September 11th 2006

In This Issue

New Bonneville Research VP

Economic Notes:

This Weeks Leads



Commerce CRG Mid-Year - Qtr2 2006 Market Review Washington Co., Las Vegas, Clark Co. Office, Industrial & Retail Markets

Market – Washington County
TypeTotal SFUnder Const.Vacancy
Office1,685,000160, 0009.00%
Industrial6,147,0003 11,0002.0%
Retail 3,845,000330,0002.0%
Market – Las Vegas
TypeTotal SFAbsorptionVacancy
Office 8.5%
Industrial3,834,000 3.0%
Retail 2,000,0003.2%
Source: Colliers Commerce CRG Qtr2 2006

Improving strategic planning: A McKinsey Survey

Executives say their companies could be a lot more effective at developing a strategy and implementing strategic plans, and they suggest some areas for improvement.

Note: This is written for the Private Sector but I believe strongly that these findings are equally important for the Public Sector. BS/BR

Strategic planning is critical to the continued success of any organization, yet fewer than half of the executives who responded to a new online survey conducted by The McKinsey Quarterly1 say that they are satisfied with their company's approach to planning strategy. Further, although more than three-quarters of the respondents report that their company has a formal strategic-planning process, fewer than a quarter say that the process is key to making their most important decisions; senior executives—most important, the CEO—drive decision making. The executives also raise significant concerns about the way their company executes the strategy, communicates it, aligns the organization with it, and measures performance against it.

Who decides?

More than half of all respondents say that at their company the important strategic decisions are made by a small group of senior managers, including the CEO. Perspectives vary on who leads this decision making. Thirty-nine percent of those with a strategic- planning process in place say that the CEO leads their company's process. However, in one of many notable differences between C-level executives2 and other survey respondents, 46 percent of the C-level respondents say that the CEO (or the person holding an equivalent position) leads the process. Only 34 percent of other executives concur; they are much more likely to attribute leadership to a chief strategy officer or a strategy group that exists at the corporate or business unit level.

Greater satisfaction

No matter who leads the decision making, executives at companies that make good use of a formal process seem to be more satisfied with strategic planning. Among respondents whose companies have a formal process, more than half say it plays a significant role in developing corporate strategy. That percentage is far higher—79 percent—among those who also say they are satisfied with their company's approach to strategy development. There is additional support for the conclusion that using a formal process leads to greater satisfaction: compared with only 16 percent of respondents who report dissatisfaction with their company's approach, 55 percent of those who are satisfied say that their strategic-planning group is among the most influential groups in making strategic decisions.

Board involvement

Most respondents say that their company's board of directors focuses on a few roles in planning strategy. Boards are seen to be most active in challenging strategy during the development process and in approving the final strategy (Exhibit 3). Only 25 percent of respondents say that their board is actively involved in developing the content of the strategy. Apparently, most respondents find the current role of their board satisfactory: only 7 percent believe that greater involvement by the board would improve their company's strategic planning. However, this view may be shortsighted. Respondents who are satisfied with their company's approach to strategic planning are twice as likely as dissatisfied respondents to say their boards help develop strategy. In addition, boards where respondents are satisfied are twice as likely to monitor the company's progress against the strategic plan and three times as likely to spend time identifying key strategic issues facing the company.

Failure to launch

A significant number of respondents express concern about executing strategy. Some 28 percent say that their company produces a strategic plan that reflects the company's goals and challenges but is not effective. Another 14 percent say the strategy and plans for executing it are not necessarily aligned with each other. The experiences of executives whose companies have formal planning processes and who are satisfied with the results may explain how their companies have avoided these pitfalls. Among these respondents, 67 percent say aligning management with the strategy is an element of the strategic- planning process; only 40 percent of dissatisfied executives say so. Similarly, 78 percent of those who are satisfied, compared with only 26 percent of those who are dissatisfied, say their process leads to explicit objectives that are communicated well throughout the company. These concerns are reflected in respondents' suggestions for improving their company's approach to strategy development. Their top two suggestions are improving the company's alignment with the strategic plan and developing a method to monitor progress against the plan.

