NEW YORK CITY—Although it has spanned the compass of property types since its founding in 1983, O'Connor Capital Partners started out as a retail specialist and remains bullish on the sector amid a spate of negative prognostications on the future of brick-and-mortar stores. The company recently completed its second joint venture with mall REIT Washington Prime Group on ownership of seven open-air properties valued at $600 million. It recently began development of Vineland Pointe, a 450,000-square-foot regional power and lifestyle center in Orlando, in a JV with LaSalle Investment Management, and acquired the Shops at Canal Place, a 260,000-square-foot shopping and entertainment destination in New Orleans. At present it has about 28 million square feet of retail space under management.

GlobeSt.com caught up with John O'Connor, SVP and head of acquisitions with O'Connor Capital, for insights into the outlook for retail and what his firm seeks out when investing or developing in the sector.

GlobeSt.com: Where do you see strengths in retail that would encourage investment activities such as your second JV with Washington Prime?

John O'Connor: We really focus on retail centers that offer consumers multiple reasons to visit them, rather than just apparel or clothing shopping. The traditional mall used to be 90% apparel shopping and a food court, along with four big department stores. Now, we focus more on open-air lifestyle centers that offer dining, fitness and entertainment, and a lot of them also offer a grocery component.

GlobeSt.com: Are these centers that not only offer that tenant mix but also are moving away from the department store anchor model?

O'Connor: Yes. One example is a shopping center we bought in Charlottesville, VA a few months ago. It's anchored by a Trader Joe's grocery store, a Regal Cinemas theater, numerous fitness concepts and numerous dining concepts as well as the best in class among today's retailers, Lululemon among them. It's key to have all of those components, and the department store is certainly not one of them right now.

GlobeSt.com: Longer term, is the department store format in eclipse, or is it a concept that has stood the test of time but must go through a process of reinvention?

O'Connor: I don't think the category is going to be eclipsed, but there is certainly going to be more reinvention. The better department stores are still finding reasons for people to come to the physical store; the lesser ones are not, and are becoming more and more irrelevant.

GlobeSt.com: Is constant churn and evolution one of the real keys to success in the current environment?

O'Connor: The key is having the right location within the submarket and, in addition to that, having the ability to transform the center to meet today's needs. People often don't realize that when a Sears or Macy's or JC Penney closes at a mall and that mall is in a good location, the landlord is generally able to reposition that anchor box, get much higher rent and drive much more traffic to the center.

One of the Sears locations in our portfolio was bifurcated into a Whole Foods and a Dick's Sporting Goods; the rent was five times what it was previously and the traffic was probably five times what it was previously. In a lot of ways, it can be highly accretive to the landlord if one of these anchor boxes goes vacant.

GlobeSt.com: In the Washington Prime JV, there's a strong emphasis on regional lifestyle centers, but at the same time, you recently acquired Shops at Canal Place in New Orleans, obviously more of an urban setting. Do you find that many of the basic characteristics of what drives traffic are comparable in both types of settings?

O'Connor; Yes. What intrigued us about Canal Place was that it was right at the heart of downtown, at the crossroads of where the French Quarter and the business district meet. In every city around the country, there has been a lot of emphasis on younger, more affluent people moving into these downtown centers. Canal Place is really more of a luxury retail center, and that segment of the market is performing very well.

In the regional centers, the type of property that we like to buy serves as a downtown in a lot of ways. People will go there to dine, go to the movies, go to the gym and go to the grocery store. At the center we own in Charlottesville, there's a green market every Thursday and Saturday from May through October. So even if you weren't planning to shop at the center, we find reasons to bring you there.

GlobeSt.com: Where do you see strengths in retail that would encourage investment activities such as your second JV with Washington Prime?

GlobeSt.com: Are these centers that not only offer that tenant mix but also are moving away from the department store anchor model?

GlobeSt.com: Longer term, is the department store format in eclipse, or is it a concept that has stood the test of time but must go through a process of reinvention?

GlobeSt.com: Is constant churn and evolution one of the real keys to success in the current environment?

Instant Insights /

Giving Shoppers Multiple Reasons to Visit

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