The Best at Managing Change
Unusual circumstances are forging the best of times for third-party shopping center managers. Rampant store closings, after-effects of the commercial mortgage backed securities crash, and opportunistic buyers are creating opportunities for innovative managers to reinvent properties for their clients.
1. CBRE Group
Globalization, urbanization and CMBS rollover formed a potent combination for top-ranked CBRE Group, which reported 68.8 million sq. ft. of new contracts signed worldwide in 2016.
Approximately 20 million sq. ft. of the total was in the United States, with 17.9 million in the Asia-Pacific region.
“We have some pretty exciting projects in Australia,” said Scott Weaver, senior managing director of asset services in the firm’s Dallas office. CBRE had picked up a sizeable portfolio of power centers (called “homemaker centres” Down Under) on the continent.
In the U.S., the firm further expanded its services to malls and larger center formats with the addition of former GGP executive Mark Hunter early in 2016.
With new properties including traditional malls and a growing practice in urban markets, experiences are an important factor in leasing, said Todd Caruso, senior managing director of CBRE’s retail owner/agency practice. Retailers like the density of high streets. But assembling land mass for urban projects isn’t easy, he warns.
“Owners have done a good job aggregating properties,” Caruso said. “But it’s a different kind of acquisition. You have more hoops to jump through.” And once the package is assembled, special expertise is needed for leasing.
“It’s no surprise that the restaurant business is on fire, from fast-casual to fast food,” Caruso added. “In emerging districts, though, as they mature, the next stage is fashion and apparel, including bridge brands.”
Another avenue of growth is the CMBS servicing market, as debt from 2007 will come due through the end of 2017.
“This isn’t bad product, but it can’t be refinanced,” Weaver said. “So we’re seeing a lot of it coming back. We saw an opportunity to jump into that business while we picked up some international clients.”
Perhaps most exciting is that new construction is creeping back, the two reported. While nowhere near the levels of the early 2000s, construction has picked up over the past couple of years to satisfy demand. Centers in Dallas are at record occupancy levels, Weaver noted.
“We know the mall is not dead,” Weaver said. “If there’s one certainty in retail, it’s change.”
Second-ranked JLL, which signed 60.2 million sq. ft. in new contracts in 2016, continues to succeed by offering services in all shopping center types — and working with industry neophytes as well as established owners. Even more astonishingly, all 609 new projects are in the U.S. — they cover 49 states, Washington, D.C., and Puerto Rico.
“A lot of the clients coming on are new entrepreneurs looking to get into the retail environment,” said Karen Raquet, EVP of Atlanta-based JLL.
And for the first time in years, she observed, owners are turning from containing costs toward building for the future.
“It’s so much fun to have clients investing in these properties,” Raquet said. “It reinvigorates everyone, not just for me but for the whole team.”
Special servicers remain an important part of JLL’s client base, but it’s also working with developers investing projects to rebuild and hold. Turning those projects around requires moving beyond the traditional re-leasing strategy, she said, though the firm also has signed department store Von Maur to the expansion of Minnesota’s Rosedale Center for a 2019 opening.
“If it’s time to reinvent a center, we’re looking for hotels, for event space, health and fitness centers and entertainment centers,” Raquet said. “We ask, ‘How about offices?’”
New projects also are in the mix. JLL is handling development consulting and the retail and office leasing on Halcyon, a mixed-use project underway in Forsyth County, Ga.
The growth should continue, as the company already has signed contracts to manage five malls this year. Raquet reports that the first quarter of 2017 was “the most successful and busiest quarter. It’s just tremendous.”
3. Mid-America Real Estate Group
Look for third-ranked Mid-America Real Estate Group’s touch on ever more projects in Chicago. This year, the Oakbrook Terrace, Ill.-based company took on 7.9 million sq. ft. in new contracts, covering 115 properties in four states (Illinois, Michigan, Wisconsin and Minnesota).
