SAN DIEGO-As mall developers have moved away from failing department stores, they are moving toward outlet centers, says Michael Marino, EVP & division manager for Wells Fargo Bank in Los Angeles. Marino, along with Joham Tavera, director of BlackRock Inc. in San Francisco and Fred White, director of TIAA-CREF in Newport Beach, CA, spoke during a general session at ICSC Western Division yesterday, with Ryan Gallagher, senior managing director of Holliday Fenoglio Fowler L.P., moderating. The session was titled, “Capital Markets Gymnastics: How Flexible Will They Be When it Comes to Financing Your Next Acquisition or Refinance?”
Marino said his firm is currently involved with financing two outlet-center developments in California, and he sees this trend continuing. However, “There has to be something very special about the land for us to do the deal,” he added. For example, outlet centers in coastal California and Hawaii have location-generated appeal. Also getting the green light are centers funded by public companies.
White said that with yields compressing to the mid-teens, many investors are moving into secondary markets to gain higher yields. “People are getting more aggressive, and we believe yields will continue to compress.”
White added that his firm identifies the top 25 malls in the country and bids on them if they go on the sale block. “We’re only going to go after the top malls,” he emphasized. “We’re dominant regional mall experts, and our favorite markets are gateway markets in the West including Seattle, San Francisco, L.A., San Diego, Denver and Phoenix.”
When asked about retail trades above replacement costs, Tavera said, “Most of the trades above replacement costs are core assets, and this hasn’t been a huge issue for us because we haven’t seen a whole lot of transactions.”
Marino added, “This is the first year in a long time that [trades above replacement costs] has come up. In apartments, we look at how much it costs per unit. In retail, something about the location must justify it.”
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The panelists agreed that the pace of the economy’s recovery will determine how quickly the retail sector picks up. “If the economy continues to grow slowly, the consumer will remain under pressure,” said Tavera. “Generally, performance hasn’t been great.”
As GlobeSt.com previously reported, some experts in the retail sector are saying that this area is beginning to show signs of stability on the West Coast and in Southern California in particular. Local investors are anxious to purchase quality retail assets, and investors nationwide and globally are attracted to the region’s strong demographic makeup and density, Jereme Snyder, SVP, retail services for Colliers International, told GlobeSt.com.
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Carrie Rossenfeld
Carrie Rossenfeld is a reporter for the San Diego and Orange County markets on GlobeSt.com and a contributor to Real Estate Forum. She was a trade-magazine and newsletter editor in New York City before moving to Southern California to become a freelance writer and editor for magazines, books and websites. Rossenfeld has written extensively on topics including commercial real estate, running a medical practice, intellectual-property licensing and giftware. She has edited books about profiting from real estate and has ghostwritten a book about starting a home-based business.
