Grocery-anchored shopping centers luring stock-weary investors
By Paola Iuspa
Weary of a roller-coaster stock market and even some real estate, investors seem to be looking for grocery-anchored shopping centers as a safer bet.
What appears to be a nationwide trend began about a year ago, said Doron Valero, president and COO of Equity One Inc. in Miami Beach.
Equity is a real estate investment trust that acquires, renovates, develops and manages community and neighborhood shopping centers anchored by national and regional supermarket chains. It has 90 properties, mostly in urban areas across Florida and Texas.
David Moret, vice president of the Continental Real Estate Cos. in Miami, said prices of shopping centers with tenants such as Publix and Winn-Dixie are escalating dramatically, fueled by a high demand and a limited supply. He said the capitalization, or cap, rate used to convert an income stream into a present value, has plummeted to 8% from 9.5% last year.
"The lower the cap rate is, the higher the sales price is," Mr. Moret said.
The cap rate represents the buyer's desired return. The value of a property equals the net operating income divided by the cap rate, Mr. Valero said.
The cap rate has dropped about 50 basis points just in the past six months, said Adam Feinstein, a director with Cushman & Wakefield.
"I haven't seen this shift before," he said. "It is not clear if this is temporary or permanent. Only time will tell."
Mr. Moret said grocery-anchored commercial centers are the most resistant to recessions because "it does not matter how bad the economy is. People still have to eat and buy groceries."
Mr. Valero said the smaller tenants at those shopping centers often benefit from the traffic of patrons generated by the large anchor tenants, stabilizing the property's income, mostly derived from a basic rent plus sales percentage.
Many of those interested in buying these neighborhood-type centers include pension funds, individual investors, insurance groups and foreign funds, now withdrawing money from a shaky stock market and taking advantage of the low interest rate, said Richard Tarquinio, first vice president of investment properties with CB Richard Ellis in Miami.
Interest rates are now as low as 6.2% compared to last year's 7%, he said. By paying less in interest, buyers have room to be more aggressive with their offers, "driving prices up," he said.
Buyers are paying more than $100 per square foot at grocery-anchored shopping centers. At least three centers anchored by Publix supermarkets sold in July in South Florida with prices ranging from $187 per square foot to $135 per square foot, Mr. Tarquinio said.
Building a shopping center costs between $100 to $120 per square foot, less than buying an existing one, said Mr. Valero, whose group is building a Publix-anchored center at Southwest 147th Avenue and Coral Way.
"But there is not much land available in urban areas to build new centers," he said. "Also, not many have the temper to go through permitting and development process. A built center is already established and known."
Commercial centers anchored by specialty retailers such as T. J. Maxx, Best Buy and Marshall's, as well as strip malls with small shops and restaurants, are not as desirable because they are more sensitive to economic slowdowns, Mr. Tarquinio said.