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CASE STUDY: Site Unseen

These days, real estate professionals talk about site selection as a science. With more data available than ever before, it's possible to find the wealthiest, most densely populated and under-retailed intersections anywhere in the country.

But it's not all about the numbers.

Regency Centers, one of the most ambitious developers in the market, currently has a $2.3-billion-project pipeline, encompassing 94 centers scheduled to be completed over the next two years. But the company isn't just plugging specs into the database and churning out sites. For Regency, site selection is still about relationships — with its anchor tenants, with other developers and, increasingly, with economic development agencies looking to grow their tax base through new retail projects. It is also about complementing Regency's existing portfolio, which consists of 53 million square feet of space in 399 properties across 28 states.

“We want to have the new shopping centers be anchored by our dominant tenants, like Target, Publix or Kroger,” says Hap Stein, Regency's chairman and CEO. Stein notes that the company prefers to embark on new developments only after getting lease commitments from one or more anchors. “If you have that, you'll be able to attract better secondary tenants.”

Regency's new properties will be spread out across the United States, with two-thirds of the portfolio devoted to community centers and one-third to neighborhood shopping centers. About a third of the projects will be built in joint venture partnerships estimates company CIO Brian M. Smith.

But having nearly 100 new centers in the pipeline requires a delicate balancing act. In Regency's case, the company is using a formula — at any given time, it will have $1 billion worth of developments in the construction process and another $500 million in the planning stages. Currently, 54 of Regency's projects are in the active construction phase. “We have to watch ourselves carefully,” Smith notes. “Construction is a regional game, but everyone at the company is involved. Once a quarter, we have a review of every project, every piece of land we have, including what the cost has been, what it will cost for us to finish and any overruns.”

Regency's top management is heavily involved in its new undertakings — before any development is given a green light it has to pass through the capital allocation committee, which includes the CEO, the CFO, the CIO and the company's managing directors. For his part, Smith spends three weeks of every month on the road, visiting construction sites, in addition to attending the quarterly corporate meetings. In all, Regency has 270 out of its 450 employees involved in the development process, including investment officers and construction, leasing and due diligence specialists. But it's the managing directors responsible for the company's four core regions — Pacific, Central, Mid-Atlantic/Northeast and Southeast — who carry most of the workload, including regular tracking of the projects and making sure the centers are delivered on time and within budget.

Edens & Avant, a Columbia, S.C.-based developer with 17 million square feet of retail in its portfolio, has a smaller development taskforce — about 40 people — and determines construction schedules on a case-by-case basis, but its management is adamant about face-to-face communication among construction professionals. “It helps if the right hand knows what the left hand is doing' says Jodie W. McLean, president and CIO of Edens & Avant. The company has 10 offices along the East Coast.

Edens & Avant's current pipeline involves approximately 30 new centers valued at $1 billion and scheduled to come online by 2010. Fifty percent of the new portfolio will be devoted to urban retail, 30 percent to neighborhood shopping centers and 20 percent to mixed-use projects.

Similar to Regency's approach, most of the responsibility for successful construction is left up to regional teams, who have a good sense of their markets. But there are also monthly reporting sessions to track the company's investment activities and monthly meetings with a regional focus.

“We are getting together twice a month with every region to make sure that the company has a very united approach to dealing with everyone involved in the project,” McLean says.

Site selection doesn't end once an appropriate piece of land has been identified. To make sure the project makes sense, developers need to complete a feasibility study, either internally or with the help of a consultant. If the project requires too much work or will face great community opposition, they have the option to back out of the purchase contract before they've spent a lot of money, says Daniel E. McNulty, vice president with Atwell-Hicks, a development consulting firm that has worked with Regency Centers, Developers Diversified Realty and the Archon Group.

A brief preliminary survey, including a site walk, research on ordinances and conversations with local officials, takes about three weeks and costs approximately $10,000. An in-depth study, which would involve environmental investigation, entitlement survey and research on zoning and community sentiment, usually takes from 60 to 90 days and can cost up to $100,000. But it's a crucial step in the site selection process.

“Sometimes a developer gets too far down the path with a project before they realize there is a problem with the cost or the schedule,” McNulty says.

In many cases, the choicest projects are those brought to the table by the tenants themselves or by frustrated smaller developers who have the perfect site, but don't have the resources to take on a complicated assemblage job or fund construction.

Regency is also able to maintain its torrid development pace because it stays away from high debt loads. Instead of using construction loans, for example, the company generates capital through sales of under-performing assets and joint venture partnerships. Regency's current debt to equity ratio is 31.9 percent. Last year, almost 70 percent of its $3.1 billion total capital came from property sales and joint ventures.

A good example of how Regency partners with smaller developers is Silver Spring Square, a 500,000-square-foot center in Harrisburg, Pa., which will open this spring. The project, with the expected NOI yield of 8.8 percent, came to Regency through Target. After a local developer Target was working with couldn't tackle the complicated site work and road engineering — the project required property condemnation and road reconstruction to ease gridlock — they reached out to Regency for its expertise and financial capital.

Regency is not the only company that works with existing tenants to find development opportunities. Edens & Avant's McLean estimates that up to 30 percent of the company's projects result from searches initiated by retailers. “We have certain relationships where we work with retailers on multiple transactions and what they do is point to a market or a market segment that they need a presence in,” she says.

The retailers that point to specific sites, however, tend to be the national big boxes along the lines of Wal-Mart, Target and Home Depot, says John DiGiovanni, vice president of development with Inland Retail Real Estate Trust Inc., which owns 270 retail properties, primarily in the Southeast.

“Sometimes a retailer will tell us about a site, but it's not very often,” he says. “Most of the time we find an area where there is dramatic population growth and then start marketing it.”

The company currently has seven retail projects in the pipeline, totaling 1.5 million square feet and valued at $400 million.


Having set its development goal at $2.3 billion worth of projects over the next two years, Regency Centers had to locate sites that would yield a healthy return on investment and ensure smooth progress for its multiple endeavors.


By working together with real estate brokers, retailers and smaller developers Regency has been able to find promising projects in unexpected places. The firm also involves all levels of management in the construction process in order to stay on time and on budget.


Well-known for its savvy funding strategies, including sales of under-performing assets and joint venture agreements, Regency is often approached by other developers about partnering on new projects.


Regency's current pipeline will encompass 94 centers located throughout U.S., with a heavy concentration in California. Two-thirds of the projects will involve community centers and one-third will be neighborhood shopping centers. About one-third of all projects will be built in joint venture partnerships.

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