By Jon Peterson
A San Diego-based investment trust has achieved a 7 percent yield on a grocery-anchored shopping center in Foster City that it acquired for $17.4 million, all cash, in an off-market deal.
Stuart Tanz, president and chief executive of Retail Opportunity Investments Corp., expects the return to rise another half percent or more as the company leases the existing vacancy in the center, which includes retail and offices and is anchored by 99 Ranch Market, a chain of Chinese grocery stores.
“This deal is the first time that we have been able to acquire a shopping center with this tenant. It is something that we are very excited about as it expands our tenant base,” Tanz said.
The company bought the approximately 75,000-square-foot Marlin Cove Shopping Center at 1070-1098 Foster City Blvd. from a private family. At purchase, it was 82 percent leased.
“Our goal is to add some new paint and really manage the property more effectively going forward. There is no reason to think that we can’t get this property up to the occupancy level of our entire portfolio, which is now around 93 percent,” Tanz said.
Other tenants include Starbucks, Round Table Pizza, UPS and office tenant PrimePay Inc., a payroll processing company. The property is one contiguous center with 53,379 square feet of retail and 21,217 square feet of office space in a three-story building.
The San Francisco retail market is the strongest in the country followed by the San Jose market, according to Marcus & Millichap Real Estate Investment Services. Most in demand is retail closest to tech hubs in the city, the brokerage said, but as that space becomes increasingly scarce in 2012, tenants and demand will filter down the Peninsula to San Mateo County and places like Foster City.
Multi-tenant properties in the city are expected to sell at capitalization rates, or yields, from 5.5 percent to just more than 6 percent this year, Marcus said. Suburban properties should trade at roughly a percentage point higher.
ROIC reported net income attributable to common stockholders of $1.1 million in the first quarter. The company has been on an aggressive growth push, reporting the acquisition of two centers in Washington state and one in San Diego as well as the Marlin Cove buy, when it released its first-quarter financial results May 3.
The real estate investment trust has two additional Bay Area properties under contract for purchase, Tanz said. Both are north of San Francisco. The company hopes to complete those transactions in the next three months or less. Its existing portfolio includes the Bay Area’s Pleasant Hill Marketplace in Pleasant Hill, the Pinole Vista in Pinole and five properties in Sacramento.
ROIC invests in existing grocery- and drug store anchored shopping centers on the West Coast. Besides the San Francisco region, it targets properties in Seattle, Portland, Sacramento, Los Angeles, Orange County and San Diego.
The company typically pays cash and has leverage on its existing portfolio of 22 percent. Around 90 percent of its gross leasable area is unencumbered by debt. As of March 31, the company owned 35 shopping centers with not quite four million square feet.