San Diego-based Retail Opportunity Investments Corp., also known as ROIC, is continuing a shopping spree that began last year, when it shifted its focus entirely to the West Coast in search of retail center acquisitions.
So far this year, the publicly traded real estate investment trust has made approximately $200 million in purchases of grocery-anchored shopping centers, after acquiring $278 million in properties during all of 2012.
Company officials said the firm’s buying opportunities have been created in part by an improving economy, as well as enhancements to its own ability to finance acquisitions at relatively low cost. Its priorities include finding well located properties filled with necessity-based retailers — preferably grocery stores — that generate steady year-round customer traffic.
“We are standing by our strategy of buying well placed properties in California, especially Southern California, and also the primary markets in Oregon and Washington,” said Jon Mendis, ROIC’s director of acquisitions. “Our focus right now is on grocery-anchored centers.”
The company’s largest acquisitions this year have included its $41.5 million purchase of Hawthorne Crossings, a 133,422-square-foot center in Kearny Mesa, anchored by Japanese grocer Mitsuwa Marketplace; and its $48 million acquisition of a 139,314-square-foot retail center in Diamond Bar, the latter in an all-cash transaction.
As of press time, its most recent deal involved a shopping center in the San Francisco Bay Area city of Livermore, which it purchased for $17.5 million.
The focus of ROIC and its competitors has long been on high-barrier-to-entry markets, including San Diego County, where space availability in prime locations remains tight and new retail construction is rare.
Retail Construction
For the most part, those conditions still describe the local retail property market. However, according to a recent second-quarter report by the brokerage firm CBRE, there is now a total of 584,202 square feet of retail product under construction in San Diego County, with additional projects set to break ground within the next two years.
The brokerage firm said the level of planned activity and projects underway “points to a return to growth in the retail market.” While the local market was already strong coming into 2013, it is expected to benefit further from a drop in unemployment, most recently at around 6.7 percent locally, and a housing market where median home prices are up 15 percent from a year ago.
Approximately 7.2 percent of San Diego County rentable retail space was vacant at the end of the second quarter, up slightly from the first quarter, although overall leasing activity has been rising for the past two quarters.
“This dichotomy shows that although many retailers are not leasing new space, they are renewing in their existing space — a good indicator of positive market fundamentals,” CBRE researchers said.
San Diego Making Strides
In its own second-quarter report, the brokerage firm Marcus & Millichap said the San Diego region remains among the nation’s healthiest retail markets and was expected this year to “make significant strides in a recovery” for the third consecutive year, as vacancy rates retreat closer to pre-recession levels.
Marcus & Millichap projects the local retail vacancy rate will decline to 6.4 percent by year’s end, with rents rising 2.2 percent from a year ago. That would mark a significant change from 2012, which saw rents countywide decline 2.5 percent from the prior year.
The brokerage firm noted that retail sales in the San Diego metro area rose 3.3 percent over the past year and are now above their pre-recession peak. If sales at local stores and restaurants continue to rise in coming months, tenants will likely move forward with expansion plans, increasing demand for existing space and helping to fill up new spaces coming online.
In addition to capitalizing on improving retail fundamentals, ROIC recently obtained its first investment-quality debt ratings from Standard & Poor’s Ratings Services and Moody’s Investors Service.
ROIC’s chief executive officer, Stuart Tanz, said the ratings will help the firm access the unsecured debt market as it makes further moves to build its retail property portfolio, which now includes 50 shopping centers.
Mendis said access to the debt market will be used selectively, as the REIT aims to keep its balance sheet clean. “It helps us to stand by our goal of limiting debt at the corporate level, while not encumbering our assets,” he said.
The company was formed in 2009 and last year moved its corporate headquarters from White Plains, N.Y., to University Towne Center, as it shifted to its Western-focused strategy. Mendis said Tanz and other ROIC executives are veterans of investment firms based on the West Coast.