While sales at department stores, apparel shops and jewelry houses are down, grocery store sales are up, Marks says. The only threat is from supercenters such as Wal-Mart and Target. "That may not yet be fully appreciated by the investment community," the broker/consultant says.

Still, investors are in a buying mode because "grocery-anchored centers in solid locations are still a good play, especially compared with what the stock market is doing," reports John M. Crossman, senior vice president and director of retail services for the Orlando office of Trammell Crow Co. For example, Crossman is seeing prices of $95 per sf to $100 per sf for Publix Supermarket-anchored centers. Even at those numbers, he says investors can recoup their money in a decent timeframe "if the area is strong enough and they have a competent leasing and management team."

Crossman cautions, however, that "an inexperienced ownership group could really suffer if it buys a center that is in a 'green' area and they do not have the knowledge of how to work with the tenants."

Working with tenants is the strategy being used by value-added buyers in the Chicago market, reports GlobeSt.com Midwest bureau chief Mark Ruda. Instead of looking for a conventional five- to 10-year holding period, small partnerships look for a two- or three-year window in which to raise net operating income and cash out profitably.

"The neighborhood centers are being bought by these value-added buyers," Charles Hold, senior vice president of Oak Brook, IL-based REIT Inland Real Estate Corp., tells Ruda. "They're hoping to come in and change the tenancy" because "they see something the previous owner didn't." Prices in the Midwest are generally in the $50-to-$125-per-sf range with capitalization rates of 9.5% to 11%.

But sometimes a trophy property, such as the new 53,030-sf center at North and Sheffield Avenues near Chicago's central business district, commands an eye-popping price. On the fringe of the still-hot Lincoln Park neighborhood, CB Richard Ellis Inc. is marketing the small property at $264 per sf or $14 million.

Inland, which owns 10 million sf of retail in 100 Midwest shopping centers, is selling a 63,000-sf asset in southwest suburban Bolingbrook for $4.4 million or $69.84 per sf; and a 61,803-sf property in north suburban Round Lake Beach for $4.1 million or $66.34 per sf.

New construction continues in the Chicago suburbs of Naperville and Bolingbrook, IL. In Chicago itself, Centrum Properties Inc. and Angelo Gordon and Co. are building a $50-million retail fashion and office development with 130,000 sf of retail at a hard construction cost of $250 per foot.

In the Dallas-Ft.Worth-Austin-Houston markets, potential sellers of existing neighborhood centers are staying under wraps. Sales are few and far apart. Average occupancy is 95%. "People are just comfortable holding onto them," Greg McDonald, executive vice president of the Dallas-based Weitzman Group, tells Southwest bureau chief Connie Gore. Owners prefer to refinance rather than sell.

However, when an established center does come on the market, brokers are usually inundated with offers. The 194,119-sf Cedar Hill Crossing in Dallas, for example, is being sold by Long Island-based Kimco Developers Inc. at an asking price of $23 million or $118 per sf.

In the Northeast, most of the neighborhood shopping center buyers are major investment groups, not the smaller players, Northeast bureau chief Glen Thompson reports. "It's the big guys--the Kimcos, the Argent Partners, all the big REITs," says Faith Hope Consolo, vice chairman of Garrick-Aug Worldwide in Manhattan. "They have the wherewithal to withstand good times and bad and can afford to take a long-term view."

In Southern California, however, retail sales remain sluggish, reports Northwest bureau chief Brian Miller. The most recent Orange County deal was the 95,000-sf Chicago Plaza Shopping Center in Downtown Riverside, CA.

The property sold for $11.1 million or $116.84 per sf. The seller, Santa Ana, CA-based Passco Real Estate Enterprises Inc., bought the center in 1998 for $8.1 million or $85.26 per sf. The annual return to investors during the 30-month holding period was 14%.

Instant Insights /

BIG PICTURE: Investors Chase Neighborhood Retail Centers

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