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Puget Sound Investment Review – June 2011 June 15, 2011

Posted by Erik Swanson in Articles, Blogs, Puget Sound Investment Review, Research/Data, Retail News, Retail Sales Comps.
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Cap Rates…Rise or Fall? June 14, 2011

Posted by Erik Swanson in Articles, Blogs, Research/Data, Retail News, Sale, Uncategorized.
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Today, I was speaking with a developer who’s contemplating putting a retail center on the market. This particular asset is stabilized and he’s enjoying increased cash flow after his interest rate has adjusted downward on a variable rate loan.  He believes his tenants will accept their scheduled annual rent increases and expects the operating income will rise accordingly. Life is good, why sell? 

Investors seeking stabilized assets with has contributed to several quarters of cap rate decline. Couple that with a looming inflationary period and the likelihood of rising interest rate environment seem to beg the question, “is it time to sell?”  There are a few dynamics to consider here; the increasing availability of inexpensive debt, the lack of suitable alternative investments, and the sentiment that retailers are healthier. Investors have seen that vacancy rates have leveled off and rent growth, albeit modest, may soon begin. This is putting downward pressure on cap rates as buyers price in these future NOI gains.

Every deal is unique unto itself and obviously needs to be analyzed beyond how the value is affected by today’s cap rates. It seems clear however, that we’ll see rising cap rates in the not too distant future. Click the link to check out an interesting article in National Real Estate Investor  .

Institutional Retail Grab June 9, 2011

Posted by Sean Tufts in Articles, Blogs, Retail News.
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As previously discussed in recent blog posts, sales volume has significantly jumped this year in the retail sector led by institutions with a nearly unlimited and practically free capital source. Their focus on purchasing retail centers has done many things to retail landscape, most importantly by driving CAP rates down to unexpected levels. It continues to change the ownership profile across the country as private capital controls less and less product.

This has always been the case for large shopping centers but was less of a concern for the single tenant market, where private investors dominated. That has changed significantly in the last six months as the share of institutional ownership of single tenant retail assets grew from 5% to 25%.

Check out the article in National Real Estate for more detail.



Cabela’s coming to the Tulalip June 6, 2011

Posted by Erik Swanson in Articles, Development, Retail News, Uncategorized.
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An already a vibrant retail market will become even busier next year. Nebraska based Cabela’s is planning to build a 110,000 square foot store at the Quil Ceda Village on the Tulalip Tribes Reservation near Marysville. The huge themed hunting and fishing store will join nearby retailers Wal Mart, Home Depot, the 110 store Seattle Premium Outlet Center and the tribal operated 370 room, Tulalip Resort Casino.

The building’s exterior will reflect Cabela’s traditional store model with log construction, stonework, wood siding and metal roofing. The inside will highlight the company’s next-generation layout, which is designed to immerse customers in the outdoor experience and includes conservation-themed wildlife displays and trophy animal mounts. Construction is expected to start later this year. – Cabela’s Press Release

Construction will begin this year and the store will open in 2012. Cabela’s operates 33 stores throughout the USA and Canada and this will be the second Washington store after Lacey opened in 2007.  They recently opened a store in Springfield, Oregon and have 3 more planned for this year.  The Tulalip reservation is 22,000 acres located north of Everett and west of Marysville, Washington.

Investment Sales Volume June 1, 2011

Posted by Sean Tufts in Articles, Blogs, Research/Data, Retail News.
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Retail investment continues to improve locally and around the nation. As data continues to roll in a clearer picture is starting to come together which mirrors what we have been seeing on the ground the last couple of months. Retail Traffic’s latest article explores the changes in the credit markets as capital starts to flow to other deals besides class-A core product. It also touches on the some of the reasoning behind the increased demand and resulting drop in cap rates.

Two of the biggest reasons investors have come back into the marketplace en masse are improving retail sales and record low interest rates. In April, same-store sales for U.S. chain stores, as measured by ICSC, rose 8.5 percent. Year-to-date, same-store sales are up 4.9 percent—a vast improvement over recent years, when same-store sales often posted declines. Retailers have gone from shutting down new opening plans in 2008 to mulling expansion in 2010 to actually signing leases this year.”

This year we have seen an increase of over 160% in dollar volume of retail centers sales in the Puget Sound compared to all of last year. If deal volume continues at this pace (which could happen if deals like the Kimco portfolio close) it will represent a nearly 400% increase in deal volume and record as the largest year since 2007.

Nationally, cap rates continued their fall for the fifth straight quarter. Below is Retail Traffic and Real Capital Analytics graph of retail cap rates and price per square foot.

The full article is well worth the read.

For Sale: Marysville Investment Property – $1,163,000 June 1, 2011

Posted by Sean Tufts in Listings.
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Just Sold: Eastway Center, Renton, WA May 27, 2011

Posted by Sean Tufts in Retail News, Retail Sales Comps, Sale.
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Optimism at ICSC Retail Convention May 25, 2011

Posted by Erik Swanson in Articles, Blogs, Development, Retail News.
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We’ve just returned from Las Vegas where we, and roughly 35,000 others, attended the ICSC Global Retail Real Estate Convention or “RECon”.  The mood was upbeat and energetic and we were pleasantly surprised with the level of activity. We had a busy schedule packed three days with meetings, parties, and dinners that included prospective buyers, developers and property owners large and small.  The consensus; while it’s not a normal deal making environment, there’s a cautious optimism that things will continue to improve in the retail real estate retail sector.  A couple of takeaways from the convention:

  • Secondary markets will see increased capital as investors seek yield. See Shopping Center Today News RECon recap here.
  • Retailers will speed up expansion through 2012. See GlobeSt.com’s report from RECon here.
  • Institutional buyers awash in cash will continue to compete for Class A properties keeping cap rates low for quality product.
  • Redeployment of capital – Many owners are contemplating selling now before cap rates increase with looming inflation.
  • Tenants still have plenty of leverage and benefit of choice. See the RetailTrafficmag.com article:  Landords, Tenants Jockey For Position in Lease Negotiations.

“Properties Previously Bought at Peak Exerting Downward Pressure on Current Prices” – Costar May 19, 2011

Posted by Erik Swanson in Articles, Research/Data, Retail News, Uncategorized.
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I don’t think many in the commercial real estate business would be surprised by Costar’s headline. It’s significant, however, that we’re better able to decipher the pricing performance for properties purchased in the “pre-bubble” buying spree. The latest Costar Commercial Repeat-Sales Index shows that the commercial market continues its correction. 

Over 70% of the deals purchased in 2005-2007, and the later sold in 2011, have sold below their previous acquisition price. We believe the landscape for deal making is improving daily, but for many owners (and lenders with the troubled loans that were originated during this period) it will be a challenge to recoup values.  First quarter 2011 repeat sales of  “Investment Grade” properties fared worse than “General” grade assets. The performance in the investments market has impacted the West regions overall performance and prices remain down 38% from their peak in mid 2007.  

Retail posted a 1.6% gain while office declined 11.7%, industrial declined 5.1% and multifamily declined 3.1%.

There’s perhaps a silver lining for retail property owners. According to the report, retail is the only property type that showed a modest pricing increase in 2011.  Check out the entire Costar report by clicking here.

Puget Sound Investment Review – May 2011 May 17, 2011

Posted by Sean Tufts in Puget Sound Investment Review.
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