CBRE Global Investment Partners said it has invested about $450 million for a 45% stake in a portfolio of West Coast retail property, in a bid to tap into rising consumer spending in a region driven by technology-sector growth.
Privately held real-estate investment company Merlone Geier Partners controls the portfolio of 55 shopping centers and other assets totaling almost 7 million square feet, and will remain the majority owner and operator.
CBRE Global Investment Partners will also assume its share of debt for the $1.5 billion portfolio. It is expected to announce the deal on Tuesday.
The properties are anchored largely by grocers and other retailers of staples, making them less sensitive to changes in the economy.
The West Coast retail property market is light on supply, and strong consumer spending there should translate to higher rents, said Jeremy Plumber, chief executive officer of CBRE Global Investment Partners.
The portfolio's occupancy rate stands at only about 85% because some of the assets are being redeveloped, said Paul Sisson, head of Americas at CBRE Global investment Partners. Once the properties are completed, occupancy should reach 94% to 95%, he said. The strip centers have anchor tenants such as grocery giants Safeway, Albertsons and Trader Joe's, where consumers frequent in good times and bad.
The deal comes a week after Regency Centers Corp. said it planned to acquire Equity One Inc. for about $5 billion in an all-stock transaction that will create one of the nation's largest shopping-center landlords. The two real-estate investment trusts have large strip center portfolios around the country.
Hap Stein, chief executive of Regency Centers, which is based in Jacksonville, Fla., said the two portfolios are complementary and the deal would result in economies of scale.
While properties in areas with high population density and high household incomes are still desirable, overall deal activity in retail real estate this year has been muted.
During the first 10 months of the year, retail-property transaction volume was $62.9 billion, down 16% from the same period a year earlier, according to data tracker Real Capital Analytics. There was more activity in residential, office and hotel properties, according to the company.
The rise of online shopping, along with retailer bankruptcies and overbuilding a decade ago, have driven up vacancies and forced retail property owners and real-estate investment trusts to consolidate and unload underperforming centers. Kmart, which had a huge presence in strip centers, has closed hundreds of stores over the years.
"The headwind is obviously e-commerce, which is disproportionately affecting retail real estate," said Mr. Plumber.
While some landlords are struggling to re-lease the space, others in better locations have been able to redevelop vacated space and bring in new tenants.
The two best categories these days are grade-A malls owned by the largest REITs, which remain strong because their space is still coveted by retailers, and strip centers anchored by grocery stores, which are more impervious to changing shopping habits.
Prices in better-located strip centers are commanding prices roughly 23% higher than at the peak of the last market cycle, said Ryan McCullough, an economist at CoStar Group. Weaker centers in suburban locations, by contrast, have seen prices fall by about 50% from their peak.
"It's a street corner game," said Mr. McCullough.
Smaller, single-tenant properties with drugstores or quick-service restaurants also have grown as a share of retail property sales.
"Grocery-anchored retail is considered safe by most investors in that the tenants still have clients even in an economic downturn," said Jim Costello, senior vice president at Real Capital Analytics. "Everyone has to eat."
Write to Esther Fung at email@example.com
(END) Dow Jones Newswires
November 22, 2016 08:15 ET (13:15 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.