What do investors love? Strip centers anchored by grocery stores … still


Heritage Commons in Lakeville, Minnesota

by Dan Rafter

Stability. That’s the word Joe Girardi uses when talking about the retail strip centers across the Midwest that are anchored by a Trader Joe’s, Whole Foods Market, Meijer or other grocery stores.

These are the retail centers that investors most eagerly target, Girardi says. And he should know. Girardi, principal with Mid-America Real Estate Corporation, recently led the investment sales team that brokered the sale of Heritage Commons in Lakeville, Minnesota.

Austin, Texas-based Epic Real Estate Partners purchased the 138,690-square-foot grocery-anchored neighborhood center in the Minneapolis market earlier this year. Though the center includes tenants such as Subway, Papa Murphy’s and Great Clips, the real star of the deal was the Cub Foods grocery store that anchors the center.

Why? Investors know that grocery stores are one of the safest businesses in the United States. In bad economic times, consumers might pass on the take-out pizza or the expensive haircut. But they’ll always need to eat.

They’ll always, then, need to shop at their local grocery store.

“Grocery-anchored shopping centers have always had much more stability than your typical multi-tenanted shopping centers,” Girardi said. “The grocery stores tend to do better in economic recessions, and that is something that appeals to risk-averse investors.”

The numbers back up Girardi. Real Capital Analytics says that about $12.8 billion worth of grocery-anchored retail centers were sold in 2014. That is a jump of 34.6 percent from 2013.

Mid-America Real Estate Corporation is far from the only Midwest developer or broker that recognizes the drawing power of grocery-anchored retail. Oppidan Investment Company, for instance, is still developing its Excelsior Marketplace mixed-use development in downtown Excelsior, Minnesota.

A key tenant of the development will be a Kowalski’s Market grocery store, due to open later this summer in the 20,000-square-foot center.

Earlier this year, JLL Income Property Trust purchased Skokie Commons in the Chicago suburb of Skokie, Illinois. The 93,000-square-foot center is anchored by a Mariano’s grocery store, a specialty supermarket that has proven especially attractive to consumers.

“This investment builds upon our other recent grocery-anchored acquisitions in California and Texas,” said Allan Swaringen, president and chief executive officer of JLL Income Property Trust, at the time of the sale. “Skokie Commons is anchored by a strong new-age grocer in a demographic area ranking in the top 5 percent in population density.”

That’s a formula — a popular grocer in a densely populated area — that investors are frequently turning toward today, Girardi said.

“When times are good and everyone is doing great, every tenant can pay the rent,” Girardi said. “But when you go through a downturn or a recession, a lot of tenants who sell clothes or soft goods are more exposed to the economy. They might struggle to pay the rent, while the tenants who are selling everyday household items are viewed by investors as safer investments.”

Grocery stores tend to feature longer-term leases, too, which also make them more popular among investors.

“You don’t need to worry about your income stream. It is secure,” Girardi said. “There is often only a small portion of the retail center – the space occupied by other tenants – that you have to worry about. There is only a small portion of the center where you’ll have to worry about replacing smaller tenants with shorter leases.”

This entry was posted in Chicago Commercial Real Estate, Illinois, Illinois real estate, Minneapolis commercial real estate, Minnesota real estate, retail, St. Paul commercial real estate and tagged , , , , , , , , . Bookmark the permalink.

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