RETAIL CHANGES
Pandemic-related closures in Oklahoma City scatter investors
Store and restaurant shutdowns in response to the coronavirus — and permanent closings for some — slammed demand for retail investment property, and property values are expected to take a hit.
The pandemic ha sc reat ed opportunities for some with capital to invest, but since commercial property values are based on rental income, lower sale prices are likely because of higher risk.
“The face of retail has changed dramatically from where we were just six months ago,” said David Hartnack, a director and vice p re sident-retail for Oklahoma City brokerage NAI Sullivan Group. “While many stores have reopened, many of our favorite restaurants remain closed and not solely due to health concerns.”
In the first weeks of the pandemic, he said, many retail tenants negotiated rent abatements, agreeing to pay higher rents once the economy reopened.
“How ever, the uncertain nature of the economic recovery has led many momand-pop retailers to hesitate in opening their doors, especially when this could mean facing higher rental payments. This combined with the increased competition of meal delivery services and online shopping could cause retailers to decide it is better to permanently close the business,” Hartnack said.
NA I Sullivan' s Sam Swanson, also a director and vice president-retail, said shopping center sales in the second quarter were down 58% compared with the fiveyear average. Swanson said he tracked 24 transactions involving property price above $500,000.
Investment sales were down before COVID-19 struck, said Jim Parrack, senior vice president and retail specialist with Price Edwards & Co., brokerage and property management firm.
“We are continuing to see pad site sales, net investment sales and some smaller center sales fueled by low interest rates and investors seeking returns in a difficult investment environment. However, overall market activity and larger project sales have been limited,” he wrote on the firm's blog at www.priceedwards.com. “The uncertainty both with regard to the viability of tenants and the unknown length of the pandemic have created a difficult environment for investors to navigate.”
Capitalization rates—a measure of risk and return — are expected to rise in general as distressed properties become avail able, Parrack said.
“There is money available in the market for acquisitions, both debt and equity, and several distressed asset funds have been started. The magnitude of any rise in cap rates or the number of distressed properties is anybody's guess at this point. Much depends on the length of the pandemic and the number of tenant closures, he said.
Most sales so far this year werein the first quarter, Parrack said, mostly “smallish neighborhood and strip centers,” except for Mayfair Village, at NW 50 and May Avenue.
Caleb Hill, Nick Preftakes and Mark Ruffin — Mayfair HPR LLC — paid $5.5 million for the 127,107-square-foot center, closing the purchase March 12, the day after the never-played Thunder game that brought the new coronavirus home to Oklahoma City withan infected Utah Jazz player.
The seller, Mercer Street Holdings ONE L LC, had the loan on the struggling, 72- year-old property, then acquired direct ownership by foreclosure in November 2018, sold two pad sites, CVS andAldi, and marketed the rest as ready for repositioning. The new owners are remodeling the shopping center.
“Mayfair Village has a long and storied history in northwest Oklahoma City, sitting at the south end of the city's original shopping corridor along May Avenue,” Parrack said.
He said the one significant second-quarter sale was Greenbriar Square Shopping Center, 12100 S Pennsylvania Ave ., which fetched $10.7 million. MG Investments LLC, Phoenix, bought it from Armstrong Development in a deal handled by broker Jason Little with CBRE Group in Oklahoma City.
“This sale is notable given that it's new construction, quality tenants and the $289-per-squarefoot price tag,” Parrack said.
There are other positives in retail, as well, Jacob Simon, another Price Edwards retail specialist, wrote in a blog post he headlined “The Retail Story You Didn't Hear.”
“It is in the people and concepts that make up the amazing industry we work in called retail,” he said. “The creativity, the new concepts, the resolve — retailers are having to be creative in ways they never thought possible in order to survive. From curbside delivery, to buy online and pick up instore, to joint marketing, adding new products and figuring out ways to meet consumer needs in any way they can.
“We are also beginning to see more retailers and developers looking for more locations around our market. Earlier this year there was a time where everyone put their expansions on hold, but today we are seeing more deals go through. This is all positive.”
Simon added, “More positive news is that vacancy r ates haven't increased all that much. Midyear 2019 showed Oklahoma City's retail vacancy rate to be about 8.6% versus 9.2% at midyear 2020. ... There's no doubt some retailers are struggling, a number have declared bankruptcy, but many are thriving, particularly grocers, discounters, and the big three: Walmart, Target and Amazon. Retailers will continue to come up with new ways to be successful. So, there is a lot of good in the market. Let's be positive, adapt to these changes with the understanding that retail will ultimately transform in ways that will help make our community great!”