Q&A: EastBanc’s Philippe Lanier Shares View of Georgetown Retail
Within its real estate development arm, Washington, D.C.-based EastBanc specializes in the acquisition, redevelopment and management of commercial real estate assets, in particular in the area of urban revitalization.
The company is the majority landowner in Georgetown, D.C.’s well-known retail district, and focuses on retail retention with innovation such as flexible leases, pop-ups, mixed-use and retail curation.
Philippe Lanier, a principal at EastBanc, spoke with Commercial Observer about how the coronavirus pandemic is impacting Georgetown retail.
Commercial Observer: How would you characterize what tenants in Georgetown are going through in the wake of the shutdown orders?
Philippe Lanier: By and large at the moment, markets are all the same, and what’s going to differentiate them is how they look in nine to 12 months. Everyone is dealing with a mess. If you talk to retailers, and I’ve talked to maybe 85 percent of all our tenants, it’s interesting because there’s not much differentiation between a startup or a local mom and pop versus a national brand or international brand. The larger brands are facing more sophisticated challenges because they have to deal with all the different pieces of their logistical chain that has fallen apart and lots of counterparty agreements.
The good news, at least for the retailers in our portfolio, is the majority of people I have spoken to are taking the challenge seriously and not panicking. They are addressing everything professionally and trying to block and tackle and figure it out and find a way through. Almost everyone is planning to come out on the other side and stay open. They’ve enjoyed the location enough to stay in Washington.
How has COVID-19 amplified problems you were already seeing?
It starts with technology disruption and the way it’s been disrupting retail for the last decade. Technology is constantly providing the customer with easier access to information and more immediate access. Most customers were much more informed about the product inside a store before ever walking through a door. When you walk yourself through a journey of a shopper — walking down the street, noticing something in a window, getting excited about it, discovering something and walking out with a bag and a smile — more and more that wasn’t happening. If you don’t convince someone to walk into a store and discover something new, you miss the opportunity to make a sale.
You also concurrently need to make sure you’ve trained your staff to be good salespeople and that, in what was a tight labor market, was getting weaker and weaker.
EastBanc has been an innovator with flexible leases, pop-ups, and other ideas for bringing brands to Georgetown. Who are you trying to lure with that strategy?
We’re not trying to replace our old tenants with new tenants, but you do have to recognize that some companies are taking longer to adapt than others. Our approach to make sure people paid attention to the market and the brands understanding this are the ones we wanted to come to Georgetown and open up their doors instead of going to other competitive retail high streets from New York and L.A. to Miami and Chicago. We took a different approach to leasing. We believe strongly in the brands and think companies will do well here and get strong sales. So, let’s create a contract with a heavier weight on percentage of sales, an easy divorce if it isn’t working, and therefore to minimize an investment in the interior so you don’t need to commit to that traditional 10-year lease to amortize the investment. Spend less money to make it more like a pop-up. Staff up quickly, get the merchandise in and try it for two years, and if you like it then you can invest more, this is what new contracts will look like. That approach made it through a leasing committee of a brand faster and allowed us to populate the street relatively easier than we saw in some other markets.
What do you envision Georgetown to look like at the end of 2020?
The good news is, in my opinion, is that I don’t think it will look tremendously different than it looks right now, a lot of our brands are survivors. We were already on the journey of repopulating the streets and got those brands in early. Many of the new brands that don’t have a lot of stores in America that came to our submarket are young enough that they will adapt and move on. Some of the older brands that had balance sheet challenges may have to go through bankruptcy reorganization, reduce some space and reemerge as a smaller brand. I suspect we have lost some of those tenants already, but not too many. I don’t see a lot of victims on our street.
What challenges await?
When we come out of this, you’re not going to have the same amount of options as a consumer that you used to have. There are not going to be brands going out there trying to produce everything they possibly can. They are going to reduce their merchandise mix and the amount they are creating because they just don’t know how to assess demand. There may be some brands that just don’t reopen. And there is the very likelihood that you have a completely different pattern of disposable income and purchasing power.
How about pre-coronavirus existing vacancies?
The speed at which they will fill will be longer. I don’t see a rapid change. I do think this is an opportunity for more restaurants to come to Georgetown. Many restaurant businesses, if they can figure out how to get reopened, just aren’t going to be making a lot of money. There are going to be a lot of qualified chefs and a lot of people who understand the business that are going to be looking for a way to restart, and Georgetown is a little light on food and beverage, so that might be something we see. I would also add the trend towards rental and reuse may accelerate.
What do you foresee in D.C. overall?
I think it will uniquely be a great market. This is in some way similar to what happened in ’08 and ’09, a lot of the support for recovery comes from the federal government. The decision for Amazon to come here may look like a very wise one at this point so I think it will speed up other companies following suit and D.C. is just a great place to plant one’s foot, so I see population growth over time. There’s a lot of stability here so brands will want to keep their doors here and others will want to follow. It’s going to be a tough 12 to 18 months, but if I look at three to four years, it’s going to be pretty good.
What will it take for retail to bounce back? What will shopping in the post-coronavirus world look like?
Your guess is as good as mine in how it’s going to happen and how quickly, but somehow, we need to find a mechanism that gives people the confidence to socialize. An extreme example, and this is not about retail, but what’s it going to take to fill a sports stadium again or a theater?
Because there’s an inevitable challenge to that question, the next step is ‘what do I do?’ You can’t just not open. How does one partially open and maintain relevance? That is where technology comes in. I think it will accelerate that interface between the digital store and physical store. Retailers need to find a way to create a tool to connect with the people in their community that doesn’t rely on the tourists to come in. You need to make them understand why that brand is not just one you can find on the internet, but why it’s a local face of that national brand that understands the community. That’s a critical piece of street retail that I think will accelerate the process.