A Naperville shopping center that lost a Dominick’s supermarket in 2013 has generated a huge gain for a Chicago developer that filled the empty space with a Mariano’s grocery store.

A joint venture led by Bradford Real Estate has sold Fox Run Square, a 148,000-square-foot property at 1212 S. Naper Blvd., for $78 million to First Washington Realty, a Bethesda, Md.-based real estate investment firm, according to DuPage County property records.

That’s more than triple the  $25.6 million price  that the Bradford venture paid for the shopping center in 2014. The price was so low because Dominick’s had closed its store, leaving the property nearly half empty. It’s so high today because the  Mariano’s opened  about a year ago and the shopping center is full.

“What a great buy on their part,” Derrick McGavic, managing director of  Newport Capital Partners,  a Chicago-based developer who wasn’t involved in the transaction, said of Bradford.

SAFER HAVENS

Though retail bankruptcies, store closings and the rise of e-commerce have fueled  widespread pessimism  about the future of retail real estate, that’s not the case of grocery-anchored shopping centers like Fox Run Square.

Investors have been paying up for the properties, which are perceived as a safe haven in the turbulent retail world. The rise of e-commerce is less of a threat to a grocery store than it is to, say,  Sports Authority,  which went out of business last year.

“There is still a truly large investor appetite for that kind of asset, especially on the institutional side,” McGavic said.

POPULAR CHAIN

Mariano’s are especially popular, generating big returns for developers and investors that have sold properties leased to the supermarket chain. British investment firm IM Properties recently sold three Mariano’s stores for  $116.3 million,  40 percent more than it paid for them a few years earlier. IM Properties was also Bradford’s joint venture partner in Fox Run Square.

May Real Estate, an Oakbrook Terrace-based brokerage, sold Fox Run Square for the venture.

First Washington owns 92 shopping centers encompassing 12.5 million square feet. Fox Run Square is one of five properties the firm owns in the Chicago area, which also includes Roscoe Square, a 140,500-square-foot Mariano’s-anchored shopping center in Chicago’s Roscoe Village neighborhood, and Civic Center Plaza, a 265,000-square-foot shopping center in Niles anchored by a Home Depot.

Source: Crain’s Chicago Business June 6th, 2017 By ALBY GALLUN

abq-uptown-03

Vacancies Fall Rents Up at Malls and Shopping Centers

U.S. malls and shopping centers saw vacancy rates fall and rents tick up during the first quarter, as construction in the retail sector was muted.

Asking rents at strip and enclosed malls increased by 0.5% in the first quarter from the prior quarter, according to real-estate research firm Reis Inc. Shopping-center asking rents are up 1.9% from a year ago, while mall asking rents are up 1.8% annually.

The average vacancy rate for shopping centers fell to 10.1% from 10.4% a year earlier. Shopping centers have struggled to fill retail space since the downturn. Vacancy rates peaked at 11% in 2010 and haven’t fallen meaningfully since then.

Malls, on the other hand, have recovered considerably more quickly. Vacancy rates at regional malls fell to 7.9% in the first quarter from their peak of 9.4% in the third quarter of 2013, according to Reis.

Part of the divergence in recovery has to do with supply, according to Ryan Severino, a senior economist for Reis. There was a surge in shopping-center construction before the downturn and the market has had trouble absorbing that space with new retail leases. Mall construction, by contrast, has fallen dramatically over the past two decades.

Another issue is competition, said Mr. Severino. Consumers have more options for where to buy the items available at strip centers, including the Internet, outlet centers and downtown shops.

“Demand has kind of splintered,” Mr. Severino said. “When it comes to neighborhood and community centers, they’re often selling more mundane products. You don’t find a lot of Gucci stores in those centers.”

Rick Caruso, a real-estate investor who owns 10 open-air shopping centers in Southern California, including The Grove in Los Angeles and The Americana at Brand in Glendale, said rents are rising in large part because online retailers like eyeglasses shop Warby Parker, apparel maker Bonobos and others are seeking a physical presence in shopping centers to showcase their products.

