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Retail-Acquisition Competition Heats Up

By June 14, 2013No Comments

As the economy improves, retailers are spending more money, generating improved sales for retailers. This has helped spur an increase of interest in the retail real estate sector by investors, and transactions are starting to take place again. For good properties in well-located areas, competition is getting very strong. Gary Goodman, vice president of acquisitions at Passco Cos., talked to us about this new reality. How much more competition are you seeing to buy shopping centers?

Gary Goodman: The competition has increased pretty dramatically in the last 12 months. With the economy continuing to improve and job growth beginning to gain traction, combined with retailers starting to report improved sales, it seems that we’ve passed reaching the bottom. It doesn’t look like it’s going to get any worse. Everybody likes to buy when the market is the lowest and it seems as if it’s at that point. And if we’re beyond that, the market will begin attracting a lot more attention. Are there any new buyers entering the market, or is it the usual players?

Goodman:  It’s the usual players that are active in the market but they have ramped up their efforts. The REITs have definitely increased their interest in buying and private equity has entered the market more actively than before. It’s a combination of that activity. Are only the class A, core centers getting attention, or are other types of assets garnering interest?

Goodman: The grocery anchored, destination centers continue to be the preferred retail centers because they are tried and true. For the last 20 years, they have the best track record. With the increasing threat of online sales, there is even more focus on those kinds of properties. They don’t compete with internet sales. There is also some interest going beyond that now, as the market broadens and more buyers enter in that can’t get the yield they would like for the most conservative destination centers. The buyers will broaden their parameters to look at centers that aren’t as destination-oriented just to get the yield. Your portfolio is across the country. Where are the hot areas right now as far as acquisition activity goes?

Goodman: We’re focused on primary and secondary markets throughout the US. Passco owns a diverse commercial real estate including multifamily, in many cities throughout the country. Ideally, we would like to focus on the markets where we already own real estate. It makes our job of asset and property management easier to have some familiarity with those markets. The gateway cities are the most sought after, but the secondary and tertiary markets are getting a lot of play too. With retail particularly, it’s really more about the specific locations in each city than it is about the cities themselves. You can be in a very unexciting city with limited population or job growth, but if you’ve got the best location and tenant mix in town, your center is going to be gold. We’re more focused on specific locations within desirable areas rather than those markets themselves. You have an acquisition target of $250 million. Are you pretty confident that you can hit that number given the growing competition from other buyers?

Goodman: We feel confident that we can hit our target acquisition goal this year. Given the increase in competition, it will be challenging but there is very strong investor interest. Passco has a strong reputation and is well known with sellers, developers and brokers who have had positive experiences with us. RECon is a strong indicator of how the retail real estate industry is holding up. How did the show go for you and what did the mood seem like there?

Goodman: The mood At RECon this year was much better than it has been in the last five years. Passco always does well at the show with our asset-management group and often sign many new leases. At this year’s conference, our asset-management group reported that there were a lot of tenants approaching us that we had not talked to in the past and that were interested in expanding. The indications are that tenants are looking for new sites, much more so than they were even a year ago. We also had a number of sellers and brokers that expressed an interest in selling properties and others were looking for properties to buy. There is a lot of interest in buying, selling and leasing – more than we have seen in years past.

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