Growing by Leaps and Buys

Fastest-growing acquirers employed varying purchase strategies
In June 2011, No. 1 fastest-growing acquirer Inland purchased Draper Peaks, a 229,796-sq.-ft. center located in Draper, Utah.

Editor’s note: Chain Store Age’s 23rd annual survey of Fastest-Growing Acquirers measured retail square footage purchased during the 2011 calendar year.

For some companies, being among the top acquirers of shopping centers almost is business as usual — top-ranked Inland Real Estate is a perennial leader, largely through avidly scouring daily for possible deals, while Kimco maintained its focus on top projects in top markets.

For others, though, their ranking is a return to the top. DDR Corp. (formerly Developers Diversified) regained its place among the leaders with a new name and focus on acquisitions, while Cole Real Estate Corp. returned in part by closing deals other companies can’t. And Westfield ranked fourth through the most dramatic strategy of all — entering new continents through joint ventures.

1. Inland Real Estate Group of Cos.

Volume and research are key for top-ranked Inland, which acquired 8.9 million sq. ft. of space last year. The company scans 200 opportunities a day looking for the right investments for its portfolio.

“We are like piranhas when it comes to deals. Nobody closes more individual deals than Inland,” said G. Joseph Cosenza, vice chairman and a director of Inland Real Estate Group and president of Inland Real Estate Acquisitions, Oak Brook, Ill. “We will do anything and everything to make sure we get it, as long as we do due diligence to make sure it is right for Inland and its investors.”

That due diligence has become more difficult throughout the market recovery, even for a company that has always researched potential acquisitions thoroughly.

“I’ve seen things in the last six or eight months I’ve never seen before,” Cosenza said, including utility demands for certain easements that would leave landlords at risk.

The result of the company’s aggressive growth is a presence in all 48 continental U.S. states. But predicting the future remains a mystery.

“Every year, I’m always asked, ‘What do you think you’ll be doing?’ ” Cosenza said. “I never know. I don’t know how much money we’ll have in the bank. And how would I know what’s going to be on the market?”

2. Cole Real Estate Investments

Class A centers in major metropolitan areas have been the major target for real estate companies and financial institutions looking to enter or re-enter the retail sector. Phoenix-based Cole Real Estate Investments, however, achieved its second-place ranking, with more than 4 million sq. ft. in acquisitions around the United States, by looking a little more broadly.

“All of the REITs want to be in the top-tier MSAs,” said Scott Holmes, senior VP acquisitions for Cole, a non-traded real estate investment trust. “But we have been successful at finding great deals in secondary areas, as that traffic hasn’t picked up yet.”

Cole has been a big player in general, Holmes said, but acquisitions are not getting any easier. As the market recovers, Cole is finding that it’s bidding against more players for quality properties. However, that can be an advantage.

“Toward the end of last year, we picked up six or seven deals on the rebound,” Holmes said. “They came back to Cole, because we close deals all-cash.”

The market will be even more competitive this year, Holmes added.

“We won’t see the cap rate compression we did last year,” he said. “We’re not seeing interest rates rise.”

3. Kimco Realty Corp.

Kimco Realty Corp.’s 3.7 million sq. ft. of acquisitions last year — placing it third — are a sign that the sector remains a safe haven for investors, said David Henry, vice chairman, president and CEO of the New Hyde Park, N.Y.-based company.

“Real estate increasingly is in favor again,” Henry said. “It is a hard asset, and an alternative investment, as Treasuries yield next to nothing. That said, it’s still a tale of two cities.”

Investors still prefer primary and gateway markets, and capitalization rates continue to drop, Henry said. Meanwhile, secondary and tertiary markets, as well as Class B centers, are less in demand, with high cap rates and prices still compressed.

“That also extends to the area of financing. Nobody wants to lend [on lesser product and locations],” he said.

Would the upside on such properties attract Kimco? Probably not — conscious of its obligation to its shareholders, the REIT maintains its criteria of acquiring top properties in major markets. There’s no lack of quality out there, Henry contended.

“We have narrowed our acquisitions, identifying 25 core markets where we have offices and properties,” Henry said. “There are 100,000 shopping centers in the United States, so it’s not a question of having nothing to buy. We’re trying to be more careful, more disciplined.”

4. Westfield

Fourth-ranked Westfield acquired 3.5 million sq. ft. of space by continuing to pioneer the globalization of the industry.

The Australian developer, which also has projects in New Zealand, the United States and the United Kingdom, last year acquired developments in Brazil and Italy in joint ventures with other companies, with the transactions literally occurring within a week. Both deals are a direct result of the company’s successful development of Westfield Stratford City, its regional mall opened as part of the London Olympic Village, said Peter Lowy, co-CEO of Westfield Group.

“We did a business restructuring in November 2010,” Lowy said.

The company acquired a 50% interest of a development site for a 1.8 million-sq.-ft. mall adjacent to Milan’s Linate airport in a joint venture with Gruppo Stilo. Plans call for the project to be complete in 2015 or 2016.

“Gruppo Stilo did a lot of the approvals on the site,” Lowy said.

Less than a week earlier, Westfield had acquired a 50% interest in Almeida Junior Shopping Centers, entering South America for the first time. The deal created Sao Paulo-based Westfield Almeida Junior.

An emerging market, “Brazil is very different for us,” Lowy said. “But we found a middle class that will grow by 20 million people and has a stabilized government. It’s a commodity-based economy with high tariffs, high taxes and high barriers to entry. It’s a well-developed retail world, very similar to Australia.”

5. DDR Corp.

After two years off the list, DDR Corp. (previously Developers Diversified) returns to rank No. 5 with 1.9 million sq. ft. acquired and a new name.

The shortened name reflects the company’s focus on acquisition rather than new construction, and on one sector, the firm said in 2011.

“We target select acquisition opportunities that can be enhanced by inclusion in our leasing, operating and redevelopment platforms, with a focus on owning prime power centers populated with high credit quality tenants,” said David J. Oakes, CFO of DDR, in an email to Chain Store Age.

The market is becoming more competitive, Oakes said, but in the third quarter of last year alone, the company acquired Cotswold Village and The Terraces at SouthPark in Charlotte, N.C., for $85 million, and Chapel Hill East in Colorado Springs, Colo., for $25 million.

The deals continue in 2012. In January, DDR announced a joint venture with Blackstone to acquire 46 shopping centers owned by EPN Group for $1.43 billion (including $640 million of assumed debt).

“Over the course of the year we expect to continue our stated strategy of investing the proceeds of the disposition of non-prime assets into the acquisition of prime assets with higher and longer-term growth potential,” Oakes said.

 

For a breakdown of properties and portfolios acquired during 2011 for each of the companies in this article, visit chainstoreage.com/community.