He said Caruso Affiliated, his development firm, has a list of two dozen of these so-called e-tailers seeking brick-and-mortar spaces in his centers.

“We’re pushing up rents across the board, but only when we can have a healthy retailer,” Mr. Caruso said. “Retailers are just more bullish right now.”

Source: Wall Street Journal ROBBIE WHELAN April 3, 2015 12:01 a.m. ET

Trader Joes

Hot 100 Retailers The Nation’s Fastest-growing Retail Chains

Many of the nation’s hottest retailers are either on a growth tear or coming off a major acquisition — which may be a good thing or bad long term, if too much baggage was included in the transaction. Next year’s Hot 100 report will likely tell tales of what happened to several of this year’s leaders. Various scenarios are well-represented at the top of this year’s STORES Hot 100 Retailers report, with Bi-Lo Holdings, a collection of struggling supermarkets, ranking No. 1, followed by Michael Kors, one of the hottest brands in clothing.

While the economy is improving, the outlook isn’t overly rosy, notes Bryan Gildenberg, chief knowledge officer at Kantar Retail.

“We are looking at retail growth over the next five years as roughly the same as the rate of inflation, about 4.5 percent, but that isn’t to say everyone will be growing equally,” Gildenberg says. “We see non-store and online growth of 11.4 percent and the bricks-and-mortar segment growing at 3.5 percent … [and] losing market share. Right now, non-store accounts for approximately 7 percent of non-automobile consumer sales, but we see that doubling to 14 percent by 2020.”

Food for thought
B i-Lo emerged from Chapter 11 in May 2010 after operating for 14 months under bankruptcy protection. Controlled by private equity fund operator Lone Star, it acquired the remnants of the Winn-Dixie chain in December 2011. Bi-Lo was the smaller of the two entities, hence 2012’s triple-digit sales increase.

This spring Bi-Lo also acquired three groups of supermarkets from Delhaize Group: 72 Sweetbay stores in Florida; 72 Harveys markets in Georgia, Florida and South Carolina; and 22 Reid’s Groceries in South Carolina.

Grocery retailing is a $450 billion business and supermarkets “have always been a bit of a mirror as to what is happening in retailing in general,” says Gildenberg. He sees further contraction among traditional supermarket chains while specialty supermarkets will grow as they “get their value message across to the consumer.” Kantar sees a scenario in which “20 supermarket chains control as much as 90 percent of the market” at some point in the future.

No. 3 Sprouts — 2012’s hottest retailer — is one of the specialty grocers that Kantar sees as driving supermarket growth. Earlier this year, the company hit a milestone by opening its 150th store just a decade after its founding. Though its origins can be traced to 1943 when Henry Boney opened a fruit stand in Southern California, the company marks its modern era from the time Boney family members opened the first Sprouts store in Chandler, Ariz.

Also in the top 10 is The Fresh Market, another specialty supermarket. Emphasizing customer service and presenting an unconventional store layout, it has grown to more than 100 locations in 25 states over the past 30 years. Rather than growing progressively, it clusters stores by region: In the past few months, the company opened its fourth store in Pennsylvania, its eighth in Illinois and its sixth in California, with four more slated to open later this year. In all the company plans to add 19 to 22 new stores in 2013.

Craig Carlock, Fresh Market’s CEO, suggests that there are three reasons consumers shop The Fresh Market stores, which average just over 21,000 sq. ft.: Food quality that emphasizes healthy, fresh, local and regional; extraordinary customer service; and the stores’ neighborhood grocery atmosphere. In the first quarter of this year, sales remained in “hot retailer” territory with a 12.9 percent increase and same-store sales growth of 3 percent.

Wearing it well
M ichael Kors, which went public in December 2011, posted a 57.1 percent jump in revenues and same-store sales gains of 36.7 percent in the first three months of 2013. The company has increased revenues at a compound annual rate of about 50 percent over the last five years and has tripled its store count over the past three years.

No. 4 Lululemon Athletica has been through a dramatic year that included a quality control issue that led to the exit of its chief product officer and, subsequently, the abrupt and unanticipated departure of chief executive Christine Day. In March, Lululemon was forced to remove nearly one-fifth of its inventory after its black stretch pants were deemed too sheer when the exclusive Luon fabric was stretched. The recall would cost between $57 million and $67 million, the company said.

