This real estate investment company uses experience, technology, and a hands-on approach to bring success to the properties in its portfolio. What began as an operating company focused on Los Angeles apartment real estate in the 1970s has evolved into a private real estate investment company with 105 retail properties in 23 metropolitan markets across 15 states. Westwood Financial’s evolution, said EVP Randy Banchik, stems from a series of events in Los Angeles that caused the company to shift its portfolio from apartments into smaller, convenience-oriented shopping centers in the early ’80s.
As those properties became harder to find in Los Angeles, especially those with quality cash flow, Westwood gravitated to areas outside of Los Angeles where it could acquire more stable properties for a similar capital investment. It started in Phoenix, moved into Denver, and then went into Dallas.
The more the company understood about the power of grocery-anchored investments, the more it pursued those opportunities. Today, its portfolio primarily comprises grocery-anchored shopping centers with the top grocers in each of its markets.
As an owner operator, Westwood manages its own properties and those of a select group of investors. Its goal in this role is to find the best properties to purchase, improve upon, and operate for the long term.
Banchik said the most important factor in selecting a property is finding one in which the tenants can be successful. “If they are successful, we are successful,” he said. “This approach makes us very sensitive to location, quality co-tenancy, and replaceable and sustainable rents.”
To maintain this sensitivity as the company continues to grow—at the end of 2009 and during 2010, the company acquired $100 million worth of properties—Westwood has expanded its management capabilities beyond its Los Angeles headquarters. It currently has offices in Scottsdale and Dallas, and an office in Atlanta will open soon.
“We can’t be in every city, but we have offices in each region to better support our tenants and our properties,” said Banchik. “We then develop relationships with local management companies to be our eyes and ears and assist us in operating the properties correctly.”
Each office is staffed with property management professionals and their assistants, and the team manages the majority of the tenant communication and documentation of the leases. In the LA office, the staff handles the collections and accounting, and local managers handle vendor coordination and local maintenance needs for tenants moving in and out of properties.
Ace in the hole
Westwood’s technological ace in the hole is its proprietary management system, Westnet. The intranet-based technology, which inhouse developers started working on in 1995, allows the managers in each of the company’s offices to see in real time what’s going on with Westwood’s properties, communicate about them, and ask questions directly to the person most responsible for the item being reviewed. In addition, Westwood’s “leasing board” provides every milestone in the process for all lease deals then in process and shares information with the company’s stakeholders.
“Our acquisition and disposition status, budgeting, accounting, tenant leases, and any other piece of information that any of our partners, employees, or staff in the company want is available,” said Banchik. “Our principals have supported a dedication to technology, and that has been helpful to us as a private company.”
Westnet is also flexible enough to accommodate different kinds of acquisitions, such as Westwood’s purchase of 69 excess properties from McDonald’s in bulk. Included in the package were six net-leased buildings, only one of which was actually leased by McDonald’s, vacated buildings, and vacant land.
The transaction took between 15 and 18 months to close, and because of the nature of the transaction, it wasn’t something a large institutional company could take on. “It took an entrepreneurial company with relationships across the country and a dedicated team focused on executing the project to make it happen,” said Banchik.
Banchik said the project was also complicated because it was a transaction of substantial value that was not easily financeable. “Few investors were open to buying 69 mostly vacant properties that McDonald’s doesn’t want anymore,” he said. “But those characteristics made it an opportunity for a company like ours.”
The McDonald’s transaction worked because Westwood has a $1 billion portfolio, a significant asset base, and an infrastructure geared toward managing it. Each property was priced in conjunction with local brokers with local knowledge. Banchik said successfully completing the acquisition required dedicated and resourceful managers to executive the disposition plan because “inevitably, the properties you think will sell easily don’t, and other surprise you by selling more quickly and for more,” he said.
“An essential part of making the McDonald’s portfolio acquisition happen was having a dedicated team from our acquisition staff that stayed with the portfolio, did the initial evaluation, made the relationships, and then stuck with the disposition process,” Banchik said. “They worked creatively with the marketing people who are our partners to get the projects out and figure out the best way to get them sold.”
He said the company’s experience with this portfolio would lead the company to consider doing again, but “our eyes are open to the amount of human capital and cost associated with it.”
Meet, greet, and treat
Collectively, Westwood’s properties house 1,500 tenants. A number of the chain tenants have multiple locations with the company, and it’s worked to build solid relationships with them over the last 40 years. These relationships are beneficial from both sides: the tenants can go directly to Westwood with any questions or concerns, and Westwood understands how they operate and their local property needs, sensitivities, and accounting needs.
“We have a very good idea of what retailers are expanding, what retailers are looking for in terms of desirable locations, co-tenancy, and the demographics that may fit for them,” said Banchik. “These relationships also give us a leg up when we are conducting due diligence on a property to buy.”
Westwood often impresses owners it’s looking to acquire properties from, hearing that by the time the company is done investigating, it knows more about the property than the current owner. “Many times, they’ve spent a long time living with their properties and are used to what’s there, but we come in fresh,” he said.
The most important part of Westwood’s process early on, and then as it finishes a deal, is the tenant interview process. It’s where Westwood talks to the business owners and the corporate offices to find out how things are going, how the properties work, and what needs to be improved.
“One of the hardest things corporations such as ours have to face is their legacy portfolios. They have issues that need to be worked on, whether it’s financing, tenancy, or occupancy issues,” said Banchik. “There isn’t a single strategy that works for any particular tenant, so the most important thing for us has been to hear the tenants’ concerns early. It’s much better for the tenants to tell us they’re having a problem then to not tell us and then disappear.”