Ready, Set, Go: Pull Ahead Via Redevelopment

By Mac Chandler, Regency Centers

Many owners are handicapped by a heavy debt load, lack of equity, depressed property values or inability to secure construction loans or fund tenant improvements. This opens up an opportunity for those shopping center owners with available capital and no financing contingency to solidify their centers' dominant market position and grow future returns.

After running the long race through a recessed economy, now is the time retail REITs can distance themselves from their peers by redeveloping their shopping centers. Many owners are handicapped by a heavy debt load, lack of equity, depressed property values or inability to secure construction loans or fund tenant improvements. This opens up an opportunity for those shopping center owners with available capital and no financing contingency to solidify their centers’ dominant market position and grow future returns.

There are several compelling reasons to invest in the redevelopment of centers. First, the owner will realize a quicker impact as opposed to new developments which can take 2 to 3 years to entitle. Secondly, there is less risk due to permitting vs. entitlements and a quicker, less complicated construction process of renovating existing buildings as opposed to new site work. Also, retailers are ready to do deals and are looking for prime infill locations. This allows owners to properly merchandise the center to current demographics which can be different than when the center was originally built. For example at Regency Centers’ Heritage Plaza in Irvine, CA, the 30-year-old grocery-anchored center’s $10 million redevelopment will address the area’s demographic shift to a growing Asian population through a tailored merchandising plan.

Not only is the economy ripe for retail REITS to create value through redevelopments, but there are benefits to the community as well. A redeveloped center brings a modernized appearance and new tenants, providing an improved shopping experience for the consumer.

Retailers in renovated centers tend to have higher sales which positively impacts sales tax collected by the municipality. Plus, there is a modest bump in employment through construction jobs and retail positions in formerly vacant locations.

So, ready, set, go. Well-capitalized shopping center owners can pull ahead of the pack through strategic investment in redevelopments.