Retail REITs are developing new projects again. For several years factory outlet centers were the only new developments the big players were working on. Now supermarket-anchored centers and power centers are also under way, signaling a thawing of the pipeline. Kimco Realty, for one, is seeking new development sites in a number of markets, including Houston, Florida and New Jersey. “It is a recent occurrence, where rents have significantly jumped and national retailers are beginning to be particularly anxious about meeting the store count that they’ve promised Wall Street and internally,” said David B. Henry, the firm’s vice chairman and CEO. “Six months ago we weren’t looking at ground-up development. And I doubt many of our peers were either. So it is a significant milestone.”
Meanwhile, Regency Centers had seven projects valued at some $223.3 million in development during the second quarter. The developments were 53 percent funded and 86 percent leased and committed, including retailer-owned square footage, according to the company. Regency completed one project during the quarter: the $17.3 millionJuanita Tate Marketplace, in downtown Los Angeles. The property is fully leased, with a projected yield of 9.6 percent.
Weingarten Realty Investors, too, is putting shovels in the ground, though new development is a trickle, not a flood, says President and CEO Drew Alexander. The firm is still waiting to break ground on much of the land it controls. “There’s still a good 10 to 15 percent difference in a lot of projects,” he said, referring to the gap between the fundamentals required for a successful development and the current reality.
And DDR is getting more serious about ground-up development as well, according to Paul Freddo, the firm’s senior executive vice president of development. “One of the key takeaways from our 1,000-plus meetings at this year’s ICSC in Las Vegas is that retailers are now willing to commit to new development projects without requiring a major tenant. As a result, we’ve made exciting steps towards effectively monetizing our existing land bank through ground-up development.” DDR opened its first ground-up development in four years, a 900,000-square-foot power center in Charlotte, N.C., in May, and is now finalizing plans to build an additional 75,000 square feet onto the center to accommodate more junior anchors. The firm’s most recent new development is Seabrook (N.H.) Commons, a 380,000-square-foot power center north of Boston that has opened at 96 percent occupancy and achieved an 8 percent unlevered return. And in a few weeks, the firm will break ground on Guilford Commons, a 130,000-square-foot power center consisting of three junior anchors, including a specialty grocer and 40,000 square feet of shop and specialty space, near New Haven, Conn. “With a planned opening in the second half of 2015 and projected unlevered incremental yield of 8 percent, this project will represent our third consecutive year of delivering a new ground-up development project,” Freddo said. DDR will also break ground on a multiphase development project in Orlando, Fla., this coming fall, with an expected first-phase opening in the fall of next year. “As the supply-and-demand dynamic continues to heavily favor the landlord community,” he said, “we are accelerating our efforts to take advantage by being extremely aware that our industry is cyclical and opportunities are often fleeting.”