Wednesday, December 26, 2007

I'm pretty much pulling the following thoughts out of my head. I mean, I have no proof I'm right. It's only instinct. But it's the same instinct I use to plan my store. It's the same instinct that told me two years ago that my five major competitors would probably be gone within two years, that made me think when Best Buy opened that only one record store would still be around. That the Mountain View Mall was toast. And so on. I feel like my instincts are pretty good.

So here goes.

First lets try to establish how much retail there is. Now, I wish a Bulletin reporter would go out and establish that. How much retail sq. ft. was there in 1990 and how much retail footage is there in 2008? Should be possible to find out. I'm more than willing to admit I'm wrong if shown reliable figures.

But, since I don't know, I'll use a little thought experiment.

Think of all these retail stores as cardboard boxes. In 1990 there was a big box over the Mt.View Mall, a big box over the Bend River Mall, and a big box over downtown. There were the strip malls on 3rd St. and a smattering of retail on Greenwood, Division, and Franklin. A tiny bit of retail on the east, west, north and south.

So, lets say, one big long thin box over 3rd St., and all the four corners add up to one more box.

Compare that to today. All the strip malls are still here. Downtown Bend is fuller and expanded, but lets say it's equal. The Bend River Mall footage hasn't decreased. The Mountain View Mall has been replaced by Cascade Village, which is at least as big.

Then start adding up the new. Factory outlet mall, Fred Meyer Center, Forum, Target, Walmart, Shopko, Lowes, Home Depot, Albertson mall, and on and on. Northwest Crossing, the west side, the east side across from the Forum and on and on. And smaller retail in every nook and cranny. Piles and piles of boxes.

My count of boxes is at least five times bigger, (very conservative) and I'll be willing to bet, 10 times bigger. Maybe more. (As crazy as it sounds, I wouldn't be surprised by 20 times bigger.) I think once the size grows out of proportion, there is no real limit. There was only so much gold in the minefields of Alaska and California, but that didn't keep people from coming and coming.

Meanwhile, the population, to error on the side of caution, is maybe 2 and a half times bigger.

To me, it just doesn't compute.

And the kicker, to me, is that neither mall was healthy at the time, 1990, as has been proven out over the intervening years, and neither -- believe it or not -- was downtown Bend. The strip malls on 3rd St. were already looking run down.

Nothing explains this to me. I'll concede that everyone in Bend in 1990 was broke, there being no real industry. (unlike today....oh, wait.....)So maybe, the retail market was under performing by, say, half. But the size of the population vs the commercial footage is still extraordinary. Nothing fully explains this to me. Tourism, demographics (richer folk), nothing.....

I think that there is at least -- at least -- twice as much retail in Bend as is healthy. I'm going to make up some stats for experiment sake. Let's say in a normal town that half of all stores are healthy; paying bills, fixing up the place, maybe even expanding. A quarter of all stores are functional. They can do the bare minimums, but if a better opportunity comes along, they'll take it. If their lease goes up, they're more likely to quit. And a quarter of the stores are just hanging on, or slowly bleeding, and hoping that things will turn around. Any shock at all, and they're gone. A certain number will close on a regular basis.

In Bend, my feeling is that -- especially without the housing boom of the last five years -- only a quarter of the existing stores are healthy, either because they've done a good job, or they are well established, or they lucked out and stake a part of the business world where the competition isn't crazy. That leaves a quarter of the stores to be functional. And that leaves fully half of all stores are shaky. (Or in the case of Bend, too new to know they're in trouble.)

O.K. Let's throw the housing bust into the mix. We've got all those mortgage, bankers, real estate, builders, housing supply, paint stores, home decor stores, plumbers, electricians, construction, and on an on, to work through.

That's bad enough. Everyone in Bend just got a cold, or if it is as dire as some think, maybe even pneumonia. Some have strong immune systems and will shake it right off, others will suffer but stay will rest and drink plenty of fluids, and they'll be fine. Other will start to get a chronic cough, but survive. Others will be weakened beyond repair. Some opportunistic disease will kill them (embezzling employee, a break-in, a fire or flood, a health issue, etc.)

Here's the other kicker. Any kind of shock, and we'll see just how weak everyone is. A recession, a terrorist strike (imagine 9/11 happening on 12/11 instead), any major world event.

A couple of years ago, I thought there was a 5% chance that Bend would have an 80's style recession. I mean, you have to have been there. It was a disaster. Think Burns.

Everyone else came out of the recession in time to reelect Reagan in 1984; I remember thinking we weren't out of it until late 1988 or 1089, so a full four to five years after anyone else.

I'm raising my estimate of that kind of disaster to 20%. Still an 80% chance that it won't happen. After all, I've had 27 years of Christmases in a row where the unthinkable hasn't happened, so it's a black swan event. Unusual and unlikely.

I think the odds of having enough of a crunch to notice, though, has gone up to 80% or more. It will depend on national events, among other factors.

