At Hilltop Plaza, Fortified Property Group And Rappaport Find A Neighborhood Stronghold
While malls and urban retail centers have suffered the bulk of store closures in 2017, neighborhood shopping centers continue to maintain stable vacancy rates and attract a wide range of tenants.
Instead of retail properties where consumers search for one item, developers have begun to transform these plazas into communal gathering spaces. From gyms to barbershops, the new plan for shopping centers calls for a hub of accessible, local retail experiences that cannot be found online.
Shopping center vacancy nationwide remained stable in Q1, at 7.3%, according to a report from Cushman & Wakefield. Compared to previous years, vacancy rates have declined, down from a 10.2% peak in Q1 2010. Northeast and Pacific shopping centers have the lowest vacancy rate, at 6.2%. In Bowie, vacancy rates are below 5%.
Fortified Managing Partner Michael Rabin had already invested in shopping centers within the greater Washington, D.C., area. Rabin founded the boutique real estate investment and advisory firm in 2014, with a headquarters in Los Angeles and full-service operations in Bethesda. Hilltop Plaza is the third retail purchase in 18 months for the new firm, which acquired two other centers in Lanham, and also owns properties in other asset classes.
After learning about the opportunity from a prior connection to Hilltop’s previous owner, the Fortified team reached out to Rappaport founder and CEO Gary Rappaport to joint venture in the deal. Rappaport helped secure a $39.6M CMBS loan from Barclays to help the pair buy Hilltop Plaza for $50M.
"I've always enjoyed mentoring young entrepreneurs, especially those that have the intelligence, passion, work ethic and drive like [Fortified Managing Partners] Jared [Okun] and Michael," Rappaport said. "And when mentorship leads to partnership, well that is truly something special."
Both the Rappaport and the Fortified team saw potential in Hilltop Plaza.
“There was opportunity in purchasing these centers,” Okun said. “The negative sentiment toward retail has gone too far in placing all retail assets into the same bucket. It was an opportunity to purchase a neighborhood-style shopping center where the Amazons of the world are not going to have a meaningful affect on our tenant base.”
Rappaport specializes in retail in the D.C. region. A longtime owner, investor and manager of retail properties, the company has an interest in developing and expanding shopping centers to meet the changing needs of both tenants and customers. More than an equity partner, the company leverages a track record of tenant and landlord relationships to improve property operations.
Rappaport holds an Accredited Management Organization designation from the Institute of Real Estate Management in recognition of high standards in professional service, financial stability and accountability. Its property management and retail leasing expertise were a crucial aspect of the partnership.
Hilltop Plaza has been a part of the Bowie community since 1969, and underwent a renovation and expansion in 2011. Approximately 32,500 vehicles pass by the center daily, and it serves a population of over 113,000 people within a five-mile radius.
Across 186K SF, Hilltop Plaza is 92.3% leased and mixes national and local retailers. Anchored by MOM’s Organic Market and an Aldi, shoppers have two grocers to choose from, as well as a drive-thu pharmacy, a 19K SF Planet Fitness, a children’s swim school and several doctor’s offices. Visitors also have access to multiple bank branches and a variety of restaurants.
"It is a city within itself," Okun said.
The tenant mix creates an opportunity for budget-friendly and more upscale shopping and dining experiences that cater to the entire community. Visitors can have a night out at Asian fusion restaurant Blue Sunday Bar & Grill, or head to Papa John’s for a pizza on the go.
Within a five-mile radius, the median household income is over $136K. The variety attracts shoppers with spending power and keeps them there.
“It’s not the kind of place where people are pulling in and just going to one store,” Okun said. "You have a lot of cross-shopping between the tenant base."
Fortified and Rappaport hope to expand into entertainment-oriented services in the future, furthering Hilltop’s importance as a local watering hole. As the retail sector continues to evolve, shopping centers focused on diverse, experiential retail present the biggest opportunity for a high return on investment. Rappaport's relationship with 1,500 existing tenants and with national and regional brokers will help bring new retail experiences to the plaza.
Throughout the process, having Rappaport, a local retail legend, as a mentor and partner has been especially helpful, Okun said.
“His charisma is engulfing in the room," he said. "Fortified is very lucky to have someone of his stature and his place in the market to want to take a chance on two younger guys, put us on the map and take us to the next level.”
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