Con­tents

FLOCK­ING TO RE­TAIL

Houston Chronicle - - TEXAS INC - By Kather­ine Feser

Hous­ton area sees a broad spike in re­tail cen­ter trans­ac­tions.

Brix­mor Prop­erty Group closed 2018 by clear­ing its in­ven­tory and pre­par­ing to re­stock its shelves.

Gone from its port­fo­lio was North­wood Plaza, a north Hous­ton shop­ping cen­ter an­chored by a Food City gro­cery store, which was sold in a fourthquar­ter deal. That fol­lowed the ear­lier sales of the small Braes Link Cen­ter on Stella Link, the H-E-B shop­ping cen­ter on Bis­son­net near Cedar in Bel­laire, and cen­ters in Spring and Clute.

“For us, it was pro­ceeds we could re­de­ploy for other parts of Hous­ton,” Daniel Suther­land, Brix­mor’s vice pres­i­dent of ac­qui­si­tions and dis­po­si­tions, said of the Hous­ton sales. “We like prop­er­ties that can grow year over year over year.”

In re­align­ing its as­set mix, Brix­mor re­mains com­mit­ted to a re­silient Hous­ton re­tail mar­ket that has re­bounded from Hur­ri­cane Har­vey and is ex­pe­ri­enc­ing ro­bust leas­ing ac­tiv­ity even as em­ploy­ment and pop­u­la­tion fig­ures are pro­jected to grow. Its Hous­ton port­fo­lio now stands 35 prop­er­ties ac­count­ing for 4.2 mil­lion square feet, its third­largest mar­ket be­hind New York and Philadel­phia. It has 425 cen­ters na­tion­wide.

The churn in its lo­cal hold­ings was part of a broader spike in re­tail cen­ter trans­ac­tions last year.

Ac­cord­ing to Real Cap­i­tal An­a­lyt­ics, Hous­ton saw a record $2.95 bil­lion in sales across 200 re­tail prop­er­ties in 2018. The pre­vi­ous record was $2.1 bil­lion in 2007.

Brix­mor from page B8

Hous­ton-area sales in­cluded not only rec­og­niz­able prop­er­ties such as the Heights Mer­can­tile col­lec­tion of shops and PlazAmer­i­cas (for­merly Sharp­stown Mall), an 850,000square-foot cen­ter that opened as Hous­ton’s first en­closed air­con­di­tioned mall in 1961, but lesser known neigh­bor­hood cen­ters that are in­creas­ingly ad­ding in­ter­net-re­sis­tant ten­ants such as den­tists, vet­eri­nar­i­ans, fit­ness and nail sa­lons.

“Peo­ple need to go to these cen­ters to get ser­vices,” said Wendy Van­de­ven­ter, a se­nior vice pres­i­dent with the re­tail in­vest­ment sales group at JLL. “Things that you’ve got to do per­son­ally, phys­i­cally that you can’t do on­line.”

Lim­ited avail­abil­ity for new re­tail con­struc­tion and an oc­cu­pancy rate run­ning at about 95 per­cent makes Hous­ton re­tail prop­erty at­trac­tive to in­vestors, said Ed Wulfe, CEO of Wulfe & Co, a Hous­ton real es­tate bro­ker­age that spe­cial­izes in re­tail prop­er­ties. Find­ing op­por­tu­ni­ties Though re­tail leas­ing re­mains ro­bust, the strength is not uni­form across the sec­tor. The va­cancy rate at neigh­bor­hood shop­ping cen­ters closed the year at 8.3 per­cent, ac­cord­ing to Col­liers In­ter­na­tional. Sin­gle­tenant re­tail and life­style cen­ters, on the other hand, fin­ished the year strong, with va­cancy rates of just 1.6 per­cent and 1.9 per­cent, re­spec­tively. Theme/en­ter­tain­ment cen­ters also fared well, end­ing the year with a 2.5 per­cent va­cancy rate, and the long-suf­fer­ing mall mar­ket posted a year-end va­cancy rate of 4.7 per­cent.

Fur­ther re­tail strength is ex­pected, as JLL is pro­ject­ing that Hous­ton will add 70,000 obs and 120,000 new res­i­dents n 2019.

Brix­mor’s port­fo­lio re­tool­ing ffered an op­por­tu­nity for lo­cal nvestors to ren­o­vate ag­ing hop­ping cen­ters and up­date he ten­ant mix by ad­ding stores and ser­vices that may be miss­ing in a neigh­bor­hood. Hous­ton-based Wil­liams­burg En­ter­prises ac­quired Brix­mor’s Klein Square, an 80,836-square­foot cen­ter at 16812 Stueb­ner Air­line in Spring, and Plan­ta­tion Plaza, a 98,141-square-foot cen­ter at 101 Dixie Drive at Plan­ta­tion Drive in Clute. Both deals closed

in Oc­to­ber. Wil­liams­burg plans to ren­o­vate and re­lease both, which saw gro­cery ten­ants de­part.

“We took two cen­ters that were 40 per­cent oc­cu­pied,” said Khaled Salem, Wil­liams­burg’s CEO. “They’ll be fully leased with ten­ants that not only have a na­tional pres­ence, but also a very strong Texas pres­ence.”

Salem was bullish, dis­miss­ing ques­tions about the stran­gle­hold on­line re­tail­ers ap­pear to have on tra­di­tional re­tail­ers.

