The
strip mall is back
TARYN
PLUMB
For
several years, Kimco Realty Corp., based in New Hyde Park, N.Y., had
been looking to invest in strip malls in New England, and MetroWest
in particular.
But
there were scarce properties available and fierce competition for the
ones that were, according to David Bujnicki, vice president of
investor relations and corporate communications.
Finally,
in April of this year, the global real estate investment trust closed
on a portfolio of 24 properties in New England, which included the $9
million acquisition of Westmeadow Plaza in Westborough.
"It
took some time," Bujnicki said. "It was very hard, because
there have not been a lot of properties that have traded on a regular
basis (in the Boston area). When this portfolio came around, we were
thrilled for the opportunity to bid on it."
Over
the past several months, a handful of notable strip malls — or
"strip centers," as they're called in the industry — have
traded hands.
But
brokers and investors say there's pent-up demand for even more.
"There
are tons of investors who want to buy retail properties in New
England," said Nat Heald, senior vice president at CBRE/New
England, a commercial real estate company that recently facilitated
two local strip center sales. "The only thing that's holding us
back from having even more volume is some scarcity of product
available for sale."
He
noted that the market now is stronger than at its peak, from 2005 to
2007. "There's more demand, more money," he said. And with
low yield mostly everywhere else and low mortgage rates, "there's
an excellent opportunity for sellers to get top dollar."
And,
as some indicate, strip centers may be one of the healthiest retail
segments emerging from the Great Recession. A 2014 retail forecast by
national commercial real estate firm Cassidy Turley found that "the
biggest gains over the past year have come from community,
neighborhood and strip centers," whose occupancy levels
increased more than 27.8 million square feet nationwide through the
third quarter of 2013. Yet, they were "hardest hit during the
recession," according to the firm's research.
Strip
mall acquisitions this year in Central Massachusetts have also
included:
•
A
Hannaford-anchored shopping and professional center in Townsend by
national real estate investment group The Federated Companies for
$6.25 million;
•
Worcester
Crossing, anchored by Walmart and Sam's Club, by Dedham-based RK
Centers for $49 million;
•
Speedway
Plaza in Westborough, also by RK Centers, for $18.73 million; and
•
The
Price Chopper on Cambridge Street in Worcester, by Federated, for $16
million.
Heald
was involved with brokering the latter two purchases. The advantages
of both are that they're strongly anchored, well established, and
well located, he said. That's particularly true of the Speedway Plaza
on Route 9, "one of the area's strongest retail corridors,"
he said.
Ultimately,
the "supermarket-anchored strip center is the gold standard for
a strip center," said Heald, noting the regular week-in,
week-out traffic that smaller tenants in the same vicinity can feed
off.
Wanted:
Tenants that will stay awhile
And
when evaluating properties, tenants are key.
Buyers
"want the tenants to be there," Heald said. "The
acquisition is subject to the existing leases. They're buying a
future cash flow; that's the whole point of the investment."
Bujnicki,
of Kimco agreed. "We look for very strong credit-worthy tenants
that are recognizable, everyday names," he said.
Overall,
in evaluating properties, Kimco focuses on core markets — the top
30 or so metropolitan statistical areas in the country — identifies
properties with good growth potential, studies demographics such as
population density and household income, and, of course, takes into
account a property's selling price.
The
publicly-traded company, according to its website, has "interests"
in 840 shopping centers, comprising 121 million square feet of
leasable space, across 41 states, plus Puerto Rico, Canada, and South
America.
But,
Bujnicki said of New England, "We really like this particular
market. It really is a very strong market. Any way we can continue to
concentrate on it, expand within that market, works for us."
Less
competition for Westborough site
RK
Centers' two recent local acquisitions were similarly tactical. For
example, Speedway Plaza in Westborough, which is anchored by a Stop &
Shop and a Burlington Coat Factory, was a less competitive property
for buyers because of the nearby Wegman's at Northborough Crossing,
said Kenneth Fries, RK Centers' director of leasing and acquisitions.
"Fewer
buyers means less competition and a higher cap rate," he said,
referring to the rate of return on a real estate investment based on
the expected income the property will generate. After improving the
appearance and visibility of the shopping center, he said, the
company will evaluate that impact on sales, and "hopefully add
some more tenants." "There are a number of them looking in
the market, and we're hoping to put them in there," he said.
The
purchase of Worcester Crossing on Route 146, meanwhile, was simply a
"good addition" to the company's portfolio, a "long-term
hold" with few vacancies and a "good place to stick money,"
he said.
RK
also owns a Price Chopper-anchored property on Greenwood Street in
Worcester, as well as sites in Bellingham, Hudson, Marlborough, and
the Shoppes at Blackstone Valley in Millbury.
Still,
Fries noted, "New England has a high barrier to entry. You just
don't have shopping centers like you do in Florida. Because you can't
put them where you want, it makes the ones that are up more
valuable."
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