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Betting Big On Retail: Paragon Commercial Group To Invest $500M In California Retail Properties

Paragon Commercial Group will invest half a billion dollars in retail properties across California within the next 18 months, officials announced Thursday.

The Los Angeles-based company is planning to deploy $300M in the acquisition of retail properties in Northern California and $200M in Southern California.

Gelson’s Shopping Plaza in Manhattan Beach

“We formed Paragon ten years ago — during the bleakest time for real estate investment — to acquire retail assets when no one else wanted them,” Paragon co-founder and principal Jim Dillavou said in a news release. “The counterintuitive investment strategy worked well. We are now at a similar point in the retail world where the market has softened and — once again — created great investment opportunities in our sector. Our experience transforming and revitalizing dozens of properties in California tells us that now is a great time to buy.”

In a follow-up conversation with Bisnow, Dillavou said his company plans to acquire a portfolio of well-located, daily trips-driven retail centers.

“These assets are convenience-oriented anchored shopping centers that serve a specific trade area and demographic, which allows us to merchandise the assets to match the local consumer demand,” Dillavou said. 

Funding will come from institutional and private capital partners, he said.

The bold announcement to invest significant capital in retail assets comes as the retail industry continues to struggle.

Commercial real estate executives believe retail occupancy rates will continue to deteriorate through 2021, according to the latest Allen Matkins/UCLA Anderson Forecast, which gathers the sentiments of an anonymous panel of executives that invest in commercial real estate.

Paragon Commercial Group co-founder and principal Jim Dillavou

Dillavou said the "retail apocalypse" narrative is overblown and that there is still a demand from consumers to shop at well-located retail centers. 

“We only do one thing: value-add retail in California,” Dillavou said. “This allows us to be hyper-localized in our understanding of retailers, assets and trends, which we believe is a meaningful competitive advantage when evaluating new opportunities. The ‘retail apocalypse’ narrative is a catchy phrase that has [created] enhanced discomfort with the asset class, but is overly simplistic and does not apply to all retail assets.”  

While many investors are shying away from the retail industry, Dillavou sees potential, and he is positioning his company to capitalize on the down market.

“The reality is that retail is one of the only asset classes that has not evolved in decades,” he said. “It is now evolving — which is a good thing — and a retail evolution is very different than a ‘retail apocalypse’. It’s truly an exciting time to be in the retail business. 

“Retail investors are no longer just buyers of an income stream: we understand our customers [the retailers] including everything from their capital structures to their supply chain management, as well as the actual real estate itself. The retail business has evolved from being two-dimensional to now being multidimensional.”