The Discipline of the Deal

Stick to your knitting. That appears to be the mantra for this year’s top acquirers, all of which, save one, have appeared on this list in previous years. Most relate that, in the late stages of a recovery, discipline, tenacity and structure are key to closing deals. This year, staffers at two of these tenacious companies can chant, “We’re No. 1!”

1. Phillips Edison & Company

Discipline equals consistency equals opportunity for Fastest-Growing Acquirers list regular Phillips Edison & Company, which tied for first place with 5.1 million sq. ft. acquired this year.

“We’ve built a great platform and an efficient team,” said David Wik, SVP of acquisitions at the company with bases in Cincinnati and Salt Lake City. “It’s important to have discipline, which is why we’ve built such a strong portfolio through primarily single-asset acquisitions. We’d love to buy more large portfolios, but it can be difficult to find large portfolios that have the quality of assets that is consistent with our existing portfolio.”

Given its track record, Phillips Edison is also top of mind for potential sellers, so the pipeline should continue, especially as the pre-election deal slowdown reverses. Wik noted that the company has a solid list of potential acquisitions to pursue for 2017. The next challenge is then to tenant them for today’s shopper.

“Our merchandising plans include many retailers that are internet-resistant,” Wik said, and that will continue to favor grocery-anchored properties, he added.

“There’s a bit of a flight to quality in terms of shopping center acquisitions,” Wik said. “More capital is looking to safer investments.”

1. Westwood Financial

While consolidating retail centers remains the industry buzz, most of the talk revolves around a company’s expanding portfolio by acquiring other investors’ properties. Westwood Financial, on the other hand, matched Phillips Edison with 5.1 million sq. ft. acquired by restructuring the ownership of more than half its portfolio to achieve greater efficiency. In September, the Los Angeles-based company restructured its portfolio of 77 of 120 retail center holdings into a single, $1.2 billion real estate company, acquiring the projects from 67 entities comprising 550 investors, as well as its management company.

“For any operator of retail projects, it’s essential to have a strong balance sheet,” co-CEO Randy Banchik said. “This was necessary to have a better structure.”

After settling other shareholder issues, Westwood now has 75 projects and will continue to grow as it focuses on urban properties, grocery-anchored centers and light power centers in major markets.

“The plan going forward will be to build a better company with better properties,” co-CEO Joe Dykstra said.

But even with a simplified structure, the numbers must work, Banchik said.

“The biggest challenge is not how much property is available,” Dykstra said. “It’s at what yield the deal makes sense.”

3. DLC Management Corp.

Even as some companies found their way onto this year’s list with multiple acquisitions, DLC Management Corp. placed third with one “big, fat deal,” that was the largest in its history — but one that took a bit of luck and a few transoceanic calls to achieve, according to Adam Ifshin, president, CEO and founder of DLC.

The company looked at DDR’s upstate New York properties and formed a joint venture with DRA Advisors LLC to acquire the 16-center portfolio.

“We had already acquired an 11-center portfolio from Blackstone and DDR in 2014, which had given us seven assets in upstate New York,” Ifshin said. “In addition to assets we owned in Hudson Valley, this gave us critical mass.”

DDR, however, selected another buyer. But when Ifshin was in Milan to attend an ICSC conference, his “phone blew up” — the portfolio was available once again. Talks began anew, and a deal was signed in May 2016 at RECon in Las Vegas.

That type of transaction should increase this year, as the joint ventures formed in 2006 and 2007 have now matured, and partners are looking to maximize their profits, Ifshin predicted. But DLC may or may not be in the market, as it has more than 90 leasing transactions underway in the projects they already own.

“One thing that stood out was the quality of what we bought,” Ifshin said. “We don’t buy non-value-add. And in fact, we don’t have to buy anything. We are disciplined, strong fiduciaries for the capital we raise, and wildly opportunistic.”

4. Kimco Realty Corp.

Perennial listmaker Kimco Realty Corp. placed fourth this year with 2.4 million sq. ft. by sticking with its winning formula.

“Our philosophy is pretty consistent: We’re buying properties in dense infill demographic locations with development and redevelopment potential,” including adding other uses, said Ross Cooper, president and chief investment officer of the New Hyde Park, N.Y., company. Several Kimco properties, he said, are in markets where development actually grew up around the project.

And, Cooper added, the appeal of grocery-anchored centers continues: “There’s definitely more competition in grocery-anchored space.”

It’s important to note that, over the years, Kimco has sold properties amounting to $5 billion, monies that are being recycled into new acquisitions at prices that Cooper says can be aggressive: “We see the benefit of economies of scale.”

5. Agree Realty Corp.

The newcomer to CSA’s Fastest-Growing Acquirers list, this Farmington Hills, Mich.-based fully integrated REIT focuses on net lease retail properties. Agree placed fifth with 1.7 million sq. ft. acquired in 2016, but president and CEO Joey Agree will tell you that square footage may not be the best metric for measurement. To him, it’s more about what the company is buying — a fungible base of properties in major markets that can be leased to top service-oriented retailers.

“Our properties are e-commerce resistant and recession-resistant,” he said, mentioning tenants such as AutoZone, T.J. Maxx, National Tire and Battery, and Walmart Neighborhood Centers. “Our focus is on being a leading operator in that sector as retail will continue to be transformed. And with a highly fragmented industry, opportunities abound.”

6. Cole Credit Property Trust IV/VEREIT

As a non-listed REIT sponsored by VEREIT division Cole Capital, sixth-ranked Cole Credit Property Trust IV acquired 15 properties, totaling 1.3 million sq. ft.

Among its recent acquisitions is East West Commons, an open-air property in metropolitan Atlanta/Marietta, Ga. The key was the center’s 25,000-sq.-ft. outparcel potential, said Brett Sheets, SVP of leasing for VEREIT, Phoenix.

“This was a challenging space for a single new lease because of its size,” he said.

Originally, the company planned to redevelop the space into smaller shops. However, once negotiations began with Panera Bread, VEREIT opted to add a drive-through and four additional retail storefronts. The result increased visibility from major roads and improved parking.

“VEREIT will continue to analyze single-tenant retail and anchored shopping center opportunities,”