Rethinking Retail Real Estate: The Rising Value of Creative Problem-Solving

Creative Thinking at Work in the Marketplaces Industry

Creativity, innovation and outside-the-box thinking. Those terms are more likely to appear in job descriptions for tech firms like Apple and Tesla than for commercial real estate. Yet even in an industry centered around contracts and financial analysis, the demand for creativity is moving to the forefront.

Creativity could mean structuring a lease in a nontraditional way, activating a vacant space or increasing net operating income. The common theme across brokerage, property management, development, finance and other disciplines is problem-solving.

“The world of commercial real estate — and retail, especially — is changing so much that we have to think differently in order to understand the opportunities we have with our real estate to transform and grow and continue to be relevant,” said Bil Ingraham, executive vice president of business development and revenue for owner, operator and third-party property manager Centennial.

Rethinking Deals and Budgets: CRE Adapts With Innovation

Creativity is, by no means, new to retail real estate. The industry has a long history of innovating, adapting and reinventing. However, the demand for creativity is on the rise for a variety of reasons, including disruption from e-commerce, new digital technologies, changing consumer behavior and a more challenging macro environment with higher interest rates and higher operating costs. “Especially right now, our clients are dealing with a lot of economic headwinds and uncertainty,” said Gregg Haverstick, enterprise managing consultant at RealFoundations, a global professional services firm that provides transaction work, such as lease abstraction, property accounting and project-based management.

That backdrop gives rise to situations that call for creativity, such as helping clients get more “bang for their buck” with their current technology platforms, finding new ways to use tools they’ve already purchased or coming up with new ideas to increase NOI, he added. “When you don’t have big budgets, you need to get creative with the dollars that you’ve been given, and we’re seeing a lot of that,” he said.

Unique Projects Call for Customized, Creative Solutions

RealFoundations’ project management assignments range from implementing new technology systems to assisting in mergers and acquisitions. Creative problem-solving is often a key ingredient to pulling complex deals across the finish line, and every client and project is unique.

For example, when Kimco Realty acquired RPT Realty two year ago, the REIT’s aggressive closing target of 100 days required creative solutions to integrate different departments and moving massive amounts of data records over to Kimco’s platform. “There’s no one-size-fits-all approach to producing a positive outcome, so we have to be creative every day to give our clients the solutions they need,” said Haverstick.

Development and construction projects also are known for unique challenges and opportunities. Even when the same landlord and tenant work together on multiple locations, each municipality has different requirements and each site has different physical limitations.

“We’ve really built our business on finding new ideas and creative solutions to be able to get around the roadblocks that are in front of us,” said Retail Sites vice president of development Morgan Hill Konstantinidis. The need for creativity is even greater now because it’s more difficult to get the numbers to pencil on new projects. Creative problem solving also needs to be present in all different layers of a project, such as site planning, leasing and architecture, she added.

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Retail Sites fosters creativity through weekly team calls, which often include the architect, civil engineer, traffic engineer and leasing team. “I put all of these people together really consistently and say: ‘What are your pressure points this week?’” said Konstantinidis. For example, Starbucks needs 25 parking spaces for a certain size building, but it doesn’t fit the site. How can we adjust? “I find that when I put all the stakeholders in a room or on a Zoom call to talk about it, one person’s pressure point or idea ends up creating a ripple effect,” she said.

Why Flexible, Innovative Leasing Is Gaining Ground in Retail Real Estate

Property teams are bringing outside-the-box thinking to fill empty space, drive traffic and increase dwell times. For example, the typical lease is often structured as a triple-net, 10-year deal with annual rent increases between 3% and 5%. However, that set-it-and-forget-it structure doesn’t work for every tenant, especially with start-ups and direct-to-consumer brands looking to test brick-and-mortar locations. “There are so many new emerging businesses that might be the Warby Parker of tomorrow, and it might not be best — or sustainable — to lock them into these 10-year templates,” said Ingraham. “We need to figure out how we can structure a deal that we are both happy with — the tenant and the landlord — and using a creative mindset helps to achieve that.”

In some cases, coming up with a shorter-term lease using a base rent plus a percentage of the sales over a break point is a better option. Centennial worked out such a deal with Rebel Athletic at its Shops at Willow Bend in Plano, Texas. The competitive-cheerleading apparel retailer was growing its brand online and through pop-up stores at cheerleading competitions. But Ingraham didn’t put Rebel Athletic into a pop-up at Willow Bend. Instead, he put the company into a space vacated by Victoria’s Secret, and he implemented a creative lease structure that mitigated risk for both the landlord and the tenant. Going on four years, Rebel Athletic now is one of the stronger tenants at the property. That deal never would have happened without the creative lease, noted Ingraham.

Building a Culture of Innovation in Commercial Real Estate

Creativity comes easily to Ingraham. His early interest in performing arts led him to a bachelor’s degree in musical theater from Illinois Wesleyan University. Now he’s looking to identify new hires for his specialty leasing team that also have a propensity for creativity. “When we’re hiring, we’re looking for people who are open to broader thinking. We’re definitely looking for people who are inspired by creativity, especially people that are inspired by beautiful spaces,” he said.

Collaboration also helps foster creative and innovative thinking within an existing team. RealFoundations hosts what it calls RealDiscovery sessions, one- or two-day, in-person meetings with clients’ stakeholders. “Getting people in a room together and having that energy can be a real game changer,” said Haverstick.

Technology is another important game changer for fostering creativity, as it gives people more tools to be creative. As artificial intelligence tools take over some rote tasks, time frees up for creative and strategic thinking. People also offer something AI doesn’t: the ability to apply to problem-solving such uniquely human traits as emotion and feeling. “What are we bringing to the table when we come to work every day?” said Ingraham. “I think in many cases, it’s that creative thought and problem-solving and envisioning things that will take us forward to the future.”