14 Oct Lower-Tier Assets Are Getting Investor Attention
Lower-Tier Assets Are Getting Investor Attention
Opportunistic investors are paying more attention these days to class-B and C properties for redevelopment. The destination malls that have a strong hold on the experiential retail are still in high demand, however there are not very many of those investment opportunities on the market. Some industry experts are saying that there is more opportunity in underperforming class-B and C properties at a discount and the opportunity to reposition them.
According to Real Capital Analytics (RCA), a NYC-based research firm, the mall investment sales volume totaled nearly $9.7 billion in the first half of 2018 but reached only $937 million in the first half of 2019. The properties being traded today are not the same product that was trading a few years ago. More low-quality malls are coming onto the market, and there is more diversity in terms of the investor. There is still a strong demand for high-quality malls, there are more investors looking to invest in a class-C property who are willing to redevelop.
“The current stability in the class-A cap rate is in direct contrast to what we see in the B and C malls where we’re tracking an uptick in cap rates,” Drew Myers, senior consultant with CoStar Group says. Cap rates have ticked up by about 90 basis points for class-B malls and about 70 basis points for class-C malls over the last few years relative to earlier in the cycle.
“We’re seeing REITs and larger mall owners’ offload some of their weaker-performing assets,” he says. “We’re also seeing on the demand side investor willingness to take on some of the challenges with the weaker-performing malls or the malls that might be more likely to struggle down the road.”
For an opportunistic investor who is willing to acquire and convert the site into a mixed-use development, the class-B and C malls are prime land sites.
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