Donahue Schriber's Vegas Strategy

Except that the customers are more likely to pay cash and the stores arelikely to stay open later, thanks to the city's 24-hour economy. Those aresome of the observations of Paul Trapp, VP of leasing for Costa Mesa,CA-based shopping center owner, developer and manager Donahue Schriber.

Donahue Schriber, which operates as a privately held REIT, owns a portfolio ofnearly 862,000 sf of Las Vegas area neighborhood centers in eight properties,with a vacancy rate of just under 1.8% (compared with a citywide industryaverage of 4.2% for neighborhood centers) and is looking to expand. TheSouthern California company has recently opened an office in Las Vegasin anticipation of expanding its presence here, Trapp tells GSR, soit is looking for opportunities to buy or build.

The Costa Mesa company's strategy here is clear. "We try to buy propertiesthat will be the No. 1 or the No. 2 center in the trade area," Trapp tellsGlobeSt.com. If the company can't buy the first or second-place property in agiven trade area, then it looks for a property that it can buy and improve toa No. 1 or No. 2 position. "If we think we can do that, then we will buy theproperty and spend the dollars that we need to spend," Trapp says.

Donahue Schriber bought six of its eight Las Vegas area properties and builtthe other two from the ground up. "When we bought them, most of theproperties had a vacancy rate of 5% or higher," Trapp tells GlobeSt.com.Through capital improvements, management and leasing it has whittled thatvacancy to 1.76%.

Typical of the Donahue Schriber approach is its SunsetMarketplace center, which the company recently remodeled. "We went to themarket and asked the grocer if they wanted to add a fuel station, which theydid," Trapp says. The developer added the fuel station, plus a new 6,000-sfpad, and included a $2 million facelift.

"We felt that if we could improve the property, there was upside in terms offilling the center," Trapp explains. Although many center operators get alongOK on a 5% vacancy, the Donahue Schriber VP says that squeezing the vacancydown between 1% and 2% makes a difference.

"As we improve the centers and they get filled, we can drive the rents higheras renewals come up," Trapp says. "Our aproach is, 'What can we do to improvethe property and enhance its value?' "At a center that it bought in Henderson about a year ago, for example, thecompany is thinking of remodeling the property and redesigning the trafficpatterns to improve the flow.

Regardless of whether it buys or builds to expand its Las Vegas portfolio,Donahue Schriber expects that projects will take longer to complete in thefuture because entitlements and construction are both taking longer thesedays. "This is happening in all of the high-growth markets we're in," Trappsays.

He explains that delays in entitlements result because cities face anincreasing work-load of permits to process but city staffs are not growingand in some cases are shrinking because of budget cutbacks. Constructionprojects take longer because contractors are so busy."Some of our tenants have talked about having trouble finding contractors tocome out and build out a store," Trapp says.

Even with all of the building that is going on, Las Vegas remainssupply-constrained and the retail vacancy rate is declining, according tomarket reports. Trapp describes it as a two-tier market.

Vacancies are declining and rents are rising in the high-growth perimeterareas like Henderson and North Las Vegas, he explains, while vacancies arerising slightly and rents are either flat or declining in areas closer to thecenter of the city.

Overall, however, "Las Vegas is extremely tight," Trapp says. Market reportsshow that the vacancy rate for all classes of retail combined was 4.8% in thefirst quarter of 2005 and has declined since then to 2.9%.

Power centers enjoy the lowest vacancy rate among retail product types at1.4%, and neighborhood centers actually have one of the highest averagevacancy rates at 4.2%.

That 4.2% is nonetheless low, and Trapp says that Donahue Schriber viewsneighborhood centers as one of the most stable and reliable of investments.Especially in a growing market like Las Vegas, where an efficient operatorcan beat that average.