“We’re busy across the board,” said Jean Zoerner, principal and VP.
One contract in particular stands out: During 2016, Mid-America formed a formal partnership to serve as the leasing agent on Sterling Bay’s commercial portfolio, leading the tenanting of most of Sterling Bay’s retail space throughout Chicago, as well as new markets including Miami, Portland and Nashville, among others.
“I expect a busy 2017,” Zoerner said. “We’re busier than ever.”
4. The Woodmont Company
With 7.7 million sq. ft. in new management contracts, Fort Worth, Texas-based The Woodmont Company continues to expand its services — and expand the centers it’s managing, a project or two at a time.
“Our growth is organically driven. We’re not acquiring other management companies, we’re getting new assignments,” said Fred Meno, president and CEO of asset services. The company’s new contracts covered 10 states, with Texas dominating, including Vista Ridge Mall in Lewisville.
Special servicers are a continuing source of new accounts, as foreclosures continue and properties financed by CMBS prior to the recession are seeing loans mature in a higher interest rate, he said.
“They are still underwater and can’t be refinanced, so we’ve seen a lot of receivership work,” Meno added.
Other properties have become obsolete, he said, requiring extensive redevelopment. Woodmont offers its clients extensive analytics to help determine the best uses for projects with renovation potential.
“The CMBS clients can’t add or delete GLA [gross leasable area], but we can put together an analysis of what the highest and best use is for a property,” he said. “Then they can take that analysis and sell the dream.”
5. Vestar Corp.
Patience, hard work and networking have paid off for Vestar Corp.’s third-party division. Best known for acquiring and redeveloping retail centers, the Phoenix-based firm ranked fifth on this year’s list with 3.4 million sq. ft. of new space under management.
“The fruit of the efforts of my VP of client services have come into play as well as new institutional relationships,” said Pat McGinley, president of management services at Vestar. “It just takes a while for the right timing and the right deal.”
Among those deals was the contract to manage Stockbridge Capital Group’s Mira Mesa Marketplace in San Diego, where Vestar oversees some 2 million sq. ft. of space.
“Being an owner/operator as well as a service provider is an asset,” McGinley continued. The firm has strong relationships and contacts with major retailers including T.J. Maxx, Walmart, and Bed Bath & Beyond. “Relationships do matter.”
Persistence continues to bring new accounts, with Vestar already signing three new agreements in 2017.
6. ProEquity Asset Management Corp.
A new name joins the list as ProEquity Asset Management Corp. placed sixth with 1.8 million sq. ft. of new contracts.
“ProEquity was a child of the recession,” Michael H. Turner, CEO of the El Dorado Hills, Calif.-based company. “We have a great program that takes over the projects, runs them, and sells them.”
The firm was founded in 2012 by several professionals who had worked with CMBS and continued in providing real estate services. Among its client base are private and institutional investors, with ProEquity providing them with assistance in management and leasing. A special focus is on controlling operating costs and improving a center’s appearance as the company re-leases vacant spaces.
As with many managers, special servicers have been a source of growth for ProEquity — in one 2016 contract, CMBS management firm LNR Partners retained the company to assist in transitioning Coliseum Center in Oakland, Calif., for eventual sale. The average hold for many of these projects is about two years, he added.
“I anticipate that 2017 will be a fantastic year,” Turner said. “We’re already ahead of last year.”
Quality Trumps Quantity
As physical shopping centers battle furiously for customer share, more developers are realizing that bells and whistles aren’t just optional; they’re essential. No matter the size or scope, new shopping centers have to offer something extra to an increasingly discerning consumer — and the group of owners highlighted here is doing just that.
Chain Store Age’s annual development survey — spanning 28 years — showcases notable projects by developers who continue to push the envelope, adding in those now-requisite amenities to even the smallest of footprints.
