Q&A with … John Sweeney, Reece Commercial

John Sweeney is a brokerage executive with Reece Commercial in Kansas City.

Q. What’s your sense of how bankruptcies by major retailers will affect the market here?

A. It will affect landlords and employment most of all.  There remain plenty of competitors who offer the same products. This type of “cleansing” has occurred, over the years eliminating some retailers who may have too much debt or not stayed current with best industry practices.  Landlords will be left with large vacancies which will likely cause foreclosures or re-tenanting with non-traditional tenants.

Q. What kind of re-tenanting might that produce?

A. Well, it’s not a laughing matter, but I kid and say there might be a lot of batting cages around. There could be a conversion to storage, which creates a zoning issue—nobody wants to replace retail with storage. There are a lot of discounters you see, like Big Lots, that might take advantage, but it’s really just about any use you could think of that just needs bulk space.

Q. We’ve heard from office designers that COVID will change the way future spaces there are designed. Any sense of whether that permeates the retail segment?

A. Currently, retailers are only allowing a limited number of customers in the buildings which is an inconvenience for shoppers.  I see fewer display areas, creating more room for shoppers to remain distanced.  I also envision more online sales with shoppers staying out of brick and mortar locations a bit more. It’s interesting, I live over by Town Center, and walk there all the time with my fitness club not open yet. I’m encouraged to see more traffic there, more people shopping—I see that as a positive.

Q. But more on-line sales are coming too, right?

A. Yeah, I also envision more online sales. We were already seeing that, but this is the stra wthat broke the camel’s back in terms of online vs. brick and mortar.

Q. Given the potential volatility in the equities markets, combined with low interest rates during a recovery that could last a decade, will more investors likely to seek opportunities in commercial properties?

A. Yes.  It will take a little time for values to adjust.  Values of all property types early this year were at the high water mark because there was a lot of investor interest and little supply, causing cap rates to drop.  Investors always jump in to real estate when markets are depressed.  Cash is king for those who can afford to pay cash. But with alternative investments, where they might be able to get better return, it’s probably still single digits, but 7, 8 or 9  percent  is a lot better than a fraction of a percent but values are going to adjust downward. That’s just a supply-and-demand issue and willingness to accept the lower returns.

Q. Other regions of the country report a rapid about-face in the landlord-tenant dynamic, with dramatically lower demand creating an instant tenants’ market. Is that happening here, or do you expect it to?

A. Industrial might be the only segment that may actually do better. The Amazons of the world need more warehouse space. Struggling retail will struggle more, and with office space, a lot of companies found that their people are able to work from home and still be productive, so that will affect the amount of amount of office space companies will require

Q. What are you seeing with transaction volumes?

A. It’s real interesting; the Tuesday after offices were allowed to open with 10 or fewer people, all the way through today, I’ve seen a lot of activity in the Kansas City market, people are still out there, waiting to do their deals. Some died completely and won’t come back. Others were put on hold, but others have gone forward. I’ve had some deals transacted the past few weeks, probably four or five, which is a high number for an individual broker.