Dallas-Fort Worth real estate companies tapping into a retail resurgence
By Spencer Brewer – Staff Writer, Dallas Business Journal
After flagging for the past several years, retail real estate assets have blossomed in the post-pandemic world, and companies throughout Dallas-Fort Worth have made moves to seize upon the trend.
Retail suffered a series of pullbacks even before Covid-19 started shuttering stores across the nation. But recent changes in consumer behavior and market factors in DFW have seen the asset class start to re-emerge as a focal point for investors.
As e-commerce started grabbing more market share, naysayers predicted retail would meet its demise.
Even before the pandemic, several retailers closed and others scaled back. Retailers like formerly Fort Worth-headquartered Pier 1 Imports closed up shop, and once-proud malls including Valley View Mall in North Dallas suffered slow, painful deaths.
The pandemic itself was a bloodbath for retailers. Covid toppled North Texas-based household names including Neiman Marcus, J.C. Penney and Tuesday Morning, pushing all three companies to file for bankruptcy. Those companies have since emerged from bankruptcy, albeit in a pared down form, except for Tuesday Morning, the fate of which remains up in the air.
Developers responded to the pullback in shopper demand, and fewer retail projects broke ground. Beginning in 2018, retail development dried up in North Texas as e-commerce started to become a more significant force, and last year the construction pipeline was at the lowest level in at least 30 years.
Institutional capital pulled back from retail because of the headlines – and risk. Dating back to 2015 and before, some retailers began to adopt an approach of exclusively marketing their wares online.
Wall Street backed that line of thinking, and veered away from retail real estate as momentum grew around an all-online approach.
Despite these factors, retail has begun performing well by essentially every metric associated with the asset. Net absorption, tenant demand and rising rental rates all point to an asset class that has rebounded sharply from the depths of the pandemic.
“Most of us in it knew it was never going away,” said Mike Geisler, managing director of Dallas-based Venture Commercial Real Estate.
By the end of the second quarter this year, DFW retail triple net average rates had jumped 10% year-over-year, standing at $19.45 per-square-foot, according to a report from Houston-based Partners Real Estate. That’s a leap considering that those same rates had only grown by 2% annually for the last four years.
Occupancy stands at 95% marketwide in DFW, and tenants have surged to backfill space left vacant in 2020. Between the end of the first quarter and the end of the second quarter this year, net absorption tripled, rising to about 956,000 square feet.
The drying development pipeline has a hand in these trends. Because developers have taken a conservative approach, scarcity has elevated existing space to a premium.
“Every dynamic associated with the retail world, we believe, is positive, and it’s become a more competitive area now,” said Rick Coe, managing director in the Dallas office of Foundry Commercial. “There’s a lot more capital that’s looking to retail for yield.”
Florida-based Foundry Commercial recently launched a retail investment platform targeting power centers as well as neighborhood and community centers. Coe heads up the Foundry retail investment team along with Matthew Gallo, who is also a managing director based in Dallas.
Foundry has a light portfolio when it comes to retail, but it aims to change that. Gallo and Coe will pursue deals in all the markets Foundry Commercial operates in, leveraging boots on the ground to secure assets.
“You’re seeing the institutions wake back up now, whereas for the last eight years or so they’ve been out of the space and it’s been private capital in this world,” Gallo said.
Foundry isn’t alone in its attention to retail. Several other groups have made moves targeting retail assets.
Real estate investment, development companies making retail moves
In August, Dallas-based commercial real estate investment firm Rainier Cos. launched a new venture focused on retail-driven, mixed-use development projects.
The new endeavor, Rainier Development Co., will operate as an independent entity under the firm’s portfolio. The company appointed David Neher president of the venture.
Neher most recently led Dallas-based Lincoln Property Co.'s national retail platform, focusing on mixed-use development.
Recently, Lincoln Property formed a joint venture with retail investment firm Paragon Commercial Group. The joint-venture will target institutional-quality assets on the West Coast.
The partnership will play into Lincoln’s retail real estate investment management strategy. As part of the agreement, El Segundo, Calif.-based Paragon will serve as Lincoln’s West Coast retail operator.
Earlier this year, Dallas-based national real estate investment and development firm Crow Holdings partnered with Crow Holdings Capital and an undisclosed global institutional investor for a joint venture that establishes a retail real estate investment platform. Crow Holdings Capital is the investment management business tied to Crow Holdings.
The new retail effort seeks to acquire small-format, convenience-oriented, open-air food and service shopping centers, looking to create an institutional-quality portfolio in a fragmented market.
A recapitalization of an existing $1.8 billion, 173-property portfolio owned by two real estate funds managed by Crow Holdings Capital kicked off the new platform.
The $2.6 billion platform, which has portfolio properties in primary and secondary markets in over 50 U.S. cities across more than 30 states, comes with a significant equity commitment that will allow for new acquisitions as the JV seeks to become a dominant small-format, food and service platform in the country. The focus of the platform includes dense and affluent markets near major suburban populations and employment hubs benefiting from in-migration and job growth.
Across DFW, several notable retail real estate transactions have taken place recently.
Earlier this month, CBRE Investment Management acquired a grocery-anchored neighborhood center in Irving on behalf of a client as part of a joint venture with retail real estate owner, operator and developer Edens.
Located at 7505 North MacArthur Boulevard in Irving at the intersection of I-635 and the George Bush Turnpike, MacArthur Park measures 425,612 square feet.
The center has a diverse lineup of necessity-retail tenants, including a grocery store, fashion boutiques, restaurants, beauty salons and medical offices.
Recently, JLL Capital Markets closed the sale of Eastchase Market, located at 1600 Eastchase Parkway near Interstate 30. The 261,730-square-foot retail center boasts a tenant lineup including AMC Theatres, Ross Dress for Less, Spec’s, Big Lots, Harbor Freight Tools and Marshalls.
In June, Florida-based CTO Realty Growth Inc. acquired a multi-tenant retail power center located in Rockwall. The Plaza at Rockwall property, spanning 446,500 square feet, was purchased for $61.2 million.
Late last year, Fort Worth-based Trademark Property Co. acquired Lincoln Square in Arlington. The property totals more than 472,000 square feet of retail space in addition to a power center that tops 107,000 square feet, spanning across more than 45 acres a few blocks to the northwest of Arlington's Entertainment District.
Trademark’s vision for Lincoln Square is a vibrant, high-quality mixed-use environment that includes a mix of office, multi-family and upgraded retail. Trademark founder and CEO Terry Montesi has even floated the idea of moving the company’s headquarters to the site.
The current market lends itself to acquisition over development. Construction and land costs remain elevated. Developers are hard pressed to find land priced at a level where new development makes sense.
Given the asset class’ performance, competition for acquisitions has escalated.
A well-located grocery-anchored center will see anywhere from eight to 12 bids after it hits the market, said Stephen Schmidt, chief investment officer at Dallas-based retail property firm Weitzman. The amount of interest in those centers has roughly doubled compared to the last couple of years.
“The market right now for retail is probably in the best shape it has been in 15 years, especially in Texas,” he said.
To read more on retail strategies that are working and the return to retail therapy, view the full article at Dallas Business Journal here.