“We don’t think Ama­zon is go­ing to com­pletely de­stroy shop­ping cen­ter re­tail as we know it,” Salem said. “We think things will change and you have to change with the times. We think there’s al­ways a way to re­pur­pose and re­po­si­tion these as­sets.”

A note of cau­tion

A re­port from Bloomberg found that na­tion­ally, De­cem­ber sales of re­tail cen­ters hit their high­est lev­els since Au­gust and that re­tail real es­tate in­vest­ment trusts, of which Brix­mor is one, ex­tended their net sell­ing streak to a 16th month. The pace of sales is ex­pected to slow this year, Bloomberg said, es­pe­cially for strip cen­ters.

Mar­shall Clinkscales Jr., an ex­ec­u­tive vice pres­i­dent at Col­liers, said he al­ready sees signs that the pace is slow­ing.

“No­body sees us con­tin­u­ing to go up, up, up with rents and projects, but no­body sees us crash­ing ei­ther,” Clinkscales said.

An­nual rents at neigh­bor­hood shop­ping cen­ters — which vary by lo­ca­tion and an­chors in the cen­ter — range from about $28 to $46 per square foot, ac­cord­ing to a fourth-quar­ter re­port from Col­liers. Ten­ants are start­ing to back away from pricier space, Clinkscales said, and own­ers are start­ing to re­duce rents to lure ten­ants in some ar­eas.

For Brix­mor, which was formed in 2011 by Black­stone Group af­ter ac­quir­ing the U.S. op­er­a­tions of Aus­tralia’s Cen­tro Prop­er­ties Group, 2018 was a year to build up is cash re­serves so it could buy more prop­erty.

Though it hasn’t yet re­leased year-end num­bers, the com­pany said in a Jan­uary news re­lease that it sold 62 non­core shop­ping cen­ters and other prop­erty last year with an ag­gre­gate value of $989.5 mil­lion. Brix­mor re­ported net in­come of $147.3 mil­lion, or 49 cents a share, on rev­enue of $306.5 mil­lion for the pe­riod ended Sept. 30, fed in large part by $119.3 mil­lion in profit from the sale of prop­erty in the third quar­ter. It had in­come of $83.4 mil­lion on rev­enue of $314.5 mil­lion the year ear­lier.

Brix­mor’s nearly $1 bil­lion in prop­erty sales in 2018 are part of a strat­egy to limit the mar­kets in which it op­er­ates and den­sify its port­fo­lio within those mar­kets, said Lind­say Dutch, a REIT an­a­lyst with Bloomberg In­tel­li­gence.

“They’ve taken a heavy hand to the port­fo­lio in terms of sell­ing some of the slower as­sets,” Dutch said.

The com­pany is in the mar­ket for shop­ping cen­ters with ten­ants that meet shop­pers’ daily needs but still have up­side op­por­tu­nity through the lease-up of va­cant spa­ces, rais­ing rents to mar­ket lev­els, fill­ing an­chor spa­ces with new ten­ants that ap­peal to the com­mu­nity, or re­de­vel­op­ment.

Lo­cally, the re­de­vel­op­ments could add mixed-use com­po­nents such as apart­ments above re­tail or med­i­cal of­fice space, Suther­land said. He said two area re­de­vel­op­ments are in the works and two more are be­ing con­sid­ered, though he de­clined to dis­close lo­ca­tions be­cause deals have not been fi­nal­ized.

Re­cent projects in­clude build­ing the LA Fit­ness in its Kroger­an­chored cen­ter on Spencer High­way in Pasadena. The Braes Heights shop­ping cen­ter on Bel­laire Boule­vard at Stella Link is get­ting a new fa­cade, land­scap­ing and park­ing im­prove­ments.

Brix­mor, which han­dles its own leas­ing in-house, has long­stand­ing re­la­tion­ships with Kroger and other gro­cers, as well as off-price re­tail­ers such as Ross, T.J. Maxx, Mar­shalls, HomeGoods, Burling­ton and Kohl’s.

“We re­ally strive to have that great syn­ergy and great mer­chan­dise mix of strong lo­cal op­er­a­tors as well as strong na­tional op­er­a­tors,” said Matthew Berger, Brix­mor’s ex­ec­u­tive vice pres­i­dent and pres­i­dent of its West Re­gion. “We want our cen­ters to be the most rel­e­vant cen­ters in the com­mu­ni­ties that they serve.”

Steve Gon­za­les / Staff pho­tog­ra­pher

Above: Brix­mor Prop­erty Group re­cently added LA Fit­ness as a ten­ant at Cross­roads Cen­tre on Spencer High­way in Pasadena.

Steve Gon­za­les / Staff pho­tog­ra­pher

The Braes Heights shop­ping cen­ter on Bel­laire Boule­vard at Stella Link is get­ting a new fa­cade, land­scap­ing and park­ing im­prove­ments.

Melissa Phillip / Staff pho­tog­ra­pher

Ben­jamin Trego, with Ar­row Ser­vices, works in a for­mer gro­cery space owned by Wil­liams­burg En­ter­prises that is un­der­go­ing ren­o­va­tions at Klein Square.

Brix­mor Prop­erty Group

Brix­mor Prop­erty Group will wrap up a ma­jor ren­o­va­tion of the Braes Heights shop­ping cen­ter on Bel­laire Boule­vard in the se­cond quar­ter of 2019, ac­cord­ing to the com­pany.

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