NEW YORK CITY—Several commercial real estate executives urge geographical diversity in firms' portfolios, arguing that if one market in which they own assets hits a downturn, the stronger-performing locales will pick up the slack. Retail Properties of America (presenting at booth 542 at the ICSC New York National conference) has decided to go a different route.
Not that RPAI doesn't have assets in various cities. Currently, the Oak Brook, IL-based REIT owns about 220 retail centers in 34 states. However, during an investor day presentation in June 2013, the company announced a dramatic 10-year strategic plan to reposition the portfolio to 10-15 core markets across the United States, these currently include: Atlanta; Austin, TX; Chicago; Dallas; Houston; the New York City area; Phoenix; San Antonio; Seattle; and Washington, DC-Baltimore region.
“Initially when a company announces a more finite focus, the immediate opinion tends to be that it will be even more challenging to transact because it can buy in fewer markets,” Shane Garrison, the firm's chief operating and investment officer, tells GlobeSt.com in an EXCLUSIVE interview. “I would tell you the reality is just the opposite.”
The upside? The concentration on these core markets has actually enabled RPAI to complete more meaningful transactions because it can better nurture relationships with local owners, brokers and developers, giving the firm a tight grasp of the dynamics of those locales, Garrison explains. The eventual goal is to own three million to five million square feet in each of the core markets, which will also make the company a go-to player when it comes to retail leasing.
During its third quarter, RPAI sold $88.5 million in non-core assets, on top of nearly $80 million in the second quarter. So far this year it has disposed of $204.2 million in centers that don't fit the 10-year plan. FFO also rose year over year during the third quarter, hitting $65.7 million, up from $63.3 million.
Wall Street likes what the company is up to so far. In October, Standard & Poor's pushed RPAI up to an investment-grade rating, as has Moody's.
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