Investors' Grocery Shopping Means Advisory Uptick

NORTH PLAINFIELD, NJ-When it comes to institutional-quality shopping centers, it's 2007 all over again, says Joseph Lowry at Levin Management. “While their acquisition criteria and 'sweet spots' vary somewhat, most institutional investors and fund managers today are still looking for class-A, dominant grocery-anchored shopping centers located in gateway markets,” Lowry, director of acquisitions and business development at North Plainfield-based Levin, writes in a commentary. At the height of the market in '07, he observes, “these centers were trading at very low cap rates, and we are seeing those pricing levels once again in 2013 for true institutional quality retail centers.”

This has led to what Lowry calls “a notable increase in advisory activity” for both the broker-listed shopping centers as well as for off-market retail acquisition opportunities. That's the case even with institutional players that have experienced in-house acquisition teams, since advisory firms that have strong market presence and landlord relationships can provide granular local knowledge that players operating across large geographic areas may lack, Lowry observes.

To an even greater degree, he adds, a few CRE services companies have gotten more involved in sourcing off-market shopping center investment opportunities. “Many sophisticated owners may wish to avoid the open-market process,” Lowry writes. “They know what their properties are worth and they know that in today's climate, they can get top dollar regardless of how the center is marketed.”

At the same time, institutional demand for assets that check all of the boxes—credit tenancy, long-term leases, strong retail sales—has led some investors in search of yield to consider dominant centers in secondary markets. “Also, there are more funds today seeking value-added and opportunistic retail properties due to improving retail fundamentals,” Lowry notes.

Increasingly, Lowry notes, not all grocery-anchored centers are alike as far as investors are concerned. “This is because the 'retail food/necessity-oriented segment' has been going through a rapid transformation with both the higher-end and extreme-value grocers performing well, while the middle-market grocers continue to lose market share, with a few exceptions.” The middle-tier grocers are losing ground to the likes of Wal-Mart and dollar stores along with Amazon and other online merchants. “Unless there are several good back-fill options, most investors will not consider buying a center anchored by a grocer brand that has continued to underperform.”