C&W exec: retail holding up better than expected

Real Estate Weekly, July 24, 2002

Retail is holding up better than most analysts expected, and continues to be a strong real estate play, according to Cushman & Wakefield managing director Rick Latella, Retail Industry Group, Valuation Advisory Services.

"There's a flood of money looking for retail real estate," said Latella, who was addressing the International Council of Shopping Centers' financial management conference. "Buyers run the gamut from institutional investors to opportunistic investors."

On the transaction side, the sale of malls has picked up substantially above the tepid levels of 2001. Sellers are benefiting from this increase in activity as they are seeing multiple bids for properties. "Hence, we are seeing downward pressure on cap rates for A and B malls," Latella said. "The decrease we see in cap rates is interesting in light of the pressure being exerted on traditional department stores, which anchor malls," said Latella. These stores are facing direct competition from WalMart, Target and Kohl's, which are excellent merchants and have been expanding, and grabbing market share at a rapid pace.

This year, retail REITs have continued their strong performance and have become active buyers again. For example, General Growth has acquired JP Realty and Rouse, Westfield & Simon acquired the Rodamco portfolio. Also, Macerich won the hotly contested bidding for the Westcor portfolio.

In the strip center category, Heritage Property Trust completed a successful IPO, the first retail IPO since 1998. New Plan Excel Realty purchased the 92-property CenterAmerica portfolio. Kimco has also been aggressive in acquiring property and has formed several joint ventures with institutional partners. In another transaction of interest, GE Capital acquired 59% of Regency Centers.

Latella has also seen renewed interest in power centers in recent months. "Power centers are a segment of the retail industry that had fallen out of favor," he said. "But investors are interested again and we have seen downward cap rate pressure on well located assets."

"Retail remains a very dynamic industry," Latella said. "It has become increasingly competitive as owners strive to find the ideal shopping format and tenant mix that keeps shoppers excited and returning to patronize merchants. We remain cautiously optimistic about retail performance. The economy still has some hurdles before it stabilizes but consumers have demonstrated their resilience over the last 18 months. On balance, we expect the last half of 2002 to be stable."