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EQUITY ONE TAPS KIMCO VET OLSON TO EXPAND ITS PORTFOLIO

By Joel Groover

Chaim Katzman chuckles at how fast the grocery-anchored shopping center business has grown in the past few years. When Katzman, chairman and founder of North Miami Beach, Fla.-based Equity One, took the company public in 1998, its assets totaled about $150 million. “That was a lot then,” he said. “It doesn’t seem like much now.”

Trouble is, even after expanding Equity One to its current valuation of nearly $3 billion, largely through a spate of acquisitions completed between 2000 and 2003, Katzman still feels circled by bigger fish. Equity One owns stakes in 189 shopping centers. The weightiest in the pond, Kimco Realty Corp., is in the midst of a feeding frenzy and now maintains a massive portfolio of 1,118 properties. “In 2000, if you told me Equity One would reach the billion-dollar mark, I would have said, ‘Geez, it’s going to be a huge company,’ ” Katzman said. “In 2003 being a $3 billion company was quite OK. But in today’s environment you always need to get bigger, because bigger means better cost of capital, better allocation of your expenses, better opportunities with tenants, and so on.”

Katzman’s latest move, tapping former Wall Street analyst and Kimco deal maker Jeffrey Olson to be Equity One’s president and CEO, was not a consequence merely of this sense of urgency about the need to bulk up. It springs just as much from a perceived need to wring more money out of Equity One’s existing portfolio, says Paul E. Adornato, a REIT analyst at New York City-based BMO Capital Markets Corp.

Olson is well acquainted with both imperatives. After joining Kimco in 2002 at the behest of longtime Chairman and CEO Milton Cooper, he helped the New Hyde Park, N.Y.-based REIT grow its West Coast acquisitions program tenfold — from $700 million to over $7 billion. As president of Kimco’s Eastern and Western regional operations, he oversaw redevelopment, construction, leasing, and property and asset management for a portfolio of about 500 centers. The 38-year-old from Rockville, Md., also played a pivotal role in several key Kimco transactions. These include the acquisitions of Pan Pacific Retail Properties (announced in July) for $4 billion, Price Legacy Corp. for $696 million in 2004 and Mid-Atlantic Realty Trust for $700 million in 2003.

Not that Katzman, who is relinquishing his role as CEO but will remain chairman (he owns about 41 percent of the company), lacks a penchant for real estate power plays. Having earned an LL.B. from Tel Aviv University Law School in 1973, he got his start in the real estate business in 1980 with a focus on commercial and residential properties in the U.S. Southeast. Today Katzman is chairman of Israel’s largest real estate investment firm, Tel Aviv-based Gazit-Globe, a publicly traded company whose subsidiaries (one of which is Equity One) focus on neighborhood and community shopping centers in the U.S., Canada, Israel and Europe.

Katzman started Equity One in 1992, with Florida’s fast-growing markets in mind. The business took off, and within two years he had his sights set on a local real estate investment and property management firm, Global Fund Investments. Following that 1994 acquisition, Global Fund’s president and CEO, Doron Valero, signed on as Equity One’s COO and became president in 2000. Valero, who is stepping down as part of the shift in leadership, was instrumental in helping to transform Equity One from a small Florida operator into a regional player with a strong presence in the Southeast, says Katzman. “Over the years, we kept expanding the company and growing, buying and acquiring more assets,” Katzman said. “Right after we went public in 1998, we started looking for ways to grow exponentially.”

The first step was to ramp up Equity One’s footprint in both Texas and Florida. In 2001 Katzman moved to acquire the $280 million, 28-property portfolio of Canadian REIT Centrefund Realty (U.S.) Corp., and the $155 million, 25-property portfolio of Houston-based United Investors Realty Trust. Katzman’s most transformative acquisition, however, came in 2003, when Equity One bought IRT Property Co.’s portfolio of 93 properties in the Southeast for $730 million. “We also managed to develop the development arm that today is cranking out 15 developments as we speak,” Katzman said, “and we increased and augmented our leasing, redevelopment and mixed-use development capabilities.”

Given those achievements, why bring in Olson? According to Katzman and others, it is Olson’s ability to marry the science of real estate with the art of the deal. Olson, who earned a bachelor’s in accounting from the University of Maryland and a master’s in real estate from Johns Hopkins University, made a name for himself on Wall Street while still in his 20s. He moved to New York in 1996 and became a vice president at Salomon Smith Barney. Two years later he went to work for CIBC World Markets as vice president and head of real estate research, a job he held until 2000. Then he joined UBS Warburg as senior vice president and co-head of real estate research, staying there for two years until his start at Kimco.

“He was one of the original people to focus on demographics from an investment analysis perspective,” said Paul Morgan, a REIT analyst at Arlington, Va.-based Friedman Billings Ramsey & Co. Equity One has been in transition for about a year, Morgan says, as seen by recent moves to reduce its footprint in Texas and Louisiana in favor of markets with stronger population growth and greater supply constraints. Given the high cap rates prevailing in the sector, Equity One’s future growth may hinge more on development and redevelopment than on the opportunistic portfolio acquisitions that have become its trademark, he says. “One of the challenges has been exactly what type of market they should target, what type of investments,” Morgan said.

Olson’s grasp of and emphasis on market demographics will bring clarity to those questions, Morgan says. Indeed, starting a research department was one of the first things Olson did after taking the helm in September. “I’m going to put a lot of time and resources into making sure that we have the best research for the markets we operate in, and that will be a unique approach for the sector,” Olson said. “I view our 200 properties to some degree as 200 stocks. If you were a portfolio manager, you would have a research department analyzing those stocks and making recommendations.”

Olson says the need to do so is especially pressing because so many of Katzman’s acquisitions have been in markets where the implications of rapidly increasing densities can be enormous, not just for the rents or retailers those properties will support, but also for whether they can be beefed up with office, hotel or residential space.

Olson does not regard statistics as the alpha and omega of real estate, however. In his years at Kimco, he set aside Fridays for meetings with the executives of retail chains. So far he appears to be bringing that same emphasis on street-level realities to Equity One. At press time, after three weeks on the job, Olson had already visited 80 percent of the properties in the portfolio. “I’ve been on the road almost every day, and I’ve been pleasantly surprised,” he said. “I like what we have, and I’d now like to take it to the next level.”

Katzman and Equity One’s other shareholders would like that too. And they will no doubt be watching closely to see what happens.