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Retail still ‘viable’, says Somera spin-out

Pacific Retail Capital, the private equity real estate firm which span-out of Somera Capital and was backed with capital from Lubert-Adler, says retail is about to undergo a “major shift” away from the High Street chain model. The firm is targeting malls of at least 500,000 sq ft.

Retail could be about to undergo a seismic shift with a move away from the “sameness” of High Street chains to greater differentiation, according to Pacific Retail Capital Partners.

Steve Plenge, who span-out of Somera Capital Management at the start of the year to start the Los Angeles-based private equity real estate firm, said in a statement as national retailers go out of business or close large numbers of store “this can be viewed as an opportunity to recreate the retail experience”.

Plenge, who also worked for private retail investor Madison Marquette, said the economic downturn could be “the beginning of the next major shift with more differentiation and less of the sameness that has overtaken retail centers in the past few decades” and create some of the best opportunities for investors with cash to deploy.

Pacific Retail was formed in January with $200 million of capital from Lubert-Adler Real Estate targeting value-added retail opportunities, particularly regional and super-regional shopping malls of at least 500,000-square-feet.

According to the firm’s website, Pacific Retail makes typical investments of between $25 million to $200 million. Along with Plenge, former Somera Capital employees include principal Michael Miller and vice president Marianne Gutierrez. Pacific Retail was unavailable at press time for further comment.

Plenge said in the statement one upside to the downturn was lower construction costs. “Contractors are more willing to negotiate and materials are more affordable due to diminished demand. If you have the capital, now is a good time to invest in property improvements.”

He warned retail owners facing default could also stop managing their properties, adding: “This creates a scenario of underperforming centers that are in solid markets but have declined either due to neglect or lack of capital to maintain and enhance the property.”

Investors, he went on, should look to stablise properties, evaluate the real estate’s leasing condition and then reposition the retail centre.

This week, General Growth Properties, the struggling retail REIT and the US’ second largest mall owner, failed to extend the loan maturity dates on $900 million of debt for two of its Las Vegas properties, the Fashion Show and Palazzo malls.

In October, the bankrupt private equity-backed US department store Mervyns said it would liquidate its business and wind down operations after failing to return the company to profitability since filing for Chapter 11 protection in July. The firm was backed by funds controlled by Lubert-Adler Real Estate, Cerberus Capital Management and Sun Capital Partners.