Eyeing Retail's Bargains, Gart Launches $40M Opportunity Fund
Gart Properties has created a $40M fund aimed at taking advantage of the changing retail landscape, with an emphasis on deals that aren’t widely marketed.
“Instead of choosing from the properties that are offered, we’re identifying properties that have the potential to be more valuable than they are today,” Gart President Mark Sidell said. “We’re picking the ones where we think we have the tools to realize that value, approaching the owners and working out a deal that’s fair to both parties.”
It’s the first official fund for Gart, which previously took deals to a handful of Colorado families to invest in. The Gart Opportunity Fund allows more family offices to invest with Gart in the company’s value-add strategy that emphasizes retail. There are currently about a half-dozen families invested in the fund, all but one from Colorado, and the company said it plans to increase that number.
“The common characteristic of the investors is that they understand the risk/reward paradigm that exists in the value-add space. That gives us development-like returns without taking nearly the same amount of risk,” Sidell said.
The fund will enable family offices to invest in a portfolio of properties rather than just one property at a time. The first portfolio, which kicked off with the acquisition of Denver's 150K SF Orchard Plaza complex, is expected to include $100M worth of real estate. Orchard Plaza represents about a quarter of that.
“Orchard is a great example of what we’re doing,” Sidell said. “It has cash flow today. If you’re doing a ground-up development, there’s a lot more risk. You have to time the market to be ready when you’re ready to deliver your product.”
The Gart Opportunity Fund strategy is aiming to eliminate the uncertainty associated with construction and leasing of a new shopping center because it is difficult to find tenants willing to pre-lease a space. Interest rates add another uncertain variable to new projects.
“When you’re doing development, you’re most likely on a variable-rate loan while you’re doing construction, and then when it’s done in a year or two, you’ll put permanent financing on it and you don’t know what the rates are going to be,” Sidell said.
Gart owns 2.5M SF of retail space throughout Colorado. Its properties include the Denver Pavilions on the 16th Street Mall and the original Gart Bros., a fishing and outdoor gear retailer started in 1928, at 10th and Broadway. The Gart stores were an institution in the outdoor sports industry known for annual events such as the SNIAGRAB (bargains spelled backward) Ski Sale and the renowned Sportscastle store.
“One of the things that allows us to understand the dynamic is experience on both sides of the cash register,” Sidell said. “For four generations, the Garts have been on the retail side of the cash register. We have this slightly different perspective. We recognize that in the landlord-tenant equation, the tenant is the golden goose."