But what concerns me now isn't the housing bust. I think that is going to happen. No, HAS HAPPENED. But the possible ramifications of a commercial bust, too. In both cases, Bend is an extreme example of a national trend. I wonder though, even though we were considered the 'most overpriced' housing market in America by CNN/Money if we aren't even worse when it comes to retail.

I'd be willing to bet if we aren't the most over-retailed area in America, we're right near the top. And this is something that isn't being talked about.

I also think that we've got at least through 2008 and 2009 to get through, and probably a couple of years after that, for the housing bust to wear off. Which would be a pretty normal time line, so I think maybe even further for Bend.

And the commercial bubble is still building up steam! Tons of commercial is coming on line, tons are in the works. So that may extend the damage out even further.

And if there is an unexpected shock, it will happen faster and worse.

I'm certain that a large percent of the retailers and professionals think I'm exaggerating. I'm totally certain that the real estate people probably think I'm a whack job. Thing about instincts, you remember the times you were right, and not the times you're wrong. And I am leaving that 20% possibility that we'll somehow blithely tip toe through the tulips. (mania.)

The thing I'll most be looking for is the psychology. As long as most people don't believe such a scenario, I'll have time to prepare. People muddle through, there's that 20% that psychology will simply overwhelm the reality. So every one of you that thinks I'm overstating the case....thank you. I'm really, really hoping you're right and I'm wrong. Keep thinking that. I'll be forever mystified by it, but I'm mystified by much of what I see. (Alvin and Chipmunks makes 45 mill., the Golden Compass 19 mill. Mystifying! People actually watch IDOL! Mystifying. People actually thought the DA VINCI CODE was a good book! Mystifying!)

But if the psychology changes. Oh, oh. Watch out.

4 comments:

Duncan McGeary said...

One exception I've already thought of, is that big chainstores like Target and Best Buy are unlikely to leave or go out of business no matter how over retailed Bend.

What it does, is up the anti for the indy's.

BilboBend said...

Bend is over-built. It's hard to compare Bend. We can easily say that Prineville or Madras has 30 years of housing inventory.

In Bend it may be 5-10 years.

Commercial is tough. Up until this fall the spigot was FULL ON investors were still dumping money in BEND Commercial REITS. Now the money is turned off, some deals will be finished some will not.

A good enough deal, and some 'idiot' will try to open a restaurant, or even a game store, a little money, from out of town, cheap building's, people with money might think Bend is a bargain for sq-ft building cost. Too many places chasing few customers, its always been that way 90% fail the first year, always have always will.

REIT's are just about making money, they're about losing money ( tax shelters ), thus a BOX can sit empty for five years, remember its just a big empty box, thus the maintenance is low.

We know that the Bend RE recession will be 3-5 years, that is nothing for commercial REIT's. Long term there is NO doubt that Bend, will become one BIG FUCKING San Bernardino, or San Fernando Valley. The plan is still to have a FREEWAY from RENO to MADRAS by 2025 along the I97 corridor, that's only fifteen years. White flight, is going to continue, like Sebastian say's "He can't build gated communitys quick enough"

Duncan, should buy a nice building, at a good location, when the COMMERCIAL bottom arrives. There should be a lot of downtown speculation stuff coming on the market in the next 3-5 years.

10+ years things will be back to hyper-insane growth.

Sadly, it's the way of the human cock-roach.

In the future, once the FWY is built, people will come to central-oregon to work/live, there will no longer be the get-rich-quick. The very rich Hollern, Smith, Capell, ... will of course be richer as Knife-River will most likely get 100's of miles of the freeway for $10M/mile. Big money to be made in the long term.

Currently is just a minor little normal correction, we haven't had one for 20 years.

Bend Economy Man said...

Part of the justification for Bend's seeming over-retailedness is because Bend is a regional shopping hub.

You'll see people at Costco in an SUV stocking up on 3 months' worth of supplies - the people live in the part of Oregon where it's closer to drive to Bend than to Portland, Salem, Eugene, Medford, Boise, the Tri-Cities (Walla Walla & Co) or Reno. Ballpark, this part of Oregon could have about 250,000 people in it.

So Bend commercial benefits from population growth outside of Bend - TO A POINT. At some point, in towns like Madras, Prineville, K. Falls with a commute to Bend that can exceed 1 hour, they start getting their own retail marketed as "why drive?"

Prineville and Madras in particular are a couple of towns with no movie theaters, only ag-related clothing stores, very conservative home furnishings, and weak in food and beverage selection (except Hispanic foods).

The ideal situation for Bend would be that these towns keep growing quickly, but major retailers are too skittish to open stores there.

Duncan McGeary said...

About my comment thinking real estate people think I'm a whack job.

Actually, I'm beneath notice. Had yet another real estate agent in the store yesterday, from a prestigious agency, who said his sales have been 'nil.'

I asked him my standard, "Have you heard of the bubble blogs?"

He had at least heard of the Housing Bubble Blog, I think the national one.

But....he still hadn't bothered to go look.

It's as though we exist in two different worlds.