Retail Financing by Bob Andelman

"Lending has been very aggressive in '94," confirms Edward T. Byrd, president of Edward T. Byrd & Co., an Orlando-based commercial mortgage banker specializing in retail centers. "It started in mid-'93. We saw buildings re-tenanted and lenders pumping more capital into the market. That's been somewhat tempered by rising rates, but interest is still there. We're seeing more acquisitions today than in prior years."

The level of interest pales by comparison with the out-of-control investment and development of 1986 and '87, says Byrd, who doesn't expect a return to that insanity "until we have a new generation of lenders ignorant of the past. Even then, it won't be a good thing. But it's already happened twice in my career."
Byrd expects a certain stability in lending through the end of this decade, at least.

"The unknown dimension is the banks," he says. "Banks typically do not subscribe to the more prudent underwriting techniques that the life insurance industry utilizes. This, in effect, skews the market, just as the S&Ls skewed the market in the '80s."

Institutional buyers are discovering and subsequently insisting upon a different type of strip center for sale today than they knew five or more years ago. The old days of 33 percent credit tenants and 67 percent local tenants are largely over, Byrd says.
And rehabs are hot, a development anticipated by a generation of growth management advocates.

"Oh, yes," Byrd says. "You can buy older centers and you don't have to put in landscape islands, it's already vested, you don't have to pay impact fees or deal with concurrency or setbacks. If you can find a good location with expansion possibilities, you're just as well off to expand the grocer."

The buyers that Byrd works with are looking for centers with a stable history of occupancy and good credit tenants who pull traffic into the parking lot. The fewer credit tenants by overall percentage, the less underwriting "the better the location and stronger history you better have," he says. "We do a lot a lot of unanchored strip centers. We have the investors for them. But we want a good strip, in-line with the road, in or near a signaled intersection. No pads totally unobstructed. Sixty-foot depths. And I am not interested until it is repositioned in the marketplace."

But whereas Byrd has buyers for well-occupied, anchored or unanchored centers that have already been re-merchandised and re-positioned, Chicago-based Heller Financial, Inc. a subsidiary of The Fuji Bank, Ltd. is looking to get involved with centers not quite ready for the Byrds of the world.

"Ed's people want to place the financing on the center when it's done," says Greg Newman, a vice president and senior investment officer in Heller's Atlanta office. "A life company doesn't want a center in transition. Life companies want a stable cash flow. Seventy to 80 percent credit tenants are the key. We provide the financing, get the renovation done, and get out. We're the acquisition guy for the company who wants to rehab, lease up, get it stable, then sell or refinance."

Heller, says Newman, is currently involved in six Florida centers and has money to invest in more centers at the rehab stage in their lifespan, at a minimum loan value of $5-million. The company approaches centers as one- to five-year projects. Buy low, sell high. That's the name of Heller's game.

"We're looking for centers that want to be repositioned," Newman says. "Florida's attractive. The population growth is one of the top three in the country; it's projected to grow. That's what we like about Florida."

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