Institutional Real Estate Market: Retail March 12, Derrick Almassy Vice President T F

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1 Institutional Real Estate Market: Retail March 12, 2015 Derrick Almassy Vice President T F derrick.almassy@cbre.com

2 RETAIL INVESTMENT MARKET OVERVIEW Is it the best of times.? Nearly 3 million jobs created in year treasury below 2% Gas prices down 30% since mid-14 Home prices up 31% from 2011 Stock market (S&P) up nearly 200% from bottom Pension Funds under-allocated to retail Foreign Capital flowing to US real estate Retail sale activity, occupancies & rents all trending up Development still muted 2 CBRE RETAIL MARKET OVERVIEW

3 RETAIL INVESTMENT MARKET OVERVIEW.or have we peaked and are headed for a correction? Store closures at recession period levels Global connectivity Slowdown in global economic growth Increase in global instability Crippling government deficits Imminent changes to the tax laws Full valuations and occupancies Interest rates expected to finally head back up 3 CBRE RETAIL MARKET OVERVIEW

4 RETAIL INVESTMENT MARKET OVERVIEW So which is it? Three things driving this bull run we are on: 1. An ample supply of cheap capital 2. A lack of attractive investment alternatives 3. Improving fundamentals at the property level None appear to be changing for the worse anytime soon 4 CBRE RETAIL MARKET OVERVIEW

5 RETAIL TRANSACTION VOLUME Billions ($) Properties National Data $110 $100 $90 $80 $81.40 $82.61 $70 $60 $61.07 $58.00 $63.84 $57.02 $62.91 $50 $44.56 $40 $36.19 $30 $25.44 $23.07 $20 $16.33 $10 $ Mall & Other Strip Total Retail Source: Real Capital Analytics. Historical Statistics by Year 2014) 5 CBRE RETAIL MARKET OVERVIEW

6 OCCUPANCY RATE IMPROVING Absorption and Completions, Sq. Ft. x 1MM Availability Rate, % Forecast Completions Net Absorption Availability Rate Source: CBRE Econometric Advisors Q CBRE RETAIL MARKET OVERVIEW

7 RENT GROWTH Source: CBRE Econometrics Advisors and Real Capital Analytics as of 3Q CBRE RETAIL MARKET OVERVIEW

8 CAP RATE & AVERAGE PRICE PSF TRENDS Avg. Cap Rate Avg. PSF 9.0% $ % $ % $ % $ % 6.5% $50 6.0% Q Q Q Q Q Q Q Q Q Q Q $0 Source: Real Capital Analytics 8 CBRE RETAIL MARKET OVERVIEW

9 RETAIL ACQUISITION BY CAPITAL SECTOR Source: Real Capital Analytics 2014 $ Volume (Billions) Unknown $1.5 $1.4 $0.7 $0.9 $3.2 User/other $2.6 $2.2 $2.7 $2.0 $1.3 Private $9.8 $14.9 $23.1 $26.1 $35.1 Listed/REITs $5.0 $7.3 $17.6 $15.8 $24.8 Inst'l/Eq Fund $4.1 $12.0 $10.2 $9.0 $15.4 Cross-Border $1.9 $4.9 $5.2 $5.0 $4.4 $0 $5 $10 $15 $20 $25 $30 $35 $ CBRE RETAIL MARKET OVERVIEW

10 US ANNOUNCED STORE CLOSING Source: ICSC Research and PNC Real Estate Research 4Q CBRE RETAIL MARKET OVERVIEW

11 RETAIL FORMAT REVIEW - SUMMARY Urban Retail: The new most sought-after format Grocery: Still high in demand despite intense grocer competition Power: Co-tenancies and exclusive uses a huge issue Biggest opportunity in retail stabilized non-core Lifestyle: Similar issues to power centers but wider universe of tenants mitigates concerns Bigger is Best Mall: Now 4 segments to the market, all very different Outlet Centers: A hot format - again 11 CBRE RETAIL MARKET OVERVIEW

12 GROCERY CASE STUDY I: POINTE PLAZA POINTE PLAZA W. Touhy, Niles IL Property type: Grocery-anchored community center GLA: Anchor Tenants: 328,706 SF (total center) 193,011 SF (owned and included) Walmart (shadow), Fresh Farms, Babies R Us, Ross Occupancy: 96.5% Price: $50,300, % cap rate Seller/Buyer Sale Date CBRE Investors to Stockbridge July, CBRE RETAIL MARKET OVERVIEW

13 POWER CASE STUDY I: NORRIDGE COMMONS NORRIDGE COMMONS 4105 N. Harlem Avenue, Norridge, IL Property type: GLA: Anchor Tenants: Community Center 331,9748 SF Bed Bath & Beyond, hhgregg, Michaels, Kmart, Petco, Staples, Shoe Carnival Occupancy: 99% Price: $74,600,000 Cap Rate: 6.42% Seller/ Buyer: Joseph Freed to AmCap Sale Date: February CBRE RETAIL MARKET OVERVIEW

14 URBAN CASE STUDY I: LINCOLN PARK CENTRE LINCOLN PARK CENTRE 755 West North Avenue, Chicago, IL Property type: GLA: Anchor Tenants: Occupanc y: Street Retail 61,761 SF Plus 156 car parking deck Eddie Bauer, Sur La Table, Design Within Reach, Carter s, Mitchell Gold & Bob Williams and Bank of America 100% Price: $64,000,000 Cap Rate: 4.8% Seller/ Buyer: Acadia Realty Trust to The Georgetown Company Sale Date: January CBRE RETAIL MARKET OVERVIEW

15 LIFESTYLE CASE STUDY: LINCOLNSHIRE COMMONS LINCOLNSHIRE COMMONS 930 Milwaukee Avenue, Lincolnshire, IL Property type: GLA: Anchor Tenants: Lifestyle center 122,727 SF Occupancy: 85.6% Price: $40,304,856 Cap Rate: 7.33% The Cheesecake Factory, Fleming s, Kona Grill, Barnes & Noble, DSW, Chico s, White House I Black Market and Aveda Seller/ Buyer: General Growth Properties to Next Realty Sale Date: September CBRE RETAIL MARKET OVERVIEW

16 MALL CASE STUDY: GOLF MILL GOLF MILL SWC Golf Road & Milwaukee Avenue, Niles, IL Property type: GLA: Anchor Tenants: Regional Shopping Center 883,207 SF Occupancy: 96.6% Price: $60,000,000 Cap Rate: 7.87% Target, Kohl s, JCPenney, AMC Theatres, Ross Dress For Less, Value City Furniture, XSport Fitness, Shop n Save and Sears (Shadow Anchor) Seller/ Buyer: Cuneo Family to Sterling Organization Sale Date: August CBRE RETAIL MARKET OVERVIEW

17 PORTFOLIO CASE STUDY: PECO FUND IV PHILLIPS EDISON FUND IV PORTFOLIO 9 Properties in 6 States Property type: GLA: Anchor Tenants: 9 Grocery Neighborhood Centers and Community Centers 1,401,365 SF Price: $150,000,000 Cap Rate: 7.25% Seller/ Buyer: Sale Date: August 2014 Target, Mariano s, Trader Joe s, Safeway, Price Chopper, Baker s Phillips Edison & Company to Walton Street Capital 17 CBRE RETAIL MARKET OVERVIEW

18 CBRE S NATIONAL RETAIL INVESTMENT GROUP 18 CBRE RETAIL MARKET OVERVIEW

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