It’s time to see if those tightened lending standards we’ve been hearing about in recent years are taut enough to withstand skyrocketing interest rates and possible defaults by overleveraged borrowers. Recent headlines about the collapse of Silicon Valley Bank and other banks and about investors’ increasing risk aversion raise questions: Could the commercial real estate lending community weather a tidal wave of defaults like the savings and loan crisis of the late 1980s? But lenders have raised standards for retail loans since then, especially for new-construction loans. Experts say small regional banks and some large lenders that specialize in commercial property are at risk, though office and multifamily property borrowers are viewed as those most likely to default as income declines. Most economists expect the Federal Reserve interest rate to peak this year at 5% and to decrease in 2024.
March 2023: Glass Half _____? Interest Rates Are High, But Lenders Are Ready with Capital
September 2022: Retail Properties are Relatively Cheap as Bankers Tighten Lending Standards
June 2022: Rising Interest Rates Not Stopping Retail Property Owners from Refinancing
Investors currently see retail property as a smart value play, according to 250 commercial real estate professionals CBRE surveyed between mid-November and December 2022. They expect yields to increase by 25 basis points over the next six months, and many are looking for undervalued retail properties with upside potential in 2023.
“Sentiment is more positive for quality suburban neighborhood retail properties, especially as consumers have spent more on local goods and services that are close to home,” said CBRE global client strategist and senior economic adviser Spencer Levy. “Tenant mix has become increasingly important, resulting in a growing premium for centers with a strong anchor tenant,” he wrote. “With high inflation protection, falling availability rates and limited supply, asking rents are expected to increase for the foreseeable future.”
But the window to find good deals won’t last forever, as borrowing costs will decrease, Levy warned. CBRE forecasts that the federal funds rate likely will fall from over 5% in 2023 to about 2% in 2025. “Both interest rate hikes and cap rate expansion will peak later this year and should decrease in 2024,” he said. “As a result, today’s opportunity to buy assets for lower prices may not last very long.”
Groton, Connecticut: The 196,802-square-foot Groton Square, anchored by Kohl’s and Stop & Shop, has traded. Marcus & Millichap Institutional Property Advisors represented the seller and procured the buyer. Tenants include Panera, PhysicianOne Urgent Care and Verizon.
Tampa, Florida: BTI Partners sold Marina Landings in South Tampa for $13 million to an LLC. The 70,000-square-foot town center is the entertainment and shopping hub of the 52-acre, master-planned Westshore Marina District, which also includes high-rise condominiums and luxury apartments. Marina Landings tenants include a wine shop, salon, coffee bar, bike shop, ice cream shop, tavern and specialty foods store.
Atlanta: ShopOne, Pantheon and a global institutional investor purchased the Walmart-anchored Bethesda Walk in Lawrenceville, Georgia, bringing the number of grocery-anchored assets in the joint venture’s portfolio to 11. The 68,271-square-foot Bethesda Walk is 98% occupied by such tenants as Metro by T-Mobile, Subway and Wingstop. The venture, which has more than $1 billion of investment capacity and features a $225 million senior credit facility, has made other notable acquisitions in Atlanta; outside Washington, D.C.; and in Cary, North Carolina.
White Plains, New York: Hines purchased the Whole Foods-anchored Source at White Plains from UBS for $112 million. Tenants at the 262,000-square-foot property include The Cheesecake Factory, furniture retailer Raymour & Flanigan and a Department of Motor Vehicles branch.
Raleigh, North Carolina: Wakefield Wellons LLC acquired Wakefield Crossing, a 75,927-square-foot, grocery-anchored community retail center. JLL represented the seller. Food Lion anchors the center and has operated there since 2001. The grocer represents half of the center’s gross leasable area. Additional tenants include Dante’s Italiano, Subway, Tuesday Morning, Wakefield Tavern and Wake Health Medical Group.
Malls have been centers of pop culture for decades and continue to serve as fodder for the imagination. The trend benefited the development team reimagining Northland Village mall in Calgary, Alberta, last year when the popular HBO drama The Last of Us shot scenes there. The Primaris-owned property has been closed since 2011 as part of a planned conversion into an open-air, mixed-use district, allowing the apocalyptic drama to restage the property as a zombie-ravaged, post-consumer hellscape. It’s the latest example of movie and TV writers tapping the powerful symbolism of the mall. The Atlanta area's 39-acre Gwinnett Place Mall served as the filming location for much of Season Three of another popular science fiction drama, Netflix's Stranger Things.
ICSC continues to help the Marketplaces Industry advance, enabling like-minded parties to find one another at its events. According to the Baltimore Business Journal, a new agreement will bring a national supermarket chain to a Henson Development Co. revitalization project in an East Baltimore food desert. The BBJ reported that the deal was two years in the making and “gelled” after the May 2022 ICSC LAS VEGAS event. Read the story here.
Uplifting Black Neighborhoods: Many Focus on Black Tenants, but Lyneir Richardson Focuses on Black Property Owners
A 20-Year Project Brings a Community the Grocer and Sit-Down Restaurants They Dreamed Of
Lessons from Investment in Community Revitalization — Even When It Doesn’t Go According to Plan
You Can Make Money in Underserved Communities, Says Robin Zeigler
Making the Case for Investing in Underserved Markets
Tabassum Zalotrawala will join fast-food giant McDonald's as senior vice president and U.S. chief development officer, effective April 24. She will relocate to Chicago to direct plans to increase the number of McDonald’s restaurants across the country. Previously, Tabassum served as chief development officer at Chipotle, and she has held real estate, design and construction leadership positions at Panda Restaurant Group and Arby’s Restaurant Group.
James W. Wilson III died in his home after a brief illness on March 11 in Montgomery, Alabama. He was 59. Wilson was chair and CEO of Jim Wilson & Associates, a development and management firm founded by his father, James “Big Jim” Wilson, who was a former ICSC chair.
James Wilson III
By Brannon Boswell
Executive Editor, Commerce + Communities Today