VISTA, CA—Lenders continue to be focused on daily-needs shopping centers and are very sensitive to the credit quality and performance of anchor tenants, Holliday Fenoglio Fowler L.P. director Greg Brown tells GlobeSt.com. Brown recently led the firm's debt-placement team, along with real estate analyst AJ Manas and Cohen Financial advisor Mark Strauss, in arranging $37 million in financing for North County Square, a 174,280-square-foot, shopping center in the San Diego-area community of Vista, CA, anchored by an ALDI grocery store. HFF worked on behalf of the sponsor, ValCenters, to place the 10-year, fixed-rate financing with JP Morgan Asset Management. We spoke with Brown about how lenders are viewing some of the newcomers to the grocery sector in Southern California.

GlobeSt.com: How are lenders viewing newcomers to the grocery sector like ALDI as compared to older, more-established brands?

Brown: Lenders continue to be focused on daily-needs shopping centers (grocery and drug-anchored) and are very sensitive to the credit quality and performance of anchor tenants. In the case of ALDI, lenders have been able to get comfortable based on the fact that the company has been in business in the US since 1976 and has expanded to more than 1,200 stores in 32 states. Additionally, ALDI has built a good reputation in the industry as a grocer that offers good-quality items at an affordable price point. In the case of North County Square, we were able to get lenders comfortable based on the strong demographics, length of lease term remaining with ALDI, strong existing tenant mix and overall tenant demand for the property.

GlobeSt.com: How might lenders approach these loans differently than they would some of the older-branded centers?

Brown: Lenders will consistently look for grocery store anchored centers with strong sales and good credit quality on the lease.

GlobeSt.com: What other differences are you noticing in financing between the newer-branded vs. older-branded centers?

Brown: Lenders are very aware of the changing landscape in retail as a result of e-commerce and are focused on lending on centers that are also adapting accordingly. Having the right blend of tenant mix is more important than ever as landlords strive to incorporate more daily needs, restaurants, fitness and experience-driven tenants. In the case of North County Square, the owner has been focused on tenant mix and successfully replaced two prior underperforming retailers with ALDI and Planet Fitness with the specific goal of increasing traffic. Along those same lines, the owner granted Target and Wal-Mart expansion capability a few years ago so they could offer a full grocery section in each of their stores in order to reach that “daily needs” grocery customer. They had other retailers interested in the Planet Fitness space, but thought the gym would bring in customers several times per week. This remake of the tenant mix is something that will continue to evolve at North County Square.

GlobeSt.com: What else should our readers know about the Vista transaction?

Brown: This property represents an excellent piece of real estate, with all of the factors that make a retail center valuable: excellent visibility on a major highway, accessibility, great demographics and a strong mix of national tenants. ValCenters will continue to upgrade the tenants to best meet the needs of the large trade area. No other center in the northern half of San Diego County has Wal-Mart and Target to go along with the impressive list of co-anchors to draw customers to one location in the heart of North County San Diego. North County Square is a great example of how a center can evolve positively with the right tenant mix over time and continue to adapt to meet the changing needs of the trade area.

GlobeSt.com: How are lenders viewing newcomers to the grocery sector like ALDI as compared to older, more-established brands?

GlobeSt.com: How might lenders approach these loans differently than they would some of the older-branded centers?

Brown: Lenders will consistently look for grocery store anchored centers with strong sales and good credit quality on the lease.

GlobeSt.com: What other differences are you noticing in financing between the newer-branded vs. older-branded centers?

GlobeSt.com: What else should our readers know about the Vista transaction?

Instant Insights /

How Lenders Are Viewing Grocery Newcomers

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