(For more retail coverage, click GlobeSt.com/RETAIL.)
LOS GATOS, CA-Crow Holdings of Dallas has snapped up Downing Center, a 72,000-sf neighborhood center here for its latest fund, Crow Holdings Realty Partners IV LP. The fund paid $28.25 million for the center, which is currently 100% occupied. About 69% of the center is leased to national credit tenants, including a recently remodeled Safeway and, on an outparcel, Hollywood Video.
The asset falls into Crow Holdings' strategy of purchasing shopping centers in dense, high-income, in-fill neighborhoods. Los Gatos is an affluent submarket of the Greater San Francisco Bay area. The center itself has strong daily traffic counts due to its location at the southwest corner of the intersection of Union Avenue and Los Gatos/Almaden Road, one mile south of Highway 85 and two miles east of Los Gatos Boulevard.
"When you look at the market, there are certain pods of retail where it hits all four corners of an intersection," Rodney Whitney, who oversees retail acquisitions for Crow Holdings, tells GlobeSt.com "What we like about Downing Center is it is the only center surrounded by housing and schools."
The sellers--the children of the original developer, whose last name is Downing--were focused more on keeping capital costs down than pushing rents, Whitney says. Crow's plan is to add value in the coming years by replacing some less profitable mom-and-pop tenants as their leases roll with additional national tenants who can pay market rents, which are approximately 15% to 20% higher than many of the in-place rents at the property.
"The vintage of these leases are the early-to-mid 1990s; many were adjusted downward after 9-11 and are just now starting to burn off," he says. "We're looking to get in and grab some of that value."
The in-place NOI suggests a capitalization rate of just below 5%. Whitney is confident that rate can be pushed by 100 basis points a year until it gets up to 7.5%.
CB Richard Ellis brokers Trevor Thorpe and Todd Goodman had the disposition assignment. Approximately three dozen offers were received.
Crow Holdings Realty Partners IV LP is a Crow-family sponsored, $850-million (equity) discretionary fund that is investing in all product types. Retail properties will make up about 30% of the fund's investments. The fund's leverage averages about 70%. The fund began making investments in March 2006. About $500 million is still to be placed.
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