“While we regret that we had quality issues … we are proud of the organization’s ability to get Luon delivered back into our stores within 90 days of having pulled it from our line, all the while keeping our guests happy and engaged with the brand,” Day said in announcing her resignation. In June, Lululemon said it would begin opening stores devoted exclusively to menswear by 2016.

No. 6 Under Armour, which sells almost as much merchandise through Dick’s Sporting Goods as it does through its own stores and website, may see tougher competition as it expands into global territory controlled by Nike and Adidas. Well-represented among American high school, college and professional teams, last year only about 6 percent of Under Armour’s revenues were from abroad; Nike and Adidas each generated about 60 percent of their revenues in non-U.S. markets.

Company executives acknowledged that “international was underinvested because they were trying to find the right team,” noted Kate McShane, a securities analyst with Citi Research. Under Armour outfits one team in the English Premier soccer league and plans to outfit many athletes at the 2014 Winter Olympic Games in Sochi, Russia, and the 2016 Summer games in Rio de Janeiro.

Hot 100 newcomer H&M has experienced a slowdown in sales so far this year and says it will step up store openings in response, particularly in China and the United States. American store openings include a high profile location on New York’s Fifth Avenue about a block from Saks Fifth Avenue, and another three-story, 42,500-sq.-ft. site at Broadway and 42nd Street. The company also plans to launch an e-commerce site catering to U.S. customers.

H&M, which was stung three years ago when news media reported the retailer disposed of unsold inventory by putting holes in the garments and leaving them on the street for trash collectors, in February launched a program to encourage customers to recycle old garments in exchange for discounts on new merchandise.

“We don’t want clothes to become waste, we want them to become a resource,” says Henrik Lampa, H&M’s sustainability manager. “We want to make new commercial fibers out of this, to make new clothes and textiles.”

The online factor
No. 5 Apple’s hot growth continued last year, but this spring’s e-book pricing trial was a distracting sidelight for company executives seeking to keep consumers’ attention focused on products and services. iTunes Radio, a streaming music service offering more than 200 free stations, was launched in June; later this year, Apple is expected to introduce its Mac Pro, a sleek new desktop computer. One of Apple’s more significant retail moves was last fall’s ouster of Scott Forstall, a long-time associate of Jobs who oversaw Apple stores.

No. 7 Amazon.com’s most recent splash in the retail arena was entering the Los Angeles market with a grocery delivery service honed for years in its Seattle home territory. Called Amazon Fresh, the operation was jump-started when Amazon acquired Kiva Systems last year for $775 million; Kiva employed concepts and technology used by early Internet grocer Webvan.

Citing Amazon as “one of the few large-cap [businesses] to have secular exposure to e-commerce,” Oppenheimer & Co. analyst Jason Helftstein says the company “continues to gain share of U.S. e-commerce with its deep product selection, low-cost express delivery through its Prime program and breakthrough successes of its Kindle e-reader platform.”

Amazon also has an advantage because of its “head start and deep operating capability,” says Kantar’s Gildenberg. “It’s hard to see other e-commerce start-ups replicating what Amazon has done.” There is still plenty of opportunity for Amazon, he says, noting its relative weakness in such areas as consumables and apparel.

The expansion of Amazon Fresh to a second major market may turn out to be as significant a game-changer as Wal-Mart’s entry into the grocery business, Gildenberg says. “There are a lot of parallels” in that both Amazon and Wal-Mart went about showing the retailing establishment “a fundamentally different way of selling,” he says. “They operated with business models that were different from the way consumers bought things before.”

Curation and convenience
Kantar predicts drug stores, dollar stores and membership warehouse clubs will remain in growth mode.

“One reason club stores and dollar stores will be successful is that they both do a good job curating product,” Gildenberg says. Drug stores will also see an anticipated $15 billion increase in prescription medication spending as a result of coming changes in health care coverage, he says.
Even if dollar store openings see a temporary slowdown after the past five years’ explosive growth, Gildenberg sees expansion in the sector continuing as they exploit their capability “in curation and proximities as competitive advantages.”

