Westwood Financial has decided the time has come to bring its investments back home.
The Brentwood company, which owns $1.2 billion worth of shopping centers nationwide, is planning to sell a third of those assets over the next two years as it targets acquisitions on the West Coast, its co-chief executive, Randy Banchik, said.
The move comes as the grocery industry splits into a variety of niches, with mainstream giants including Safeway Inc. competing with Gelson’s Markets and other gourmet grocers as well as discount stores. Others, including Fresh & Easy and Haggen, succumbed to bankruptcy.
Banchik sees Southern California’s demographic diversity as a way to ensure customers will keep shopping at the stores that lease his centers. Westwood already owns 22 properties in California, including seven in Los Angeles, out of 120 nationwide.
“We have a diversity of consumer cultures to appeal to our retailers,” Banchik said. “Every major tenant is going to be interested in our Southern California market.”
Every major landlord is interested in the Southern California market, too. The competition to buy or develop grocery-anchored shopping centers is intense, said Scott Burns, an executive vice president leading Jones Lang LaSalle’s L.A. retail brokerage, particularly because of the demographics coveted by Westwood.
“Diversity is a strength of our Southern California market for sure,” he said. “It is extremely competitive. You’ll have to be ready to pay for it.”
Sales of grocery-anchored shopping centers in Los Angeles over the past year have ranged from about $115 to $730 a square foot, according to Real Capital Analytics. The most expensive deal was the $158 million sale of Culver Center in Culver City, a 216,600-square-foot complex anchored by Rite Aid and Ralphs outposts, to Regency Centers.
Donahue Schriber, a private shopping center owner based in Costa Mesa, is among Westwood’s competitors, and it, too, is focusing on the West Coast.
“There’s a sense that the West Coast, for the most part, held up a lot better in the great financial meltdown in 2009 than the inland areas,” said Patrick Donahue, the company’s chief executive.
Donahue Schriber sold most of its Arizona and Nevada shopping malls to focus on the West Coast after the recession. Schriber found that stores in markets such as Los Angeles benefited from the high employment and income levels of local shoppers. He also appreciated that the West Coast offers few lucrative development sites for new grocery stores, creating a barrier to entry.
“If you can find one and you know what to do with it, it can be a very fruitful investment,” Donahue said.
Figuring out what to do with a grocery store – which typically sign leases for 30 years or more – during times of industry flux can be both a challenge and an opportunity, said Banchik, whose father, Howard Banchik, co-founded Westwood in 1970 with Steven J. Fogel. The firm grew to encompass offices in Dallas; Atlanta; and Scottsdale, Ariz., and today owns 120 retail centers and strip malls, most of which are anchored by grocery stores alongside other retailers.
Westwood’s total annual revenue is more than $140 million.
The younger Banchik said the company values clear communication with its stores.
“The theme is being in touch with your tenants, and understanding what’s working and not working, and having the landlord be part of the solution,” he said.
However, if a lease is already locked into place, landlords often don’t have much control over single-handedly changing a poor situation. Banchik said the best alternative is to cultivate good relationships with operators and help point them toward viable solutions.
He points to a Westwood-owned shopping strip in Long Beach as an example. After Kroger Co. realized its subsidiary Ralphs was not performing well in the location, it worked with Westwood to replace the store with a different brand, Food 4 Less. Sales nearly doubled as a result.
Westwood also encouraged a grocery store swap at its shopping center in North Hills, which was occupied by a medium-size Vons that no longer performed as well as it once did. Vons pulled in Filipino-oriented grocer Seafood City Supermarket to sublease the space. The chain now serves the local market as well as customers from farther afield.
“If you look at the demographics in 1965 versus what they are now, they are very different,” Banchik said. “It’s finding the right foot to fit the shoe or stretching the shoe a little bit.”
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