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Fewer buyers allows firms to upscale strategy

Phillips Edison has traditionally focused on the grocery-anchored shopping sector, however the real estate crisis and the general absence of buyers in today’s markets have allowed the Cincinnati-based firm to target necessity-based retail-anchored sector as well.

The real estate recession isn’t all bad news. For Cincinnati-based private equity real estate firm Phillips Edison it has actually allowed them to widen their acquisition strategy, targeting larger, higher quality assets in prime markets.

Traditionally a firm that focused on grocery-anchored shopping, Phillips Edison has now expanded its focus to include necessity-based retail centres in more central areas. The firm recently purchased a 170,000-square-foot Target-anchored centre in Phoenix with 85 percent occupancy and a yield of 10 percent.

Vice president Sigrid Campbell said the dramatic reduction in willing buyers had helped firms with dry powder to play with and helped Phillips Edison “move up the food chain”.

The firm is now concentrating on the West and South West of the US, and key cities across the US, expanding its strategy to necessity and discount retailers such as Target and TJ Maxx.

Phillips Edison currently has around $340 million in uninvested capital. Previously the firm has acquired properties averaging $8 million with roughly 100,000-square-foot of space. The Phoenix Target deal was the first asset the firm has bought in 2009. Campbell declined to disclose financial details.

However she added: “We are being extremely selective and prudent in investing our capital, but the current environment has allowed us to get to higher quality assets.”

And with necessity-based and discount retailers benefitting from recessionary shoppers, Campbell says this segment of the real estate industry is experiencing a period of growth. The firm, which owns and manages 228 properties comprising 25 million square foot, has leased as much vacant space in the first half of 2009 as it did during the whole of 2008.

“About four or five years ago, grocers were hit hard by Wal-Mart and had to learn how to compete. The grocery side of retail had their recession years before the recent real estate recession hit,” Campbell added.  They are now experiencing strong same store sales.

However, she notes the lack of competition won’t last for long. “The reason why few transactions are taking place is the need for sellers to become more realistic. That is coming though and I think 2010 is going to be a banner year for acquisitions.”