BIG DEALS, FEWER SQUARE FEET

Our fastest-growing acquirers bought fewer square feet than in 2013. But the deals may be even better.

Editor’s Note: The 26th annual Chain Store Age survey of Fastest-Growing Acquirers surveyed retail square footage purchased during the 2014 calendar year.

Retail real estate acquisitions slowed in 2014. The year’s five Fastest-Growing Acquirers purchased approximately 10 million fewer square feet than the top five bought in 2013.

That may be a deceptive observation. In fact, 2014 brought a lot of good retail news. Holiday sales zoomed up 4.1% compared with 2013, reaching $617 billion. Annual sales hit $5.3 trillion, up 4.1% from 2013 — mirroring the holiday sales rise. Despite the troubles of Radio Shack and the big-box office stores, 2014 saw many new store openings by traditional retailers and a number of retailers like Bonobos, which were previously online only.

No.1 PHILLIPS EDISON & CO.

Phillips Edison & Co. (PECO) exceeded last year’s acquisition pace, adding 8,499,840 sq. ft. of retail real estate in 2014, compared with last year’s 6,270,004 sq. ft. To reach that total, the company spent $1.2 billion on just under 80 properties — acquired through 61 transactions. What kinds of properties? “We look for stabilized grocery-anchored properties that rank first or second in the market and offer cash flow growth from regular contractual rent increases,” said Hal Scudder, PECO’s chief investment officer.

That said, one of PECO’s most notable acquisitions in 2014 is a portfolio of four centers in the Metro Boston area. “This is our first move into Massachusetts,” Scudder said. “We now have seven centers in New England. We are in every region of the country but had been least represented in New England.”

Scudder went on to say he plans to acquire a similar volume of square footage in 2015 but noted that the market is extremely competitive today.

“Our acquisition team is spread out across the country,” he said. “We also have deep relationships, and so we’re able to find our deals despite the competitive market.”

NO. 2 AMERICAN REALTY CAPITAL PARTNERS

ARCP’s acquisition strategy focuses primarily on net leased single-tenant freestanding commercial properties with high credit quality tenants. Following last year’s merger with Cole Real Estate Investments, ARCP also acquires and manages assets on behalf of Cole Capital non-traded REITs.

“During 2014, ARCP acquired just over 7.7 million sq. ft. of retail real estate,” said Carrington Guy, executive VP acquisitions. “We spent approximately $7.2 billion on 1,680 properties, including those acquired on behalf of the Cole Capital managed REITs.”

The square footage acquired on behalf of its managed REITS reached another 11 million.

Carrington highlighted Red Lobster and Walgreens portfolio acquisitions as standouts among the 2014 acquisitions.

“ARCP acquired 522 Red Lobster restaurants and 20 other branded restaurant properties in a $1.7 billion sale-leaseback transaction,” Guy said. “The properties are located in key retail markets with strong operating metrics and real estate fundamentals.

“Cole Credit Property Trust V acquired a portfolio of 10 Walgreens stores in six states totaling 147,500 sq. ft. for $52.5 million. Walgreens investment grade credit (S&P ‘BBB’), long lease term and location of the assets made the portfolio a good candidate for CCPT.”

What’s on tap this year? “We see a new set of acquisition opportunities across the single tenant landscape as different sectors’ build-to-suit programs come on line,” Guy said.

NO.3 KIMCO REALTY CORP.

Kimco acquired 27 new shopping centers spanning 2,317,000 sq. ft. in 2014. Twenty-four of those properties came in a single portfolio acquisition. Twenty-one are in New England, primarily in the Boston metro area. Two are in North Carolina; one is in Georgia.

“We acquire select centers in top demographic markets throughout the country,” said Ross Cooper, senior VP investments with Kimco.

“Our acquisitions are well anchored with either the market’s top grocery anchor or national big boxes in a power center,” continued Cooper. “Generally, we look for properties that promise substantial cash flow growth. Growth might come from repositioning, tenant rollovers at below market rents, contractual increases or a combination of all three.

“The company also bought out 36 properties previously owned in joint ventures, obtaining 100% interest in an additional 4.5 million sq. ft.”

All told, Kimco acquired approximately 6.8 million sq. ft. of retail real estate in 2014.

NO. 4 THE INLAND REAL ESTATE GROUP OF COS.

In 2014, The Inland Real Estate Group of Cos. acquired 69 properties spanning 4,487,679 sq. ft. for $911,003,856.

Two of those acquisitions stand across the street from each other in Little Rock, Arkansas. Inland paid $41,450,000 for the 126,888-sq.-ft. Midtowne Shopping Center and $28,123,317 for the 60,389-sq.-ft. Park Avenue center.

“It’s always better to have more than one property in an area,” said Joe Cosenza, vice chairman. “We have 10 million sq. ft. in the Chicago area, and we can drive to all of them.”

“It’s logical. If you have many properties in an area, you can save on landscaping, snow removal and everything else you have to hire outside the management company — thanks to volume buying.”

Another acquisition was the 111,271-sq.-ft. Memorial Commons in Goldsboro, North Carolina. Inland paid $17,809,560. “When the developer learned of our interest, they stopped offering it on the market,” Cosenza said. “We’ve dealt with that developer for years and have a great relationship.”

“I’ve always emphasized that when you do a deal, you have to respect the other side as much as you want to be respected.”

No.5 ROUSE PROPERTIES

Rouse Properties strode into the top five Fastest-Growing Acquirers list with just two acquisitions in 2014. Both are enclosed malls: the 1,455,517-sq.-ft. Bel Air Mall in Mobile, Alabama, and the 831,389-sq.-ft. Mall at Barnes Crossing in Tupelo, Mississippi.

“Each is the only game in town, which is what we look for,” said Brian Harper, executive VP leasing and acquisitions. “Bel Air is the only enclosed mall within 60 miles of Mobile.” Rouse paid $135.2 million for it.

Bel Air serves a dynamic trading area. The population of the metro region is 600,000, and it’s growing. Airbus is building a $600 million final assembly plant that will employ more than 1,000 people. The University of South Alabama is a few miles away.

The Mall at Barnes Crossing, also the only mall for many miles, has a trading area population of 500,000 in an active growth corridor. A branch of the University of Mississippi is near the mall, and the main Ole Miss campus in Oxford is only 30 minutes away.

“Rouse acquired a 51% interest in Barnes Crossing based on a total valuation of $98.9 million,” said Harper. “Our joint venture partner on the acquisition is David Hocker and Associates. Over the years, David Hocker has developed several malls, including Barnes Crossing.”