Consistent with years past, we have not attempted to rank a “Fastest-Growing Developers” listing but, rather, have arranged the companies alphabetically and provided highlights for one 2016 project from each developer. All new developments and expansion projects were completed between Jan. 1 and Dec. 31 of last year.
CBL & Associates Properties
2016 score: 8 projects in 6 states,
557,000 sq. ft.
Louisiana has much to celebrate from a CBL-Stirling partnership that delivered Fremaux Town Center in Slidell in 2015 and Ambassador Town Center in Lafayette in 2016.
Ambassador Town Center is a 60-acre retail project anchored by Costco Wholesale, Dick’s Sporting Goods and Field & Stream. The 425,000-sq.-ft. complex opened on March 16, 2016, and is 100% leased with an impressive list of tenants that were either new to the market or, in some cases, new to the state. Other notable tenants at this vibrant open-air center include Nordstrom Rack, HomeGoods, Marshalls, Off Broadway Shoes, Red Robin, BJ’s Restaurant & Brewhouse, Chuy’s and Panera Bread.
2016 score: 5 projects in 1 state,
230,000 sq. ft.
New to the CSA Top Developers list is Halpern Enterprises, which completed five projects last year — all in its home state of Georgia. The family-owned and -operated business, based in a suburb of Atlanta, points to its development of Dawson Crossroads in Dawsonville, Ga., as its most significant of the year. Opened in October 2016 and located across from the North Georgia Premium Outlets, the Publix-anchored center features nearly 100,000 sq. ft. of retail and restaurant space. PetSmart, Freddy’s Frozen Custard & Steakburgers and several new retailers make their debut at the center this year.
2016 score: 4 projects in 2 states,
1,056,881 sq. ft.
Another newcomer to the CSA Top Developers list is Houston-based NewQuest Properties, which delivered Camp Forbing Town Center to Shreveport, La. The developer, which had previously concentrated its efforts in neighboring Texas, made its Louisiana debut with this center, which features a Kroger Marketplace and Silver Star Grill.
The Camp Forbing Town Center is also notable in that it was the first commercial Planned Unit Development in the city of Shreveport, and its design was the result of the direct collaboration with Shreveport officials and community leaders.
2016 score: 4 projects in 3 states,
366,118 sq. ft.
A regular on the Top Developers list is Regency, a prolific builder of grocery-anchored centers. For 2016, the company highlights its development of Village at La Floresta in Brea, Calif., which blends grocery, entertainment and other lifestyle offerings designed to appear to the local population. Retailers are chosen based on the needs of the surrounding community and include Whole Foods Market, Mendocino Farms Sandwich Market, Jimmy’s Famous American Tavern, Kriser’s, Plum Pretty Sugar, Floyd’s 99 Barbershop, Blue Eyed Girl, Orangetheory Fitness, Slapfish, Urban Plates, and CorePower Yoga.
The center is LEED Silver Certified and offers a mix of lifestyle shopping needs in a walkable setting, reducing emissions and vehicle miles for nearby residents. High-performance building design significantly reduces energy consumption, water consumption and greenhouse gas emissions. A tiered amphitheater makes a stunning gathering area for the community to listen to live music and enjoy an afternoon or evening outside.
New York, N.Y.
2016 score: 6 projects in 5 states,
507,000 sq. ft.
Another perennial listmaker, Rouse Properties, showcases its transformation of Bel Air Mall, a 1.3 million-sq.-ft. super regional mall serving an expansive trade area of more than 570,000 people across southern Alabama, Mississippi and the Florida Panhandle.
Completed by Rouse in concert with the city of Mobile, Ala., Bel Air Mall today provides an expanded retail experience that effectively blends shopping, dining and entertainment. To achieve that, Rouse transformed enclosed mall space into an engaging streetscape and rebranded the property The Shoppes at Bel Air. The transformation, which was completed in the fall of 2016, has had a tremendously positive impact on leasing efforts at the shopping center. Among the many new and exciting tenants the mall has added to its merchandising mix since the redevelopment was announced is Belk, which chose The Shoppes at Bel Air to house its flagship location in Mobile, along with H&M, P.F. Chang’s, Grimaldi’s, Cinnabon, Torrid and Rue21. Baumhower’s and DXL are slated to open in 2017.
