Multi-tenant shopping centers are gaining favor with investors.

British entrepreneur and adventurer Sir Richard Branson, Director of Virgin Group Ltd., said: “Every success story is a story of constant adaptation, review and change. Certainly, as retailers grappled with the impact of COVID-19 restrictions, those who could quickly pivot and adapt were the winners. Even Charles Darwin said: “It is not the strongest of the species that survives, nor the most intelligent, but the most sensitive to change.

With the retreat of the last few years in retail, American consumers were already changing their shopping habits. These changes include expenditure on experience with respect to material goods and houses; casual fashion in response to more casual dress codes; convenient online ordering, drive-thru delivery and pickup services for time-constrained consumers; as well as the rise of e-commerce, mainly in the form of competition from Amazon.com and Walmart. However, once the lockdowns arose in response to the pandemic, emerging trends such as online ordering, mobile delivery and omnichannel became permanent.

Other 2020 trends that made headlines almost daily were the number of retailers and restaurateurs that had filed for bankruptcy or were closing stores. Coresight Research reported 8,953 closures last year as the COVID-19 pandemic rocked the retail industry. Little has been said about 3,298 openings in 2020 and the fact that in 2019, retailers in the United States announced 9,302 store closures, a 59% jump from 2018, and the highest number since the start of monitoring in 2012. Even with the COVID-19 pandemic still weighing on physical retail, retailers in the United States collectively plan to open 3,344 stores so far this year (up from 2,649 closures) , according to Coresight.

“The COVID vaccine rollout continues to accelerate, another round of stimulus checks lands on the bank accounts of many Americans, and businesses overall are predicting a strong consumer rebound,” CNBC reported. “The National Retail Federation predicts that retail sales in the United States could grow between 6.5% and 8.2% this year, with the economy accelerating at its fastest pace in two decades.”

Retail sales jumped 9.8% in March, with sporting goods, clothing, food and beverages spiking spending as more Americans are vaccinated, trade restrictions are lifted and people begin to resume their normal daily activities. Those sales contributed to the best month for retailing since the 18.3% gain in May 2020, which came after the first round of stimulus checks. Sales were up 27.7% year-over-year in March, continuing to create optimism for the retail industry.

Other recent reports have also shown that the economy is gaining momentum: Unemployment claims fell to pandemic-era low, with 576,000 Americans asking for state aid, according to the US Department work. At the same time, employers created 916,000 jobs in March, the highest number since August (nearly double the gain in February – inspiring optimism that the labor market has come out of the labor market). grip of the pandemic).

Other positive signs for the retail sector include a steady improvement in retail rent perceptions as COVID-19 restrictions are lifted. In February, rent collection exceeded 90% among national retailers for the first time since March 2020, when the pandemic began, according to research by Datex Property Solutions. In the same month of last year, national retailers paid more than 93% of rents, showing that retailers in this category are getting closer to pre-pandemic performance.

Retailers have taken note and are looking to re-energize their expansion plans. Retailers looking to expand in 2021 include Target, Amazon, Burlington Stores, Dick’s Sporting Goods, ULTA Beauty, Sephora, Old Navy, TJX Companies (TJ Maxx, Marshalls, HomeGoods and HomeSense), Ross Stores, Five Below, Aldi, Lidl, Sprouts Farmers Market, Trader Joe’s, Dollar General, Dollar Tree, Starbucks and Dutch Bros, 7-Eleven, Chipotle Mexican Grill, Sonic Drive-In, Taco Bell, McDonald’s, Bank of America, Chase, O’Reilly Auto Parts, plus many others.

Mergers and acquisitions are another avenue for expansion, which continues to reflect the positive outlook for the retail market. Tractor Supply Co. announced in February 2021 that it would acquire the network of 167 Orscheln Farm and Home stores operating in 11 states. Orscheln Farm and Home sells tools, clothing and sporting goods, as well as traditional farm supplies.

At the end of December, Sportsman’s Warehouse, a leading outdoor activities company based in the western United States with 112 stores, announced that it had reached a definitive agreement to join the Great American Outdoors Group, the parent company. from Bass Pro Shops, Cabela’s, White River Marine Group and a collection of nature-based beach resorts.

