Inland’s Deal Machine Rolls On

Given the success of this year’s Fastest-Growing Acquirers, it’s understandable to think the process seems simple. Well, it’s not as easy as it looks, warned G. Joseph Cosenza, president of Oak Brook, Ill.-based Inland Real Estate Acquisitions. Quality must meet opportunity and yield, he said.

The grocery-anchored center remains as strong an investment as ever, Cosenza said. An Inland fund that’s dominated by grocery-anchored projects (approximately 80%) has 95% occupancy. Supermarket renewals are resulting in rent increases of 10% and higher.

“I do not have any fears in my grocery leasing,” Cosenza said. “I will put Publix and Kroger against anybody.”

But finding quality for future center acquisitions can be a challenge. Over the past 24 months, Cosenza and his two acquisition specialists reviewed some 5,750 deals across all sectors — and that figure excludes those that the group instantly knew wouldn’t fit their criteria. Of those, Inland made offers on 877 deals, and only purchased 116. For retail, Inland reviewed 2,333 properties over the past two years, made offers on 402 deals, and purchased just 73, dropping Inland from its usual spot in CSA’s top five list of acquirers. But only temporarily.

“Prior to July when Treasury and swap rates were at their lowest, people were buying more than they used to. After July, there was a huge drop-off,” Cosenza said. “In July, the 10-year Treasury was at 147 basis points. Today, it’s 100 basis points more. The same is true for swaps, which was 137 and is 100 basis points more now. That confuses a lot of people and stops them in their tracks. It causes disruption, and I love it. It gets some of them out of my way.”

That same disruption will be felt for owners of the CMBS debt coming due from 2007 and early 2008; they may not be able to refinance the same sums as underwriting standards have tightened and interest rates have risen, Cosenza added.

“I do expect to see more and more coming on stream,” though quality and the ability to add value will remain an issue, Cosenza said. “And I will have a big smile on my face.”