Room for improvement

Monitoring progress is an area where many executives see room for improvement. Only 56 percent of respondents say that their company currently tracks the execution of its strategic initiatives. Whether or not respondents are in a strategic-planning group, they agree that a top priority for such groups is spending more time developing these metrics. Executives' concerns about executing and aligning strategy are likely exacerbated by a perceived lack of integration between the company's strategic- planning group and its human-resources group. When asked to consider strategic planning's integration with several major corporate functions, respondents rank HR as second-to-last in terms of degree of integration. Respondents who are dissatisfied with their company's strategic planning see the least integration. Of these, only 14 percent say planning is completely or mostly integrated with HR, and 59 percent say the two groups are integrated slightly or not at all. Companies don't particularly focus their strategic planning on new opportunities for growth. Fewer than half of all respondents say that their company's approach includes identifying growth opportunities outside the core business. Among those who use a formal planning process, just 57 percent say that this process is substantially integrated with their company's business-development function. In addition, respondents don't see business development as a top priority for strategic decision makers to spend more time on.

Process points

Respondents at companies with formal planning processes describe the qualities of those processes in a variety of ways. That variety leads to a surprising lack of focus on some issues that are often considered central to strategy making. For instance, only 53 percent of respondents say that their process focuses on their company's most important strategic issues, rather than on tactical issues. (Similarly, responding to a separate question, only 55 percent of respondents say that issues, rather than a calendar-based planning cycle, drive their company's approach to strategic planning.) And among those who are dissatisfied with the process, only 23 percent say strategic planning leads to decisions that allow the company to meet its goals and challenges.

Where you stand depends on where you sit

The way executives characterize their strategic- planning process depends considerably on their rank. C-level executives have a generally rosier assessment of the process. In addition, they are more likely, by a margin of 53 to 46 percent, to be satisfied with the overall approach. However, the relatively low number of C-level executives who say the process ensures that participants receive worthwhile analyses and information at appropriate times dovetails with another finding of the survey: C- level executives—and no other respondents—think internal consulting should be one of the highest priorities for strategic-planning groups to spend more time on than they do now.

Satisfying discussions

A sizable share of respondents say that their conversations during the planning process are substantive and lively—unless they are dissatisfied. Indeed, among respondents dissatisfied with their company's strategic-planning approach, 28 percent say that their company's strategic discussions include no such positive elements.

With and without a seat at the table

Just as executives of different ranks have different perspectives on the formal process, the survey respondents have remarkably different views on what strategic-planning groups do, depending on whether or not they participate in one themselves. This disparity appears to underline the problems with communication about strategy that executives note elsewhere. The biggest disagreement concerns whether strategy groups perform internal consulting: two-thirds of respondents who are in a strategy group, compared with 29 percent of others, report spending time on this activity. In addition, C-level respondents are less likely than others are to say their strategy group spends its time on internal consulting and far more likely to say that's what the group should be spending time on. For them, internal consulting is the second-highest priority, while for non-C-level respondents, it falls to number eight.

Read Full Article: http://www.mckinseyquarterly.com/article_page.aspx ?ar=1819&L2=21&L3=37&srid=27&gp=0

Source: McKinsey& Co.

The Rite Real Estate Play?

Drug store operator Rite Aid’s $3.4 billion proposed acquisition of 337 Brooks and 1,521 Eckerd stores is a bold bid to catch industry leaders CVS and Walgreen’s—and that could be good news for net lease investors.

The deal is critical to Rite Aid's continued recovery from accounting fraud and other missteps under former CEO Martin Glass. For investors, the expansion could mean more buying opportunities if Rite Aid ups its sale/leaseback pool. Drug stores are popular targets for 1031 exchangers and other small investors.

Walgreens and CVS currently account for 90 percent of available net lease supply in the category and fetch prices of $392.04 and $352.44 per square foot, respectively, according to net lease real estate investment firm Boulder Group. Rite Aid, despite a stock of more than 3,000 U.S. stores, has very few sites up for sale. It is among a group of several chains accounting for just 2.6 percent of current available supply. Eckerd, meanwhile, represents about 7.8 percent of the supply and gets an average $320.63 per square foot.

The deal will also expand Rite Aid’s presence in markets where investment interest in drug stores has been the strongest. According to the Boulder Group numbers, 67 percent of the 543 currently available properties are located in 10 states: Texas, Florida, California, Georgia, Illinois, Pennsylvania, Ohio, Indiana, North Carolina and Alabama.

The acquisition will bring Rite Aid’s portfolio to 5,000 stores in 51 states, with the Eckerd chain providing the company with exposure on the West Coast and in the South, and the Brooks division covering the New England market. Rite Aid will invest approximately $500 million to upgrade the newly acquired stores, with plans to open another 800 to 1,000 locations in the next five years.

