SimonCRE is bucking the trend. The Marketplaces Industry’s common theme over the past decade is that new supply has been limited, and construction has become only more difficult as construction and financing costs have risen in more recent years. Scottsdale, Arizona-based SimonCRE, though, has roughly $500 million in retail projects in its development pipeline through 2026. It has built more than $1 billion of retail since CEO Josh Simon founded the firm in 2010, and it has built 2.6 million square feet since 2018.

C+CT contributing editor Beth Mattson-Teig spoke to Simon about what and where his company is building and how it’s able to get deals to pencil in this tough environment.

Tell us a bit about your business model and your niche.

Our first deal was the retrofit of a cellphone store in Clinton, Iowa. We slowly started to do some multitenant projects, and in 2019 we started seeing opportunities to do bigger deals and we took advantage of that. We still do smaller single-tenant buildings. My theory is that singles score runs, too, and it’s good to work on smaller projects to keep sharp. We’re closing on a small build-to-suit in Knoxville, Tennessee, next month, but we will also do a $100 million new ground-up construction project.

Do you build to sell, or are you building to own?

We sell pretty much everything that we’ve developed, about 98%, and we’re about to hit deal 300 in the next 30 days. We’ve developed in 22 states, and we’re getting ready to go into our 23rd.

What have you got in your current development pipeline?

We’ve got about $500 million in new projects that we plan to start in the next 12 months, and that’s everything from mass merchandisers to specialty grocers. About 90% to 95% of that pipeline will be shopping centers, but there’s definitely going to be a handful of small single-tenant deals. We’ve also got a decent redevelopment pipeline that’s already happening, so we’ve got a pretty consistent project pipeline for the coming year and we think we can continue on that trajectory.

What’s driving momentum for your firm?

We’ve just been able to execute. So much of our business is the sell side of it, but there’s also the operations and the execution of getting the [letter of intent], getting it under contract, finding tenants, getting entitlements done, getting it built and then turning it over on the sell side. I manage in founder mode, where you have a flat organization and you get involved in everything. Staying actively involved throughout the project [myself] has given us a leg up to be able to get more deals from other tenants because they see how we perform.

It’s been tough for developers to get new construction to pencil. How do you get it to work?

You have to get creative every day. Also, you need public financing or some kind of incentives. You can’t make the numbers work if you’re doing your standard shopping center today. The challenge has been rents. Junior boxes are loss leaders today. The rents on junior boxes are not where they need to be to break even.

What does that public money look like?

It could be a [tax-increment-financing] district. It could be a [common interest development]. It could just be a reimbursement depending on where you’re at. Certain markets are easier. If you look at Phoenix, you can’t get the same incentives as you can get in Indiana or Missouri or some of the other states. Arizona is very hard with their public reimbursement, but Arizona has a lot of growth and good sales. The story that retailers like to see is how they’ll perform there. Phoenix has added a million people in the last 10 years, so even though the incentive package might not be as good today, the rent rates and the desire for Phoenix from an investment market are still very high.

Is public money becoming tougher to get?

You need to know where to go and what the options are. There are a lot of retailers that also are very sensitive to that so it doesn’t add cost to the consumer, such as a sales tax component. Every deal is kind of its own home-cooked meal; what are the different ingredients that you have to work with? And [because] we sell everything, our investment time horizon is much shorter from start to finish. You’re going to want less risk if you’re going to own it for 10 years, but I have a pretty good idea that the world won’t be ending in one year. Doing that helps our underwriting so that we can be more aggressive on how we want to execute to create value so that we can get that risk-adjusted return. We’re pretty creative with financing structures and looking at selling off parts of the project, and that’s where a lot of folks might lack the ability.

Can you share a recent project?

We’re under construction on Medina Station in Mesa, Arizona that has a Target and a Dick’s Sporting Goods. We’re the second or third developer to come in because of rezoning issues. The city had concerns on site planning and drive-thrus. We were able to reinvent the site plan. Luckily, we had a seller that was flexible and open to this, but we had them kind of blow up their multifamily layout to give us more retail so we could create a dining destination. The city really wanted more sit-down restaurants in this part of Mesa, but to get sit-down restaurants, you have to incentivize them. We were able to get a development agreement where all of our out-sites are reimbursable from the city of Mesa. The city has done one other shopping center development agreement in the last 20 years, and that one was the reason why they haven’t done another one. So to be the first one in 20 years to do that in a city the size of Mesa speaks to our creativity and figuring out ways to make things work.

How large is the Medina Station project?

The whole project is about $150 million. Our portion of that is about $100 million and close to 350,000 square feet.

Has the uncertainty related to tariffs impacted your pipeline or how you’re looking at development deals?

It definitely had some impact in April. On the investment sales side, the 1031 exchange buyer got nervous, and we had quite a few of those buyers fall out. But the average recession lasts 18 months. Even if we do get a recession, if I start construction today on a big project, it’s going to be 18 months until it’s done and tenants are open and operating. When you get things like what’s happening now with tariffs, you can’t see the forest through the trees. You have to really pull yourself out and recognize that this is a time that’s not going to last forever and everybody’s going to deal with the same thing, so let’s get creative.

We had a couple of contractors that told us they couldn’t hold pricing, so I said: “Show me in 30 days any justified backup proof that any higher costs are directly related to the tariffs, and we’ll pay the change.” This was in early April, and we never heard from them about cost increases in the 30 days. There have definitely been some things that have gone up, such as steel, but we have seen prices come down because construction starts have declined and we’re seeing more competitive pricing from contractors and subs.

What’s your overall outlook for construction activity across the broader retail industry?

You’re definitely going to see a dip in general just because it’s harder to get projects financed and things are taking longer from a financing standpoint, but it’s kind of steady as she goes. All the retailers like Target, Walmart, Whole Foods, Sprouts have a mandate to grow. They want to do new deals and those projects take a while, so we have a really healthy ecosystem right now versus 2010 when we had all of those retailers that went out of business at the same time. You’re not seeing as much retail being built right now, and when we have these tenant bankruptcies, they’re pretty spread out. That allows for absorption of space in a good, orderly way and still provides for the ability of new construction.