The most successful retailers will be those that “best present their business’s value proposition to consumers,” he says.

Whatever the economy is doing, consumers were out and about in their cars more often in 2012 than 2011, as evidenced by the presence of eight convenience store chains on the Hot 100 Retailers chart, up from seven last year. Kantar’s researchers say c-store chains are growing through “acquisition of smaller chains and independents, rapid organic store growth and big investments in store remodels, food service and private label merchandise.” The numbers back that up: At the end of 2012, there were nearly 150,000 convenience stores in the United States, according to Nielsen Research — accounting for a little more than a third of all retail stores in the country.

As much as a quarter of the population says it shops convenience stores as often as supermarkets, according to a study released in June by Imprint Plus. The survey, which polled 1,000 consumers, also found that 60 percent of respondents bought something at a convenience store at least once a week.

C-store sales are segregated into two major categories: Fuel sales, which last year amounted to $501 billion, according to the recently-released State of the Industry Report by the National Association of Convenience Stores; and in-store sales of $199.3 billion. The three hottest categories for in-store sales were “alternative snacks” like meat snacks and health/energy/protein bars, which grew 12.2 percent year over year; liquor, up 11.6 percent; and cold dispensed beverages, up 11.3 percent.

The highest-ranked c-store chain on the Hot 100 Retailers chart is No. 24 Stripes, owned and operated by Susser Holdings. Stripes, which has locations throughout Texas, New Mexico and Oklahoma, has opened eight new stores so far this year. The company recently brought in Sid Keswani from Target stores to serve as senior vice president of store operations.

No. 73 7-Eleven, owned by Japan’s Seven & I Holdings, is the largest c-store chain among the Hot 100 Retailers in terms of sales and has plans to double its North American footprint over the next several years, both through takeovers of small operators and increased penetration of urban areas.

The chain “could increase … store numbers to 20,000 or even 30,000,” says Toshifumi Suzuki, chairman of Seven & I, declining to specify a timetable for the expansion. The company acquired more than 650 stores last year and controls nearly a quarter of the North American market. 7-Eleven has also invested heavily in remodeling and renovating both its own older units and acquired stores. It has been an industry leader in improving the quality and freshness of its offerings along with increasing the amount of private label products.

