Shopping Center Business

MAY 2015

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

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294 • SHOPPING CENTER BUSINESS • MAY 2015 financial meltdown and says the Feder- al Reserve's money printing policy and artificially low in- terest rates are the "only things driving this market." "The trend is bil- lions of dollars of other peoples' mon- ey will be placed in substandard deals because there is way more money on the sidelines earning nothing, and fee-generated institutional 'inves- tors' with discretion need to spend that money to make themselves money," he explains. "With the supply of 'good' eco- nomic deals virtually unavailable, prudent due diligence takes a back seat." Rate Hike UnceRtainty Volatile economic growth and the mys- tery surrounding whether interest rates will begin to rise this year are among primary contributors to bearish views. Will Consolidation Affect the Net Lease Market? Although net lease investors continue to display strong demand for most retail categories, professionals predict that they will become more reticent about invest- ing in office supply and dollar stores in the months ahead. The proposed $6.3 billion merger between Staples and Office Depot and the shareholder-approved $8.5 billion merger between Family Dollar Stores and Dollar Tree guarantee store closures. In fact, the Federal Trade Commission is expected to require the merged dollar stores to divest themselves of around 300 locations. Still, investors willing to navigate the uncertainty and to accept the typically lower credit ratings associated with dollar stores compared with Walgreens or CVS should see new opportunities in the dollar store category. In light of the Family Dollar and Dollar Tree deal, Dollar General in March announced plans to bolster its position in the industry by opening 730 stores in 2015. The company opened 700 stores last year. Investment demand for dollar stores remained strong in 2014 as investors pushed up the average property sales price 5 percent to $159 per square foot, according to Marcus & Millichap. Plus, buyers already were beginning to move their attention toward dollar stores in reaction to the slowing expansion of Wal- greens and CVS, says Jim Shipman, a partner and senior vice president of net lease investments for PECO Real Estate Partners. "I think investors will look to see how this all plays out," he says. "But I still think the dollar stores will be popular. The bigger shift is that buyers are willing to take a little more risk on the credit side of a tenant." — Joe Gose Jim Shipman Kyle Matthews

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