Shopping Center Business

MAY 2017

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

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RCG VENTURES 126 • SHOPPING CENTER BUSINESS • May 2017 in Oklahoma City. At the end of 2016, RCG Ventures ac- quired Riverside Plaza, a center in Terre Haute, Indiana, which Garner says is typ- ical of the centers the company likes to purchase. Anchored by Burlington Coat Factory, the center is located in the area's top retail corridor, with rents well below market. Terre Haute is also home to four colleges and universities which create a stable economy for the region. "The retail market there has strong oc- cupancy and barriers to entry are high," says Garner. "We were pleased to find this opportunity with below market rents and ability to redevelop the site over the next few years." Fund V, which was raised in the first quarter of 2017, is solely for RCG's west- ern acquisitions. Fund V anticipates ac- quiring a similar $200 million to $250 million of assets over the next two years. In the meantime, RCG's earlier funds — Funds I, II and III — have completed their investment period, leading RCG to sell many of those assets. "We are nearly as active in selling assets today as we are in acquiring them," says Garner. "This has really helped us in terms of market pricing knowledge and future exit modeling." The company's Fund III is an example of what one of RCG's funds looks like as it is moving through the company's own- ership cycle. The fund's equity has been fully deployed into 59 separate shopping centers and RCG's redevelopment and leasing teams are hard at work creating value on the portfolio. "Fund III is in what we call the 'harvest- ing' stage," says Garner. "We are creating value in the assets and then we will sell them over the next few years." It is also important to note that RCG does not trade centers between funds, meaning all of its assets are sold to other owners when the funds mature. As well, the company spends a lot of time evaluat- ing properties. Before it goes under con- tract, RCG has already done some level of due diligence. When examining markets and centers, the company does a detailed void analysis of which retailers or types of retailers are missing from the market, and who might be interested in locating in the market. "Sellers and brokers know that we are not a group that will just put a property under contract and not move forward," says Worley. "We spend a lot of time be- fore we go under contract to make sure these are assets we want." A majority of sellers RCG has pur- chased centers from over the years have been public or private REITs and special servicers, who need certainty of execu- tion. RCG sees a lot of expiring debt coming due in 2017, much of which will not be able to be refinanced. As a result, the company believes there will be more opportunity for them to acquire financial- ly distressed centers from special servicers over the next few years. "Sellers know we have a capable team, we have the resources to complete a deal, and when we say we are going to close, we close," says Garner. "We tend to get a lot of repeat sellers because of those characteristics." CENTERED IN-HOUSE One advantage RCG has over compet- itors is not using third-party services to manage and operate its properties. The company is fully integrated with the fol- lowing departments: property manage- ment, leasing, legal, and accounting. All redevelopment and construction man- agement is also done in-house. It is also extremely hands-on when it comes to cre- ating value for its properties. At Turner Hill Marketplace in suburban Atlanta, the company has already begun to create val- ue on one of its latest acquisitions. Shortly after acquisition, RCG signed Burlington Coat Factory to lease space formerly occupied by Best Buy. The construction department works hand in hand with the tenant's team to make sure all delivery timelines are met. "Our thought is that with RCG having control over the day-to-day operations we are better suited to get the cost of opera- tions down," says Worley. "More impor- tantly, it allows us to execute a leasing plan from start to finish under our own control." Vacancy and under market rents are two characteristics that RCG examines heavily when looking for a center. Because RCG has deep tenant relationships, it knows which tenants should be interest- ed and who should perform well in the proposed markets. RCG is not afraid of centers where leases are expiring or con- tain significant vacancy. Working early lease extensions and new store formats are other ways the company has to cre- ate value. Another opportunity for prop- erty improvement comes in the form of outparcels — either selling them to other entities or developing them. Cobb Place in Kennesaw, Georgia, is a 334,883-square-foot power center anchored by Bed Bath & Beyond, DSW, World Market, and Ashley Furniture.

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