Strength in asset management, property management, and leasing is how this real estate investment firm revives struggling retail properties. Even during a time when retail and real estate markets have seen their share of strife, Lamar Companies has demonstrated its propensity for success. A principal investor in retail real estate projects, the company continues to turn around underperforming properties for the benefit of investors, retailers, and local communities.
“In the past when credit markets were a little different, we were buying and selling as many 10 properties per year,” said Mark Kalkus, president and CEO. “The last two years have been stagnant, but we’re starting to see more fluidity, and the markets are starting to turn around.”
Through its more than 39 years of expertise in analyzing and evaluating property risks, Lamar determines the properties to invest in based on a number of factors. Analysts review everything from location, demographics, physical condition of the property, and environmental issues to financial prequalification, retail market conditions, leasehold status, and current tenants’ credit.
Focused on retail
Although the company has in the past been involved with non-retail properties, like office buildings and apartments, retail centers have been its focal point since 1986. Over that time, it has purchased and reinvigorated more than 18 million square feet of underperforming or somewhat stable real estate in Iowa, Alabama, California, Colorado, Florida, Georgia, Indiana, Ohio, Kentucky, Maryland, Michigan, Massachusetts, Mississippi, Texas, Missouri, North Carolina, South Carolina, New Jersey, Virginia, Pennsylvania, and Wisconsin. The company currently owns 22 retail properties in 11 states.
“In terms of geography, the pockets come and go. For example, there was a window in 1995 that allowed us to buy some properties in California, which we sold by 2000,” said Kalkus. “We will go into areas with characteristics where we perceive property to be undervalued with good growth potential for the future.”
Keys to success lie in Lamar’s team approach and its capabilities in property management, asset management, and property leasing. The team approach is possible thanks to a staff that has more than 200 combined years of developing skill sets in areas like partnership experience, tax expertise, short- and long-term property management programs, equity and debt capital sources, and professional accounting services. That combined experience in real estate allows leasing, asset management, property management, and financial analysis groups to work together more efficiently.
“The fundamentals are key. We need to have a good location, the correct population base in terms of numbers and income, and an anchor in place that draws people to the center,” said Kalkus.
As for asset management, the company has a vast array of expertise in the legal, finance, construction, and bank and investor relations areas. This allows its asset managers to make the proper real estate investment recommendations to equity investors and to create and execute management plans for each property that take into account market trends, property positioning, leasing, budgeting, and financial schedules.
With property management, Lamar frequently demonstrates its understanding of how to rehabilitate and reconfigure properties, set appropriate rental rates, execute leases, oversee construction, and create strategic plans. Lamar often locates a management and leasing office onsite after acquiring a property to provide local, hands-on oversight.
And with leasing, which the company sees as the most important factor in successful turnarounds, Lamar has aggressive lease-up strategies and establishes relationships with brokerage and retailer networks thanks to its membership and participation in the International Council of Shopping Centers (lCSC). The company determines the ideal tenant mix through planning, market surveillance, and analysis of property demographics. It then seeks anchor tenants and builds around them with complimentary categories.
Lamar is a cash buyer, meaning the organization can generally close a deal within 60 days after an offer is accepted. The typical situation is for Lamar to retain and turnaround a property within a three to five year period, selling once the property has achieved a higher level of performance.
Of its current properties, Kalkus pointed to two that he felt could demonstrate the type of success Lamar Companies can achieve with its investments. The first is Covington Plaza in Fort Wayne, Ind., a property of 183,374 square feet. Purchased in February 2008, it had an occupancy rate of 71% leased. Lamar has since leased space to ’S Wonderful Interiors, US Mattress and Furniture, Anytime Fitness, and several small shops. The center now has lease occupancy of 93%, and grocery store sales have grown 20% thanks to Lamar’s promotional efforts.
The other property is Norwin Hills in Irwin, Pa., a 244,634-square-foot property purchased in May 2007 with just 63% leased occupancy, Lamar has since leased space to Galaxy Fitness (converting a cinema space for their use), a pediatric rehab center, Aaron’s Rents, and several smaller tenants. It also converted what had been a grocery store location to retail, adding a new storefront. The center is up to 83% leased. It has one anchor space available, which when filled will get the center over the 90% occupancy mark. Beyond building conversions and the creation of new storefronts, property im-provements include upgrades to pylon signage and parking lot replacement.
“Neither property is finished, but they have made great progress in a soft retail economy,” said Kalkus. “We feel they are good examples of what Lamar strives to do in terms of reviving shopping centers that are suffering to the benefit of both the tenants and the community.” Kalkus said Lamar feels its work is done once vacancies get to below 10%, preferably below 5%, and the property has a stabilized tenant base.
Most recently, Lamar announced the sale of Trussville Marketplace in Trussville, Ala. last July and Garden Ridge in suburban Dallas, Texas in December. It is currently looking to sell other properties in Georgia, Indiana, Pennsylvania, Alabama, North Carolina, Florida, and Kentucky.
Lamar believes the capital markets are starting to show signs of recovery, which is critical for the company in terms of creating a transactional market. The hope is for opportunities to sell some of its existing portfolio and buy properties that Kalkus feels could benefit from Lamar’s expertise.
“Banks have been holding onto what they have. If we can acquire those properties, we can make them better because we will actively manage them,” he said. “We are starting to line up some opportunities to repeat what we’ve done in the past—buying troubled properties and bringing them back to life.”