Despite Bankruptcies, Investors Still Chasing NJ Retail
Retailer bankruptcies in 2017 have already set a record pace, with 14 companies filing by the end of April compared to 18 throughout the entirety of 2016, according to S&P Global Market Intelligence.
Companies such as Payless ShoeSource, hhgregg, BCBG Max Azria and Limited Stores are only a handful of names that have made the news, but U.S.-based retailers accounted for 10 of those 14 bankruptcies. Yet despite all of the negative press, the investment community is still keen on New Jersey retail because the outlook is very positive for the long term, HFF senior managing director Jose Cruz said.
“Grocery-anchored centers have cap rates in the 5s and are getting record pricing,” he said. “The best are well-located properties with No. 1 or [No.] 2 positioned grocers, or community centers with good big-box anchors and solid inline tenants like nail salons or bagel shops. There is still enough demand from retailers and other tenants looking for space.”
Brixmor Property Group — behind centers like the 202K SF Lakewood Plaza in Lakewood and the 242K SF Old Bridge Gateway in Old Bridge — this week released its Q1 operating results. CEO James Taylor said despite the increase in announced retail bankruptcies and store closings, its overall portfolio benefited from healthy tenant demand, resulting in 1.9M SF of new leases in renewals at blended comparable rent spreads of 16.4%.
Cruz said his team recently closed on two different grocery-anchored centers at very aggressive terms. One was Phillips Edison Grocery Center REIT II’s $51M purchase of Plaza 23, a 161K SF, Stop & Shop-anchored center in Pompton Plains. The property is also home to tenants such as T.J. Maxx, HomeGoods, GNC, Moe’s Southwest Grill, Sally Beauty Supply and a soon-to-open Smashburger. The other undisclosed property went to an institutional buyer.
“Interest is running the gamut, from private groups to funds and institutional investors,” he said.
Cruz said now is a good time to look at retail opportunities, because in another six months to a year, prices may start to rise, especially among infill and highly populated centers. Value-add retail in Class-B-plus markets is also experiencing a lot of activity; one he recently sold in Monmouth County had multiple bidders despite being non-refundable.
Cruz is seeing similar traction on other retail assets his team is bringing to market in Long Island and Westchester. Sellers will continue to bring assets to the market in the near future because of the current interest rate environment, the amount of capital chasing deals and the fact assets are trading.
“There is a strong chance the deal will get done,” he said.
Cruz will be speaking at Bisnow's Repositioning and Redeveloping New Jersey event on June 20 at Bell Works in Holmdel.