BURBANK, CA—Gateway at Burbank has sold for the highest price paid for a class-A retail center in the greater Los Angeles area since 2007. In an earlier story, GlobeSt.com reported that a fund managed by CBRE Global Investors purchased the property for an undisclosed price. Although neither party has disclosed the purchase price, GlobeSt.com has learned from industry sources unrelated to the transaction that the property traded hands for $49.6 million. The sellers name has not been disclosed.

“There is a huge lack of supply in class-A grocery-anchored shopping centers in Southern California and the seller realized that due to current market conditions, it was time to capitalize on the pent up demand,” El Warner, associate VP at Colliers International, tells GlobeSt.com. “Pricing for this asset class and an investors risk tolerance significantly exceeds even the inflated boom from 2005-2008.  This sale represents exactly that as the seller acquired the property at the tail end of the last economic boom at a 30% discount to today's pricing. The fact that this product class can trade at pricing 30% above the last economic boom is both astounding and frightening and is a reflection of not only the pent up demand but the historically cheap cost of capital.” Warner represented the seller in the transaction, along with Colliers International EVPs Tom Lagos and Jereme Snyder.

As a result of the tight supply, the sales team received multiple all-cash offers for the property, which is not unusual. Warner says that these types of properties attract aggressive offers every time they come to market. “Grocery-anchored shopping centers are the most sought after retail product across the country due to the daily need drivers that have been E-commerce proof to this point,” he says. “Most institutions are under allocated in retail and even more so with core grocery anchored centers. The multiple offers we received [on this property] were the result of the properties excellent location, demographics, and strong tenancy and sales volumes. This was truly a core grocery-anchored center.”

Although the supply is constrained, the window to capitalize on an assets purchased during the last boom may be coming to a close, thanks to the likelihood that capital costs will be increasing soon. For now, however, retail owners of class-A grocery anchored product are looking at pretty significant returns. “The investors that acquired this asset class in the last boom and lost a large portion of their equity in the recession can not only recoup their initial investment, but potentially have an increase of 20-30% on their initial investment,” explains Warner, “Historically, these owners/sellers have not known what assets to trade into if they sell these class A assets; however, since leasing fundamentals have significantly improved across most retail product types, value add assets have become a more desirable and viable trade option. These value add opportunities could also have thrice the returns.”

The high pricing on this sale may lead to an influx of core product on the market, however. For that reason, Warner says that investors will—and should—pay attention to the health of the in-place tenants. “Investors will pay close attention to the grocer's sales volumes, cost of occupancy, and remaining lease term in determining the quality of the investment,” he says. “These criteria will help determine if the market will accept this product as core and provide core pricing or whether it is just another average performing retail center with an identity crisis.  We will see both hit the market in the near term not only in L.A. County but also on the west coast.  In fact, we have another very similar core grocer deal that hit the market last week in the bay area.”