“While the [deal] will give Rite Aid important economies of scale in a low-margin industry, it will also create a highly leveraged firm with under- performing stores that faces tremendous competitive threats over the long run,” Corwin writes. “The number of stores will compare favorably to Walgreens and CVS; the economies of those stores, collectively, will not.”

Source: Retail Traffic


Office, Industrial & Retail Studies - Washington County & Las Vegas

Improving Strategic Planning

"Rite" Acquisition?

  • New Bonneville Research VP
  • Bonneville Research is exited to announce the appointment of Jon Springmeyer as a new Vice President.

    For the past 5 years Jon has managed Excel Construction and Commercial/Retail properties for Amsouce Development.

    Before Amsource, Jon spent five years with Salt Lake County Parks and Recreation as a director of recreation centers, fitness centers, and outdoor aquatics centers.

    Jon is a licensed Real Estate Agent and will take the lead on Urban Renewal Projects for Bonneville clients as well as funding/feasibility studies for recreation/community facilities.

    Terrific first week!

    Thanks to all who offered congratulations to both of us!

  • Economic Notes:
    • Chain Store Sales

    • Chain store sales posted their second consecutive gain in the week ending September 2, gaining 0.3%, according to the ICSC. Year-over-year growth accelerated to 3.9%, the best growth in ten weeks. Cooler weather and lower gasoline prices contributed to the recent improvement.
    • MBA Mortgage Applications Survey

    • Mortgage demand increased 1.8% in the week ending September 1. The increase was entirely in purchase applications, which jumped 3.7%. Refinance applications decreased 0.9%.
    • Construction Spending (C30)

    • Construction spending decreased 1.2% in July, following downward revisions in the two previous months. Private construction decreased 1.3%, entirely due to weakening residential construction. In addition, public construction decreased 0.7%.
    • Oil and Gas Inventories

    • Crude oil inventories fell 2.2 million barrels for the week ending September 1, according to the Energy Information Administration, significantly above expectations of a 1.3 million barrel drop. Gasoline inventories however rose 0.7 million barrels for the week, against expectations of a 0.8 million barrel draw. Crude imports fell sharply last week even as refinery activity edged up, driving the larger than expected draw. This report will temporarily stall the bearish trend in the market.
    • Business Employment Dynamics

    • Consistent with BLS net employment trends, gross job creation weakened during the fourth quarter of last year compared to the prior two quarters. The economy created 7.8 million jobs. However, the number of jobs lost also fell, to 7.267 million, from 7.427 million during the third quarter. Accordingly, the rate of job creation and job destruction weakened also.
    • Consumer Credit (G19)

    • Consumer credit increased $5.5 billion or 2.8% at an annual rate in July. The details of the report show that the latest increase in consumer credit was driven by gains in both nonrevolving and revolving credit.
    • Wholesale Trade (MWTR)

    • Wholesale inventories were slightly above consensus expectations, coming in up 0.8% for July. Wholesale sales were up 0.4%, and the I/S ratio remained at 1.15.
    • Vehicle Sales

    • Vehicle sales declined more than expected in August, to a seasonally adjusted annualized rate of 16.1 million units. Of the six major automakers, only Toyota managed to increase its sales over last year, growing at a lofty 11.5%. The others suffered moderate year-to-year losses, except for Ford, whose sales dropped 16.5% from last August.
    • Global Semiconductor Sales

    • Global semiconductor sales rose by 1.8% in July to a level of $20.10 billion on a three-month moving average basis. Global billings are now 11.5% higher than in July 2005.
    • ISM Index

    • The national ISM manufacturing index was virtually unchanged in August, ringing in at 54.5 from 54.7 one month ago. This matched our forecast and signals that the manufacturing industry remains in good shape despite a slowing of the broader economy.
    • ISM Non-Mfg. Index

    • Business activity in the non-manufacturing sectors of the economy accelerated in August, rising 2.2 points to 57%. This growth was stronger than consensus sentiments anticipated.
    • Global Business Confidence Survey

    • Businesses have grown increasingly nervous this summer. Business sentiment has fallen sharply since early June to its lowest level since the fall of 2003. Confidence has declined the most in North America and among real estate firms and retailers. Expectations regarding the business outlook six months hence have turned notably dour. Confidence is highest and firm in South America. High-tech and natural resource firms are less confident than they were earlier in the year, but they remain generally upbeat. The most positive message in the survey is that pricing pressures while still high are abating. These survey results suggest that global economic growth has slipped below its potential.
    • Productivity and Costs

    • As expected, productivity growth for the second quarter was revised higher. Nonfarm business productivity grew 1.6% (SAAR), compared to 1.1% in the preliminary release. Growth in unit labor costs was revised much higher, to 4.9% (SAAR) from 4.2%; this was much more than the consensus expected. Output, hours and real labor costs were all revised up. The big jump in unit labor costs raises concerns about inflationary pressures from the job market.

