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MORE DEVELOPERS BUILD TO SELL

These days retail developers seem to be putting new developments on the block earlier than ever, sometimes up to a year before construction is completed, and anecdotal evidence among investment brokers suggests that the trend has kicked into high gear.

“There’s a big wave of developers now who want to presell their properties,” said Stephannie Mower, executive vice president of investment services at Dallas-based PM Realty Group. For the developer, it’s a way of transferring risk, she says. In the face of uncertainty over interest rates, tenant creditworthiness and similar unknowns, firms try to lock in current cap rates. “In a presale, the developers’ interest rate and other risks pass to the institutional investor, who can underwrite those risks more effectively across a large portfolio,” Mower said. Institutional investors are open to the idea because, beyond the smoothing advantages of portfolio size, long-term holds mitigate the short-term risks of rates and credit, she says.

Still, not every new retail property is a candidate for presale, says Bernard J. Haddigan, managing director of San Francisco-based Marcus & Millichap’s National Retail Group. “Institutional buyers can take on more risk, but that doesn’t mean they’re buying anything that comes along,” he said. “They’re still taking a very close look at a property’s location and preleasing.”

LIFESTYLES NO THREAT TO MALLS

Publicly owned malls are well-insulated from the 24 million square feet of new lifestyle center space expected to open within the next two years in the U.S., according to Morgan Stanley. No mall REIT has more than 4 percent of its portfolio within five miles of such planned projects, the firm reports. Within a 10-mile radius, 20 percent of The Mills Corp.’s properties, 19 percent of Taubman Centers’ properties and 17 percent of Simon Property Group’s portfolio are exposed to new lifestyle competition.

CENTER INCOME UP IN ’05

Median income for U.S. shopping centers, based on average actual occupancy, increased to $13.93 per square foot last year, from $12.17 per square foot in 2004, according to an Institute of Real Estate Management survey of some 400 properties. Operating costs were up as well, to $3.99 per square foot from $3.49 in 2004. The most-profitable centers were on the West Coast, where median income hit $18.61 per square foot. The Southeast had the lowest median operating costs, at $2.35 per square foot, while the Midwest had the highest, at $4.90 per square foot. Insurance and taxes accounted for 45.1 percent of the typical center’s total operating costs last year, the survey said. Contracted services, including landscaping and security, accounted for 12.5 percent of operating costs.