CHINO HILLS, CA-Los Angeles-based Royal Investors, a 1031 exchange buyer, has acquired the 91,000-sf Harkins Theatres & Shops retail and entertainment center in advance of its October opening. Richard Walter and Donald MacLellan of Irvine-based Faris Lee Investments report that the buyer acquired the center for $24.23 million from Irvine-based LNR Properties, the developer of the center.
Scheduled to open in mid-October, the center occupies the northwest corner of State Route 71 and Chino Avenue. Walter and MacLellan represented the seller, with the buyer represented by Bill Rose and Allen Krueger of Marcus & Millichap. The 10.54-acre project includes an 18-screen Harkins Theatres, an Arizona-based chain with 26 locations in its home state and two in Southern California.
Other tenants include Quizno's, Juice it Up!, Z Pizza and Maggie Moo's Ice Cream & Treatery. Harkins Theatres & Shops is located within the Crossroads Entertainment Center, which includes Hampton Inn Suites, Tutor Time and a medical office building.
The sale of the center before its opening is "a trend seen in recent months that involves a complex negotiation process" but offers advantages to developers, according to Walter. He says that Faris Lee marketed the center for five months before its anticipated completion.
"In a competitive retail market with lack of available inventory, the pre-sale strategy is beneficial to both the buyer and the seller," Walter says. The strategy offers investors a chance to secure a high-quality property before it is built, and it enables developers to lock in a buyer at a fairly close cap rate to the current market. This limits risks like the possibility of cap rates moving up by the time construction is complete, Walter explains.
The Harkins Theatres & Shops sale was financed via a fixed-rate conduit loan, which Walter says that Faris Lee recommends in a lending environment of rising interest rates. This approach removes the interest rate risk and solidifies the buyer's returns by controlling the rate to meet the buyer's needs "even if the closing is 18 months out," Walter says.
Harkins Theatres & Shops serves a growing market that is underserved in terms of theaters with stadium seating, according to MacLellan. He notes that the location provides frontage along the 71 Freeway with exposure to more than 190,000 cars per day.
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