Mid Atlantic Real Estate Journal — Shopping Centers — March 30 - April 12, 2012 — 35A R ETAIL E XPERTS


s demographics and tastes continue to evolve, Mid Atlantic By: Christopher Munley, Marcus & Millichap Real Estate Investment Services Institutional Investors Drive Up Net-Leased Property Values to 2007 Levels A local grocer will trade 100 ba- sis points to 125 basis points higher.

from the low-spread environ- ment, as the devaluation of the dollar could outpace rent growth and diminish returns. In addition, property hold- ers who purchased between 2005 and 2007 generally have negative equity, and only those with investment-grade ten- ants will be able to refinance. Owners with less favorable tenants will be forced to bring properties to market and cre- ate ample supply for buyers searching for higher yields. In fact, properties with franchi- see and non-investment grade tenants yield 100 basis points to 200 basis points above cor- porate-backed assets.

In the Mid Atlantic, institu- tional capital will continue to flood the single-tenant market in a flight to quality, thus driv- ing up prices, while values for Class B/C multi-tenant assets will lag behind. As competition intensifies for investment- grade, single-tenant assets leased to creditworthy retail- ers, the median price will trend near peak levels achieved in 2007. Moreover, first-year yields tightened to the high- 6-percent to low-7-percent range, enticing owners to un- load properties with built-up equity and reinvest the capital in discounted assets. REITs and institutions will purchase

these newly listed properties with long-term leases secured by national retailers such as Walgreens and CVS for stable revenue. In the multi-tenant sec- tor, life insurance companies and banks are beginning to loosen their lending criteria on stabilized shopping centers anchored by best in market grocery stores. As a result, buyers will capitalize on favor- able interest rate spreads for higher returns. Performing products anchored by a top- rated grocer like Wegmans, Gi- ant or ShopRite will command first-year yields of around 6 percent, while assets with a

retailers are responding by re-config- uring expan- sion models and p r o d - uct assort- ments. The traditional d y n a m i c s of retail are

Through year’s end, institu- tions will continue to target rarely listed large, invest- ment-grade shopping malls and power centers in duress across the MidAtlantic. Assets anchored by a Class A retailer, with a secured, long-term lease in place will produce returns in the mid-7 to low-8-percent range, depending on location. Christopher Munley is a director of the national retail group in the Phila- delphia office of Marcus & Millichap Real Estate Investment Services. ■

Christopher Munley

fluctuating and the lines that separate extreme-value stores, drugstores and big-box stores are becoming less evident. All retail segments are pressing for a broader consumer base, with dollar stores and drug- stores selling groceries and value chains such as Walmart offering pharmaceutical drugs in most of their locations. In addition, big-box chains are altering the layout of stores to infill urban spaces in supply- constrained metros such as San Francisco and New York, posing new competition for dollar stores and drugstores. Concepts such as Walmart Ex- press and CityTarget will av- erage 15,000 square feet and provide a “one-stop-shopping” experience for consumers in major metros. As standard- sized Walmart, Target, and Kmart stores close in subur- ban areas, health and fitness and discount retailers will re-absorb much of the dark space left behind. Meanwhile, quick-service restaurants and auto-part retailers will benefit from the thrifty frame of mind that lingers from the reces- sion. Households cutting din- ing-out expenses will opt for affordable substitutes to sit-in restaurants, and enhanced menus will lure many families that previously sought out healthier alternatives. This frugal mentality spills over to the auto-parts segment as companies and individuals attempt to extend the life of their vehicles and overcome debt burdens. With demand for single-ten- ant assets across the Mid At- lantic region steadily increas- ing, and a dearth of invest- ment-grade properties going on the market, buyer interest will shift toward assets with shorter lease terms or lesser tenants. Cap rates for the few top-tier assets that do trade are already low, minimizing the spread between yields and borrowing costs. The risk of inflation is deterring investors

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