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MANAGEMENT ACCELERATES

BY CSA STAFF

Whether local or global, growth has been robust for 2014’s top third-party managers

The 26th annual survey of Fastest-Growing Managers surveys new domestic and international third-party management and leasing contracts obtained during the 2014 calendar year and ranks the top performers. As always, the measuring stick is square footage.

For third-party managers, it’s almost an existential question: Is growth achieved by focusing on individual markets and even submarkets, or by expanding outward to embrace the challenges and benefits of an increasingly international industry? This year’s fastest-growing managers have chosen various answers, all to great success in 2014.

The key for CBRE and JLL, ranked first and second, respectively: going “glocal” by offering best practices and resources from an international base, while continuing to grow the number of local offices, brokers and tenant reps to provide in-person service and market depth.

At third- and fourth-ranked Mid-America Real Estate Group and The Woodmont Company, local contacts and specialized knowledge allowed them to expand their portfolios by millions of square feet.

And fifth-ranked Simon Property Group grew without really trying that hard, as owners simply went to what they feel is the best management team in the business.

No.1 CBRE

Top-ranked CBRE proves that acquiring locally and expanding globally are profitable, boasting new contracts totaling a whopping 45 million sq. ft. in 2014 from a broad geographic swath: more than 12 million sq. ft. throughout the United States, nearly 21 million sq. ft. of contracts in Asia, 3.7 million in Australia, 8.7 million in Europe and more than 102,000 sq. ft. in Canada.

“We’ve probably seen the most activity in this cycle,” noted Todd Caruso, senior managing director, Americas, for CBRE, Los Angeles. “Last year and this year feel like the highest level of activity that the industry has seen.”

Last year, the firm acquired Conshohocken, Pennsylvania-based Fameco, which frequently had been among Chain Store Age’s fastest-growing managers in years past. Meanwhile, the company continues to expand around the world.

But the business may shift in coming months. With so much consolidation having already occurred, merger and acquisition activity may slow down a bit, Caruso noted — expect some changes and opportunities as the last of the pre-recession CMBS pools come due.

“It will result in a change of ownership and service providers,” Caruso said.

CBRE’s growth should continue through both acquisition and expansion. Earlier this year, the company acquired Dallas-based United Commercial Realty. Meanwhile, CBRE is looking for even more geographic growth, with a small practice in Mexico City, and expanding staff in South America.

No.2 JLL

A major corporate change toward building up staff in individual markets continues to pay off for JLL, which placed second this year with 18.8 million sq. ft. of new contracts, ranging from single locations in Alabama to Ka Makana Ali’I Mall in Ko Olina, Hawaii.

“We have traditionally been more of a national approach,” said Greg Maloney, president and CEO of JLL’s Americas Retail Group, Atlanta. “That has completely shifted over the last 24 months.”

The company has grown from 40 retail brokers in the Americas to 100. Clients include Deutsche Bank, Morgan Stanley, and Gregory Greenfield and Associates. Yet its global structure also allows the company to exchange best practices and information.

“What is globalization in retail?” Maloney said. “It’s about capital flow and the needs of a retailer.”

It’s also about best practices, exchanging information regarding such matters as safety issues, and introducing specialty leasing to areas where it previously was unknown.

“We do export that, but we’ve never taken our eyes off the ball locally,” Maloney said.

The company continues to find growth potential, particularly on the U.S. coasts from New York to California, as well as North Dakota, Texas and the west coast of Florida. But the concentration on submarkets continues.

“California is a big push for us,” Maloney said. “Especially in the local markets.”

No. 3 MID-AMERICA REAL ESTATE GROUP

Expanding the services offered at one of its offices continues to add to the third-party portfolio of Oakbrook Terrace, Illinois-based Mid-America Asset Management, which placed third this year with more than 8.8 million sq. ft. of new contracts.

More than 2 million sq. ft. of that sum is in Wisconsin, due in large part to a deci sion to expand the services offered in its Milwaukee office.

“The Wisconsin office did a great job,” said Michelle Panovich, principal and executive VP. “Mid-America made a commitment a couple of years ago, and it’s worked really well.”

The company had a team in Milwaukee for some time, but boosted the staff with experienced managers, creating yet another full-service office, in addition to locations in Chicago; Minneapolis; and Bloomfield Hills, Michigan.

“We have a lot of long-standing institutional clients, and the Milwaukee team really made an effort this past year with quite a bit of success,” Panovich added.

And that investment in new sites could continue if the opportunity arises, she said. The Milwaukee office was opened after Mid-America had worked with some professionals in the city.

“We always have our eyes out,” Panovich said. “And we look at it every couple of years.”

No. 4 THE WOODMONT CO.

Some firms grow their third-party leasing contracts by focusing on one particular niche, such as enclosed malls, while others base their services broadly. The Woodmont Co. expanded its portfolio by doing both.

