BRRP and Fund II Update

June 17, 2016

On a somewhat routine basis, I like to pass along information pertaining to both the Shopping Center Industry and Broad Reach Retail Partners in general. The Broad Reach Retail team recently attended RECON, the hallmark event of the International Council of Shopping Centers (ICSC), from May 22nd – 25th in Las Vegas, Nevada. I thought this would be a great opportunity to share with you my thoughts and “take-aways” from this event including the numerous face to face meetings the Team held with retailers, shopping center owners and real estate brokers.

  • RECON enjoyed its highest post-recession attendance level of 42,635 people confirming vibrancy of the industry!
  • Leasing – best characterized as “Active”
  • Many national retailers have substantial growth plans: Ross Dress for Less, TJ Maxx, Tuesday Morning, Grocers and Fast Casual Restaurants are looking for space.
  • Several Retailers are looking to change store size: Office Depot and Staples will be looking to smaller formats – 12,000 sf to 15,000 sf stores.
  • Omnichannel Retailers continue their evolution – a combination of ‘bricks and clicks’ in various combinations. Physical locations will serve multiple functions such as distribution and marketing as well as their traditional retail shopping function.
  • Opportunistic Acquisitions Market
  • Many REIT and large owners will be divesting of assets in the next 6 – 12 months.
  • Several large portfolios will be coming to market within the next thirty to ninety days.
  • Bifurcation of buy-side pricing:
  • Urban and Core Markets have some of the highest pricing and lowest cap rates ever. Several major metro centers have recently traded in the 4% cap rate range.
  • Secondary Markets do not see as many buyers, and centers are trading 200 to 400 basis points higher than Core Markets. This is a prime buying environment for BRRP’s model.
  • Financing
  • There is an ever-increasing pool of new and active non-traditional lenders as well as bridge lenders entering the market. Due to the increase in competition, pricing is becoming more competitive. Several new and aggressive debt funds are seeking to finance Value-Add Centers.
  • Life companies are active in the long-term/fixed-rate financing.
  • CMBS lending remains choppy and we will likely see a consolidation within this sector.
  • CMBS turbulence will impact execution and limit the depth of secondary market buyers.

In summary, RECON had a tremendous amount of energy and a positive “vibe” throughout. I believe this bodes well for the industry as a whole. A few general notes regarding Broad Reach and Fund II:

  • Leasing activity remains strong, and there are a number of major leases in progress.
  • The Acquisitions pipeline is very robust; we continue to see 20-30 new deals per week.
  • Fund II
  • With the overwhelming success of Fund I, we are actively raising capital for Fund II. This is a $50-million-dollar fund focused solely on acquiring value-add, grocery-anchored shopping centers.

Please do not hesitate to reach out if you would like to speak further about the Fund II investment opportunity.

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