IRVINE, CA—What word would best describe the investment market for Southern California retail? It depends. That’s the take from Donald MacLellan, senior managing partner at Faris Lee Investments. GlobeSt.com sat down with him leading up to the ICSC Western Conference & Deal Making event to hear why core properties are hot, what’s going on with multi-tenant inventory and what questions you should be asking when trying to position a property.
GlobeSt.com: Can you tell me what you are seeing in terms of the Southern California multi-tenant retail property market?
Donald MacLellan: The retail investment market has certainly taken a turn this year when it comes to multi-tenant inventory in Southern California. There is a dichotomy between institutional and non-institutional assets. Institutional/core opportunities are very rare and now more than ever are hotly contested which drives up pricing and lowers cap rates. They will always sell and garner many offers in a short amount of time. On the other hand, there is a significant amount of available multi-tenant product that is non-institutional and is located in non-primary markets.
GlobeSt.com: While core properties are hot, what is happening with this non-core product?
MacLellan: Often times we are seeing product on the market for prolonged periods with limited buyer interest. There is patient capital sitting on the sidelines, but to sell non-core property, it has to be positioned correctly to differentiate it from a large supply of similar product. Simply sending out a marketing email and listing it on the services isn’t going to sell the asset.
GlobeSt.com: So, how does Faris Lee approach marketing for clients who want to sell non-core assets?
MacLellan: We work with our clients to create a solid business plan for the property that enables potential buyers to understand the true value of the asset and with a business plan that focuses on the strengths of the property, its location and future potential. Where underwriting and market analysis are concerned we’re probably one of the most thorough firms in the country. We evaluate a property under a number of different market scenarios, evaluate every tenant with high scrutiny, and generally go above and beyond the typical scope of work to ensure we’re not missing a single opportunity to show potential and maximize value. Faris Lee has had great success in marketing and selling its Southern California listings. A majority of the work, however, is done prior to the asset reaching the market.
GlobeSt.com: What are some of the initial elements of your strategy for better positioning a multi-tenant property?
MacLellan: Because tenancy is the main value driver of a center, we scrutinize the tenancy and determine what tenants are an ideal fit. It is important to be cognizant of local demands and the demographic profile of an asset’s specific location. Once that happens we need to answer some important questions: Are rents in alignment or under market? What has been the leasing and tenant activity historically? Have the tenants had longevity at the center? What types of retailers are doing well in the area and in general?
GlobeSt.com: What are the next steps?
MacLellan: Often times we enlist an experienced local leasing broker to work on attracting more strategic tenants during the marketing process. This provides potential buyers hard evidence that our vision aligns with the asset’s unlocked potential. Because of the changing retail landscape, we advise owners to select retailers that are meeting consumers’ daily needs and that are less vulnerable to internet competition. We also provide research of retailer competition to gain a better understanding of what the future holds based on current trends. It is critical to understand risk factors in all parts the economic cycle.
Ultimately, with a strategic plan and vision in place, Faris Lee has been able to help our clients realize a compressed marketing cycle and stronger sales price compared to similar product on the market.