The Fort Worth, Texas-based company, which placed fourth with 5.2 million sq. ft. of new contracts in, did so by creating specialized teams that allow experts to lease projects from malls to outlets to neighborhood properties, building loyalty among owners.

“We’ve had a pretty good couple of years in a row, and that’s a testament to a lot of repeat business from our clients,” said Frederick J. Meno, president and CEO of Asset Services.

Unlike many firms, which are vertical in structure, Woodmont is more horizontal.

“We like the single point of contact,” Meno said.

That may well be Woodmont’s advantage in a possibly challenging market in the near future, as outlet centers could be over-expanding and special servicers take over some of the last of the pre-recession projects funded by CMBS.

“Outlets are springing up all over the place, and getting closer and closer to rooftops,” Meno said. “You’re going to have an overabundance of outlet centers, and over the next two years it will be a competitive arena. We’ll actively put together a redevelopment plan for a special servicer. It’s just another bell and whistle we can offer.”

No. 5 SIMONPROPERTY GROUP

For a company primarily focused on developing and managing its own projects, Simon certainly does well with third-party management, signing 4.7 million sq. ft. of space to rank fifth on this year’s list.

“It’s not a business we solicit, but because of our prominence in the industry, it comes our way,” said Les Morris, manager of corporate public relations for Indianapolis-based Simon. “We’re just laser-focused on making our properties amazing.”

The company is known for the quality of its management, asking a lot of its personnel, he noted, “but that’s led us to have the best in the business, with a great bench and support staff, great regional vice presidents.”

Of course it also helps when the largest project signed last year, Newport Centre in Jersey City, New Jersey, was co-developed by predecessor firm Melvin Simon and Associates (with the Glimcher Company and The Lefrak Organization) in the late 1980s.

“It gives us great familiarity with the project,” Morris said, adding that it’s part of an overall trend of focusing on urban properties. Urban projects include new developments in Fort Worth, Texas, and an expansion of Copley Place in Boston.

Even so, ground-up development continues to be the company’s raison d’etre, particularly in the outlet sector, with projects planned in Tucson and Gloucester Township, New Jersey, among other locations.

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BIG DEALS, FEWER SQUARE FEET

BY CSA STAFF

Our fastest-growing acquirers bought fewer square feet than in 2013. But the deals may be even better.

Editor’s Note: The 26th annual Chain Store Age survey of Fastest-Growing Acquirers surveyed retail square footage purchased during the 2014 calendar year.

Retail real estate acquisitions slowed in 2014. The year’s five Fastest-Growing Acquirers purchased approximately 10 million fewer square feet than the top five bought in 2013.

That may be a deceptive observation. In fact, 2014 brought a lot of good retail news. Holiday sales zoomed up 4.1% compared with 2013, reaching $617 billion. Annual sales hit $5.3 trillion, up 4.1% from 2013 — mirroring the holiday sales rise. Despite the troubles of Radio Shack and the big-box office stores, 2014 saw many new store openings by traditional retailers and a number of retailers like Bonobos, which were previously online only.

No.1 PHILLIPS EDISON & CO.

Phillips Edison & Co. (PECO) exceeded last year’s acquisition pace, adding 8,499,840 sq. ft. of retail real estate in 2014, compared with last year’s 6,270,004 sq. ft. To reach that total, the company spent $1.2 billion on just under 80 properties — acquired through 61 transactions. What kinds of properties? “We look for stabilized grocery-anchored properties that rank first or second in the market and offer cash flow growth from regular contractual rent increases,” said Hal Scudder, PECO’s chief investment officer.

That said, one of PECO’s most notable acquisitions in 2014 is a portfolio of four centers in the Metro Boston area. “This is our first move into Massachusetts,” Scudder said. “We now have seven centers in New England. We are in every region of the country but had been least represented in New England.”

Scudder went on to say he plans to acquire a similar volume of square footage in 2015 but noted that the market is extremely competitive today.

“Our acquisition team is spread out across the country,” he said. “We also have deep relationships, and so we’re able to find our deals despite the competitive market.”

NO. 2 AMERICAN REALTY CAPITAL PARTNERS

ARCP’s acquisition strategy focuses primarily on net leased single-tenant freestanding commercial properties with high credit quality tenants. Following last year’s merger with Cole Real Estate Investments, ARCP also acquires and manages assets on behalf of Cole Capital non-traded REITs.

“During 2014, ARCP acquired just over 7.7 million sq. ft. of retail real estate,” said Carrington Guy, executive VP acquisitions. “We spent approximately $7.2 billion on 1,680 properties, including those acquired on behalf of the Cole Capital managed REITs.”

The square footage acquired on behalf of its managed REITS reached another 11 million.

