Don’t let the grocery sector shake-ups fool you.
While there are individual failures, the category as a whole continues to find favor among developers that place a premium on having a traffic magnet in their shopping centers.
It’s been just six weeks since Albertsons parent Supervalu ousted its chief executive and tried to squelch rumors that a bankruptcy filing was imminent — and a short six months since A&P emerged from its financial restructuring as a private company — yet today’s grocery landscape is, at least among a core group of banners, a pretty steady one.
The Food Marketing Institute will tell you that the average U.S. adult shops for food an average of 2.2 times per week. So the law of averages suggests that if you place a supermarket in a shopping center, that grocer will drive traffic toward all the tenants in the center. The developers that know how to pick and position the right grocer, or have the savvy to acquire the right grocery-anchored center, have found a recipe for success, even in the shakiest of economic times.
Funding growth: Five years ago, Westchester, Ill.-based Tri-Land Developments operated 17 grocery-anchored centers in eight states, but that number has been strategically trimmed. “You can’t leverage debt in this environment,” said president Richard Dube. “Selling off some has done just what we intended, which is fund growth.”
Tri-Land now has seven grocery-anchored centers and another three under negotiation. Market-leading grocery partners include Cub Foods, HyVee, Kroger, Price Chopper and Rainbow.
Kroger, in fact, is the star of Tri-Land’s new center, The Crossings, in Smyrna, Ga. The 96,000-sq.-ft. Kroger opened on Jan. 25 — across the street from a former location.
The deal came together when, in 2004, Tri-Land acquired a 160,000-sq.-ft. property kitty-corner from the 40-year-old Kroger site. “We knew Kroger had to get out of that building and that they were having a hard time finding the right site,” Dube said.
Tri-Land spent five years de-leasing the center, then struck a deal with Kroger to do a new store across the street. Tri-Land razed 100,000 sq. ft. to accommodate the grocer, renovated 60,000 sq. ft. of small-shop space and has created a center with a new look and a new cast of players.
Adding value: When Lamar Cos. acquires a grocery-anchored center, it is with the goal of adding value. Even through a tumultuous economy, the Morristown, N.J.-based company has stayed its course to the benefit of the acquired centers and their tenants.
Lamar owns 19 shopping centers, 10 of them grocery-anchored. “That’s about the right ratio for us based on what we buy,” said Phil Schneider, VP asset management.
Lamar has relationships with Publix, Winn-Dixie, Bi-Lo, Food Lion, Kroger, Marsh and Giant Eagle. All have been boons to the centers they’re in. “They bring in customer traffic, which is No. 1 from an operational standpoint,” Schneider said. “From an investment standpoint, they bring stability.”
Lamar’s latest acquisition is Ventnor Plaza, in Ventnor City, N.J. The 200,000-sq.-ft. Pathmark-anchored center occupies a beach-side location unique to the market. “The area is mostly condos and shore homes,” Schneider pointed out. The 58,000-sq.-ft. Pathmark shares space with tenants such as Peebles and Dollar Tree; the center is 61% occupied.
“Ventnor Plaza fits right into what we do. It features a solid-performing grocery tenant in a center that we can add value to.”
Grocery to the core: Few in the industry understand grocery-anchored centers the way Donahue Schriber, Costa Mesa, Calif., does. The format is at the very core of the company.
Of its 80 shopping centers and 12 million sq. ft. in California, Arizona, Nevada, Oregon and now Washington, 85% are grocery-anchored. Safeway, Von’s, Ralphs, Trader Joe’s, Save Mart, Whole Foods and Raley’s are among the anchoring supermarkets.
“The grocery-anchored center is dominant in our portfolio, and that’s our strategy,” said Dave Mossman, chief investment officer.
Donahue Schriber only entered the state of Washington this past June, with its acquisition of Four Corners Shopping Center anchored by a highly successful Safeway. The 121,000-sq.-ft. center sits on 14 acres, and is tenanted by — besides the 55,000-sq.-ft. Safeway — a blend of local and national tenants, including McDonald’s and Starbucks.
