Interview conducted and condensed by Michael Lagazo
Muted-to-incremental improvements in market conditions have investors looking for strong investment vehicles to make up lost ground. Shopping center REITs have performed well over several quarters and are showing resilience. The neighborhood and community shopping center components maintain optimism. At press time, Regency Centers recently reported improvements in net operating income, rent on vacant spaces and funds from operation (FFO) in Q1 2013 from the same period last year. 1
*Q2 2013 data will be released August 1, 2013.
Mac Chandler is Managing Director of the West Region for Regency Centers. He oversees the growth and management of the portfolio, as well as new investments, throughout California, Oregon, Washington and Nevada.
Q: Just to start off with an easy one, where do you like to ski?
A: I just got back from cat skiing in Utah.
Q: Were you always interested in commercial real estate and shopping centers?
A: Since my undergrad studies in Urban Planning at the University of Southern California, I started in other asset classes – apartments, office and land. In 1997, I joined Pacific Retail Trust, which later merged with Regency Centers in 1999.
A: The Fresh Look initiative separates Regency Centers from other landlords, both institutional and individual, not just with higher rents but by leasing to magnet tenants that generate repeat visits to the centers.
The three legs of the Fresh Look initiative are Merchandising, Center Appearance and Customer Service. The careful selection of strong retail brands in design and product selection generate buzz and repeat traffic. A center’s appearance and architecture is a backdrop to the retailer’s storefront. In Florida, Publix relocated an existing store because of our property appearance. Online rent payment and gross sales reporting are examples of connected service as well as sustainable programs that lower operating costs and allow tenants to invest more money into their businesses.
A: Grand Ridge Plaza in Issaquah, Washington is a ground-up development with handpicked tenants, new-to-market tenants and local tenants with 95 percent opening this year, including a Regal Cinema. Notable redevelopment projects are Heritage Plaza in Irvine, California and Westlake Plaza in southern California.
Q: What is your assessment of the retail real estate market right now?
A: Improving. Occupancy rates in anchor spaces, 10,000± square feet, are improving. Junior anchors are having trouble finding spaces. Demand exists but inventory is not readily available.
Q: Can you talk about the shift in leasing efforts?
A: All tenants have to provide value and not just in high rents. When new tenants enter the market, we take what we learn at one center then use what we’ve learned in other markets.
New deals are unique restaurants with different price points ranging from white tablecloth, family style, to fast casual formats. Our model is not pure luxury and not pure convenience.
A: With our Fresh Look initiative, competitive advantages only get bigger.
Reis, Inc., a market-research firm in New York, indicates that net absorption and new construction for grocery-anchored and community centers are anticipated to increase slightly late this year. Rent growth is not likely to accelerate and concessions will remain in place this year because of elevated vacancy rates. Despite stabilization and moderate recovery, demand for small spaces remains weak.
This is the first time Regional and Super Regional malls did not register a decline in vacancy since the third quarter of 2011, say Reis. The national vacancy rate at Regional and Super-Regional malls remain unchanged at 8.3 percent during the second quarter. Vacancy rates are expected to trend favorably for the remainder of this year. Reis notes that this is the ninth consecutive quarter of asking rent increases on a year-over-year basis. Rent growth is expected to accelerate particularly at trophy and class-A projects as new construction and supply is effectively nonexistent.
Commercial real estate pricing is driven partly by yield. Yield is annual rent expressed as a percentage of the project’s value. Yields diminish with escalating investor demand and expanding real estate prices. Rents rise with improving net absorption rates. Rising rents diminish price descents. Low yields signal the peak of a property market – however, when you reach the highest topography, there is only one way to go.
Reis and Regency Centers affirm that new construction and net absorption are expected to increase this year with a significant amount of space pre-leased on new projects coming online. Vacancy in the retail sector continues to contract as the market shifts in the landlords’ favor.
1 StreetAuthority Network – Wed, Jul 24, 2013, Yahoo! Finance
Charts and data provided by Reis, Inc. https://www.reisreports.com/