Real-estate investors have a taste for grocery-anchored shopping centers
By Marilyn Bowden
Grocery-anchored shopping centers are among the top choices of real-estate investors, according to local retail experts, and demand is far outpacing supply.
"Retails centers are doing extremely well across the country," said Richard Tarquinio, first vice president at CB Richard Ellis. "It's the second choice of most investors after multifamily residential. Grocery-anchored centers are garnering a great deal of activity because every investment group is actively vying for that investment category.
"In South Florida, retail vacancy rates are still the lowest across all property types, even in the down economy. Multifamily has gotten so aggressive that the cap rates have been compressed substantially, and, therefore, shopping centers have gained a lot of favor."
But even with such favorable market conditions, Mr. Tarquinio said, most owners of grocery-anchored centers are not selling.
"Their problem is, 'What do I do with the money after I sell the property?' " he said. "So there is no motivation there.
"Also, some of those properties were leveraged a couple of years and go at interest rates of 7% to 7.75%, which at the time seemed quite good. And many of those loans are securitized loans. So there are defeasance issues if they try to sell them."
As a result, said Boris Kozolchyk, vice president at Grubb & Ellis, bids for existing properties are skyrocketing.
"There's tremendous interest from local groups who have identified this as a good niche," he said, "and we see a great interest from foreign investors, especially from Latin America, though they are usually hard-pressed to compete with domestic buyers.
Real-estate investment trusts are very aggressive and successful."
Doron Valero, president of Equity One, a Miami-based REIT specializing in retail, said every good property that comes on the market has 20 buyers after it. "South Florida has recently had some good properties coming on the market," he said, "but they are demanding very high prices.
"We're looking at over $120 million in acquisitions in Florida and Georgia over the next quarter, representing about six or seven centers. We'd love to buy cheaper, but we can't in this environment."
Equity One has almost 180 properties, 130 of them food-anchored shopping centers. More than 85% are in urban markets.
"Occupancy is about 90% overall," he said. "In urban markets, it's in the mid-90s. Small towns are struggling a bit. But the sector is performing extremely well. Even stockwise, it's gone up in the past few months.
"The old cliche that supermarket-anchored centers are where shopping is a necessity rather than a pleasure makes them almost immune from recession. In an environment where interest rates are so low and there are no safe investment alternatives, investors prefer a sector that is not so iffy. And the current yield is over 6% on your dividend."
Among tenants, Mr. Kozolchyk said, power retail centers - clusters of five or six big national stores plus a few local tenants - are most in demand.
Although such properties fell out of favor with investors a few years ago, Mr. Tarquinio said that those where tenants are prospering are drawing interest.
While major malls command a great deal of attention, he said, "they don't come on the market so often, and very few are in individuals hands. They're usually sold in a portfolio. For class B and C malls, there are still buyers, but not at the same aggressive cap rates."
Many lower-scale or small malls are being upgraded or repositioned, Mr. Tarquinio said. An example is the mall at 163rd Street in North Miami Beach, now in the throes of regentrification. A vibrant shopping center in the 1970s, it lapsed into decline when its upper-scale anchors left.
In an uncertain economy, Mr. Kozolchyk said, the wild card in the retail market is sales performance.
"So far, the market has been resilient," he said, "and survived many catastrophes: 9/11, lack of tourism, war, the situation in Iraq. The expectation is that with the war over, prices are coming down, but at the same time, unemployment is very high. So the picture isn't very clear, though the general consensus is that we will see growth again.
"And the South Florida market is so Latin American-oriented that it does not reflect the same trends as the rest of the country."