Carrington highlighted Red Lobster and Walgreens portfolio acquisitions as standouts among the 2014 acquisitions.

“ARCP acquired 522 Red Lobster restaurants and 20 other branded restaurant properties in a $1.7 billion sale-leaseback transaction,” Guy said. “The properties are located in key retail markets with strong operating metrics and real estate fundamentals.

“Cole Credit Property Trust V acquired a portfolio of 10 Walgreens stores in six states totaling 147,500 sq. ft. for $52.5 million. Walgreens investment grade credit (S&P ‘BBB’), long lease term and location of the assets made the portfolio a good candidate for CCPT.”

What’s on tap this year? “We see a new set of acquisition opportunities across the single tenant landscape as different sectors’ build-to-suit programs come on line,” Guy said.

NO.3 KIMCO REALTY CORP.

Kimco acquired 27 new shopping centers spanning 2,317,000 sq. ft. in 2014. Twenty-four of those properties came in a single portfolio acquisition. Twenty-one are in New England, primarily in the Boston metro area. Two are in North Carolina; one is in Georgia.

“We acquire select centers in top demographic markets throughout the country,” said Ross Cooper, senior VP investments with Kimco.

“Our acquisitions are well anchored with either the market’s top grocery anchor or national big boxes in a power center,” continued Cooper. “Generally, we look for properties that promise substantial cash flow growth. Growth might come from repositioning, tenant rollovers at below market rents, contractual increases or a combination of all three.

“The company also bought out 36 properties previously owned in joint ventures, obtaining 100% interest in an additional 4.5 million sq. ft.”

All told, Kimco acquired approximately 6.8 million sq. ft. of retail real estate in 2014.

NO. 4 THE INLAND REAL ESTATE GROUP OF COS.

In 2014, The Inland Real Estate Group of Cos. acquired 69 properties spanning 4,487,679 sq. ft. for $911,003,856.

Two of those acquisitions stand across the street from each other in Little Rock, Arkansas. Inland paid $41,450,000 for the 126,888-sq.-ft. Midtowne Shopping Center and $28,123,317 for the 60,389-sq.-ft. Park Avenue center.

“It’s always better to have more than one property in an area,” said Joe Cosenza, vice chairman. “We have 10 million sq. ft. in the Chicago area, and we can drive to all of them.”

“It’s logical. If you have many properties in an area, you can save on landscaping, snow removal and everything else you have to hire outside the management company — thanks to volume buying.”

Another acquisition was the 111,271-sq.-ft. Memorial Commons in Goldsboro, North Carolina. Inland paid $17,809,560. “When the developer learned of our interest, they stopped offering it on the market,” Cosenza said. “We’ve dealt with that developer for years and have a great relationship.”

“I’ve always emphasized that when you do a deal, you have to respect the other side as much as you want to be respected.”

No.5 ROUSE PROPERTIES

Rouse Properties strode into the top five Fastest-Growing Acquirers list with just two acquisitions in 2014. Both are enclosed malls: the 1,455,517-sq.-ft. Bel Air Mall in Mobile, Alabama, and the 831,389-sq.-ft. Mall at Barnes Crossing in Tupelo, Mississippi.

“Each is the only game in town, which is what we look for,” said Brian Harper, executive VP leasing and acquisitions. “Bel Air is the only enclosed mall within 60 miles of Mobile.” Rouse paid $135.2 million for it.

Bel Air serves a dynamic trading area. The population of the metro region is 600,000, and it’s growing. Airbus is building a $600 million final assembly plant that will employ more than 1,000 people. The University of South Alabama is a few miles away.

The Mall at Barnes Crossing, also the only mall for many miles, has a trading area population of 500,000 in an active growth corridor. A branch of the University of Mississippi is near the mall, and the main Ole Miss campus in Oxford is only 30 minutes away.

“Rouse acquired a 51% interest in Barnes Crossing based on a total valuation of $98.9 million,” said Harper. “Our joint venture partner on the acquisition is David Hocker and Associates. Over the years, David Hocker has developed several malls, including Barnes Crossing.”

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AZALEA BLOSSOMS

BY CSA STAFF

Another opening in 2014 made plenty of headlines. Azalea Regional Shopping Center, opened in August by PrimeStor Development in South Gate, California, houses the new branded concept by Forever 21: F21 red, which offers an increased depth of product at a significantly lower price point. The Azalea store, which opened in May, was the brand’s debut; three other F21 red stores have since opened in New York and Minnesota.

Azalea Regional Shopping Center has plenty to shout about on its own. The 32-acre, Los Angeles County-area project grew out of a vacant site and delivers 400,000 sq. ft. of open-air shopping in a Latino-majority community.

Tenants include — besides F21 red — Walmart, PetCo, ULTA, Ross Dress for Less, Marshalls, In N Out, CVS, Skech-ers and more.

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