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Equity One Shifting Towards High-density Mixed-use

Florida-based Equity One Inc. is looking north for growth, and also, up, as it plans vertical mixed-use projects, according to President and COO Doron Valero.

"We are buying properties where we think there is potentially good or great income from other uses," says Valero.

Equity One expects to spend about $600 million in the next two years to expand in the Northeast and Mid-Atlantic states as well as in its core markets in South Florida and Atlanta, says Howard Sipzner, executive vice president. South Florida represents 64 percent of its assets.

"I think a lot of the cities along the coast are encouraging people to do mixed-use urban design," says Valero, who was in New York today to speak at a National Association of Real Estate Editors' meeting. "Plus, a lot of people want to have the Manhattan lifestyle where you don't need a car and drive hours to work."

To finance growth, Equity One, a North Miami Beach, Fla.-based developer of neighborhood and community centers, said in an SEC filing last week that it plans to either sell outright or find a partner for its Texas and Louisiana properties. Analysts peg total current assets in Texas and Louisiana to be worth between $450 and $550 million. Valero says cap rates for Texas centers have about equalized with those on the East Coast, making them less interesting than centers in highly-populated areas.

It already has one mixed-use project on the drawing boards. Last month, it acquired the Young Circle Shopping Center in Hollywood, Fla., for $22 million. The fully occupied 65,834-square-foot center -- with a Publix and a Walgreens -- is zoned for other commercial projects, and includes air rights for 450 apartments.

Valero recognizes, of course, that finding properties in the built-up Northeast is more of a challenge than in spacious Texas and Louisiana, but it is a challenge he says he welcomes: "It will be good to shift our focus."

The company's 46 shopping centers in Texas and Louisiana represent 23.5 percent of its holdings and generate 22 percent, or $41.3 million, of Equity One's annual minimum rents.

Analysts applauded the company's move to sell lower-performing assets. "Equity One's decision to sell in both Texas and Louisiana, we believe, speaks volumes as to the potential risks facing grocers at the hands of Wal-Mart," said UBS analyst Ian Weissman in a note.

But, says Valero, the much-feared Wal-Mart is not a factor in the company's decision to sell Texas and Louisiana assets. "Wal-Mart is a competitor, but a good retailer learns to adapt," he says.

The shift Northeast began in October, when Equity One purchased six grocery-anchored centers in the Boston area for about $120 million.

"Many East Coast markets, such as Washington D.C., Philadelphia, and Boston would likely offer Equity One more downside protection that would Texas and Louisiana," said Richard Moore, an analyst with KeyBanc Capital Markets in a note to investors.

It also appears that Equity One understands the potential upside in properties in the Northeast. "In Boston, in high-density areas, we've got properties that we believe in five years we can add more components to the centers," says Valero. "Yes, there will be (retail) rent growth, but we can do more with those properties than just that."

--David Koch

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