In the age of Amazon, InstaCart, and same-day delivery, there seems to be a growing consensus among some that brick-and-mortar retail is a dying breed. If that was the case, then as investors, we at Velocis would be inclined to steer clear of pursuing new retail acquisitions. In reality though, we’re doing quite the opposite. We see retail as one of the biggest opportunities out there right now—and, one of the hardest to secure.
The fact of the matter is, when it comes to dying brick and mortar retail, the facts tell a different story. Retail isn’t dying—it’s changing. It used to be that lenders frowned upon retail properties with experiential elements in favor of those with soft goods retailers. Today though, lenders and buyers alike are less impressed with those kinds of retailers and more apt to prefer internet-resistant uses like grocery stores, restaurants, and entertainment venues.
In DFW and across the country, these kinds of larger, grocery- or entertainment-anchored centers are popular with buyers, but tough to acquire—especially compared to other product types like office and industrial.
In Velocis Fund I, we purchased four retail properties, one of which was our top performing asset to date. However, in Fund II, we’ve yet to find the right fit for our first retail acquisition. At the end of the day, there just isn’t a lot of retail out there that offers the right balance of high quality and opportunity to unlock hidden value.
What we’re seeing as a buyer of retail assets leads us to want to be a seller. In fact, we currently have two DFW-area retail properties on the market: Ridglea Village in Fort Worth and Town Center Colleyville in Colleyville. Why sell now? Pricing and cap rates are low and competitive, making it a good time to be a seller. We’ve repositioned these properties, raised rental rates and occupancy, and now, it’s time to take advantage of the tight market.
We recognize that there is a lot of appetite out there for these kinds of properties. Town Center Colleyville is a great example of the kind of internet-resistant tenant mix made up of restaurants, a specialty grocery store, Market Street, and a Studio Movie Grill. Similarly, Ridglea Village has employed the same kind of leasing strategy, focusing on major restaurants.
Retail is changing and its continuing to do so. It will be interesting to watch how driving factors like Amazon’s purchase of Whole Foods will impact the sector’s evolution. In the meantime, we’re steadfast in our commitment to continuing to be both a buyer and seller of high quality retail centers across the metroplex and the country.
Jim Yoder is co-founder and principal at Velocis.