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OAK BROOK, IL-Nearing the three-quarter turn in its $400-million investment goal, Inland Real Estate Corp. has begun talking with New York State Teachers Retirement System about increasing their joint venture program. The joint venture with the pension fund eclipsed its previous investments with its $154-million acquisition of the 565,000-sf Algonquin Commons.
"Discussions have commenced about increasing the total investment commitment," said chief operating officer Mark E. Zalatoris during his company's recent earnings conference call. Inland Real Estate officials expect to hit the $400-million mark by the middle of this year, meeting a timetable set when the joint venture was formed in October 2004. However, both Inland Real Estate and NYSTRS share a commitment to disciplined investing, he added, even though the pension fund has lowered its return hurdles in the face of a competitive investment market.
"They have the same philosophy as we do--taking our time and buying it right," said Zalatoris, noting his company's 2005 acquisitions as well as those so far this year have been at a capitalization rate slightly above 7%. "We believe this is significantly above the market rate, particularly for the assets purchased."
The number was dragged down by the Algonquin Commons purchase, which was at a 6.7% capitalization rate, Zalatoris reported. "We would not turn down a property like Algonquin Commons," he said, adding NYSTRS was extremely interested in the center at Randall and County Line roads. The largest property in the joint venture, the 598,054-sf Orland Park Place in the southwest suburbs, was acquired last spring at a 7.6% capitalization rate, and $76.9 million.
Most of the retail REIT's purchases have been principal-to-principal deals, Zalatoris explained, before brokers pitch the properties to the wider market and bid up the price. "The competition has kept pricing high and returns lower than we would have otherwise liked," he added.
Inland Real Estate and NYSTRS had to wait until this year for Algonquin Commons because the developer and seller, Cincinnati-based Jeffrey R. Anderson Real Estate, had tax-related reasons not to close in 2005, Zalatoris said.
While enhancing its position in the Chicago retail market, Inland also expanded into the Omaha, NE market, paying $26.7 million for the 226,720-sf Shoppes at Grayhawk, anchored by a 140,000-sf Lowe's Home Improvement store. "We would like to make it a multiple property city," Zalatoris said, suggesting about six assets to support the company opening a management office there.
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