Simon Property Group
2016 score: 10 projects in 8 states,
1,918,000 sq. ft.
Of all of its development projects in 2016 — and this mall powerhouse completed almost 2 million sq. ft. of new space — Simon points to the expansion of a Philadelphia landmark, and the largest mall on the Eastern seaboard, as its most significant.
Simon linked the Plaza and Court areas at King of Prussia Mall, and added a new four-level parking garage so customers can valet their cars and walk seamlessly into the new area. The two-year expansion project, which opened to great fanfare in August 2016, added 155,000 sq. ft. comprised of 50 stores and 13 eateries. Today, King of Prussia Mall is home to more than 400 stores and dozens of dining options, making it a highly desirable shopping and entertainment destination.
2016 score: 5 projects in 1 state,
532,334 sq. ft.
Stirling Properties rightfully takes its credit — along with CBL & Associates Properties — for the delivery of Ambassador Town Center in 2016. And the fact that the new center is a meaningful addition to Stirling’s south Louisiana home base makes the development that much sweeter.
Ambassador Town Center was 100% leased within six months of its grand opening in Lafayette, La., a significant accomplishment that represented the strength of the Lafayette market despite challenging economic times. Stirling and CBL formed a JV to develop the center and, with less than two years of planning, construction began in January 2015. Though not initially contracted to develop the center, Stirling and CBL were able to adapt and deliver the project in an exceptionally timely manner when previous developers could not. The companies currently manage and lease the property. Ambassador Town Center has been credited with creating approximately 2,200 construction jobs, 1,700 permanent jobs and nearly $9 million annually in sales tax revenue for the city of Lafayette.
Bloomfield Hills, Mich.
2016 score: 3 projects in 1 state, 2
projects outside U.S., 3,020,000 sq. ft.
Located in the heart of Waikiki, Hawaii, on the island of Oahu, the reimagined International Market Place is a world-class shopping, dining and entertainment destination for tourists and residents alike. Opened August 25, 2016, the 345,000-sq.-ft., three-level center features a curated mix of upscale and lifestyle brands, anchored by the first Saks Fifth Avenue in Hawaii. The top level Grand Lanai offers a menu of 10 diverse dining options from Flour & Barley Brick Oven Pizza to Michael Mina’s Stripsteak. IMP offers up to 75 of today’s most in-demand retail brands at every price point including Christian Louboutin, Free People, Fabletics, L’Occitane, Oliver Peoples, Stuart Weitzman and Swarovski.
In typical Taubman style, the design of the center embraces the rich heritage of the site and its cultural history, translating those qualities in a fresh contemporary approach that is seamlessly woven with its iconic past.
Trademark Property Company
Fort Worth, Texas
2016 score: 4 projects in 2 states,
290,113 sq. ft.
Last year, Trademark completed one new development in Fort Worth and three expansion/redevelopment projects in Germantown, Tenn., Dallas and Fort Worth, all totaling more than 290,000 sq. ft.
It highlights its opening of Waterside — a 63-acre mixed-use development in Fort Worth — as its most significant. Phase I includes local and national retailers and restaurants, anchors Whole Foods Market and REI, 383 multi-family units and free community amenities.
Waterside is the first ground-up project developed under Trademark’s Conscious Place experiential development model. Conscious Place elements include “The Grove,” a vibrant public space, shaded seating, free Wi-Fi, outdoor games, sustainability initiatives, a community promotion shed, Waterside’s signature micro-restaurants, a regional public art program that celebrates the site’s history, preservation of heritage trees and Trinity River/Trinity Trails integration.
