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Thursday, Mar 28, 2024

CENTERS—Shopping Centers for Sale Are Getting Harder to Find

After several years of frenetic activity, the retail shopping center investment market finally has slowed down. It isn’t that buyers have soured on these investments. Indeed, there are still plenty of prospects knocking on doors. The problem is that there is very little product to buy. “The market is definitely not as strong as last year,” said Chris Wilson, whose company, Wilson Commercial Real Estate, specializes in retail properties and leasing. “The reason you’re not seeing a lot of sales is there’s very little product for sale.” That is bad news for brokers who work with buyers, but it can be good news for those who handle property listings. Those brokers are finding there is no shortage of takers for the properties that do become available. “If I had a 40,000-square-foot Gelson’s with a drug store adjacent on Ventura Boulevard, I could sell that all day,” said Michael Ross, managing director of the investment division at Colliers Seeley. “I’d have 10 to 20 offers on it. The same thing would go for Northridge, Calabasas and Studio City.” So why aren’t those who own such centers taking advantage of the high demand? Institutional investors such as pension funds and real estate investment trusts typically buy properties as investments for a pre-determined period of time. Many were unable to unload their properties during most of the recession-ravaged ’90s, but did so as soon as the economy rebounded. Unlike private investors, who may buy and sell properties based on market conditions, those new institutional owners are not yet ready to sell their acquisitions. Tight market, fewer listings Even private investors who may have bought properties when the market opened up in 1998 and 1999 are unwilling to turn over their investments because, if they did, they might not be able to find another equally lucrative opportunity in which to invest their money. “If they sell it for a great price, where do they put their money?” asked Ross. Brokerage houses do not track shopping center sales on a quarterly basis. But local retail property investors report that the number of transactions they have completed this year is well below the level of last year. “This year in the first half, I purchased no centers,” said Sandy Sigal, president of Newmark Merrill Cos., which specializes in buying retail centers. “By the end of the year we will have purchased five. That’s about half of what I did last year.” On the other side of the fence, however, Sam Alison, director of retail investment services for CB Richard Ellis Inc., is having what he describes as “my best year ever.” Of the 22 shopping centers in Southern California that the brokerage is marketing for sale, five are in the San Fernando Valley. Two of those are in escrow, and Alison is fielding multiple offers on two more of the remaining three. The most sought-after centers are those in upper-middle-class neighborhoods anchored by supermarkets and drug chains because investors see those properties as impervious to what has become a retail landscape in transition. Movie theater chains are succumbing to financial problems. Some other retailers are losing business to e-commerce. And regional specialty retailers like Strouds Inc., which has filed for Chapter 11 bankruptcy protection, and Restoration Hardware Inc., which recently revamped its management in an effort to stem losses, are finding they are unable to compete with the big-box chains and mass merchandisers. At the same time, there is little or no available land on which to build new centers, virtually assuring the future of strong retailers in so-called good neighborhoods. Record prices Such was the case with Burbank Towne Center at Hollywood Way and Verdugo Boulevard. The center is small only 85,000 square feet and considered old and outdated. But it sold for a capitalization rate of 8 percent, far better than the average cap rate, 9 percent to 11 percent, for centers. (Brokers were unwilling to disclose the price for the center, but in general for these real estate transactions, the lower the cap rate, the higher the selling price.) “Location drove the sale,” said Bill Bauman, senior vice president of retail properties for Colliers Seeley. “In general, in the Valley it is difficult to find large retail opportunities, so any substantial project in a middle- to upper-income area is very attractive to the investment community.” With demand outweighing supply, many of the most desirable properties are selling before they even land on the open market, brokers said. And buyers report that they are becoming more aggressive at seeking out shopping centers. “We do a lot of transactions with brokers, but a good portion of the property I come across is through previous relationships,” said Steve Boss, vice president of West Coast acquisitions for Combined Properties Inc. The Washington, D.C.-based company turned its attention to the Southern California market within the past year and, since then, Combined Properties has signed letters of intent to purchase two properties. With a slower volume of transactions, Boss said he has had more time to actively seek out opportunities instead of waiting for brokers to bring properties to his attention. “I think we’re in a more normal level of deal flow, and you have to work a little harder to find the good transactions,” he said.

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