Shopping Centers Today is the news magazine of the International Council of Shopping Centers (ICSC)
Issue link: https://sct.epubxp.com/i/654213
ping paradigm is changing. For today's consumer, you need to create positive, emotional experiences so they will spend time, energy and dollars in your shopping c enters." As a buyer, the company was more active last year than in 2014, but things could be less busy this year. "We are in the middle of this venture with RED Development," McElroy said. "We ac- quired seven shopping centers with them in 2015, with a total value of about $350 million. We have four more centers that are going to be contributed to the joint venture. I would not be surprised if we have more than a center or two to take a look at going forward. Saying that requires market conditions to get some- what more favorable for buyers." Part of the problem is that the market has got- ten pricey, McElroy says. "Our model has been for cap rates from 6.25 percent to 7.25 percent, but it is getting to the point where quality shopping centers have got- ten expensive." McElroy says his primary initiative for this year will be to reinvest into ex- isting assets to make them stronger and to further enhance the firm's opera- tional abilities. THE PRIVATE EQUITY INVESTOR Cincinnati-based Viking Partners, a private equity real estate firm, was estab- lished eight years ago with $15 million that Steven Miller and Bret Caller raised from family and friends. The company has come a long way since. Last year it closed on a third fund, called Viking Part- ners Fund III LLC, which raised nearly $100 million. In the third quarter this fund paid out some $59 million for three shopping centers — in Downers Grove, Ill.; Matthews, N.C.; and Orlando, Fla. In December the fund paid some $8.5 mil- lion for a shopping center in the Kansas City suburb of Overland Park. "For the better part of the last five or six years, we were opportunistic investors, buying a lot of defaulted commercial- mortgage-backed-securities projects and other retail developments affected by the economic downturn," said Miller. "Over the last 12 months, our focus has shifted a little bit — there is still a fair amount of de- faults we are chasing, but we have become an active buyer of projects from third par- ties, institutions and REITs looking to sell assets in secondary and tertiary markets." Viking Partners has a partnership with Phillips Edison & Co., which handles all of the former's property management. The idea is to keep the Viking Partners team small, nimble and focused on asset management to create value for investors, says Miller. "Generally, that goal has been achieved through our ability to identify properties we think will retain demand," he said, "but for some reason the previous property owner hadn't been able to meet that demand, whether it was because of lack of capital, lack of experience or in- ability to identify the right tenants." Miller and Caller target 'B' centers in 'A' markets, usually those with a roughly 25 percent vacancy rate but with high- quality fundamentals and anchors. "We like grocery-anchored and discount-an- chored centers, for the most part," Miller said. "We like to be in a strong retail node within a submarket." The problem with 'A' centers in 'A' markets, he notes, is that there are too many buyers chasing those. "Unless we can identify some type of disconnect, we choose 'B' markets." Vi- king Partners has bought centers in Baton Rouge and Houma, La.; Indianapolis; Louisville, Ky.; Mobile, Ala.; and Or- lando, Fla., among other cities. The com- pany targets the Southeast and Midwest. This year is off to a good start. In January the firm entered into contract to buy a suburban Detroit shopping cen- ter from a big retail REIT. And last year Viking Partners bought $150 million worth of assets, nearly twice the amount it had purchased in 2014. Miller says the firm would like to acquire $80 million to $120 million in assets this year. "Our goal is to achieve attractive returns for our investors," he said. "We'll be active buyers, but we try to remain disciplined to our geography as well as our ability to create value. We are cautiously optimis- tic for 2016." s t e v e n m i l l e r