Retail Investment Sales: The Wild Card

Part 1 of 2

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ATLANTA-While the national retail property sales transaction volume only hit $8.2-billion in the first quarter of 2013 (down nearly 29% over the same time period last year), the retail pipeline remains robust and the sector is definitely the “wild card” in commercial real estate. 

Regional malls are among the product types that may throw investors a curve ball as we're seeing a greater number of bids and shorter marketing and closing timeframes. For example, a recent grocery-anchored property sale in Atlanta begat pricing well above expectations, driven by dozens of bids and ultimately, a bidding war amongst three very well-capitalized bidders. 

However, differentiation is key. According to JLL's retail investment sales experts, managing directors Kris Cooper and Margaret Caldwell, malls with high sales per square foot will sell quickly, while B and C malls will be more challenging to market, given there is currently plenty of that product type on the market.  Cap rates for those B malls range from 7% to low 8%, depending on sales per square foot and other factors, while trophy malls could garner cap rates in the low 4% range, and could even see further compression in the months to come. In the meantime, there is essentially no compression in cap rates for class C and D malls, as investors are questioning the long-term viability of these investments.

Check back in the next day or so for the second installment of Maloney's commentary, which will focus on who is buying and what's coming.

Greg Maloney is president and CEO of JLL Retail. The views expressed in this column are the author's own.