The strip mall is back
PHOTO/Matt Volpini
Worcester Crossing, on the southbound side of Route 146, was one of several Central Massachusetts strip malls sold recently.
PHOTO/Matt VOLPINI
This Price Chopper property on Cambridge Street in Worcester was sold for $16 million.
For several years, Kimco Realty Corp., based in New Hyde Park, N.Y., had been looking to invest in strip malls in New England, and MetroWest in particular.
But there were scarce properties available and fierce competition for the ones that were, according to David Bujnicki, vice president of investor relations and corporate communications.
Finally, in April of this year, the global real estate investment trust closed on a portfolio of 24 properties in New England, which included the $9 million acquisition of Westmeadow Plaza in Westborough.
“It took some time,” Bujnicki said. “It was very hard, because there have not been a lot of properties that have traded on a regular basis (in the Boston area). When this portfolio came around, we were thrilled for the opportunity to bid on it.”
Over the past several months, a handful of notable strip malls — or “strip centers,” as they're called in the industry — have traded hands.
But brokers and investors say there's pent-up demand for even more.
“There are tons of investors who want to buy retail properties in New England,” said Nat Heald, senior vice president at CBRE/New England, a commercial real estate company that recently facilitated two local strip center sales. “The only thing that's holding us back from having even more volume is some scarcity of product available for sale.”
He noted that the market now is stronger than at its peak, from 2005 to 2007. “There's more demand, more money,” he said. And with low yield mostly everywhere else and low mortgage rates, “there's an excellent opportunity for sellers to get top dollar.”
And, as some indicate, strip centers may be one of the healthiest retail segments emerging from the Great Recession. A 2014 retail forecast by national commercial real estate firm Cassidy Turley found that “the biggest gains over the past year have come from community, neighborhood and strip centers,” whose occupancy levels increased more than 27.8 million square feet nationwide through the third quarter of 2013. Yet, they were “hardest hit during the recession,” according to the firm's research.
Strip mall acquisitions this year in Central Massachusetts have also included:
• A Hannaford-anchored shopping and professional center in Townsend by national real estate investment group The Federated Companies for $6.25 million;
• Worcester Crossing, anchored by Walmart and Sam's Club, by Dedham-based RK Centers for $49 million;
• Speedway Plaza in Westborough, also by RK Centers, for $18.73 million; and
• The Price Chopper on Cambridge Street in Worcester, by Federated, for $16 million.
Heald was involved with brokering the latter two purchases. The advantages of both are that they're strongly anchored, well established, and well located, he said. That's particularly true of the Speedway Plaza on Route 9, “one of the area's strongest retail corridors,” he said.
Ultimately, the “supermarket-anchored strip center is the gold standard for a strip center,” said Heald, noting the regular week-in, week-out traffic that smaller tenants in the same vicinity can feed off.
Wanted: Tenants that will stay awhile
And when evaluating properties, tenants are key.
Buyers “want the tenants to be there,” Heald said. “The acquisition is subject to the existing leases. They're buying a future cash flow; that's the whole point of the investment.”
Bujnicki, of Kimco agreed. “We look for very strong credit-worthy tenants that are recognizable, everyday names,” he said.
Overall, in evaluating properties, Kimco focuses on core markets — the top 30 or so metropolitan statistical areas in the country — identifies properties with good growth potential, studies demographics such as population density and household income, and, of course, takes into account a property's selling price.
The publicly-traded company, according to its website, has “interests” in 840 shopping centers, comprising 121 million square feet of leasable space, across 41 states, plus Puerto Rico, Canada, and South America.
But, Bujnicki said of New England, “We really like this particular market. It really is a very strong market. Any way we can continue to concentrate on it, expand within that market, works for us.”
Less competition for Westborough site
RK Centers' two recent local acquisitions were similarly tactical. For example, Speedway Plaza in Westborough, which is anchored by a Stop & Shop and a Burlington Coat Factory, was a less competitive property for buyers because of the nearby Wegman's at Northborough Crossing, said Kenneth Fries, RK Centers' director of leasing and acquisitions.
“Fewer buyers means less competition and a higher cap rate,” he said, referring to the rate of return on a real estate investment based on the expected income the property will generate. After improving the appearance and visibility of the shopping center, he said, the company will evaluate that impact on sales, and “hopefully add some more tenants.” “There are a number of them looking in the market, and we're hoping to put them in there,” he said.
The purchase of Worcester Crossing on Route 146, meanwhile, was simply a “good addition” to the company's portfolio, a “long-term hold” with few vacancies and a “good place to stick money,” he said.
RK also owns a Price Chopper-anchored property on Greenwood Street in Worcester, as well as sites in Bellingham, Hudson, Marlborough, and the Shoppes at Blackstone Valley in Millbury.
Still, Fries noted, “New England has a high barrier to entry. You just don't have shopping centers like you do in Florida. Because you can't put them where you want, it makes the ones that are up more valuable.”
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