Grocery Store Anchored Strip Centers

Posted on February 21, 2011 by Scott Kadish

A recent article in REJournals.com noted that the grocery store anchored strip center remains a strong performing retail category. In all geographic markets, there is an over abundance of retail space. There are several reasons for the excess space:

            1)  Developers overbuilt with the availability of easy financing.

 

            2)  The economy has forced many retailers to close locations or cease operations all together.

 

            3)  Successful retailers have decided they need less stores in each market, and can fill in the gap with internet sales.

 

            So why have grocery store anchored strip centers remained so strong? David Birdsall, Chief Development Officer for Phillips Edison & Company, says it is because grocery stores can not fill in the gap with internet sales. Every geographic market needs a grocery store. “So far the model for replacing the grocery store with an Internet retailer has not been found, mainly because shopping for groceries remains both a personal preference and because of cost structure ....it's very difficult to charge a fee for the delivery of one box of pasta or a tub of butter ....for the foreseeable future this shopping center model still has viability.”

 

            What other concepts remain strong or have become strong? Urgent care centers seem to be a growing trend, and you certainly can’t get their service over the internet. Restaurants also report strong sales. On the other hand, the book store, which used to be a staple anchor for a life style center, may be obsolete in the near future. If not obsolete, it certainly will not be the anchor it once was.  

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Are We There Yet?

Posted on February 14, 2011 by John Weber

            The ubiquitous refrain at any gathering of commercial real estate professionals in the past 24 months can be summed up in a few short questions: Are you busy? Who is lending? No, seriously, who is lending? And -- of course -- when will this end?

            As 2011 kicks into gear the refrain is the same but our answers (hopefully) are beginning to take a turn for the better. The refreshed outlook is largely supported by a recent Morgan Stanley report titled “CRE Recovery in Place: Investment Cross-Currents.” Though heavy with charts and graphs, some of the positive takeaways include:

 

            1.         2010 formed a solid bottom and 2011 should see gradually increasing commercial asset prices and risk appetite. The caveat? Recovery is still market-by-market and much slower in those areas where housing is a primary economic driver.

 

            2.         A base (i.e. middle of the road) projection of a 12.5% increase in value for commercial real estate assets. This would leave prices about midway between the 06-07 peak and the 2009 valley.  As many owners begin to get above water on their loans, lending can be expected to pick up.

 

            3.         Bank losses on commercial real estate will remain high, but will begin to decline in late 2011 or early 2012. While the ratio of non-performing loans continues to be above average, forward-looking projections of delinquencies have decreased. As this improvement moves forward, expect CRE-heavy banks to out-perform others. Perhaps this could drive banks back to the market?

 

            4.         Strip-center based REITs will see a pick-up as major anchor tenants, including Wal-Mart, Best Buy, Dollar General and Jo-Ann Stores, have announced expansion plans for 2011.

 

This is music to the ears not only of real estate professionals like us, but also to the commercial property owners that had to sit on assets to avoid taking large losses through this past cycle. Maybe at our gatherings in 2012 we’ll be asking when we’ll get our next vacation instead of our next deal.

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Here Comes the Cavalry !!!!

Posted on August 13, 2010 by Brad Kaplan

Take a look at a very informative article appearing in the July 2010 Shopping Center Today  describing the recent activity of several sovereign wealth funds shopping for distressed real estate to acquire.  Perhaps this is the cash we have been hearing about which has been sitting out the downturn ?

  

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Retail Developer, Investor, Lender and Retailer Must Read

Posted on November 15, 2009 by Brad Kaplan
In October, 2009 Morgan Stanley published its Mall and Lifestyle Center Handbook.  (Special thanks to Stephen Baumgarten, Senior Vice President Wealth Advisor Morgan Stanley Smith Barney Beachwood, Ohio for sharing the handbook with us).  The handbook is a must read for all retail developers, lenders, investors and retailers to understand the market forces impacting shopping center development and investment.
 
The handbook goes into great depth and analysis of the current state of the retail center real estate industry.  As of the date of publication of the handbook there were 1,095 regional malls in the United States and 268 lifestyle centers.  In 2007/2008 mall supply shrank 1.6% while lifestyle centers grew by 56% to 122 million square feet of space. 
 
The handbook analyzes "mall quality" identifying the characteristics which include some of the following: (i) trade area size and growth; (ii) tenant line-up; (iii) presence of "fresh" retail concepts; and (iv) anchor identity.
 
The authors of the handbook found that: (i) lifestyle centers presently have a competitive advantage over regional malls as a result of the variety of their tenant mix and less dependence on anchor tenants and apparel retailers; and (ii) public companies own 84% of the top 100 regional malls, while only 4 of the top 20 leading lifestyle centers are owned by public companies.
 
The authors predict that there will be consolidation in the shopping center industry as well as capitalized public companies and private investors look to expand over the next five years. 
 
Finally, the handbook contains an appendix of charts and analysis for market strength and market density for 40 of the largest United States metropolitan markets.
 
So, what can we take away from this study?  OPPORTUNITY does exist for current center owners to dispose of debt laiden centers; OPPORTUNTY does exist for REIT's and investors to acquire properties at reasonable cap rates; OPPORTUNITY does exist for lender's to finance well capitalized projects; and OPPORTUNITY does exist for retailers to enter centers which may not have previously been available.
 
Here is wishing for a strong Black Friday and a healthy holiday shopping season !
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