What Retail Investors Are Coveting Today

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NEWPORT BEACH, CA—Investors of all stripes are craving core or “best” assets in which to place their money, but very little of this type of product is available on the market today, CBRE's SVP Philip Voorhees tells GlobeSt.com exclusively. After the recent announcement of the brokerage firm bringing a portfolio of three class-A retail properties in Rancho Santa Margarita, CA, to market with an asking price of $103.3 million, we spoke with Voorhees about the significance of this portfolio assignment and its strategy for marketing it.

GlobeSt.com: What was significant about this portfolio assignment for you?

Voorhees: The size and quality of this listing is exceptional among Orange County portfolios. Our team has successfully closed numerous transactions above $100 million in size, although having a prestigious assignment like the K&G Rancho Santa Margarita portfolio right in our backyard is very special.

GlobeSt.com: How does it represent a trend in the Orange County retail market?

Voorhees: This sale assignment actually counters the current trend. At a time when few high-quality projects are being developed ground up, the Western US retail market—and in particular our Southern California and Orange County markets—are exceedingly supply constrained. Owners from high-net-worth private investors to the most-sophisticated REITs, pension funds and advisors, covet “best” assets, and very little core or “best” product is on the market. This opportunity is driven by the dissolution of a long-time partnership that developed these properties and has owned them ever since, and the desire to return equity to investors.

GlobeSt.com: What specific attributes are retail investors looking for in Orange County properties?

Voorhees: A coastal market with high barriers to entry, exceptional demographic density and affluence and Orange County's diverse economy make it a perennial favorite for all classes of retail real estate investor. In this cycle, investors seem to favor lower-leverage, secure acquisitions with a bias toward asset preservation and cash flow; long-term parking places for significant amounts of equity in tangible assets that will hedge inflation and will only improve in desirability with the passage of time.

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GlobeSt.com: What is your strategy for marketing such a large portfolio?

Voorhees: Simply stated, our team's philosophy is, “Don't try to be smarter than the market.” No broker can possibly know every investor or every broker active in the market with a buying requirement. Fifteen-plus years ago, maybe, but not with the proliferation of Internet marketing. Our team markets in a process-driven, broad and cooperative manner that we've honed in more than 535 successful transactions totaling more than $8 billion in value. It was important to our client that we access international capital in this marketing effort. With offices in 42 countries and our team's database of more than 30,000 investors and 80,000 brokers, CPAs, attorneys and financial advisors, our team's process definitely covers the market.

GlobeSt.com: Is it different than for smaller properties/portfolios?

Voorhees: Many elements of our market approach are the same whether the property is $1 million or $100 million in size. Building our database over the last 14 years, we've focused on not just asking what clients are seeking, but studying client behavior and buying patterns; what clients are actually doing. Generally speaking, we've found smaller transactions more likely than larger transactions involve a cooperating/selling broker representing a buyer. Above a $20-million equity requirement, for instance, the universe of potential purchasers becomes more easily defined, though you never know when a high-net-worth foreign investor will come into an inheritance, sell a company or find motivation to make a big investment allocation to the US.

GlobeSt.com: What trends do you expect to see in Orange County's retail sector this year?

Voorhees: For better or worse, scarcity of product seems to be the defining trend. Development is currently at approximately 15% of the level it was in 2005, so we're missing out on the manufacturing component delivering new product to market. With interest rates low—and perhaps moving lower by year end—and supply constraints continuing, we expect continued cap-rate compression. Transaction activity nationally in 2014 was very similar to the record levels of 2006. Assuming the same continues in 2015, we expect a resurgence of 1031 exchange-driven investment activity.