PRINT THIS STORY:

CHANGE TEXT SIZE:

INVESTORS SAY THEY’RE IN RETAIL FOR LONG HAUL

BY DONNA MITCHELL

NEW YORK CITY — Real estate has evolved from a shelter for stock-market-wary investors into an outright equity investment staple, said panelists at this year’s ICSC Capital Marketplace Conference, held here in September.

“We’ve seen real estate being taken as a more [permanent] part of investor allocations,” said panelist Edmond A. Kavounas, president of Greenwich, Conn.-based Rockwood Capital.

More investors are looking at ‘B’ and ‘C’ malls, which serve smaller metropolitan markets with moderately priced anchors and retailers, panelists noted. “I think it’s a great opportunity,” Kavounas said. “Some of these malls are in good areas.”

Investors should not count out a particular retail market just because its immediate trade area does not have a huge house count, noted W. Paul Simmons, a managing director at Stamford, Conn.-based GE Real Estate, which invests on behalf of its parent, GE Capital. A rich market can sometimes be within striking distance, Simmons said, pointing to Laredo, Texas, which is a relatively small community served by a single mall. But that property draws shoppers from several nearby affluent communities, including well-heeled Mexicans from across the border.

“We’ve tried to find areas where the headcount is impressive, not just rooftops,” said Simmons.

Attendees also got a glimpse of the future of retail real estate from Anthony Downs, visiting fellow at the San Francisco-based Public Policy Institute of California. Rising interest rates could prompt some investors to move money out of retail real estate and into other investments, but none of this is going to happen fast, he speculated. A relatively slow recovery will hold back rate increases, he noted.

Further, China and India will continue to influence the U.S. economy, Downs said, specifically by providing relatively low-paid labor that will tend to keep inflation down. This, he added, has contributed to low interest rates and boosted property values. “Commercial real estate has benefited enormously from lower interest rates,” he said, given that rising home values have helped boost retail spending.

“We see no signs of any crack in real estate valuations,” said Charles Grossman, ICSC secretary-treasurer and a managing director at ING Clarion Partners.

The conference, titled “Tapping into Capital Flows,” was held at the upscale Mandarin Oriental Hotel, inside the $1.7 billion Time Warner Center. The 2.8 million-square-foot, mixed-use complex also houses the media giant’s headquarters and combines high-end retail, luxury condominiums, offices and Jazz at Lincoln Center, a planned performance space.

Attendees heard an account by lead developer Related Cos.’ Chairman and CEO, Stephen M. Ross, of the project’s conception, construction and performance. The 538,000-square-foot Shops at Columbus Circle retail component is anchored by a 60,000-square-foot Whole Foods supermarket that Ross said is expected to pull in about $70 million in sales its first year.

Overall the landlords expect the shopping center portion to post about $1,300 in sales per square foot, aside from the grocery store.

The conference drew nearly 300 attendees from across the country and overseas, about triple last year’s number. The conference introduced the Deal Making MarketPlace, at which attendees could pursue deals with 24 lenders.