Phillips Edison’s Value-Added Strategy
Phillips Edison & Company has grown by acquiring troubled shopping centers in good locations, redeveloping and improving the tenant mix. Over the years, the company has continued to optimize retail property value with its complete operating platform providing a diverse range of retail solutions. Today, the Phillips Edison portfolio contains more than 260 shopping centers across the country.
Jeffrey Edison and Michael Phillips founded Phillips Edison in 1991, at the depth of the commercial real estate depression caused by savings and loans driven to bankruptcy by poor real estate investments. “Lots of distressed property was on the market,” said Phillips.
“Our idea was to buy small grocery-anchored centers at discounted prices and add value by improving the property.”
The company doesn’t just focus on grocery-anchored centers anymore.
When the housing bubble wrecked the commercial real estate industry in 2007, the principals saw the opportunity to grow out of grocery-anchored properties into other kinds of shopping centers. “We realized that the value-add part of our strategy didn’t have to be limited to grocery-anchored,” said Phillips. “Because we were larger, we could look at larger projects.”
Today, the company’s acquisition criteria aim at more property types. In addition to grocery-anchored centers, Phillips Edison also wants power centers, lifestyle centers and mixed-use properties. It will look at assets of 150,000 sq. ft. or more, in major metropolitan markets and dominant secondary market locations. All of the company’s non-grocery anchored properties go into a portfolio called Total Retail Solutions.
The Kenwood Collection embodies the new strategy
The broader perspective led to a major opportunity for Phillips Edison. In 2012, the company bought a half-finished power center in Cincinnati, called Kenwood Towne Place, at a bank auction. The original developer, Bear Creek Capital LLC, had lost the property to foreclosure in 2009. Legal challenges had tied it up for years. With those problems solved, Phillips Edison found itself with a major opportunity.
The new owner promptly developed a new strategy and changed the property’s name to The Kenwood Collection. “We thought the power center format was doable,” Phillips said. “But the location was so good that we thought an enclosed, luxury galleria would be more successful and more appropriate for the market.”
Indeed, the trade area includes the wealthiest communities in Cincinnati. For instance, 60% of the households in neighboring Indian Hill, the wealthiest community in Ohio, report annual incomes above $150,000.
In addition, The Kenwood Collection stands inside the ring road of Kenwood Towne Centre, one of the country’s most successful malls.
“We don’t have Chicago’s Oak Street high fashion retailers here,” Phillips said. “But we do have Oak Street customers. We think the Kenwood Collection can capture those customers.”
Saks Fifth Avenue wants those customers, too. The high-fashion retailer has signed a letter of intent to open an 80,000-sq.-ft. department store in The Kenwood Collection when its downtown Cincinnati lease ends next year.
The re-conceived center, now under development, will feature a mix of uses, including 300,000 sq. ft. of high-end shopping, dining and services; 200,000 sq. ft. of Class A office space; and a 2,500 space parking garage. Current tenants include Crate & Barrel, The Container Store and Mitchell’s Salon & Day Spa.
With The Kenwood Collection, Phillips Edison is delivering a premier property to its Total Retail Solution portfolio, one that demonstrates that the company’s ability to add value to underperforming grocery-anchored centers extends to power, open-air and now, luxury retail centers at the highest level.