Despite negative sentiment in the retail sector, Asana Partners’ $800 million fund close indicates that some investors still see an opportunity in the property type.
The Charlotte, North Carolina-based real estate firm launched its second value-add retail fund, Asana Partners Fund II, in August 2018 and held a final close in April 2019, according to PERE data. Asana Partners received commitments from institutional investors, which included the Los Angeles City Employees’ Retirement System, New Mexico State Investment Council and the South Carolina Retirement System, among others. The fund was oversubscribed, hitting its hard-cap of $800 million within 9 months.
Global real estate advisory firm Hodes Weill & Associates acted as the placement agent for Asana Partners Fund II. Hodes Weill also helped raise predecessor fund Asana Partners Fund I, which launched in August 2016 and closed on $500 million in January 2017, according to PERE data.
Despite the threat of e-commerce on brick-and-mortar store sales, the interest in Asana Partners’ value-add retail fund was likely driven by a perceived overcorrection in retail property prices relative to other property types, according to Marcus & Millichap senior vice-president and national director of retail Scott Holmes. Prices have come down enough that investment returns on retail properties are looking attractive again, especially compared to other fully-priced property types, he said. US mall property and strip retail property index values have fallen 7 percent and 1 percent, respectively, according to a May 2019 Commercial Property Price Index report by research and advisory firm Green Street Advisors. In comparison, industrial property index values increased 9 percent.
Though certain retail properties like fortress-style malls still struggle and many large institutional investors still want to keep allocations to retail low, the market conditions for retail real estate are stronger than the headlines would lead you to believe, according to Holmes. Construction remained low following the great recession, limiting the supply of new retail real estate. And vacancies left by some failing retailers are quickly being filled by more successful stores looking to expand. Retail properties as a whole in the United States are around 95 percent occupied, Holmes noted, which is similar to industrial and apartment occupancies nationally.
Speaking generally on retail real estate fundraising, Nancy Lashine, managing partner and founder at placement agency Park Madison Partners, said investor interest in retail strategies is likely more nuanced. Many investors found their portfolios under-allocated to retail after focusing heavily on the multifamily or logistics real estate sectors for many years, which could be driving capital commitments to retail strategies. There just have not been many opportunities to invest in retail-specific funds over the last few years, and investors that wanted retail exposure were limited to diversified funds or investment products on the public market, according to Lashine.
Indeed, the number of US retail-specific closed-ended fundraises hit a high in 2013 and 2014, with eight funds closing during both years, according to PERE data. In 2015, only three funds closed, with the number of total closes having remained at five or below since then.
Though Lashine anticipates more bankruptcies from retailers, she sees opportunities emerging from the sector’s challenges. The retail property sector is attractive because it is one of the few areas that offers distressed opportunities, but she warned that simply buying cheap product is a fool’s errand.
Lashine, who has been searching for the right retail investment product to take to market for the last two years, explained that investors want to see operating expertise and an ability to rework the tenancy. The manager needs to understand the customers, who the right tenants are and whether the tenants can afford to occupy the space, she said.
In recent history, a few other retail funds have held successful final closes. The Sterling Organization, a Florida-based real estate firm, raised $495 million for its fourth value-add retail real estate fund. Within 10 months, the firm surpassed its $450 million target and came close to hitting its $500 million hard-cap. Similarly, the London-based retail property investment manager Meyer Bergman broke its fundraising record with an €816 million close for its third fund in February 2018.