CHICAGO—The market for retail acquisitions has become far more competitive with aggressive pricing and a good deal of cap rate compression. And at REITWeek 2013: NAREIT's Investor Forum, held this week in Chicago, officials from the Inland Real Estate Corporation outlined their strategy to continue growing.
In addition to on-going efforts to upgrade their existing retail portfolio, largely spread across the Upper Midwest, IREC has formed several joint ventures with pension funds such as the New York State Teachers' Retirement System and PGGM, a Dutch pension fund. Of the latter, which began in 2010, Mark Zalatoris, IREC president and CEO said that “this venture has added $300 million in gross value to our portfolio.”
However, IREC recently bought out the teachers' share in the joint venture, which gave them complete control of 13 shopping centers, mostly in the Chicago metropolitan area, with about 2.3-million-square-feet. Zalatoris was asked by an audience member why they made that choice.
“It's the goal of all companies like ours to grow their wholly-owned portfolio,” he said. Although forming ventures with pension funds greatly increases IREC's purchasing power, at some point they want to simplify their ownership structure. And the timing was partly governed by the REIT's judgment that they could easily raise the funds for the buy-out with a common stock offering, announced in late May, of 9,000,000 shares.
“It was an opportune time,” Zalatoris added. “The price of our stock seemed very attractive” and “has moved up nicely this year.”
“We have about $300 million left to buy” through the ongoing partnership with PGGM, Zalatoris added, and he expects to use it to expand retail holdings in new markets in states like Wisconsin and Ohio. “There's a risk to being too concentrated in any one market.”
But IREC does not plan to rely on acquisitions alone. “The grocery space is far more competitive today,” said Scott Carr, the REIT's chief investment officer, and they plan to continue their strategy of upgrading the stores which occupy their current space. “We want the best-in-class retailers,” he added. “We're also trying very actively to bring in a food component,” including groceries like Whole Foods, which tend to attract upper-income shoppers.
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Brian J. Rogal
Brian J. Rogal is a Chicago-based freelance writer with years of experience as an investigative reporter and editor, most notably at The Chicago Reporter, where he concentrated on housing issues. He also has written extensively on alternative energy and the payments card industry for national trade publications.
