New Construction Retail Deals Aren’t Dead

Retail is definitely the most challenging asset class in the current market; however, the continue to be opportunities to succeed. Just as investors are finding quality acquisition opportunities, lenders are also open to the right retail deals, whether for acquisition, redevelopment or ground-up construction. While retail can present more challenges than the more in-vogue assets—think industrial—if lenders can understand the value proposition on a retail asset, the deal has legs.

“Retail developments, acquisitions and redevelopments are somewhat challenging in the current market,” Malcolm Davies, principal and managing director at George Smith Partners, tells GlobeSt.com. “That said, capital markets are strong, and it is possible to finance retail product in the current market. In fact, we are closing a $60 million construction loan on a 208,000 square-foot grocery anchored shopping center right now and recently closed financing on the repositioning of a 180,000 square-foot retail center which had lost its grocer anchor, and were able to back fill this space with a fitness/gym tenant. Lenders simply need to see and understand the property’s value proposition clearly, and they must believe in the sponsor and in the vision for the property’s future.”

While educating lenders is one strategy to move a retail financing deal forward, Davies says that owners with an established relationship with lenders are also well positioned for success. “In addition, retail owners who have access to a wide range of lenders will have the most success achieving financing in the current market,” he says. “At George Smith Partners, we regularly present financing opportunities to upwards of 100 different lenders in order to find the right fit.”

In general, lenders can be more reluctant on construction financing deals, but having a strong business plan and a compelling asset are the best path forward. In fact, Davies says there are three steps to overcoming lender reluctance. “Today’s borrowers can secure the financing they need when armed with the very best information for lenders to consider,” he says. “We start by creating an offering memorandum that is well written, concise and supported by a model.”

The next step is to shop and cast a wide net. “It’s essential to reach out widely and connect with a wide variety of sources in order to obtain as many proposals as possible,” he says. “The goal is to identify ‘project champions’ within the lender organization who understand the potential and believe in the business plan. Finding those champions can take time, and the result is typically well worth the wait.”

Lastly, borrowers should embrace the process and pay attention to detail. “It’s important for borrowers to recognize that they will run into many nuances along the way,” says Davies. “By sticking with a capital markets partner, however, they are most likely to see their construction financing reach the finish line.”