Shopping Center Business

MAY 2017

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

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ECHO REALTY 186 • SHOPPING CENTER BUSINESS • May 2017 we begin to immediately work on a plan to enhance its value," says Biel. "We view ourselves as merchandisers and develop- ers first." At the end of 2016, ECHO closed on a portfolio of centers located around Phil- adelphia which it had been working to ac- quire from the seller since 2014. Included in that portfolio was a property that had an environmental concern discovered in due diligence. Rather than walk away, ECHO worked with the seller to get the state involved and rectify the issue, then picked up where the seller left off after closing. "Going the extra mile is what makes the difference between our team and a buyer who just has capital," says Gorman. Among the centers that ECHO acquired in the Philadelphia transaction were the 88,500-square foot Giant Marketplace at Bensalem in Bensalem, Pennsylvania, and Media Shopping Center, a 71,000-square foot center anchored by Acme in Media, Pennsylvania. BALANCED PORTFOLIO ECHO has diversified not only by ge- ography, but by product diversification. The company has acquired properties that have strong anchors and some op- portunity for growth for its core capital allocation, others that require some work for its core-plus capital allocation, and others that need complete renovation for its value-add capital allocation. Karet says the company has done so to balance its holdings and returns for investors. ECHO defines core properties as those that have several anchors that are stable with strong credit. That differs from many owners' definition of core, which states that only the lead tenant has strong credit and a long term remaining on its lease. "In our case, credit and term maybe important, but even more important is location," says Biel. "We want to make absolutely certain, even with core assets with a strong anchor, that if the anchor closes, the location is so good that we will be able to make a quality asset even better, independently of who is there today." Core properties make up the base of ECHO's 227-property portfolio today. Since the company was a ground-up devel- oper for Giant Eagle for so long, much of its portfolio consists of dominant centers in Pennsylvania and Ohio that continue to strengthen in market position as time goes on. "When you buy core assets, you are buying properties that are stable," says Karet. "We are competing for those as- sets against a number of groups, including buyers that are pure financial players. The result of that, because they are relatively easy properties to acquire in the spectrum of assets, is that core tends to provide the lowest yield because it is the most compet- itive. At the other end of the spectrum is ground-up development, which requires a whole different set of skills." For ECHO, those skills include engi- neering, construction, leasing, market- ing, financial engineering and property management. "The universe of people who can per- form ground-up development is much smaller, and the risk of development ac- tivity is much greater because you never know what you are going to find when you start site work," says Karet. "The economics of ground-up development are also considerably more challenging than they were prior to 2008. Most notably, while the risk remains the same margins are much thinner so there is less room for error." ECHO also has core-plus deals, where it is acquiring assets and altering the center via a renovation, partial redevelopment or major leasing effort to make the property a core asset. Value-add centers, involving major additions or redevelopments, are also a focus for the company. In Calvert, Maryland, ECHO acquired Calvert Vil- lage, a 170,000-square-foot Safeway-an- chored center. The center contained an area that had an antiquated configuration and a number of underperforming ten- ants. ECHO performed workouts with each impacted tenant and redeveloped the area into a TJ Maxx store with com- plementary small shop space. Today, the center is 100 percent leased. "When we blend all of these property types together, we are trying to generate a total yield that is superior to what an investor could get in a core fund," says Karet. "The idea is that viewed over long periods of time, including properties that require more effort or take longer to Westgate Plaza in Tampa was ECHO's first acquisition in Florida. ECHO redeveloped the 104,000-square-foot center, tearing down an existing Publix anchor store and rebuilding a new store for the retailer.

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