  • This Weeks Leads
    • Talbots
    • Talbots, a 1,000-unit chain operates locations nationwide, and in Canada and internationally.
    • The stores, selling accessories, clothes and shoes, occupy spaces of 4,000 sq.ft. in freestanding locations, malls, strip centers and downtown areas.
    • Growth opportunities are sought nationwide, and in Canada and internationally during the coming
    • 18 months. For details, contact:
      • Dick O’Connell
      • Talbots
      • 211 South Ridge Street, Suite 100
      • Rye Brook, NY 10573
      • 914-934-8877, Fax 914-934-9136
      • Website: www.talbots.com
    • The Zone
    • The Zone Entertainment trades as The Zone at two locations throughout Canada.
    • The entertainment centers, which are a combination of bowling alleys and brew pubs, occupy spaces of 30,000 sq.ft. to 50,000 sq.ft. in malls, lifestyle centers and freestanding locations.
    • Growth opportunities are sought throughout the western U.S. during the coming 18 months, with representation by Nexus Realty Co.
    • Typical leases run 10 to 20 years.
    • For more information, contact:
      • Dale Clark
      • Nexus Realty Co.
      • 285 17th Street, Suite 22
      • West Vancouver, Canada V7V 3S6
      • 604-922-3353
      • Fax 604-922-6893
      • Email: daleclark@nexusrealtypartners.com.
    • Fun Factory, Island Fun and Jungle Fun
    • Retail Concepts International trades as Fun Factory, Island Fun and Jungle Fun at 23 locations nationwide.
    • The entertainment centers, which create custom- themed environments that include games, billiards, food, retail and rides, occupy spaces of 2,000 sq.ft. to 12,000 sq.ft. in entertainment, lifestyle, specialty and tourist centers and malls.
    • Plans call for six openings throughout the western region during the coming 18 months.
    • Typical leases run five to 10 years. A vanilla shell is required.
    • Preferred demographics include a population of 100,000 within two miles earning $60,000 as the average household income.
    • Preferred cotenants include movie theaters and restaurants.
    • For more information, contact:
      • Robert Solomon
      • Retail Concepts International
      • 4050 Tarrybrae Terrace
      • Tarzana, CA 91356
      • 818-757-3999
      • Fax 818-758-9380
      • Email: solomonassoc@adelphia.net
      • Web site: www.funfactorygames.com.
    • Great Escape Theatres
    • Great Escape Theatres, a 20-unit chain, operates locations throughout GA, IN, KY, MO, NE, OH, PA, TN, TX and WV.
    • The theaters occupy spaces of 40,000 sq.ft. to 80,000 sq.ft. in malls and entertainment, lifestyle and power centers.
    • Plans call for 11 openings east of the Rocky Mountains during the coming 18 months, with representation by Aliance Management. Typical leases run 15 to 20 years with options. Preferred demographics include a population of 150,000 within 10 miles earning $70,000 as the average household income.
    • AMC, Regal, Cinemark and National Amusements are cited as competition.
    • For details, contact:
      • Anne Ragains
      • c/o Aliance Management
      • 300 Professional Court, Suite 200
      • New Albany, IN 47150
      • 812-945-4006, Fax 812-945-4076
      • Email: aragains@alianceent.com
      • Web site: www.greatescapetheatres.com
    • Pomodoro Cucina Italiana
    • Pomodoro Cucina Italiana operates 45 locations throughout CA.
    • The Italian restaurants occupy spaces of 2,800 sq.ft. to 3,000 sq.ft. in endcap, entertainment, lifestyle and neighborhood centers.
    • Growth opportunities are sought throughout CA during the coming 18 months, with representation by NAI Capital Commercial.
    • For more information, contact:
      • Gary Morris
      • NAI Capital Commercial
      • 16001 Ventura Boulevard, Suite 200
      • Encino, CA 91436
      • 818-905-2400
      • Fax 818-905-2425

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