At full build-out, Waterside will be a walkable district including 200,000 sq. ft. of retail space and riverside restaurants, 800 multi-family residential units, one or two hotels, office buildings and potential for additional high-density, single-family housing, much of which will be situated along the Trinity River.
Century City, Calif.
2016 score: 1 project in 1 state,
290,000 sq. ft.
Another name not foreign to our Top Developer list, Westfield opened less new square footage in 2016 than it has in several years — but what it opened is masterful.
Westfield World Trade Center, in Manhattan, opened 290,000 sq. ft. last year, featuring key tenants Eataly, Épicerie Boulud, Apple, Hugo Boss, H&M, Kate Spade, John Varvatos, Lacoste, Banana Republic, Under Armour, Cole Haan, Stuart Weitzman, Aldo and Vince Camuto.
Westfield World Trade Center has become the new port of entry to Lower Manhattan — located at a transportation hub where 13 subway and PATH trains, multiple ferry lines, thousands of local residents and millions of global travelers converge within one unforgettable setting. Designed by acclaimed architect Santiago Calatrava, the property’s light-filled “Oculus” is an artistic achievement all its own and an iconic landmark now instantly identifiable in New York City. The destination’s variety of more than 100 fashion, beauty, lifestyle and technology brands showcases the very best New York has to offer — all in one place.
Westfield World Trade Center is projected to register up to $1 billion in annual sales and welcome more than 100 million customer visits each year.
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The Discipline of the Deal
Stick to your knitting. That appears to be the mantra for this year’s top acquirers, all of which, save one, have appeared on this list in previous years. Most relate that, in the late stages of a recovery, discipline, tenacity and structure are key to closing deals. This year, staffers at two of these tenacious companies can chant, “We’re No. 1!”
1. Phillips Edison & Company
Discipline equals consistency equals opportunity for Fastest-Growing Acquirers list regular Phillips Edison & Company, which tied for first place with 5.1 million sq. ft. acquired this year.
“We’ve built a great platform and an efficient team,” said David Wik, SVP of acquisitions at the company with bases in Cincinnati and Salt Lake City. “It’s important to have discipline, which is why we’ve built such a strong portfolio through primarily single-asset acquisitions. We’d love to buy more large portfolios, but it can be difficult to find large portfolios that have the quality of assets that is consistent with our existing portfolio.”
Given its track record, Phillips Edison is also top of mind for potential sellers, so the pipeline should continue, especially as the pre-election deal slowdown reverses. Wik noted that the company has a solid list of potential acquisitions to pursue for 2017. The next challenge is then to tenant them for today’s shopper.
“Our merchandising plans include many retailers that are internet-resistant,” Wik said, and that will continue to favor grocery-anchored properties, he added.
“There’s a bit of a flight to quality in terms of shopping center acquisitions,” Wik said. “More capital is looking to safer investments.”
1. Westwood Financial
While consolidating retail centers remains the industry buzz, most of the talk revolves around a company’s expanding portfolio by acquiring other investors’ properties. Westwood Financial, on the other hand, matched Phillips Edison with 5.1 million sq. ft. acquired by restructuring the ownership of more than half its portfolio to achieve greater efficiency. In September, the Los Angeles-based company restructured its portfolio of 77 of 120 retail center holdings into a single, $1.2 billion real estate company, acquiring the projects from 67 entities comprising 550 investors, as well as its management company.
“For any operator of retail projects, it’s essential to have a strong balance sheet,” co-CEO Randy Banchik said. “This was necessary to have a better structure.”
After settling other shareholder issues, Westwood now has 75 projects and will continue to grow as it focuses on urban properties, grocery-anchored centers and light power centers in major markets.
“The plan going forward will be to build a better company with better properties,” co-CEO Joe Dykstra said.
But even with a simplified structure, the numbers must work, Banchik said.
“The biggest challenge is not how much property is available,” Dykstra said. “It’s at what yield the deal makes sense.”
