Branch Takes A City Walk

January 14, 2013 | 7:00 am ET Staff Reporter

Here's a solution for an ailing Sandy Springs mixed-use project: Tear down some of that retail to make way for Class-A apartments. (Haven't you always wondered what it would be like to live in The Gap.)

Branch Properties (its Nick Telesca above) just picked up City Walk in Sandy Springs, a 168k SF Kroger-anchored retail center off Hammond Drive and Roswell Road for $24.5M from a special servicer-managed REO sale. In turn, Branch plans to raze about 40k SF of the center to make way for a 300-unit luxury apartment complex, Nick says. Picking it up from an REO, Nick says Branch paid half its peak 2007 price to a group of Korean investors, or at a 6.75% cap. If all goes well in pre-planning and talks with the City of Sandy Springs, Nick says the firm could break ground by next year on the apartments.

Now at a little more than 70% leased, Nick says Branch ?fully expected to uncover a lot of problems in our due diligence because the property had been mismanaged.? Instead, what he found was the surviving tenants ?actually had strong underlying business.? This isn't the first time Branch is taking this tactic: It also purchased the 136k SF Kroger-anchored North Decatur Square, where it's now demolishing 25k SF to expand the grocery store (give those peas some room to breathe). Nick says many of these retail projects—developed during the boom last decade—were ?ill conceived? and offered too much retail space.

Branch also picked up Merchant?s Festival, a three-building 53,600 SF Target-anchored shopping center at Johnson Ferry and Roswell roads in Marietta for an undisclosed sum. Branch?s 2013 focus: Acquiring Southeastern value-add retail projects. It's already purchased $90M in five deals this past year, and Nick says it's pursuing another $55M in deals so far. ?We think the opportunity going forward is really in that value-add space,? noting that multifamily—from an acquisitions standpoint—is ?a little overheated.? Nick tells us, ?as a company and as a strategy, we?d like to refocus on retail right now.?

Branch Takes A City Walk

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