One of L.A.'s biggest buyers of neighborhood shopping centers, El Segundo-based Summit Commercial Properties, has closed three more acquisitions in Southern California, bringing its total investment to $125 million in 10 deals over the past three months, according to Summit President Jack Mahoney.
Mahoney said Summit, a division of Highridge Partners, has "roared past" its goal of buying $200 million worth of neighborhood centers this year and now owns and operates 17 such centers in California. It has paid about $275 million for those centers.
Mahoney said Summit, which originally planned to buy $400 million worth of neighborhood centers by the end of 1998, is now thinking of upping that investment target to $600 million.
The three recent Southern California buys were the 76,000-square-foot Centerwood Plaza in Bellflower, the 67,000-square-foot Ralphs Center in Redondo Beach and the 127,000-square-foot Menifee Town Center in southwestern Riverside County.
Privately held Summit started buying neighborhood centers late last year after conducting a detailed analysis of the market. The study revealed that many centers were undervalued based on average retail rents in the centers, the recovering California economy and projections for continued population growth in the state.
In L.A. County, for example, small retail shops currently rent for an average of $19.27 per square foot per year, up from $18.03 at this time last year but still lower than the 10-year high of $21.90 in the second quarter of 1990, Mahoney said. Rents only started to rise about a year ago after sliding steadily from that 1990 high, he said.
The value of neighborhood centers is ultimately determined by the cash flow generated from rents, Mahoney said, and Summit believes those rising rents will continue to climb.
He said many neighborhood centers are bargains because owners, who bought them for premium prices when rents were high, can't afford their mortgage payments.
"Some operators have not been servicing their debt and are in danger of losing their property, so we can step in and close deals quickly," he said. Summit, which invests in all of its deals but also includes institutional partners in most of the acquisitions, has sufficient capital to renovate centers where cash-strapped owners have deferred maintenance, he said.
Mahoney said Summit is focusing on neighborhood centers because it believes they are still "out of favor with most investors and lenders," many of whom prefer office or industrial properties.
"We feel that retail hasn't recovered nearly as much as other real estate sectors," he said. "We're not the only ones to have this idea. Other people are seeing this same window and are doing deals, but the activity is nothing like the scale of the office or industrial or apartment markets."
Mahoney said Summit hopes to buy as many neighborhood centers as possible before investors flock to them and push prices up too high, which he considers a distinct possibility.
Mahoney's plan if prices skyrocket: "I'll stop buying," he said.
Bus company buys
A New York-based bus company has bought 3.5 acres of land at a former Carnation dairy site just north of L.A.'s Chinatown, where it will operate a school bus service that will hire approximately 240 workers under a contract with Los Angeles Unified School District, said Merv Kirshner, a Cushman & Wakefield broker who represented the seller.
Kirshner said Atlantic Express Transportation Group bought the property for $2.9 million from Investcorp International Inc., a New York-based firm best known for its investments in Gucci, Tiffany & Co. and Saks Fifth Avenue.
Kirshner and Steve Carmona, a business development representative on L.A.'s Business Team, both said the 3.5 acres is part of a 16-acre parcel between interstates 5, 101 and 110 that is one of the few available and developable industrial properties close to downtown L.A.
"This is the largest subdivision available to light industrial and manufacturing companies that want or require a downtown presence," said Kirshner.
Carnation pulled out of the site about 10 years ago, Kirshner said, and the 16-acre property was too large to appeal to the mostly small companies looking for sites near downtown.
Since the city approved subdivision of the property late last year, a company called HPM/Stadco Inc. has purchased a 2.4-acre site where it manufactures heavy machinery, and two other companies garment maker YLMA Inc. and a milk products company called Dairigold, have leased space in buildings that were formerly part of the Carnation plant, Kirshner said.
In what he called a "flurry of deals" in the past month, developer Chuck Lyons of Paramount-based Fu-Lyons Associates said his company has sold the last three of 16 speculative industrial buildings at Torrance Business Center.
The center is a 10-acre, 194,000-square-foot industrial park on Amapola Avenue just east of the intersection of Crenshaw Boulevard and Del Amo Boulevard.
A 9,900-square-foot building was bought by Aro-Electric Connector Inc. for approximately $792,000, an 11,000-square-foot building was bought by distributor Sanyo-Denki for $880,000 and a 9,000-square-foot structure was bought by Ralph Ames Machine Works for approximately $720,000. All but one of the 16 buildings have now been sold and the remaining one is leased, Lyons said.
While much of the construction in the area surrounding his project has been so-called "big box" warehouse space for regional distributors, his company foresaw a need about two years ago for smaller industrial buildings for the growing startup firms and smaller distributors that want to own their own buildings.
However, he didn't expect the buildings, which were completed in November, to sell so quickly.
"We really thought it would take about two years to sell them all," said Lyons, who added that Fu-Lyons is now considering developing another speculative project on an 8.5-acre parcel in Downey. He said Fu-Lyons, ranked No. 25 on the Business Journal's List of L.A. County developers, has developed approximately 1.6 million square feet of industrial space, primarily in the Mid-Cities market. Of that 1.6 million square feet, the company still owns and manages 1.2 million square feet. It manages about 200,000 square feet for other owners, Lyons said.
Groundbreaking for Glendale Plaza, billed as the largest speculative office project in Los Angeles County in seven years, was slated to take place Aug. 7. The 520,000-square-foot building to arise at 655 N. Central Ave. in Glendale is "one of the largest speculative office buildings currently under development in the United States," according to the project's developer, PacTen Partners. PacTen's financial partner in the project is Morgan Stanley Real Estate Fund II.
Contributing reporter Bob Howard writes on real estate for the Los Angeles Business Journal.
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