Phillips Edison, Northwestern Mutual Form $415M JVs

The two seeded joint ventures, Grocery Retail Partners I and II, own a combined portfolio of 20 shopping centers anchored by leading grocers.
Dean Taylor Crossing
Dean Taylor Crossing

Phillips Edison & Co. Inc. recently partnered with Northwestern Mutual to form two seeded joint ventures, Grocery Retail Partners I and Grocery Retail Partners II, creating a combined national portfolio of 20 grocery-anchored properties valued at $414.5 million. The transaction marks the largest shopping center recapitalization of 2018 to date.

Commercial real estate and capital markets services provider HFF played a leading role in the attention-grabbing deal, acting as PECO’s exclusive advisor in the establishment of the joint ventures. “The transaction shows that fears of a ‘retail Armageddon’ are beginning to subside,” Steve Hentschel, a senior managing director with HFF, told Commercial Property Executive. “Investors are seeing that well-positioned retail assets are undervalued and have good upside potential if they are managed by top-tier sponsors that have platforms and scale that help drive performance.”

Joining Hentschel in the orchestration of the joint venture were Senior Managing Directors Danny Finkle, Michael Joseph and Doug Bond, and Senior Director Sheheryar Hafeez.

The ownership pie

Flynn Crossing
Flynn Crossing

PECO and Phillips Edison Grocery Center REIT III Inc., also known as PECO III, a REIT sponsored and managed by PECO, contributed the assets to the joint ventures. All 20 of the high-quality properties are anchored by leading grocers and located in high-growth submarkets, predominantly in the Southeast and Midwest.

PECO sold Northwestern an 85 percent interest in GRP I, which encompasses 17 properties valued at $368 million. The group of shopping centers includes two properties in metropolitan Atlanta, one of which is Flynn Crossing in Alpharetta, Ga, a 95,000-square-foot, Publix-anchored destination. The 92,300-square-foot, Kroger-anchored Dean Taylor Crossing in nearby Suwanee is also part of the collection. PECO will hold the remaining 15 percent interest in the joint venture.

PECO III contributed three assets to GRP II and sold Northwestern a 90 percent ownership in the joint venture, while maintaining a 10 percent stake. Valued at approximately $46.5 million, the cluster of shopping centers encompasses the 99,000-square-foot Albertville Crossing in Albertville, Minn., near Minneapolis, and the 134,000-square-foot Rolling Meadows Station in the suburban Chicago city of Rolling Meadows, Ill. The properties are anchored by Coburn’s Supercenter and Jewel-Osco, respectively. St. Cloud Station, a 78,000-square-foot, Publix-anchored center outside Orlando in Saint Cloud, Fla., completes the group.

PECO will continue to provide asset and property management services for the GRP I and GRP II shopping centers. As noted in PECO’s third quarter 2018 results presentation, “The joint ventures reflect the strength of both the PECO and PECO III portfolios—and affirm PECO as a leading asset manager for grocery-anchored real estate.”

More major plays

In addition to breaking a retail recapitalization record for 2018, PECO is making other notable moves. In July, PECO announced it would merge with Phillips Edison Grocery Center REIT II to create a $6.3 billion, internally managed REIT. With 323 assets, the combined entity will boast one of the largest pure-play, grocery-anchored shopping center portfolios in the U.S.

Images courtesy of Phillips Edison & Co.