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INSTITUTIONAL INVESTORS 120 • SHOPPING CENTER BUSINESS • December 2016 ly present them with a 90-day exit in lieu or a reduction as we are confident that we have the leading center in the market and can backfill the space with a better credit, higher rent paying retailer. In our markets, we do not have strong popula- tion growth so even if they choose to exit and go freestanding, they are not going to generate greater sales and they will be pay- ing a higher rent. We can lease the space to someone who can pay the rent and will generate the sales. We look at those situations as opportunities. We don't tend to see our retailers leave because we have great real estate; but even for them to leave, their sales cannot support them leaving the center for a newer location. SCB: Is it more difficult to find centers to acquire today? What is the climate like for acquisitions? Senenman: We try to do half of our trans- actions off-market. The perception of 'off-market' being a bargain is just that — a perception. Competition for marketed deals, particularly in the grocery-anchored space, is as frothy as ever in primary mar- kets. Cap rates continue to compress. It is hard to figure out which deals make sense in an environment when pricing is so aggressive. In terms of rent growth, you have to be careful if there are boxes in the center versus small shops. We feel a lot more comfortable that we can push rents when there are small shops along with a productive grocer. With boxes, when you go outside the primary markets, you have to be very concerned with who the re- placement tenant could be. Wheeler: We buy grocery-anchored cen- ters that are service- and necessity-based. We do not want retailers like office supply, furniture and apparel. We maybe have 2 percent of our portfolio leased to soft- goods retailers. Cooper: Along the same lines, for the first time in as long as I can remember, we real- ly take a close look at shadow supply, par- ticularly from some of the malls who are starting to see department store closures. Historically, when the broker puts togeth- er a package, they would show the com- petition — the other grocery-anchored or power centers within a three- or five-mile radius. Now, you also have to include the mall as a potential competitor because they may take an old department store box and compete with you for the same tenants. The tenant is going to go where they can get the best deal. Fryer: Tenant expansion is proceeding at one-third of the pace that we were ac- customed to before the Great Recession. We need to be conscious of any increase in effective supply, whether that arises from mall conversions or new mixed-use projects; they are the equivalent of new development. Supply and demand are ac- tually a lot closer to parity. For instance, we were instrumental in the redevelop- ment of downtown Salt Lake City where two nearly defunct regional malls were combined into one regional mixed-use center. Though it has only two-thirds of the original retail GLA of the older cen- ters it replaced,the sales performance is many times greater than the volume of the old centers. Nguyen: In our secondary and tertiary markets, we don't have a lot of competi- tion from other buyers. We see our oppor- tunity when someone wants to exit these markets in lieu of more primary markets. Vittorio: We find it very hard to compete today in the bid auction process. There is a lot of capital chasing a little amount of quality product. Sometimes you have to acquire something a little different. PGIM Real Estate acquired Avalon in Alpharet- ta, Georgia, earlier this year. It gave us an opportunity to get into that deal because it wasn't stabilized; the second phase is still under development. We are having to find ways to invest in retail like that versus going through a bid auction. Wheeler: I agree. We liken it to a swim- ming pool, where everyone else is swim- ming after the core properties in the top right corner, while we are going after the properties in the bottom left, bottom right and top right corners of the pool. There is less competition, and the cap rates for us are consistently between 8 and 9 percent. That method has worked well for us over the past 16 years, and that cap rate has essentially stayed the same. Dykstra: I have said this for years — pric- ing has always been expensive. When properties where trading at 8 cap rates, investors wanted to buy 9 cap rates, when properties where trading at 7 cap rates, investors wanted to buy at 8 cap rates. You only know in hindsight if a property was expensive or not based on the actual performance of an asset. If you tell me it is expensive, I say, 'It has always been expensive and it always will be.' We are long term holders of great real estate and the going in yield is only part noise in our industry today. Fryer: In the institutional world, we have exacerbated expensive pricing by chang- ing our definitions and our standards. We are simply snobbier now. The universe of what we consider 'core' or 'Class A' has shrunk because of the parameters we've placed on it, even though the properties have stayed the same. We are all pursuing the same small handful of properties that reside on the peak of a mountain. Holden: Of the deals we have closed over the last 12 months, two were off market due to ownership coming to us directly for a recapitalization of some partners. An- other deal was fully marketed, it checked a lot of boxes for one of our accounts, so we chased this asset particularly hard to win the bid. We have another deal where we started down the road — it was a 19-as- set portfolio — and we ended up moving forward with only 11 of the properties. We feel that the portfolio got better once we dropped eight of the properties. Falatko: Like Jon [Wheeler], we play in secondary and tertiary markets. We have lost some competitors; the playing field has gotten thinner. We've seen a rise in cap rates because of that loss in competition. SCB: Whitney [Knoll], what do you see from an investment sales perspective? Knoll: This year, in the Southeast and Mid-Atlantic, we have seen movement in prices and cap rates up and down de- pending on property type, location, and whether they are core or value add. Gro-