Donahue: Don't Reinvent the Wheel

COSTA MESA, CA-A lack of new shopping-center development will continue, so developers should concentrate on redevelopment of existing inventory, Pat Donahue, chairman and CEO of Donahue Schriber, tells GlobeSt.com. While some investors are “dusting off things from the shelf, it will take a year or two to get those things under construction, so there's a limited supply in the short term,” Donahue says.

As GlobeSt.com reported last week, Donahue Schriber has closed on $1.1 billion of strategic financing transactions in one week. The financings include a $712-million secured bank term facility and a $100-million life-insurance company mortgage. Donahue says the closings were the result of 10 months of work on projects and properties that culminated at the same time.

“We spend a lot of time going to conferences in January, and the message we kept hearing was that interest rates and capital availability for well-sponsored companies weren't going to get any more attractive,” says Donahue. “We took a look at our capital structure and our debt and figured out what we could do to take advantage of those markets [we were targeting]. It took several months to get everything cued up.”

Financing is still very attractive for quality retail projects and companies with good sponsorship, Donahue adds. “While we didn't hit it perfectly, our timing was excellent. We probably missed the low point in interest rates by 60 or 70 bps, and some people in the office were wringing their hands. But we said, 'Wait a minute—this is 10-year financing at a rate we hadn't seen in our careers. This will be very attractive five years from now if you believe what you read.'”

He adds that when the markets reacted to the Fed chairman's comments in late May, it looked like the window was closing or closed, but now it seems there's a bit of a reopening. “I still think there's very attractive financing for the right properties.”

There are currently very few new retail developments under construction in Southern California, although the firm does have 900,000 square feet of construction going on in the Northern California city of Rocklin. “There will be very few of those projects over the next two years, but the opportunity to redo and redevelop existing properties is a major theme for all the big companies. It's important not to reinvent the wheel, but to remerchandise with how the customer has shifted.”

Donahue advises retail owners and developers to look through their existing portfolio and make sure they're capitalizing and maximizing value there. His firm is doing a lot of redevelopment in the Del Mar Heights area of San Diego and will continue investing in its current portfolio to upgrade seasoned properties as needed.