HOUSTON-Weingarten Realty has passed on quite a few acquisition opportunities because it doesn’t agree with the cap rates, according to the REIT’s management team. Even so, the REIT is on track to acquire $75 million to $125 million worth of properties this year.

The REIT executives discussed cap rates during the company’s second quarter conference call. “There’s a lot of capital chasing a few quality projects for sale today, putting a lot of pressure on cap rates,” said Executive Vice President and COO Johnny Hendrix. “It’s starting to look a lot like 2006 all over again – maybe not quite so frothy, but pretty close.”

Weingarten CEO Drew Alexander noted that there’s a lot of industry discussion about cap rates and that the approach to underwritten net operating income varies dramatically. “We remain focused on the 10 markets we targeted for growth, and we have looked at virtually every asset that has traded in those markets,” he pointed out.

Alexander explained that the REIT passed on many of those assets because they did not meet its overall criteria. “On others, we passed [due to] pricing differences usually because of differences in the net operating income often caused by our expectations of rent roll downs,” he said.

Hendrix said Weingarten is taking a conservative approach to underwriting acquisitions and is trying to mark down rents to current levels. He noted that cap rates for grocery-anchored centers in major metro areas range from 6.25% to 7.25%.  

Currently, Weingarten has three shopping centers under contract totaling $53 million and an additional $22 million worth of properties in the letter of intent stage, Hendrix noted, adding that he expects acquisition opportunities to increase over the next 24 months. 

“There are still significant CMBS and bank maturities coming due in 2011 and 2012,” He pointed out. “We’re anticipating in 2011 and 2012, banks will need to deal with loan defaults, bringing quality deals to the market.”

 

 

 

 

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