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New $200M Fund Targets Grocery-Anchored Retail

There is a new retail acquisition fund on the scene.

Phillips Edison-ARC Shopping Center REIT Inc., a partnership of Phillips Edison, a Cincinnati, Ohio-based owner and manager, and American Realty Capital, a New York City-based real estate advisory firm, formed a joint venture with discretionary clients of CBRE Investors’ (CBREI) global multi manager group to acquire more than $200 million in grocery-anchored neighborhood and community centers throughout the United States.

The joint venture, operating under PECO-ARC Institutional Joint Venture I, will put up approximately $102 million in equity contributions toward its acquisition fund, in addition to securing $102 million in financing. Phillips Edison—ARC Shopping Center REIT will contribute approximately $52 million to the venture, while CBREI will supply the remaining $50 million.

Phillips Edison-ARC will hold a majority interest in the venture and will serve as the general partner, with responsibility for finding, financing and operating the centers. The new fund will target grocery-anchored neighborhood and community shopping centers throughout the U.S., concentrating on areas with stable and growing residential populations.

Among the fund’s requirements for new acquisitions will be that the centers’ anchors hold the No. 1 or No. 2 grocery positions for their market areas. That means that a lot of the acquisition activity will concentrate on properties anchored either by strong national operators, including Supervalu, Kroeger and Safeway, or by outstanding regional players like Publix in the Southeast.

The centers will also have to come with in-place occupancy rates of at least 80 percent, according to John Bessey, president of Phillips Edison-ARC Shopping Center REIT. The REIT has already acquired three centers worth a combined $31 million for the fund, including properties in Parma, Ohio and Salem, Va. All of the centers were bought from distressed sellers, and one was purchased out of bankruptcy. The average cap rate on the acquisitions came to approximately 8.4 percent. Going forward, Bessey hopes to achieve cap rates between 8.0 and 8.2 percent.

“We have a national operating platform and we are able to take advantage of the disruptions or inefficiencies in [real estate] pricing across the country,” he says. “And because we are looking on a national basis, we are not restricted to tighter markets like New York or San Francisco” where many buyers have become frustrated with meager discounts.

The joint venture partners plan to fulfill their $200 million acquisition target by the spring of 2012.

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