Shopping Centers Today International

APR 2016

Shopping Centers Today is the news magazine of the International Council of Shopping Centers (ICSC)

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52 S C T / A p r i l 2 0 1 6 tal, so we aren't just trying to get in and get out. When we put out capital, we ex- pect to be there for a long time." Because of this strategy, Big Shopping Centers USA has been willing to look at smaller markets, as long as certain fundamentals are in place with regard to job creation, quality of life, and medical and educa- tional facilities. Besides Omaha and Phoenix, the company has also invested in Greenville, S.C., Pittsburgh and Salt Lake City. "We like to have a daily-needs component to our centers," said McEl- roy. "We generally look for larger centers than the prototypical neighborhood shopping center. We really want a larger asset that has a lifestyle or entertainment component. That's because the shop- 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 shop- ping 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 acquired seven shopping centers with them in 2015, with a total value of about $350 million. We have four more cen- ters that are going to be contributed to the joint venture. I would not be sur- prised if we have more than a center or two to take a look at going forward. Saying that requires market conditions to get somewhat more favorable for buyers." Part of the problem is that the market has gotten pricey, McElroy says. "Our model has been for cap rates from 6.25 percent to 7.25 percent, but it is get- ting to the point where quality shopping centers have gotten expensive." McElroy says his primary initiative for this year will be to reinvest into existing assets to make them stronger and to further enhance the firm's op- erational abilities. THE PRIVATE EQUITY INVESTOR Cincinnati-based Viking Partners, a private equity real estate firm, was es- tablished eight years ago with $15 mil- lion 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 Partners 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.; Mat- thews, N.C.; and Orlando, Fla. In December the fund paid some $8.5 million 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 oppor- tunistic 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 parties, institutions and REITs looking to sell assets in sec- ondary and tertiary markets." Viking Partners has a partner- ship 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 inves- tors, says Miller. "Generally, that goal has been achieved through our ability to identify properties we think will retain demand," he said, "but for some rea- son the previous property owner hadn't been able to meet that demand, whether it was because of lack of capital, lack of experience or inability 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- anchored 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 buy- ers chasing those. "Unless we can iden- tify some type of disconnect, we choose 'B' markets." Viking Partners has bought centers in Baton Rouge and Houma, La.; Indianapolis; Louisville, Ky.; Mo- bile, Ala.; and Orlando, Fla., among other cities. The company targets the Southeast and Midwest. This year is off to a good start. In s t e v e n m i l l e r

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