“It’s about as core as we’re going to buy,” Mossman said. “The acquisition was a strategic move to get to the Pacific Northwest.” The high-performing Safeway was a big draw, he added, but there is also a potential upside as tenants turnover over time.
Cog in the wheel: When Irvine Co. Retail Properties embarked on a $100 million renaissance of its Orange County, Calif., flagship property Fashion Island in 2008, it was with a plan to retool the 45-year-old, 1.3 million-sq.-ft. center into not only an updated, but a more relevant, shopping experience.
In April 2010, Nordstrom joined Neiman Marcus, Bloomingdale’s and Macy’s in the anchor lineup and, on Sept. 19, Whole Foods Market officially opens the doors to its 32,000-sq.-ft. point-position in Fashion Island.
“Whole Foods was a terrific catch for us,” said Frederick Collings, senior VP leasing for Irvine. “It rounds out the merchandising we are trying to offer at Fashion Island and is the final cog in the wheel.”
Whole Foods, Collings said, was drawn to Fashion Island because it really wanted a location in Newport Beach. Given that Fashion Island is surrounded by the Newport Center office cluster, as well as significant residential components and, soon, City Hall, it was a good choice for Whole Foods.
Irvine also counts among its supermarket relationships Von’s, Ralphs, Albertsons, Gelsons, Trader Joe’s, Smart & Final and local player Wholesome Choice. The company’s real estate is located entirely in California and encompasses 36 neighborhood centers — of which 28 are grocery-anchored.
Building relationships: Columbus, Ohio-based Casto has built the grocery-anchored segment of its portfolio — comprised of more than 60 centers in 10 states — by focusing on relationship-building with its grocery anchors, which include Whole Foods, Earth Fare, Harris Teeter, Publix, Food Lion, Kroger and more.
As an example, “we have a long-standing relationship with Kroger, cemented by the fact that we are both based in Ohio,” said Brett Hutchens, Casto’s partner in charge of retail development in the southeastern United States. “We have nearly 20 Kroger-anchored shopping centers in Ohio, from Columbus down to Cincinnati.”
Harris Teeter is another grocery ally, and will anchor Casto’s 121,000-sq.-ft. Memorial Commons property, located in Goldsboro, N.C., and marking Harris Teeter’s debut in the market.
“Harris Teeter will occupy 53,000 sq. ft. in the center, and will join Office Depot, T-Mobile and Subway,” Hutchens said.
Construction launched in 2008 on Memorial Commons, and Harris Teeter will start its construction in the fall. What it will bring to the center is exactly what Casto banks on for all of its grocery-anchored properties: “a big draw, high traffic counts, strong co-tenancy,” Hutchens said. “Grocery-anchored centers are part of our core, and we know what the supermarket brings to the property.”
Leveraging grocery: In its grocery-anchored shopping centers, St. Paul, Minn.-based Paster Enterprises has leveraged the full benefit that a supermarket anchor brings — traffic and shopping frequency. “Grocers bring customers to a shopping center, on average twice a week, and that feeds into our other small-shop tenants at the centers,” said Ken Henk, VP operations and construction for Paster.
Of Paster’s 13 properties and 1.1 million sq. ft., 10 centers are grocery-anchored. Relationships include Cub Foods, Whole Foods, Aldi and Festival, along with several local independent grocers.
In tandem with Shiner Capital Partners out of Chicago, Paster acquired a Cub Foods-anchored property — Cahill Plaza, in Inver Grove Heights, Minn. — in spring 2011. The 69,000-sq.-ft. center features, besides the 52,000-sq.-ft. Cub Foods, a McDonald’s on an outparcel, MGM Liquor, Papa John’s, Edward Jones and Great Clips, making Cahill Plaza a neighborhood destination.
Cub Foods has a major internal remodel in its future plans, along with a drive-through pharmacy addition. As well, “there is one vacancy at the center and we are splitting that to accommodate a CherryBerry yogurt shop, leaving an 1,100-sq.-ft. space,” Henk said. “There is also room to add another 7,200 sq. ft. of small-shop space.”
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