Winners and Losers Emerge as Debt, Equity Capital Flowing Back Into Retail Real Estate

Sellers See Action From Banks, Revived CMBS Lenders, Life Companies and Private Buyers -- But Shopping Center Quality, Performance Remains A Key Factor

Just as in the 'old days,' ICSC reportedly sold out the entire financial and properties services pavilions, with waiting lists for each. During every panel session, executives marveled at the abundance of financing available to landlords, owners and buyers, with many non-traditional capital sources offering a broad array of options on both the debt and equity sides.

As Marcus & Millichap investment market guru Hessam Nadji noted during the firm's popular Retail Trends 2014 presentation duirng the conference, retail sales volume is now 14% greater than even pre-recession peaks in 2007. M&M's recent retail sentiment survey detected rising confidence among investors, said Nadji, who urged buyers not to "overthink" -- to pull the trigger on deals if they make sense.

Malls and strip centers alike are seeing continued improvement in pricing power, as evidenced in rising re-leasing spreads and attractive buyer capitalization rates. REITs are recycling capital while private buyers are showing stronger demand for assets, a theme echoed by REIT CEOs during quarterly meetings in the days leading up to the Las Vegas retail conference.

"There's definitely more buyers today than a year ago, there's more buyers today than three months ago and their appetites are much bigger than they were three months ago or a year ago," noted Macerich CEO Arthur M. Coppola.

But lenders haven't turned open the faucets for just any borrower or project. Non-core properties and ground-up development project are still enduring vigorous underwriting reviews by still conservative financial institutions.

"Demand for loans seems to be strong. If you're not looking to be an aggressive borrower, there's plenty of capital, said CFO Michael Berman of General Growth Properties, which maintained a large presence in the RECon exhibit hall.

Properties priced at over $300 per square foot are a lot easier to finance and can tap the now-booming CMBS market, but properties below that price per pound need banks to step up for financing, Michael Glimcher acknowledged. The good news is that the bank financing is back, given the right institutional buyer who can write an equity check.

The likely buyer pool for retail assets marketed for sale by CBL & Associates Properties is primarily private rather than public companies, and those buyers have teamed up with private equity or international funding sources, said CEO Stephen D. Lebovitz.

Macerich saw a "pretty competitive bidding process" for its Biltmore Fashion Park shopping center in Phoenix led interestingly by the life companies seeking A quality space, who were outbidding CMBS lenders by 10 to 20 basis points, armed with very competitive rates for 10-year money in the low 4%s, CFO Thomas E. O'Hern said.

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Winners and Losers Emerge as Debt, Equity Capital Flowing Back Into Retail Real Estate