Working the New Economic Normal

Garrison: “I never say never, but we feel very good about the risk-adjusted return profile on our projects.”

OAK BROOK, IL—No one knows for sure, and Shane Garrison is first to admit it. But all the recent talk of a market at its peak is little cause for worry, as Garrison, who is EVP, COO and CIO of locally based Retail Properties of America Inc. (RPAI), continues to build the retail REIT’s portfolio. “From a macro-economic standpoint, it very much feels like this is the new normal,” he tells GlobeSt.com. “GDP and overall growth isn’t great, but they’re just bumping along, and broadly,  it feels like any step back will be relatively mild. ” Even on the development and redevelopment side, which by necessity is subject to longer lead times, he voices little concern. “The object here is not just opening stores,” he explains. “When you put that stance into the context of long-term, strong TOD sites or infill, the focus is always on working with our retail partners to drive the brand in the appropriate market. When we enter a redevelopment project, we have that intel.” That diligence, combined with the quality of the real estate and platform  are the reasons he listsfor his continued confidence in the executionthe redevelopment pipeline. “I never say never, but I feel good about our risk-adjusted return profile on our projects.” That includes two RPAI projects in Maryland that we began tracking a few months ago: Boulevard at the Capital Center (in Largo) and Towson Circle (in Towson) ( http://www.globest.com/sites/globest/2015/05/15/on-rpais-drawing-board-live-work-play/ ). The larger and by far more complex project is Boulevard, which has been planned around a teaching and trauma hospital as its new anchor. Garrison currently anticipates that the all-important Certificate of Need for the medical facility will be issued later this year. In the meantime, “We’re still running through site programming, and we see a theater use there as well and other commercial uses,” he says. “Obviously with the hospital we also see robust demand for medical office space and as many as a 1,000 multifamily units.” He adds that the teaching aspect and visitations might also support a hotel as well on the massive 70-acre project. “It’s a very interesting and dynamic project; there are very few mixed use projects in the U.S. today with a medical use anchor, but we feel there will be more going forward”. Turning to Towson Circle, “We’re farther along,” Garrison reports. “We’ve chosen a multifamily partner that we have not yet announced, and we’re currently finalizing the site configuration  with our project stakeholders.” Part of that process includes the recent purchase of a neighboring theater/restaurant complex. “We envision the two assets becoming one,” he says, “so the final site planning will focus on ambience, walkability and maximizing configuration and programming to make for a cohesive  experience for the customer.” He also envisions rental increases from a current “mid- to low-$20s” to a stabilized $45-plus.” Also in the pipeline for RPAI are a collection of what Garrison describes as “small-scale projects,” including projects in Washington State, Texas and more on the Baltimore-Washington, DC corridor.  Large or smaller-scale, RPAI chooses projects based on appropriate risk adjusted returns and in some cases can build projects for up to 500 basis points over what we would acquire them for”. And knowing the return going in, based on sure-fire intel that takes most of the guesswork out of the leasing process, is probably the biggest confidence builder in any market–peaks or no peaks.