Ranksort iconCompanyHeadquartersUSA Retail Sales (000)Sales Growth (’12 v ’11)Worldwide Retail Sales (000)USA % of World Sales2012 StoresGrowth (’12 v ’11)
1Bi-LoJacksonville, Fla.$8,956,000353.0%$8,957,000100.0%688232.4%
2Michael Kors HoldingsNew York$850,00063.2%$1,063,00080.0%1732.4%
3Sprouts Farmers MarketPhoenix$2,142,00062.6%$2,142,000100.0%14641.7%
4Lululemon AthleticaSumner, Wash.$823,00057.7%$1,287,00063.9%13525.0%
5Apple Stores / iTunesCupertino, Calif.$23,998,00034.6%$26,760,00089.7%2554.1%
6Under ArmourBaltimore$498,00033.4%$532,00093.6%10624.7%
7Amazon.comSeattle$34,416,00030.4%$61,276,00056.2%N.A.N.A.
8H&MNew York$1,712,00020.7%$18,142,0009.4%26915.5%
9Helzberg’s Diamond ShopsN. Kansas City, Mo.$692,00020.5%$692,000100.0%232-0.4%
10The Fresh MarketGreensboro, N.C.$1,329,00020.0%$1,329,000100.0%12914.2%
11J.CrewNew York$2,179,00019.4%$2,194,00099.3%39710.0%
12Lumber LiquidatorsToano, Va.$813,00019.3%$813,000100.0%2799.0%
13Rue21Warrendale, Pa.$902,00018.6%$902,000100.0%87716.2%
14Grocery OutletBerkeley, Calif.$1,300,00018.2%$1,300,000100.0%17311.6%
15Ulta Salon Cosmetics & FragranceBolingbrook, Ill.$2,099,00018.2%$2,099,000100.0%55022.5%
16Chico’sFort Myers, Fla.$2,581,00017.5%$2,581,000100.0%1,3578.0%
17AT&T WirelessDallas$7,577,00016.8%$7,577,000100.0%2,3000.0%
18Tilly’sIrvine, Calif.$467,00016.6%$467,000100.0%16820.0%
19Tops HoldingWilliamsville, N.Y.$2,066,00016.4%$2,066,000100.0%1375.4%
20WayfairBoston$600,00016.0%$600,000100.0%N.A.N.A.
21Whole Foods MarketAustin$11,324,00015.6%$11,699,00096.8%3223.5%
22Bed Bath & BeyondUnion, N.J.$10,853,00015.6%$10,983,00098.8%1,43425.5%
23Ralph LaurenNew York$2,167,00014.6%$2,367,00091.5%249-0.8%
24StripesCorpus Christi, Texas$1,009,00014.5%$1,009,000100.0%5593.3%
25ZumiezEverett, Wash.$622,00013.9%$677,00091.8%4728.8%
26Bodega LatinaParamount, Calif.$1,061,00013.6%$5,009,00021.2%4525.0%
27Ross StoresPleasanton, Calif.$9,712,00012.9%$9,721,00099.9%1,1986.6%
28Urban OutfittersPhiladelphia$2,640,00012.9%$2,795,00094.4%4158.9%
29Foot LockerNew York$4,468,00012.9%$6,129,00072.9%2,406-2.8%
30GNC HoldingsPittsburgh$2,191,00012.4%$2,669,00082.1%4,1118.8%
31NordstromSeattle$11,762,00012.1%$11,762,000100.0%2406.7%
32Dick’s Sporting GoodsCoraopolis, Pa.$5,836,00012.0%$5,836,000100.0%6017.1%
33Hibbett SportsBirmingham, Ala.$819,00011.7%$819,000100.0%8734.9%
34TJXFramingham, Mass.$19,422,00011.6%$25,719,00075.5%2,3355.6%
35DSWColumbus, Ohio$2,258,00011.5%$2,258,000100.0%36411.7%
36CoachNew York$3,394,00011.3%$3,394,000100.0%5144.5%
37Dollar TreeChesapeake, Va.$7,266,00011.3%$7,395,00098.3%4,5316.6%
38Festival FoodsOnalaska, Wis.$587,00011.0%$587,000100.0%176.3%
39American Eagle OutfittersPittsburgh$3,158,00010.8%$3,586,00088.1%971-2.3%
40Pier 1 ImportsFort Worth, Texas$1,564,00010.8%$1,691,00092.5%9821.1%
41PetSmartPhoenix$5,740,00010.7%$5,980,00096.0%1,1983.4%
42CostcoIssaquah, Wash.$71,042,00010.6%$97,062,00073.2%4352.4%
43Vitamin ShoppeNorth Bergen, N.J.$942,00010.6%$949,00099.3%5759.3%
44IKEA North AmericaConshohocken, Pa.$3,902,00010.4%$36,406,00010.7%392.6%
45Sherwin-WilliamsCleveland$5,000,00010.4%$5,410,00092.4%3,3781.6%
46Tractor Supply Co.Brentwood, Tenn.$4,664,00010.2%$4,664,000100.0%1,1768.4%
47Stage StoresHouston$1,613,0009.8%$1,613,000100.0%8626.0%
48Cabela’sSidney, Neb.$2,640,0009.3%$2,780,00095.0%3715.6%
49Newegg.comCity of Industry, Calif.$2,686,0009.3%$3,074,00087.4%N.A.N.A.
50Family DollarMatthews, N.C.$9,331,0009.2%$9,331,000100.0%7,4426.0%
51Yankee Candle CompanySouth Deerfield, Mass.$445,0009.0%$447,00099.4%5622.7%
52C & J ClarkNewton, Mass.$990,0009.0%$990,000100.0%28611.3%
53Aldi SüdBatavia, Ill.$10,041,0008.9%$42,321,00023.7%1,2605.4%
54Conn’sThe Woodlands, Texas$650,0008.9%$650,000100.0%684.6%
