Six Questions for Stonemar’s Jonathan Gould

NEW YORK CITY-Since its founding in 2003, Stonemar Properties has taken the long view of retail. “Ultimately it is future cash flow that determines the true value of all real estate assets, not the prices dictated by the prevailing market” is its credo. Over the past eight years, the locally based firm has participated in equity transactions worth more than $900 million and has interests in over eight million square feet of shopping, power and outlet centers in 21 states, with a portfolio of three dozen assets from Florida to California.

“We’re executing on our strategy and remain focused on buying power or grocery-anchored centers adjacent to, or very near, major malls,” Stonemar’s CEO, Jonathan Gould, told GlobeSt.com in 2010. “We like that profile; we like the future of retail in these corridors.”

A local case in point is the 181,000-square-foot Milford Shopping Center in Milford, CT, which Stonemar acquired with the Hampshire Cos. for $30 million in late 2008. It’s a quarter-mile down the road from the 1.4-million-square-foot Westfield Connecticut Post Mall, and while it came with a gaping vacancy, the property is now more than 90% leased. Portfolio-wide, Stonemar’s occupancy rate is about 95%.

Gearing up for the ICSC ReCon Global Retail Real Estate Convention next week in Las Vegas, Gould talked with GlobeSt.com about the uptick in deal flow for retail, the leasing outlook and his acquisition criteria.

GlobeSt.com: As we’re moving through the spring, how do you see acquisition opportunities and the leasing environment?

Gould: With regard to acquisitions, within the past couple of weeks the activity has really picked up. I know it’s all timed to ICSC; there were a lot of deals that people were interested in marketing and they were looking for the right time. It seems as though there are a lot more high quality, larger deals coming to market at the same time. People are getting more confident about pricing. There’s money available for financing that wasn’t necessarily as attractive before as it is today.

Within our portfolio, we’ve done a tremendous amount of leasing over the past 18 months. We’ve executed a bunch of new deals and are about to execute a few more. It’s bringing our overall occupancy to about 95%. That being said, the deals were probably a little more beneficial to retailers than they would have been a couple of years back, but we’re all cautiously optimistic about the stability of retail in general.

GlobeSt.com: How does Stonemar zero in on markets for acquisition?

Gould: We’re looking for places that have 1.5 million-plus of retail market size. It could be the leading market in many states. Essentially we’re not focusing on New York, Los Angeles and Chicago.

GlobeSt.com: What types of tenants are especially strong for you lately?

Gould: We’re making deals with some of the larger national tenants; obviously we’re glad to see that they’re still expanding. With the bankruptcies and so forth that have occurred, it’s made other retailers in the same niche more profitable. We’re still looking for retailers that are sort of on the cutting edge, who see the value of the crossroads between the Internet and the real estate space.

People still like to shop. When I was in the office business, it was just as telecommuting was becoming a popular buzzword. There was talk of less need for office space around the country, and that has proven to be inaccurate. The same is true of retail; you’re never going to duplicate the shopping experience online, but there are ways to use the one to make the other a better experience.

GlobeSt.com: Give us a forecast of what the next couple of quarters look like as far as Stonemar is concerned.

Gould: We are really dedicated to expansion over the next year or two. We firmly believe in our plan to be in these places that have enough diversity in the retail and enough critical mass to be a center of gravity for these areas. I’ve seen a lot more signs of stability, but on the other hand there are still some areas to be concerned about. Certainly with respect to department stores and the really large stores, there’s still a void in that business in terms of new companies trying out new ideas. It’s also a very high barrier to entry business.

You have to know your constituency within each market; there are markets that are over-retailed, and you have to be somewhat concerned about that. But retailers are feeling more confident, and that translates into landlords feeling more confident.

GlobeSt.com: Although Stonemar has properties from coast to coast, you’ve got a pretty strong concentration in the Southeast. What do the fundamentals look like there?

Gould: Where the automobile companies open tends to be where the growth of the country is, and you’re seeing more domestic and foreign auto manufacturing in the South than anywhere else in the country. We naturally expanded in the Southeast because that’s where everybody saw the growth. That continues to be a pattern.

Also, we like to have retailers in multiple locations. To the extent we’re dealing with regional chains, it makes it more attractive to be in one area as well.

GlobeSt.com: As we’re heading into ICSC, what do you hope or expect to get out of the show?

Gould: Going into ICSC, some really interesting properties have come to market of a quality and size that we haven’t see regularly in a couple of years. Hopefully that trend will continue. There’s a natural progression of ownership: developers develop, and then they’re looking to sell at some point. That’s what we’re seeing, actually: developers that have developed the properties in the past five years and now that the properties are stable, they sense that this is a good time to sell.