3. DLC Management Corp.
Even as some companies found their way onto this year’s list with multiple acquisitions, DLC Management Corp. placed third with one “big, fat deal,” that was the largest in its history — but one that took a bit of luck and a few transoceanic calls to achieve, according to Adam Ifshin, president, CEO and founder of DLC.
The company looked at DDR’s upstate New York properties and formed a joint venture with DRA Advisors LLC to acquire the 16-center portfolio.
“We had already acquired an 11-center portfolio from Blackstone and DDR in 2014, which had given us seven assets in upstate New York,” Ifshin said. “In addition to assets we owned in Hudson Valley, this gave us critical mass.”
DDR, however, selected another buyer. But when Ifshin was in Milan to attend an ICSC conference, his “phone blew up” — the portfolio was available once again. Talks began anew, and a deal was signed in May 2016 at RECon in Las Vegas.
That type of transaction should increase this year, as the joint ventures formed in 2006 and 2007 have now matured, and partners are looking to maximize their profits, Ifshin predicted. But DLC may or may not be in the market, as it has more than 90 leasing transactions underway in the projects they already own.
“One thing that stood out was the quality of what we bought,” Ifshin said. “We don’t buy non-value-add. And in fact, we don’t have to buy anything. We are disciplined, strong fiduciaries for the capital we raise, and wildly opportunistic.”
4. Kimco Realty Corp.
Perennial listmaker Kimco Realty Corp. placed fourth this year with 2.4 million sq. ft. by sticking with its winning formula.
“Our philosophy is pretty consistent: We’re buying properties in dense infill demographic locations with development and redevelopment potential,” including adding other uses, said Ross Cooper, president and chief investment officer of the New Hyde Park, N.Y., company. Several Kimco properties, he said, are in markets where development actually grew up around the project.
And, Cooper added, the appeal of grocery-anchored centers continues: “There’s definitely more competition in grocery-anchored space.”
It’s important to note that, over the years, Kimco has sold properties amounting to $5 billion, monies that are being recycled into new acquisitions at prices that Cooper says can be aggressive: “We see the benefit of economies of scale.”
5. Agree Realty Corp.
The newcomer to CSA’s Fastest-Growing Acquirers list, this Farmington Hills, Mich.-based fully integrated REIT focuses on net lease retail properties. Agree placed fifth with 1.7 million sq. ft. acquired in 2016, but president and CEO Joey Agree will tell you that square footage may not be the best metric for measurement. To him, it’s more about what the company is buying — a fungible base of properties in major markets that can be leased to top service-oriented retailers.
“Our properties are e-commerce resistant and recession-resistant,” he said, mentioning tenants such as AutoZone, T.J. Maxx, National Tire and Battery, and Walmart Neighborhood Centers. “Our focus is on being a leading operator in that sector as retail will continue to be transformed. And with a highly fragmented industry, opportunities abound.”
6. Cole Credit Property Trust IV/VEREIT
As a non-listed REIT sponsored by VEREIT division Cole Capital, sixth-ranked Cole Credit Property Trust IV acquired 15 properties, totaling 1.3 million sq. ft.
Among its recent acquisitions is East West Commons, an open-air property in metropolitan Atlanta/Marietta, Ga. The key was the center’s 25,000-sq.-ft. outparcel potential, said Brett Sheets, SVP of leasing for VEREIT, Phoenix.
“This was a challenging space for a single new lease because of its size,” he said.
Originally, the company planned to redevelop the space into smaller shops. However, once negotiations began with Panera Bread, VEREIT opted to add a drive-through and four additional retail storefronts. The result increased visibility from major roads and improved parking.
“VEREIT will continue to analyze single-tenant retail and anchored shopping center opportunities,” said Thomas W. Roberts, EVP and chief investment officer at VEREIT.
And that’s already underway. The company has announced plans to acquire $450 million to $600 million of single-tenant retail and industrial properties.