to 30% over the past several years. We have
high demand for construction and related
services, and not only in retail. In Northern
California, particularly Silicon Valley, there’s
enormous demand for multifamily and
office space. The same contractors that
build our shopping centers are working
heavily in these areas. So while they may not
be busy in retail, they couldn’t be busier
overall, and the numbers keep going up.
AYGOREN: We’ve established that
costs overall are rising in many markets.
What kind of financing is available to
you as developers and investors?
TANZ: We do not pursue ground-up projects. Developing new centers in our West
Coast markets is extremely difficult, time
consuming and costly. We instead focus on
growing our business through acquisitions,
where we’re able to purchase properties at
below replacement cost and have a multitude of value-enhancement opportunities.
McNELLIS: We won’t start construction on
a new center until we believe we’re at break-even on total costs with pre-leasing. Because
we are so cautious, and we use our own
equity, financing isn’t really an issue for us.
IFSHIN: We’re primarily a redeveloper of
existing assets, so our needs are a little different. Banks have gotten more selective
both in terms of project quality, sponsorship and how pre-baked your business
plan is. A lot of people in the sector who
were effectively accessing primary bank
debt, have been pushed out and now are
dealing with the structured finance market—the private and public mortgage
REITs and private lender community.
That’s made them less competitive because
that debt is far more expensive.
ROSE: As an intermediary, our firm is
originating debt for investors of all profiles.
We see a significant change from when
capital froze as CMBS evaporated. In the
early part of 2010 through 2013, CMBS was
the lender of choice. Nearly 50% of retail
investments were CMBS executions. That’s
completely changed. Last year, CMBS
maybe amounted to 16% of all retail lending, with the bulk of financing done by
local, regional, national an international
banks. I don’t think you can find construction financing today unless your project is
pre-leased, well located and has great
strength of sponsorship.
AYGOREN: And on the investment side,
what markets are seeing the most activity and where is it coming from? And
given today’s pricing and cap rates,
what’s your break-even point?
TANZ: We’re actively acquiring grocery-
anchored shopping centers in all of the
major markets on the West Coast. Thus far
in 2017, we have acquired shopping cen-
ters in Orange County, Los Angeles, San
Francisco, Seattle and Portland, OR.
Generally speaking, for us to be aggressive
on pricing, we need to be highly confident
that there are meaningful opportunities to
enhance value quickly and substantially.
McNELLIS: We have a number of grocery-anchored centers in primary markets that
we intend to hold for the long term, but
we are selling in the secondary markets.
Centers in those areas have softened 50
basis points at least, if not a little more.
IFSHIN: The buyer pool is overwhelmingly
private. Almost everybody is buying situationally. We are seeing some Canadian
capital that’s coming in a REIT-type structure—typically institutional capital, not
small, individual investors—but overwhelmingly, the buyers are private.
McGUINNESS: Our target markets such as
Southern California, Atlanta, Miami, Dallas
and Austin, TX continue to see competitive
cap rates for grocery-anchored centers. We
expect that to continue throughout 2017.
We’re going to be active on the acquisition and disposition front in 2017. We take a
very disciplined approach to acquisitions
and selectively go after assets that can provide long-term growth. We continue to
explore redevelopment opportunities at
our centers and for future acquisitions. On
the disposition side, we’re continuously
reviewing our portfolio and looking to cycle
out assets where value has been maximized,
or exiting markets with lower-than-average
growth and declining demographics.
AYGOREN: Many of you talked about the
value-add proposition. What methods do
you utilize to add value and increase an
asset’s potential resale price?
TANZ: We look to buy well-established,
well-leased grocery-anchored shopping
centers that are situated in irreplaceable
locations, but have been undermanaged
for an extended period. Through our
underwriting process we put together a
value-enhancement plan that often involves
There is no denying
e-commerce is changing
the retail landscape but
the negative perception is
over blown. The future of
retail is bricks and clicks,
not bricks or clicks.”
THOMAS P. MCGUINNESS
Inven Trust Properties Corp.
In order for us to be
aggressive on pricing,
we need to be highly
confident that there are
to enhance value quickly
Retail Opportunity Investments Corp.
POWER PANEL...continued on page 50