A Ray of Light on Shopping Center Horizon

NEW YORK CITY-“Things have strengthened a bit from the depths of last summer,” Jonathan Gould, CEO of Stonemar Properties, told Real Estate Forum this past spring. Since then, the shopping center sector has picked up still more steam, and Gould tells GlobeSt.com his company is on track to bring its 11-million-square-foot retail portfolio to an average 95% occupancy by the fourth quarter.

“We’re in advanced negotiations for a variety of leases on both our big-box and inline spaces,” says Gould. The locally based investment and management company operates more than three dozen power and grocery centers across 22 states.

Earlier this month, Stonemar announced a 9,000-square-foot Dollar Tree lease at Milford Shopping Center in Milford, CT. Since acquiring the 181,000-square-foot property with the Hampshire Cos. for $30 million in November 2008, amid the nadir of the capital markets crisis, Stonemar has been actively marketing the center’s 28,264 square feet of vacant space formerly occupied by Brooks Pharmacy. The Dollar Tree lease accounted for about a third of that.  

Milford Plaza and the other assets in Stonemar’s portfolio may soon have company. Gould says the company is currently negotiating the acquisition of a 178,510-square-foot shopping center adjacent to a super regional mall, and adds, “we’re bidding on a bunch of other deals. We’re executing on our strategy and remain focused on buying power or grocery-anchored centers adjacent to, or very near, major malls. We like that profile; we like the future of retail in these corridors.” Milford Plaza, for example, is about one-third of a mile down the road from the 1.4-million-square-foot Westfield Connecticut Post Mall.

While malls serve as magnets for the area’s shoppers, they tend not to be rivals to Stonemar’s tenants. “Generally, mall tenants are not competing head-to-head with power center or grocery center tenants,” says Gould. “They have different requirements and different cost structures. In most cases, the malls that are in place today are very well established; they may have gone into business 25 or 35 years ago.”

Many of the Stonemar assets are in secondary markets, although not all. What they do have in common is their profile: Stonemar seeks out markets with strong economic fundamentals.

“We try to stay away from areas that are guided by one industry or event-driven,” Gould says. “We stay away from Las Vegas, Phoenix and places that tend to have their ups and downs all the time. We tend toward middle markets that we understand.”

Another aspect of Stonemar’s strategy, says Gould, is having the same tenants across multiple properties. “We can work out various deals with them that may involve more than location and satisfy both them and us,” he says. “That may mean a lease extension at one property in exchange for making some modifications at another.”

On the subject of modifications, Stonemar looks to make cosmetic improvements at its new acquisitions whenever feasible. In the longer term, Gould says, “As we get to understand the tenants, we find out who’s expanding, who’s contracting, who would prefer to be in another spot in the center. In the retail business, you always have tenants who are making a move of one sort or another.”

Amid a consumer spending climate that lately has seen monthly and even weekly peaks and valleys, as reflected in recent reports from the International Council of Shopping Centers, Gould sees a better holiday shopping season than 2009 brought. “Things are going to be a little less scary than they were last year,” he says. “There was real concern and fear among retailers, and they were making a lot of moves in order to attract a rush of customers. My guess is that this year is going to be a little more normal and predictable.”