55Harp’s Food StoresSpringdale, Ark.$826,0008.8%$826,000100.0%748.8%
56RaceTracAtlanta$1,070,0008.7%$1,070,000100.0%6425.2%
57QuikTripTulsa, Okla.$849,0008.7%$849,000100.0%6399.8%
58WegmansRochester, N.Y.$6,736,0008.7%$6,736,000100.0%812.5%
59SephoraSan Francisco$1,359,0008.6%$2,029,00067.0%2855.9%
60Neiman MarcusDallas$4,345,0008.6%$4,345,000100.0%78-1.3%
61H-E-BSan Antonio$18,201,0008.2%$19,410,00093.8%3183.2%
62Dollar GeneralGoodlettsville, Tenn.$16,022,0008.2%$16,022,000100.0%10,5065.7%
63ZalesIrving, Texas$1,517,0008.1%$1,855,00081.8%1,535-2.8%
64Sally Beauty HoldingsDenton, Texas$2,601,0008.1%$2,601,000100.0%3,6583.6%
65Cumberland FarmsFramingham, Mass.$798,0008.0%$798,000100.0%9725.4%
66WinCo FoodsBoise, Idaho$4,932,0008.0%$4,932,000100.0%867.5%
67Abercrombie & FitchNew Albany, Ohio$3,445,0008.0%$3,721,00092.6%912-3.6%
6899 Cents Only StoresCity of Commerce, Calif.$1,605,0007.9%$1,605,000100.0%3197.0%
69Academy Sports + OutdoorsKaty, Texas$2,191,0007.7%$2,191,000100.0%1569.9%
70Ascena Retail GroupSuffern, N.Y.$3,125,0007.6%$3,235,00096.6%2,5853.0%
71Verizon WirelessBasking Ridge, N.J.$8,010,0007.6%$8,010,000100.0%1,910-18.0%
72Books-A-MillionBirmingham, Ala.$504,0007.6%$504,000100.0%2570.0%
737-ElevenDallas$10,699,0007.5%$93,011,00011.5%7,6726.3%
74Casey’s General StoresAnkeny, Iowa$2,004,0007.5%$2,004,000100.0%1,7543.2%
75Ann Inc.New York$2,376,0007.4%$2,376,000100.0%9843.3%
76Trader Joe’s *Monrovia, Calif.$7,844,0007.4%$31,666,00024.8%3955.1%
77Signet JewelersAkron, Ohio$3,330,0007.3%$4,065,00081.9%1,3331.1%
78Burlington Coat FactoryBurlington, N.J.$4,104,0007.1%$4,131,00099.3%4924.5%
79BelkCharlotte, N.C.$3,957,0007.0%$3,957,000100.0%301-0.7%
80Leslie’s PoolmartPhoenix$610,0006.9%$610,000100.0%7677.7%
81O’Reilly AutomotiveSpringfield, Mo.$6,182,0006.8%$6,182,000100.0%3,9766.3%
82VPS Convenience Store GroupWilmington, N.C.$324,0006.7%$324,000100.0%1906.7%
83CVS CaremarkWoonsocket, R.I.$63,688,0006.7%$63,863,00099.7%7,4721.7%
84KrogerCincinnati$92,165,0006.6%$92,165,000100.0%3,538-1.0%
85AutoZoneMemphis, Tenn.$6,949,0006.5%$8,423,00082.5%4,6573.3%
86Williams-SonomaSan Francisco$3,920,0006.5%$4,043,00097.0%5660.9%
87The Home DepotAtlanta$66,022,0006.4%$74,754,00088.3%1,9650.1%
88Hot TopicCity of Industry, Calif.$734,0006.3%$742,00098.9%8034.8%
89Pilot Flying JKnoxville, Tenn.$694,0006.3%$771,00090.0%5493.0%
90Wakefern / ShopRiteKeasbey, N.J.$13,656,0006.3%$13,656,000100.0%3003.1%
91GenescoNashville, Tenn.$2,013,0006.2%$2,506,00080.3%2,190-0.5%
92Stein MartJacksonville, Fla.$1,232,0006.2%$1,232,000100.0%2630.4%
93PetcoSan Diego, Calif.$3,011,0006.1%$3,011,000100.0%1,1934.9%
94GymboreeSan Francisco$1,180,0006.1%$1,235,00095.5%1,2119.9%
95Ethan Allen InteriorsDanbury, Conn.$834,0006.1%$834,000100.0%2112.4%
96BJ’s Wholesale ClubWestborough, Mass.$12,465,0006.0%$12,465,000100.0%2002.6%
97Harris Teeter SupermarketsMatthews, N.C.$4,535,0005.8%$4,535,000100.0%2082.0%
98C&K MarketBrookings, Ore.$514,0005.8%$514,000100.0%654.8%
99The BuckleKearney, Neb.$1,124,0005.7%$1,124,000100.0%4402.1%
100Kinney DrugsGouverneur, N.Y.$825,0005.7%$825,000100.0%955.6%
Source: Kantar Retail
Notes on Methodology
USA = 50 States and District of Columbia; sales in Puerto Rico, the U.S. Virgin Islands, and Guam have been estimated and removed if reported as part of the U.S. business segment for that company.
All retail sales estimates are excluding wholesale and non-retail services (not sold at store).
Fuel sales are included, except where revenues of fuel exceed 50% of average store revenues, in this case sales are reported exclusive of fuel sales.
All figures are estimates based on Kantar Retail research and company reports.
* Trader Joe’s Worldwide figures are for ALDI NORD.

