Durham- Big-name real estate companies investing big dollars in retail

Big-name real estate companies investing big dollars in retail BY JEFF ZIMMER : The Herald-Sun jzimmer@heraldsun.com

DURHAM -- Durham's burgeoning retail sector is drawing shoppers of a different sort -- national real estate firms with deep pockets that are spending tens of millions to buy area shopping centers as investments.

In the last couple of years, big-name companies with billions in assets have spent $100 million to acquire four retail centers in Durham and one in Chapel Hill, according to deed records in Durham and Orange counties.

While the sale of Regency Plaza on Shannon Road last year for $6.3 million was the smallest deal among the five shopping centers sold, it could turn out to be among the most valuable.

The new owners of the 23-year-old center want to pump $75 million into a mixed-use project that would convert the 14-acre site -- now an aged one-level shopping center -- into residential units and stores in six multi-level buildings.

"Our goal is to create something unique and special out of a depressed asset," said Shoff Allison, an official with Hawthorne Capital in Charlotte, a private investment company affiliated with the shopping center's owner.

Allison said the owner, a partnership that includes Guggenheim Real Estate, a Boston real estate investment firm with assets of $2.2 billion, is willing to invest in the project because of its location, which is across from the revitalized South Square shopping center anchored by SuperTarget.

"From a demographic side, there is a critical mass," he said. "It's surrounded by some of the highest-end demographics, with Hope Valley and Duke University. You're surrounded by good income and good neighborhoods in all directions."

The Triangle's and Durham's numbers -- Durham County's average wage of $52,572 in 2006 led the state and the Triangle added more than 35,000 jobs last year -- are attractive, too. But while the region has attracted the attention of investors for years, now it's attracting their money.

"We have been on the national radar screen for the last three to five years," said Brian Reece, a managing partner with market research firm Karnes Research Co. in Raleigh. "A lot of national companies have been looking at us but not pulling the trigger to come into the market until the last two years."

But they're here now. Some of the recent deals include:

- Patterson Place, the 161,000-square-foot shopping center off Chapel Hill Boulevard, on Witherspoon Boulevard, with PetsMart, Kohl's and Kroger as anchors. The center was purchased by a partnership that includes Inland Real Estate Group, a 35-year-old Illinois commercial real estate investment firm with $18 billion in assets under management.

Inland and its partners paid $31.2 million in November for the 17-acre retail portion of Patterson Place, according to Durham County deed records. The sale did not include properties to the east and west of the shopping center that are planned for future development as part of the Patterson Place project.

- Renaissance Village, a 300,000-square-foot shopping center in southern Durham that is anchored by a 175,000-square-foot SuperTarget. Casto, a privately held real estate firm based in Columbus, Ohio, acquired the shopping center last summer for $18.7 million, according to deed records. The SuperTarget store and property is owned by Target.

- South Square, a 132,700-square-foot shopping center on 50 acres on Chapel Hill Boulevard. Inland Real Estate bought the shopping center for $16.2 million in 2005. The sale was only for the parcels containing Ross Dress for Less, Chick-fil-A, Firestone Tire, Office Depot and the multi-tenant building near SuperTarget. Inland bought the PETCO space after it opened in 2006 for another $4.8 million.

- Meadowmont Village, the 107,812-square-foot retail component of the Meadowmont mixed-used development in Chapel Hill off N.C. 54. Inland bought the 18-acre development, which includes a Brixx restaurant and Black Mountain Gallery, in 2003 for $26.8 million, according to Orange County deed records.

The recent sales mean outside investors see Durham and the Triangle as a good investment, said Ted Conner, vice president of economic development at the Greater Durham Chamber of Commerce.

"They're not going to a risky market," Conner said. "They're going where there is good appreciation of property and it's leased and will remain leased."

Commercial real estate investors also are being drawn by the boom in commercial development in Durham and across the Triangle.

It was just two years ago that Durham County produced a record $261 million in commercial construction projects, according to building permit data. The surge was fueled by projects like Patterson Place and Renaissance Village.

The next biggest year for commercial development was 2001 when there was $260 million in new commercial or nonresidential projects, according to Inspections Department reports. Many of the building permits for commercial development in 2001 were for The Streets at Southpoint, the $200 million shopping center that opened in March 2002.

Real estate investment companies are drawn to new, fully leased centers, Conner said.

"That's a great income generator for a company and it gives them the opportunity for appreciation of their investment," he said.

And as the economy and building boom continues in the Triangle and Durham, so will investors' appetite for properties, said Reece, the analyst with Karnes.

"With the amount of exposure we're getting on a national level and the tenants who are coming into the area and what's being published in the magazines, I think it's going to continue," he said.

Recently bought properties

These are three large commercial real estate investment firms that have recently bought shopping centers in our area.

- Casto, a privately held real estate firm based in Columbus, Ohio, in mid-2006 purchased Renaissance Village, the shopping center in southern Durham anchored by SuperTarget. Casto, organized in 1926, manages, acquires and develops commercial shopping centers, apartments, office buildings and corporate parks. The company has more than 20 million square feet of commercial property and 5,000 residential units in its portfolio.

Casto has more than 100 shopping centers in its portfolio, including Stone Creek Village in Cary and 12 others in North Carolina.

- Guggenheim Real Estate Trust, a Boston firm, was involved in the 2006 purchase of Regency Plaza, a shopping center in Durham slated for a $75 million redevelopment.

Guggenheim Real Estate, which has a Chapel Hill office, is owned by some of its executives and Guggenheim Partners LLC, a global diversified financial services firm that has more than $100 billion of assets under supervision. The company traces its roots back to the Guggenheim family that built its fortune in the mining industry in the late 1800s.

The Guggenheim family later became known for philanthropy with various family members establishing a number of foundations and funding endeavors such as the Guggenheim Museum and Foundation.

- Inland Real Estate Group of Companies has been particularly active, purchasing Chapel Hill's Meadowmont Village in 2003, South Square in 2005 and Patterson Place in 2006.

Inland is one of the nation's largest commercial real estate groups with $18 billion of assets under management. The company, based in Oak Brook, Ill., has more than 130 million square feet of commercial real estate in its portfolio and is the fifth largest shopping center owner in the nation, according to the 35-year-old company.

In 2006, Chain Store Age magazine ranked Inland as the fastest-growing buyer of retail property in the United States. The firm also owns Chatham Crossing in Siler City, Millpond Village in Cary and Capital Crossing in Raleigh.