Hanley: Most retailers saw improved sales performance in the recent holiday season. 2010 brought positive year over year sales comps for most retailers in our portfolio. While a solid step in the right direction, keep in mind that these comps were coming off near-record lows. The term that may best describe the industry is “cautiously optimistic”. Our sense is the worst is behind us, but there is still a road of recovery ahead. Retailers’ expansions plans will be measured and conservative in the coming year.

GlobeSt.com: Vestar’s portfolio is concentrated in the Phoenix metro area and Southern California, two regions that have been hit hard during the recession. How are those markets performing today? Is there still cause for concern?

Hanley: California has issues in certain areas, but was never overbuilt like Las Vegas, Phoenix and some other areas of the country. Difficulty in finding suitable sites, length of time to entitle, environmental and other issues have curtailed development. Opportunities have primarily come through debt maturation, valuation and leasing risk. Phoenix, on the other hand, has been hampered by centers built in secondary locations, with weak tenants, and by sponsors without a deep and talented leasing and management teams. There are opportunities in each area, but they differ dramatically in approach.

GlobeSt.com: Vestar’s Tempe Marketplace recently received an award from ICSC for design and sustainability. What design trends do you see over the next decade?

Hanley: The award was a significant step by ICSC to call attention to the importance of sustainability in the construction and operation of shopping centers. We were very proud to have completed the first LEED Certified shopping center built in Arizona at our Oro Valley Marketplace in Tucson. That experience allowed us to take the lessons learned to the next level in our Tempe Marketplace project, a 1.2 million-square-foot project built on a former superfund site. The pause in new development plus the active support and understanding of sustainable practices from majors like Target, Wal-Mart and others should set the tone for future centers. The slower pace of development throughout the country is allowing developers, architects, contractors and tenants to collaborate and find common ground on a variety of sustainability initiatives.

GlobeSt.com: Recently, Vestar and Rockwood Capital formed a joint venture to acquire retail properties and closed on its first buy last month, the $280-million Tempe Marketplace. What kind of acquisition objectives does the JV have for 2011? What kind of opportunities do you see and what are your thoughts on pricing and cap rates?

Hanley: Frankly, our “batting average” hasn’t been all that impressive. Out of 12 carefully evaluated offers, we have acquired only four centers. There appears to be oceans of capital on the sidelines awaiting the sale of physical assets or loans secured by assets. Through the acquisition of those four centers, a pattern has emerged of the characteristics we find inviting and important enough to focus our capital and attention. Some are typical: great location, balance sheet tenants, market acceptance and quality of construction. More subtle, but perhaps more important to our capital partner, is the level of DPO, lease-up plan, the ability to influence net operating income and very low leverage (40 to 50%) at the completion of the acquisition. Cap rates have not played an important role in the acquisition process, but rather cash flow, current and potential leasing levels and projected internal rates of return.

GlobeSt: Like all commercial property types, the retail sector has seen almost a complete halt for new development. Will we see any retail development in 2011 or is retail development many years away?

Hanley: In our view, other than a few highly urban opportunities, there won’t be significant development opportunities for three or more years. We believe this is a good thing.