Center Main

Vacancies for U.S. strip malls improve slightly

The average vacancy rate for a U.S. strip mall improved slightly in the fourth quarter from the third quarter, as consumer sentiment and retail sales ticked up, according to a preliminary report released on Tuesday from real estate research firm Reis Inc.

“Consumers appear to be acting more aggressively in response to improvements in the labor markets,” the report said.

The national vacancy rate for strip malls was 10.4 percent in the fourth quarter of 2013, down from 10.5 percent in the second and third quarters.

The report noted a growing rift between “have” and “have-not” markets as income inequality worsened. “In these ‘have-not’ areas,” the report said, “demand remains enervated, rents continue to fall even as the macroeconomy and labor market improve, and new development activity is virtually if not completely nonexistent.”

Reis said it expects this “two speed” recovery to continue in 2014.

Source: Reuters Michelle Conlin Jan 7th, 2014

One-Financial-Center-Boston

Investors Flirt with Riskier Real Estate Strategies in 2014

Other trends predicted for the new year include that multifamily properties might fall off of investors’ must-have lists, construction investment could pick up and foreign investors are expected to continue to scoop up trophy properties in the U.S.

“Looking ahead, I would fully believe investors would take advantage on value added and opportunistic strategies instead of focusing on core,” said Brad Morrow, senior private markets consultant in the New York office of Towers Watson & Co. The riskier strategies appear to be a better opportunity because of the risk-return spread between them and core.

Mr. Morrow does not expect a wholesale switch of capital out of core for value added and opportunistic real estate. Instead, he expects investors to begin using riskier strategies with a little more return potential “at the margins.”

As for the real estate markets, Jim Sullivan, managing director, REIT research, of Green Street Advisors Inc., a Newport Beach, Calif.-based research firm, said real estate market projects are “tied at the hip with any investor’s view of interest rates.”

One camp’s view is that interest rates might go up because the economy will be recovering at a robust pace, Mr. Sullivan explained.

“A higher cost of capital is bad for real estate investing but a robust economy is great for real estate,” he said. Another view is that if interest rates go up unaccompanied by strong economic growth, it will be bad for real estate because it is an industry that is capital intensive, Mr. Sullivan said.

Multifamily is out, malls are in

Meanwhile, multifamily real estate investments may no longer be the darling of real estate investment community in the coming year.

Apartments — and the multifamily sector as a whole — have been extremely strong for several years, but it won’t be as hot going forward, Mr. Morrow said.

The net operating income might start to come down as new multifamily development projects that are in the pipeline are completed, he said. Indeed, there might be oversupply of multifamily properties in certain markets.

