. This is the first Powershift PTO to be designed in conjunction with Cat specifically for their new CX Series transmissions. The PTO delivers 335 lb ft of torque for both continuous and intermittent applications at 125% percent of engine speed. Its Chelsea Wetspline output option helps eliminate spline fretting.

Stowaway cranes stow away with minimal effort when equipped with the Feather Lite counterbalance option, says Cindy Scegiel. The cranes are a product of StoAway Power Cranes. The company produces telescoping cranes as well as cranes that store inside a truck bumper.

Linemaster Series includes a complete bumper system that has a new 20k hydraulic planetary winch. Included with the LineMaster Series are the all new LineMaster capstan drive and head. The capstan drive has a planetary gear design and high torque hydraulic motor with dual counterbalance valves for smooth operation. It is a product of Ramsey Winch Company, Tulsa OK.

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