Contrarians at the gate! On Monday, Philadelphia’s CenterSquare Investment Management, the employee-owned real asset manager of more than $14 billion in client funds, announced a new joint venture with real estate investment advisory Arch Street Capital Advisors. Together, the partners will invest in selected high-end service properties–a subset of the beleaguered brick-and-mortar retail sector–in the U.S. Sun Belt.
The venture is being funded with an acquisition financing facility from banking services giant Barclays, which will enable the venture to acquire around $150 million worth of properties. Since July, the JV has closed three separate transactions, acquiring four properties in Orlando, Houston and Atlanta. According to the companies, the JV is actively seeking new Service Property investment opportunities in the $7-$20 million price range.
By way of definition, Service Properties are institutional-quality, multi-tenant shopping centers that are leased to businesses whose customers must visit the store to consumer the service. Many of these businesses (deemed “essential”) remained open during 2020 covid lockdowns, and include national and regional brands that offer quick service dining, beauty, fitness, health and medical and professional services. CenterSquare’s investment track record in this sector predates the pandemic, having launched a nationwide portfolio of such properties in 2015. The firm says Service Properties overall have demonstrated “strong operating performance vis-a-vis other asset classes both before and during the pandemic.”
CenterSquare and Arch Street Capital are targeting unanchored properties fitting the aforementioned criteria, that are located on well-trafficked, highly visible street corners in growing cities throughout the U.S. Sun Belt region.
“Changing consumer patterns have created meaningful tailwinds behind the growth of the service sector, which is translating into strong fundamentals for essential service retail properties,” said CenterSquare SVP Robert Holuba. “While much of the retail sector continues to be painted with the same negative brush, we recognize there is a unique window of opportunity to acquire high performing service property assets at favorable pricing. For these reasons, we continue to view these investment opportunities as some of the most attractive risk-adjusted returns in the market today.”
“We are excited to partner with CenterSquare on this sector-focused strategy,” added Arch Street Capital VP Gautam Mashettiwar. “The Service Properties sector remains highly fragmented and provides a compelling opportunity to create a diversified portfolio of attractive yield generating properties.”
