Paragon Allocates $500M for California Retail Investment
The investor plans to buy $500 million in neighborhood retail centers throughout California in the next 18 months.
“We believe that retail is hyper localized and it is critical to be close to the assets that you own, operate and manage, especially when you are doing heavy repositioning and value-add, which is the majority of what we do, and there are enough infill markets in California to keep us busy,” Jim Dillavou, co-founder and principal of Paragon, tells GlobeSt.com. “The choppiness in the retail market right now provides the ability for us to do that. There hasn’t been urban retail centers trading at the price that they are trading for now for at least a decade, and we think there is an opportunity to capitalize on that.”
The firm plans to spend $300 million in Northern California, and the remaining $200 million in Southern California. “We are under allocated in Northern California. More of our portfolio is located in Sothern California than Northern California, and we are trying to even that out a bit,” says Dillavou. In general, Paragon will target neighborhood retail centers, which often means daily needs or grocery anchored product.
While Paragon’s capital allocation is among the most bullish in the retail sector, the market for neighborhood centers is competitive. Paragon, however, is a seasoned retail investor and understands the evolution of the retail industry and more specifically the grocery industry. “The grocer landscape is changing dramatically. Today, the ideal grocery box is 30,000 square feet, and the business is changing with ecommerce and vertical integration of online sales,” says Dillavou. “As investors, we need to understand that and buy properties where these grocers will want to be and where we can accommodate new concepts. We are overlaying that evolution on the shopping center business and trying to stay at the forefront of that.”
In terms of what grocers are looking for, Dillavou says that it is a balance between location and center configuration, and Paragon is looking to acquire assets that can meet both needs. “Demographics will drive a grocer location decision more than anything,” he says. “Design of the center, including the visibility and access, is critical as well, but demographics is going to be the key driver. Grocers want to be located as close to their key customer as well, both for convenience and partial distribution centers as well.”
In general, Paragon is a long-term owner and operator; however, Dillavou expects to sell about half of the assets it acquires after completing capital improvements and stabilization.