FULLERTON, CA—The entrepreneurial nature of family offices, private-equity groups and high-net-worth individuals makes them less risk averse than institutional investors, but riskier ventures like value-add retail opportunities are now few and far between, CBRE broker Arthur Flores tells GlobeSt.com.

As we recently reported, Flores and Shaena Cushman represented seller Fiesta Distribution LLC, a local family office based out of Orange County, in the sale of a retail shopping center here to private investment company SCB Inc. for $24.5 million. Fiesta had purchased the center as a value-add opportunity in 2011 and immediately implemented a reposition strategy for it; through these upgrades, the seller was able to attract 24 Hour Fitness to the property and renew Best Buy's lease for an additional 10 years, adding significant value, according to Flores.

We spoke with Flores about how small private investors versus larger national companies and institutional investors approach Orange County's retail market.

GlobeSt.com: How would you characterize the approaches of small high-net-worth vs. larger national company of retail properties in Orange County?

Flores: Private family-office type groups historically have been very aggressive in the $1-million to $10-million space, but in the last 10 years, they have been taking down projects well north of $10M—some up to $50 million. A project like the one in Fullerton, a $25-million asset, previously would have gone to REITs and institutions, but these family offices have so much capital to employ that they're going into institutional space to deploy it. Real estate is still an attractive investment for these high-net-worth individuals, and everybody is looking for yield—they get that with real estate investment.

Most of the publicly traded REITs are pretty focused on specific product types like grocery-anchored, trophy properties, so if you're selling a Kroger-anchored shopping center and Kroger does well, it will garner a number of offers from publicly traded REITs because fits their bucket.

Private family offices can be very opportunistic, too. While the public institutions may shy away from Best Buy and tenants subject to Internet competition, private companies are more willing to take that risk; they tend to be more entrepreneurial and nimble than publicly traded REITs and institutions.

GlobeSt.com: Which group has greater interest in this market?

Flores: Both are extremely aggressive. The thing about institutional properties in Orange County is that these institutional owners don't trade much because it's hard to replace yield in core real estate, so they pretty much hold onto it forever unless their mandate as a REIT changes, which it typically doesn't. I think both investors are eager to buy more assets in Orange County, but fewer properties come to market, so it becomes a feeding frenzy.

GlobeSt.com: How does each group approach value-add opportunities differently?

Flores: There have been some large capital sources and PE groups that have formed to go after value-add opportunities, but these are few and far between in this cycle. Private and family office like value-add because of their entrepreneurial nature, but these opportunities are rare and hard to come by. Large PE groups and high-net-worth individuals will throw their hat into the ring, whereas institutions like to buy more stabilized properties with steady returns.

We spoke with Flores about how small private investors versus larger national companies and institutional investors approach Orange County's retail market.

GlobeSt.com: How would you characterize the approaches of small high-net-worth vs. larger national company of retail properties in Orange County?

GlobeSt.com: Which group has greater interest in this market?

GlobeSt.com: How does each group approach value-add opportunities differently?

Instant Insights /

Why Private Investors Are Drawn to Value-Add Retail

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