Investec Proves That California Coastal Retail is Golden

The company -- which also invests in office, industrial, self-storage and multifamily assets--has spent nearly three decades lining its portfolio with California neighborhood shopping centers within close proximity of the Pacific Coast, and the company's remarkable success over the last two years indicates that certain retail properties within close proximity of the water in the Golden State are apparently recession-proof.

December 31, 2010
By Barbra Murray, Contributing Editor

The list of retail property owners that can claim their portfolio’s average occupancy level did not dip below the mid-90 percent range during the economic crisis is a short one, but Investec Real Estate Companies is on it. Investec–which also invests in office, industrial, self-storage and multifamily assets–has spent nearly three decades lining its portfolio with California neighborhood shopping centers within close proximity of the Pacific Coast, and the company’s remarkable success over the last two years indicates that certain retail properties within close proximity of the water in the Golden State are apparently recession-proof.

“We have approximately 2 million square feet of retail from San Diego to San Francisco located 10 miles from the ocean and that has been our mandate for the last 30 years,” Kenneth P. Slaught, president of Investec, told CPE. “Our portfolio occupancy level before the crash of 2008 was at 98 percent and at the depth of the recession, we were at 96 percent.” The final numbers 2010 numbers for the U.S. are not in yet, but in its 2010 National Retail Report, Marcus & Millichap Real Estate Investment Services predicted that after having skyrocketed 240 basis points in 2009, the national retail vacancy rate would increase another 80 basis points to finish the year at 13 percent.

“The closer you are to the coast, demographics like income and population density are off the chart,” he said. “On the West Coast, there are pretty strict environmental regulations, so there is very little chance of getting outflanked. When there are supply constraints, the demand continues to increase.”

More often than not, beach real state is practically synonymous with upscale real estate, but no such description can be attached to Investec’s holdings. “If you had high-end retail on the coast, you are probably still suffering. We are not high-end or specialty; we’re grocery- and drug-anchored. Most of the retailers are necessity based. People still have to get their clothes dry-cleaned and they still have to eat. ”

Investec’s retail properties, while not upscale, are certainly in the Class A category. The company’s purchases in 2010 include San Diego’s 100,000 square-foot Plaza at Sunbow (pictured), which Investec acquired in an off-market cash transaction for $21 million. Ralphs supermarket and CVS/pharmacy anchor the eight-year-old property where the tenant roster is at maximum capacity.

And Investec frequently skirts the real estate bidding process when buying. “Six or seven of our transactions over the last 24 months have all been off-market since a lot of sellers in the market don’t want people to know they’re selling because it connotes that they are in trouble,” Slaught said. “We could buy a shopping center from a Forbes 500 guy and no one would have to know. They could have issues in other parts of their portfolio and want to sell. So we’re moving around and picking up the crown jewels of people who have to sell because of other issues in their portfolio. It’s been a great opportunity. We love this market! We’re paying all cash and we’re seeing opportunities we’ve never seen. We’re not stealing them, but we’re getting them at market price. They typically come at an expensive premium that we’re not paying right now.”

Investec also develops shopping centers–it completed the $17.5 million construction of the 60,000 square-foot Gene Autry Plaza in Palms Springs in fall 2009–and more acquisitions are certainly on its agenda. In October 2010, the company raised $130 million for the purchase of grocery- and drug-anchored shopping centers in, of course, California’s coastal region. “Some people thing it’s a small market, but it’s huge,” Slaught noted. “And some people think we’re a bit boring because we’ve done the same thing for 30 years, but why take the risk?