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OAK BROOK, IL-Maintaining an "opportunistic and disciplined" posture when pursuing retail centers to add to its portfolio is a challenge even with rising interest rates, laments one major Midwest buyer. Not only have capitalization rates for stabilized retail centers remained low, Inland Real Estate Corp. chief operating officer Mark Zalatoris said they have drifted lower in some cases.

"The acquisition environment for stabilized assets is extremely competitive," Zalatoris said during his company's earnings conference call Friday. As a result, Inland is working on small-scale shopping center redevelopment and outlot development projects that could generate returns of 12% or more. And as it ventures out of its Midwest comfort zone to Texas to buy properties with New York State Teachers Retirement System, the REIT is taking a smaller stake that it has in other acquisitions with the pension fund partner.

Inland Real Estate Corp. is expanding three centers that could add 44,000 sf of space, Zalatoris said, and is partnering with experienced developers on two suburban outlot projects totaling about 60,000 sf of multi-tenant space. "The returns from those kinds of activities are greater than those from stabilized acquisitions," Zalatoris explained. So far this year, the five properties acquired by the company totaling 1.1 million sf and $227 million, were at an average capitalization rate of 6.8%, Zalatoris reported, adding they were "above market" for their type of assets.