Flight to Quality and Strong Fundamentals Characterize Northeast and Mid-Atlantic Markets
NORTH PLAINFIELD, N.J., May 11, 2016 – With an expanding investment advisory practice and 21 new retail leasing and management assignments over the past 28 months, Levin Management is observing stepped-up demand for third-party retail real estate services. According to Joseph Lowry, the North Plainfield-based company’s senior vice president of leasing and acquisitions, this volume ties directly to paradigm shifts in both the retail and real estate industries.
“Current fundamentals in the Northeast and Mid-Atlantic markets are strong, and the regional economy continues to gain momentum, albeit slowly,” Lowry said. “At the same time, a number of factors are making this sector progressively difficult to negotiate. Everybody is looking for ‘bullet proof,’ but there is no such thing.”
On the tenant side, the evolving popularity of online shopping undeniably has spurred change for bricks-and-mortar stores. An escalation of merger activity is creating growth in scale for some retailers yet prompting store closings as they consolidate locations. The game is also changing rapidly for preferred anchor categories like supermarkets, as discount and high-end grocers challenge their mid-level counterparts, while drug, dollar and department stores incorporate food inventory.
When it comes to the real estate, itself, flight to quality remains a priority, according to Lowry. Yet hundreds of millions of dollars in capital are chasing a limited supply of core institutional-grade real estate. “We are seeing more opportunities involving value-add or core-plus properties, and more buyers willing to look at these asset classes,” he said.
“By the same token, the competitive position of the property needs to be carefully considered, and the trade area must be thoroughly evaluated in terms of demographics and the amount and quality of existing retail,” he added. “Properly assessing these conditions requires a granular level of market knowledge.”
According to Lowry, within this context a growing number of investors – from private players to the largest institutions – are utilizing the services of companies like Levin to source shopping center acquisitions.
EVALUATING KEY FACTORS
Whether an investor is considering a property listed by a broker or exploring an off-market deal, Lowry noted that certain key factors must be evaluated. “These include an analysis of capital requirements, operating statements, rent rolls, debt levels, the condition of the property, and the state of the local market,” he said. “Others may need to be weighed, but these are essential in helping to determine risk. This is a fluid environment, and the rate of change seems to be picking up momentum over time. The result is added complexity to underwriting a potential retail investment.”
Real estate services organizations that maintain full in-house capabilities in leasing, accounting, property management, construction management and marketing are best positioned to help, according to Lowry. “Hands-on experience in construction is especially valuable, enabling the consultant to spot physical conditions that may turn into major expenses,” he said. “A regional focus is also key to maintaining strong brokerage connections and a pulse on current listed – and unlisted – retail opportunities.”
And, once an acquisition closes, the new property owner often continues to rely on its retail real estate advisor for developing and executing the shopping center’s operational strategy, Lowry noted. “At Levin, for example, our forte is helping clients maximize property value throughout the entire investment cycle, and this has helped us grow our third-party leasing and management business,” he said. “In fact, a number of the assignments we have won in the past two years involve newly traded properties – for both new and repeat clients. These organizations look to us to establish, maintain and improve competitive positioning for their assets.”
Levin today maintains a diversified, retail-focused portfolio of approximately 95 properties totaling 13 million square feet. The company specializes in repositioning, retenanting and renovating real estate – areas that have become particularly vital in an increasingly competitive market. Levin’s services continue to evolve with new technologies, efficiencies and sustainability-focused initiatives to serve a new generation of properties, investors and tenants.