2A — January 30 - February 12, 2015 — M id A tlantic
Real Estate Journal
www.marejournal.com
M id A tlantic Real Estate Journal
M id A tlantic R eal E state J ournal Publisher .................................................................Linda Christman Publisher ....................................................................Joe Christman Section Publisher .........................................................Steve Kelley Senior Editor/Graphic Artist ..................................... Karen Vachon Production Assistant ........................................................ Julie King Associate Publisher ................................................. Alissa Aronson Office Manager .........................................................Joanne Gavaza Guest Columnists ............... S t e ve A l E r dmann , CPA , MS , WithumSmith+Brown PC ; Brian Arenofsky, BH Security; Beverly Blum, DesignWorkBuild; Joseph Lowry, Levin Management; Mike Mullin, IBS Mid Atlantic R eal E state J ournal ~ Published Semi-Monthly Periodicals postage paid at Rockland, Massachusetts and additional mailing offices Postmaster send address change to: Mid Atlantic Real Estate Journal, 312 Market St. Rockand, MA 02370 USPS #22-358 | Vol. 27 Issue 2 Subscription rates: $99 - one year, $198 - two years, $4 - single copy REPORT AN ERROR IMMEDIATELY MARE Journal will not be responsible for more than one incorrect insertion Toll-Free: (800) 584-1062 | MA: (781) 871-5298 | Fax: (781) 871-5299 www.marejournal.com The views expressed by contributing columnists are not necessarily representative of the Mid Atlantic Real Estate Journal
Prime Property for Lease in Southern New Jersey
Whitesell Properties >> Industrial >> 400 Richards Run, The Haines Center Burlington, NJ >> 510,566 sq. ft.
Market for Smaller Retail Property Trades Heats Up Joseph Lowry
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T
he retail real estate investment market in the Northeast has
heated up in 2014, with de- mand for well-located shopping center properties returning to pre-recession levels. According to Levin Management’s Joseph Lowry, director of acquisitions/ business development for the North Plainfield-based retail real estate services firm, this ideal investing environment has re-fueled the market for both smaller and value-add assets, following several years dominated by institutional- grade trades. At the same time, Lowry notes that many opportunities to buy and sell neighborhood and convenience centers con- tinue to fly under the radar. In the following interview, he dis- cusses the market for smaller retail properties, the related challenges and the value of working with an advisor. Which smaller properties are catching investors’ eyes? Lowry: Class A, grocery- anchored shopping centers in established retail hubs remain the “darling” of the institutional investment com- munity. However, recently we are seeing more private-player interest in smaller properties – those assets under and around 50,000 square feet that may be unanchored or have a drug store or junior anchor tenant. And because leasing velocity has improved markedly over the past 12 to 18 months, value-add opportunities in this niche also are attracting more attention. However, flight to quality rules regardless of as- set size and type. The proper- ties that are trading well are set in more prominent retail locations with strong demo- graphics, and have histories of high occupancy and longer- term tenants. Higher barrier to entry markets with lower retail supply are preferred. For value-add plays, investors are also being highly selective, focusing on under-retailed, in-
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fill locations and markets with high barriers to entry. Why is this a good time for owners to contemplate selling? Lowry: Interest rates remain historically low (for now), cap rates have compressed con- siderably and credit is readily available once again. As such, leasing, investment demand and pricing all are quickly re- turning to pre-recession levels, presenting an ideal time for owners to stabilize or reposi- tion their properties and test the market. There is a huge in- ventory of solid smaller shop- ping centers in the Northeast that are highly marketable to private investors within this context. For example, earlier this year Levin Management took on leasing for a small shopping center in central NJ. At the time, one, 7,500 s/f vacancy represented 20% of its GLA. We successfully secured a desirable tenant to fill the space and recently began to selectively look for a buyer. Interest has been robust. What are the challenges in this investment niche? Lowry: Bringing sellers and buyers together can present the biggest hurdle in these smaller-center scenarios. A significant%age of properties in this class are privately held, family-owned real estate. While they may not want their properties out on the market publicly, they are interested in selling if the right buyer comes along. On the flip side, investors need to be more careful than ever before when it comes to buying properties. The retail industry is chang- ing, and challenges facing
bricks-and-mortar proper- ties – such as the reduction in number, or right sizing of stores by national and regional tenants as well as the growth of e-commerce – require buyers to vet potential investments thoroughly and with a healthy sense of caution. What advice do you have for sellers and buyers of smaller retail assets? Lowry: An increasing num- ber of small-asset sellers and buyers are reaching out to companies like Levin Manage- ment in an advisory capacity, to assist in alleviating some of the concerns and complexi- ties of the trading process. For sellers, advisors can help improve the position of prop- erties prior to their sale. As with the Central NJ shopping center mentioned earlier, this might mean bringing an asset to full occupancy to maximize value, or implementing needed repairs or cosmetic upgrades to enhance curb appeal. Estab- lished third-party real estate service providers also will have good relationships with the brokerage community, should a seller wish to go to market, and will know of potential buy- ers if an off-market disposition is preferred. On the buyer’s side, good advisors know their markets on a granular level. Their role may include helping investors better understand market specific retail fundamentals, providing market lease rates and other terms. They can also provide demographic profiles for tenants, iden- tify specific shopping center continued on page 14A
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