Earlier in December, Bed Bath & Beyond announced that it would sell Cost Plus World Market in an effort to stabilize sales and focus on its core business. The home goods retailer said it has reached a deal with Los Angeles-based private equity firm Kingswood Capital Management to buy Cost Plus World Market for an undisclosed amount.

Kimco Realty (NYSE: KIM) announced in April its intention to acquire another real estate investment trust (REIT) Weingarten Realty Investors (NYSE: WRI) for $ 3.87 billion in cash and shares. The merger will create a nationwide operating portfolio of 559 open-air shopping centers anchored in grocery stores and mixed-use assets covering approximately 100 million square feet of gross leasable area. This transaction could lead to an acceleration of mergers and acquisitions in the REIT industry as REITs seek to grow in size and increase returns as the economy emerges from the pandemic.

Another positive sign is that lenders are back in the market. During the height of COVID, lenders weren’t even citing multi-tenant commercial properties. However, starting in late summer 2020, lenders got a foothold in the market and were offering a 55% loan-to-value ratio (LTV) with onerous reserves due to rent collection issues. Today, investors are happy to see that lenders are offering up to 70% LTV for quality multi-tenant commercial properties without additional “COVID” reservations. According to the agreement, current interest rates at the end of April were 25 basis points lower than before COVID.

Additionally, multi-tenant retail investors who had been left on the sidelines during the height of the pandemic are now seeking acquisitions, but, with little to no new product on the market, higher demand and low inventory are driving downward trends. high quality retail cap rate. assets to compress below pre-COVID levels. Hanley Investment Group sees demand accelerate for entrenched and shadowy multi-tenant commercial properties in many markets across the country, particularly in suburban markets in states that have had a less restrictive response to the pandemic .

For example, Hanley Investment Group recently represented a California 1031 exchange buyer in the purchase of Alpharetta Commons, a 94,500 square foot shopping center 98.7 percent occupied, anchored by Publix Super Markets in one from the wealthiest suburbs of northern Fulton County, Alpharetta in Metro Atlanta. The sale price was $ 24.6 million. The average household income within a three mile radius of the property is over $ 163,000 for the 86,000 residents. Nearly 209,000 people live within eight kilometers of the shopping center. The seller was an institutional real estate owner, operator and developer of a national portfolio.

Hanley Investment Group also represented a California exchange buyer in the recent purchase of Cofer Crossing, a 136,139 square foot fully leased mall anchored by Kroger and HomeGoods located in the community of Tucker, Ga., In the Greater Montreal area. Atlanta. The sale price was $ 20 million. Cofer Crossing is shaded by Walmart, and Kroger recently acquired an old Shell station located at the entrance to Cofer Crossing, which has since been renovated into a new Kroger Fuel Center, reflecting Kroger’s commitment to ownership. The seller was a partnership between SITE Centers Corp. and Madison International Realty.

In late October, Hanley Investment Group organized the sale of a large anchorless mall in Southern California, Village Plaza in Huntington Harbor, a 20,328 square foot multi-tenant mall with over 270 feet of main frontage. on the Pacific Coast Highway in Huntington. Beach. The 91 percent occupied restaurant and lifestyle-themed mall offered the private buyer a secure and stable income stream with excellent rental potential for the remaining 9 percent of the mall, a space of point of 1,744 square feet.

Demand and transaction volume are fueled by concern over a proposed increase in capital gains tax in 2022 as well as the possible modification or removal of 1,031 foreign exchange benefits. Other factors include the growing number of multi-family investors negotiating California apartment buildings seeking out-of-state single-tenant and multi-tenant commercial properties that have fewer management issues and are located in states with less government interference.

With little to no new inventory added, and more buyers jumping into the pool of buyers in the $ 1 million to $ 20 million range, we expect to see more aggressive pricing in the coming months. for retail buildings – COVID levels. Shopping malls anchored in grocery stores will be the most sought-after retail investment as the pandemic has led to a 14% increase in US household grocery spending, new research shows, which also contributed to “daily needs.” of customer traffic in these centers.

– By Kevin Fryman, Executive Vice President at Hanley Investment Group. This article first appeared in the May 2021 issue of Shopping Center Business magazine.