MOTIVATIONS BEHIND UPTICK IN RETAIL INVESTMENT SALES VARY
By Bill Brown, Halpern Enterprises
Coming out of the recent ICSC Southeast Conference in Atlanta, it’s clear that more buyers and sellers are talking about doing retail center deals.
But here are two important questions: How real is the talk? And how motivated are buyers and sellers to get acquisitions done?
To answer the first question, we are definitely seeing a higher volume of deals. Opportunistic sellers are seeing that this may be a good time to sell with cap rates at extremely low levels.
At the same time, more special servicers are bringing properties to market after working through various issues, while REITs are selling non-core assets as they tighten their strategic focus either geographically or to certain types of properties.
As for the buying side, though cap rates are low, numerous buyers are making deals work because of the low interest rates on longer-term debt. A number of buyers we talk to are planning to acquire a center, hold it for five to 10 years with cheap debt, and see what the future holds.
But is this uptick in activity a sign of a marked strengthening of the marketplace, particularly as we near the end of the year? From what we are seeing, I’d have to say no. Certainly, the environment is improving, but not in a consistent or dramatic way.
While some sellers are motivated by a fear that capital gains tax rates may go up in the near future, we aren’t seeing this as a major impetus in getting deals done — at least not yet.
And while there is more demand from buyers, there continues to be a shortage of quality retail centers for sale, which is dampening activity.
This situation may improve over the next several years as more CMBS loans mature, with no solution readily available for an owner besides a sale. Still, we are continuing to see special servicers and owners take a measured approach in evaluating their options, so this increase in for-sale properties probably won’t happen overnight.
So if external market forces remain constant, it would be reasonable to expect a continued improvement in the market for retail center acquisitions, but in a gradual way.
In watching how this market evolves, a key is to keep a close eye on interest rates. If they stay where they are, buying a retail center at a 5 percent-plus cap rate will continue to look attractive when compared to the return an investor would get for, say, a money market account.
But if interest rates start to rise — as some speculate may happen if there is a change in the White House and in turn a change in Fed policy — that could make a retail center acquisition less attractive, which could dampen activity.
— Bill Brown is president of Atlanta-based Halpern Enterprises. The company owns and manages more than 3.4 million square feet of leasable space in 33 retail properties, located in Georgia, Florida and South Carolina.