Shopping Center Business is the leading monthly business magazine for the retail real estate industry.
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INSTITUTIONAL INVESTORS 98 • SHOPPING CENTER BUSINESS • December 2017 opted to bring it to market with a vacancy, and now we have more than 10 offers. SCB : Several of you mentioned that val- ue-add was the key to an acquisition. Is that an example of a value-add opportu- nity that you would look for? Or would you rather have it leased? HOLDEN : It really depends on what retail- ers are lacking in the market. It's been a challenging year for us on the retail acqui- sition side. We presented a power center yesterday in investment committee where we have a tenant who wants to get out of their lease and we have to backfill a food user. Historically we've steered away from power centers, but this asset is in a great location with strong density, good tenants, sales and presents a nice backfill opportunity out of the gate. FRYER : That's exactly our experience. I'm not a big fan of the power centers, but current pricing advantages in a product type with healthy tenant demand can't be ignored. COOPER : As part of your initial question, you asked if given this frothy environ- ment with low cap rates and high quality if you're making sacrifices, and the short answer for us is absolutely not. There are alternate places that we can invest capi- tal, like redevelopments that we don't feel that we have to go out and buy. I definitely think that power centers have been paint- ed with a broad brush just like retail has. We've always been agnostic about power versus grocery, preferably with the grocery component, but we've only closed on two shopping centers this year, and a third that should close next week. They're larger centers in infill locations, but we closed on a big power center with grocery and a Target in Portland at the beginning of the summer, and we got a lot of negative ques- tions from investors asking how could we buy a power center at this low cap rate, and our response is not all power centers are created equal. If you have an infill power center with 60 acres in a market like Portland, which is very difficult to acquire with substantially under-market leases, unde- veloped parcels and the ability to add multifamily in the future, we're not scared of power centers. We would be scared of a power center in a tertiary market that doesn't have those components. We think there is a major discrepancy between what is being portrayed for all power and some of the opportunities in that space. RAGLAND : We've looked at both core as- sets and value-add assets this year. We've made five acquisitions: two grocery-an- chored community centers, two urban condos and one lifestyle center in Las Vegas. The Vegas property is a value-add proposition and it's an interesting blend of food and entertainment and value re- tail and the ability to take an asset with great bones that has been neglected and resuscitate it and continue to build upon those elements. Lifestyle centers have al- ways been traditionally characterized as apparel-oriented, and certainly we're go- ing away from that and focusing on enter- tainment and leisure, but we also looked at a power center and thought you could diversify the income stream by converting boxes into quick service restaurants or fit- ness boutiques. We do see opportunities in all of these segments, including power centers in the right location. KNOLL : To me, there is a lot of fear about what you can sell. Can you sell B prop- erties in a B market? I can't say anything different other than the assets that they are buying are quality properties with upside in great locations. If you go into second and third tier markets, it's going to be hard right now. Who is going to come backfill with 40,000 people? That's hard. HOLDEN : They're pushing back, and look- ing at their options when profitable. MUSSELL : Once you backfill the box, how are you going to exit the property down the road? There's a big different in your exit if you're able to find a grocer to fill that box. FRYER : How often does it come back to location, location, location? Every time. Everyone at this table will go, 'amen.' Don't rely on the tenants making the real estate; ensure the dirt is at least as good as the tenants occupying it. VALERO : One interesting phenomenon is that municipalities that were not open to new ideas are now willing to listen and work with developers and owners to change code, zoning, etc., in order to help introduce a mixed-use redevelopment of older centers that were developed in the '80s. At the time, a significant part of the land was used for parking and today that land can be used for alternative uses, such as multifamily, hotels and office space in conjunction with retail. SCB : How difficult are properties to un- derwrite today, whether you are under- writing to an investment committee or a financial institution? CARTY : In the current environment, you have to present a meaningful redevelop- ment or upside scenario versus, 'I'm go- ing to roll leases and float along with 2, 2.5 percent per year rent increases.' The one deal that we bought in Chicago earli- er this year, part of the presentation was various scenarios to add multifamily and be comfortable with that because in the worst case scenario, we can sell a couple of acres and extract value to yield a return that's going to make sense for us. That's (Left to right) Cathy Clark, Ross Cooper and Bernadette Mussell.