Shopping Center Business

SEP 2018

Shopping Center Business is the leading monthly business magazine for the retail real estate industry.

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INVESTMENT SALES 54 • SHOPPING CENTER BUSINESS • September 2018 decreasing sales volume and softening cap rates continuing throughout the re- mainder of the year. SCB : Are grocery-anchored shopping centers still the top retail investment of choice; trading at premiums? ASHER : Daily needs shopping is not as threatened as was perceived last year — internet sales are enhancing sales for daily needs retailers, and not threatening them. Most shoppers still want to pick certain grocery items per- sonally. However, some items they are pre-ordering which they pick up after shopping for non-preordered items. Competition for grocery-anchored in- vestment product continues to be high, with pricing remaining consistent due to the low supply of quality inventory and high demand from institutional buyers seeking grocery-anchored investments in major MSAs. In California, coastal Los Angeles, Orange County and San Diego remain the geography of choice. This lack of softening on pricing reflects investor sentiment that there is less risk in this area of retail. Institutional buy- ers will sometimes stretch to markets outside of those areas based on the cir- cumstances, but not typically. HANLEY : Pricing for grocery-anchored centers with reported sales volumes in core markets ranges from the high 4 percent cap to the low to mid 5 per- cent cap range with institutional inves- tors typically being the buyer profile. Grocery-anchored centers in Inland Southern California — Riverside and San Bernardino counties — have seen fewer institutional buyers transact, ac- counting for less than 20 percent of grocery- anchored center sales in 2018. Private investors are typically the buyer there. Values have ranged in the high 5 percent cap to low 6 percent cap range. SCB : Are single-tenant net-leased invest- ments still hot? HANLEY : This category continues to pos- sess the largest transaction velocity and the highest number of potential buyers seeking a flight to quality. These buyers especially want properties with new construction, long-term leases, internet-resistant, corpo- rate guaranteed tenants in good locations. We anticipate a steady volume of transac- tions in the third and fourth quarters of 2018. Single-tenant net-leased pricing $5 million and under remains the most consis- tent with the smallest separation between asking and final sales price due to the catego- ry having the largest buyer pool. However, the depth of formal offers submitted from this buyer pool has started to shrink. Aver- age listings are generating five total offers or less compared to five to 10 or more total offers 18 to 24 months ago. ASHER : Single-tenant net-leased priced $5 million and higher have seen similar results but experiencing longer marketing periods and timing to procure a buyer due to sell- ers' 'rearview mirror' pricing expectations, rising interest rates and the fact that most buyers need financing to transact. All-cash buyers still exist depending on certain 1031 exchange requirements. Institutional buyers are approximately 30 to 50-plus ba- sis points higher on pricing compared to private investors. The separation between asking and final sales price has widened in this category. SCB : The retail industry agrees the mar- ket is changing. Where's the market headed? HANLEY : There still remains a separation between buyers and sellers on pricing overall, but that gap is narrowing based on properties being more accurately priced reflective of changing market conditions. Buyers have been more cau- tious in their purchasing decisions in the last 12 to 18 months and, in many cases, sales cycles are taking longer compared to previous years. It is important to be strategic in properly pricing assets for sale moving ahead to appropriately en- gage prospective buyer interest in this year's transitioning market. ASHER : As the illustrious coach John Wood- en said, 'Failure is not fatal, but failure to change might be.' This year, one of the most important aspects of the market has been the recognition from the industry that the market is changing. It's been challenging coming to terms that peak pricing is behind us, but tepid buyer demand this year has clearly demonstrated a new normal. Over- all, historical values still remain at all-time highs for certain retail product types, such as core grocery-anchored, single-tenant net-leased and multi-tenant pads, even com- pared to top of the market pricing in 2006- 2007. However, it will be vital that assets are priced in accordance with the transitioning market if we're to see transaction velocity increase moving forward. SCB Looking to hire? Looking for a job? Need to move? Call me! Chris Rollbusch, President (619) 500 - 4Net (4638)

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