The owners of the Fullerton Metrocenter community center have bought out the ground lease for its property, a move expected to lead to a sale of that city’s second-largest shopping center in the next two years.
Retail Properties of America Inc. (NYSE: RPAI), an Oak Brook, Ill.-based real estate investment trust that owns some 20 million square feet of space in more than 100 properties across the country, recently paid $55 million to acquire the underlying ground for the 433,000-square-foot center, which is just north of the Riverside (91) Freeway.
The roughly 31-acre site sits at the southwest corner of Harbor Boulevard and Orangethorpe Avenue. The intersection sees some 70,000 cars pass each day, according to the REIT’s marketing documents for the property
The center, whose anchors include a Target, PetSmart and Sprouts Farmers Market, brings in close to $80 million annually in taxable sales, according to city records.
About 22,000 square feet of the center is available for lease, according to marketing materials.
It’s a block from the city’s largest shopping center, the Costco and AMC Theater-anchored Fullerton Town Center, which brings in some $180 million in taxable sales. That spot, run by Phoenix’s Big Shopping Centers USA, is OC’s No. 14 center by sales.
Low Cap Rate
RPAI bought the Fullerton Metrocenter ground lease from what property records indicate was a family trust. Execs indicated the sale’s capitalization rate was in the 3% range.
It paid $47.4 million for the center itself in 2004, according to regulatory filings. Metrocenter was built in 1988.
It’s the only Orange County property in RPAI’s portfolio; its other two Southern California holdings are in Ontario and Temecula.
2-Year Goal
RPAI President and Chief Operating Officer Shane Garrison said that while the recent acquisition’s cap rate was “not very compelling,” having ownership of both the land and buildings sets the REIT up well going forward.
This year, “we intend to increase some of the signage, which will also be leasing driven, and do a few other things,” he told analysts during the company’s latest earnings call.
The REIT intends “to sell the asset probably in ’21 or ’22,” he said. Brokerage data indicates the local office of JLL was recently retained to market the center for sale.
Prices for other similarly sized retail centers in the area have run in the $300 per square foot range in recent years, likely putting Fullerton Metrocenter’s value in the $120 million range, if not higher.
Officials noted the center was “obviously” a noncore asset for the REIT, which says it operates “high quality, strategically located” centers, with its properties often including a mixed-use component.
The Fullerton center has the excess land that could hold an apartment development, creating a mixed-use property, but officials said they wouldn’t be the ones to do it, “given the noncore nature of the asset and how long multifamily entitlements would take,” Garrison told analysts.
Getting rid of a ground lease with a short term on it and being able to sell the entire property should pay off in the next few years, he said.
The recent purchase “provides for additional incremental value given it’s straight fee for the next buyer,” Garrison said. “So, we’ll see how much additional value that concept will create on sale.”
