ICSC: International Council of Shopping Centers

Open-air center market is heating up, conference told

Publish Date: March 20, 2014

Category: SCT Newswire Articles
Topics: deals, first washington, interest rate, oac summit, open-air center, transactions

Now is a good time to sell assets, said a panelist at ICSC’s OAC (Open-Air Center) Summit Thursday, in Washington. “If you have a desire or need to monetize your investment, this is a beautiful time to do it,” said the panelist, William Wolfe, president of First Washington Realty, based in Bethesda, Md. The company owns high-quality grocery anchored centers across the U.S. His firm might sell a handful of centers this year, he said. “This in an extraordinary time to take advantage of this market.”

And though interest rates went up last year (the 10-Year Treasury note bumped up from 1.65 percent to around 3 percent), and are expected to continue to do so, the impact on cap rates hasn’t been substantial, said panelist Jeffrey Dunne, a vice chairman at CBRE. In fact, cap rates are in a pretty good place right now for sellers. Class A centers in primary markets are seeing rates of between 4.75 percent and 5.75 percent, while assets in secondary markets are trading between 5.5 percent and 6.25 percent. “You clearly see cap rates going down, but at a lesser rate to last year,” Dunne said.

On the buyer side, for class A assets it continues to be traditional REITs and large institutions that want to hold onto their investments long term. The main players for B centers in secondary markets who are looking for a higher yield on their investments are non-traded REITs, explained panelist Sheridan Schechner, managing director and head of Americas real estate investment banking at Barclays Capital. He also said that CMBS funding will mostly take place for the higher-yield transactions and that he expects CMBS funding this year to increase to $125 billion from $90 billion in 2013.

Meanwhile, Schechner and Wolfe disagreed as to whether it is better to own a large portfolio versus a smaller group of assets. Schechner said that a bigger portfolio is more to the advantage of an owner because there is less volatility if a major tenant vacates several spaces. Wolfe disagreed, saying a small high-quality portfolio brings in higher rents and can more easily fill vacancies. “Bigger is never better,” Wolf remarked. “Better is better.”


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