“I don’t see the growth opportunity we’ve seen in the past,” Mr. Morrow said. “Apartments might become less desirable.”

It could be a completely different story in the apartment real estate investment trust sector, Mr. Sullivan said.

Apartment REITs were red hot in 2011 and 2012, but underperformed the rest of the public markets in 2013, he said.

“Our view is the market overreacted to the decelerating growth,” Mr. Sullivan said. “Apartment REITs look cheap going into 2014.”

There will be a similar story with mall REITs, he added. In 2013, the mall sector significantly underperformed as investors anticipated a decline in consumer spending and a tax increase.

As a consequence, high-quality malls look cheap in the public real estate market, Mr. Sullivan said.

“Investor angst in relation to investor spending is legitimate but the mall sector was overly discounted,” he said.

One really big-picture item in 2014 is that the pace of new construction is starting to pick up.

“The commercial real estate party … usually ends not because of the lack of demand but because of excess new supply,” Mr. Sullivan said.

New construction, which had been at generational lows, is starting to change “in a pretty meaningful way,” he said.

The pace is picking up the quickest in multifamily, industrial and niche strategies such as student housing and data centers.

“The good news is that there is demand to meet the new supply,” he said.

The increasing supply is not enough to ring any alarm bells, but it is the first time in two or three years that observers will be watching out for oversupply.

Fundraising

One trend that sprouted in 2013 and might take firm root in 2014 is an increase in co-investments in real estate. While co-investments are fairly common in private equity, real estate deals have not been large enough for co-investments.

Real estate managers that can’t raise a large blind pool closed-end fund are looking to new ways to raise capital including seeking co-investments.

Managers may be more open to it in 2014 as fundraising continues to be a challenge, said David M. Sherman, president and co-chief investment officer of Metropolitan Real Estate Equity Management, Carlyle’s newly acquired real estate fund-of-funds business, and head of the real estate fund of funds group in Carlyle Group’s solutions subsidiary.

“Managers that need to stretch the remaining equity in a fund may co-invest, even if their deal sizes are manageable, during the latter half of a fund’s lifecycle,” Mr. Sherman said. “A manager of a new fund may seek co-investment because fundraising is going slowly. Some managers utilize co-invest in between fund raises.”

A big theme in 2014 is expected to be continued investment by foreign investors in U.S. real estate, said P.J. Yeatman, head of private real estate for CenterSquare Investment Management, a Plymouth Meeting, Pa., real estate manager. In a flight to quality, foreign investors have been buying up trophy assets in the U.S., leading to the overpricing for these properties, Mr. Yeatman said.

“We (the U.S.) became the flight-to-quality market,” he said.

These investors consider U.S. core real estate to be akin to fixed income, Mr. Yeatman said. What’s more, many of these buyers purchase properties on the basis of “perception,” he added. “The perception is that New York is a fortress and it is worth paying anything for New York real estate,” Mr. Yeatman said.

He added: “I don’t expect (foreign purchases of U.S. property) to stop” in 2014.

Astute investors will begin investing in value added and opportunistic real estate in order to sell into the overheated core market.

“The smart money will recognize the arbitrage opportunity between creating income streams to sell into the overheated market vs. buying income streams,” Mr. Yeatman said.

Another huge investment opportunity will be European real estate debt, said Joe Valente, managing director and head of real estate research and strategy in the London office of J.P. Morgan Asset Management (JPM).

Some €400 billion ($546.7 billion) of distressed European assets will be coming to the market, Mr. Valente estimated. “Half will be in core European markets where investors don’t have to take macro risk,” he said.

As for the year just ended, one of the big surprises was that the capital markets rebounded stronger than many real estate investors expected.

“I expected it to be strong, but it was stronger than I had expected,” said Gary M. Tenzer, Los Angeles-based principal at real estate investment banking firm George Smith Partners Inc.

Even though prices were at very high levels, in many cases around the pre-financial crisis levels, cap rates were very low, he said, noting that investors were chasing yield.

Source: PIOnline Arleen Jacobius, January 2nd 2014