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FEATURE ARTICLE, NOVEMBER 2007
PREIT’S ACTIVTY IN THE NORTHEAST
PREIT continues to find success in the Northeast market.
Stephanie Mayhew
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The newly redeveloped Cherry Hill Mall in Cherry Hill, New Jersey, will be anchored by a new Nordstrom, as well as other high-end anchors such as Crate & Barrel and The Container Store.
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Founded in 1960, Pennsylvania Real Estate Investment Trust (PREIT) is one of the first equity REITs in the U.S. Today, PREIT is headquartered in Philadelphia with properties up and down the East Coast from Florida to Massachusetts as well as properties as far west as Wisconsin. The REIT, which focuses on retail shopping malls and power centers, currently has a portfolio of 56 retail properties that consist of 38 shopping malls, 11 strip and power centers and seven properties under development
PREIT has always found the Northeast region to be an excellent area to focus their business. “Many areas of the Northeast are reasonably well built out and the population is stable, but in the Northeast there is the benefit of rising income,” says Edward A. Glickman, president and chief operating officer of PREIT. “Other areas of the country may have more population growth, but in a number of those areas the high level of income that is prevalent in the Northeast doesn’t exist. It is a different competitive dynamic, but since it has such mature markets, a great location in the Northeast today is likely to remain a great location well into the future.”
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Pennsylvania Real Estate Investment Trust (PREIT) is repositioning the former Echelon Mall in Voorhees, New Jersey. The REIT will be downsizing the existing mall and redeveloping the property into a town center featuring a luxury residential component, eclectic street retail and a re-designed mall to be named The Mall at Voorhees Town Center.
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PREIT has been developing in the Delaware Valley for many years, and in the past year, the company has been busy constructing new power centers and redeveloping many of their existing regional malls to meet the demands of today’s consumers. Three such redevelopment projects currently underway include the renovation of the Cherry Hill Mall in Cherry Hill, New Jersey; the renovation and expansion of the Plymouth Meeting Mall in Plymouth Meeting, Pennsylvania; and the repositioning of the former Echelon Town Center, which will be re-launched as The Mall at Voorhees Town Center in Voorhees, New Jersey.
The newly redeveloped Cherry Hill Mall will be anchored by a new Nordstrom, which is slated to open spring 2009, as well as other high-end anchors such as Crate & Barrel and The Container Store, which will both be open for the 2007 holiday season. Other tenants include exclusive specialty retailers such as Sephora, Brooks Brothers, Coach, bebe, Cache and Ann Taylor. The redevelopment will also include a row of new restaurants set along the Route 38 side of the mall. A full-scale interior renovation will be complete in 2008 and the entire center is slated for completion spring 2009. “Cherry Hill Mall has historically been ‘the fashion mall’ of south Jersey,” says Glickman, “PREIT felt that the south Jersey market was underserved from a fashion perspective and with the addition of Nordstrom’s and other new fashion tenants, the mall could be pushed to a new level, one that is really representative of the high-end market that exists there.” The Cherry Hill Mall draws shoppers from Burlington, Camden and Gloucester counties via Interstate 295, the New Jersey Turnpike and Route 70 and 38, and it also easily accessible for shoppers from Philadelphia via the four major bridges.
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Construction began this spring on the Plymouth Meeting Mall in Plymouth Meeting, Pennsylvania, with the demolition of the former 160,000-square-foot IKEA store to make way for a 140,000-square-foot addition to the existing 800,000-square-foot property, which is anchored by Macy’s and Boscov’s.
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Glickman describes the renovation and expansion of the Plymouth Meeting Mall as a lifestyle expansion of a retail fashion mall. By adding entertainment and lifestyle components to the existing regional mall, PREIT will be able to meet the demands of an area that boasts a dense residential population with a high level of income as well as a large daytime population from existing office space. “The roadways surrounding the Plymouth Meeting Mall have some of the highest car counts in the state, so PREIT wanted to take advantage of that with a new merchandise offering,” says Glickman.
Located in the greater Philadelphia area just northwest of the city, the Plymouth Meeting Mall is situated on Germantown Pike at the confluence of three major traffic arteries that include the Pennsylvania Turnpike, its Northeast extension and the Blue Route, which allows the center to serve a plethora of greater Philadelphia’s residents. Construction began this spring with the demolition of the former 160,000-square-foot IKEA store to make way for a 140,000-square-foot addition to the existing 800,000-square-foot property, which is anchored by Macy’s and Boscov’s. The new expansion will include a 65,000-square-foot Whole Foods Market that will be connected to a 40,000-square-foot, open-air lifestyle wing. The expansion also adds several new outparcels and themed restaurants including PF Chang’s Asian Bistro, Redstone American Grill, California Pizza Kitchen, Benihana as well as a Citibank branch. The expansion is scheduled for completion in 2008.
The third project, is the repositioning of the former Echelon Mall in Voorhees, New Jersey. “This project is a point of departure for our company,” says Glickman. “The concept is to take a regional mall, which was not servicing its market, and by adding a component of street retail as well as condominiums and rental apartments, PREIT is creating a town center and a new market for that asset.”
PREIT, which first purchased the south Jersey property in 2003, is downsizing the existing mall and redeveloping the property into a town center featuring a luxury residential component, eclectic street retail and a re-designed mall to be named The Mall at Voorhees Town Center.
The renovated 650,000-square-foot mall will retain a 170,000-square-foot Boscov and a 225,000-square-foot Macy’s as its anchors. The 160,00-square-foot town center component will blend a mix of restaurants, boutique retail and office space. The new project will also include 425 luxury residential apartment and condominium units to be developed by Dewey Commercial. “The goal is to follow the evolving trend of mixed-use redevelopment for existing retail projects,” says Glickman. “This concept works well on the East Coast where development has been taking place for such a long time and areas are so fully built out and the intrinsic land value of the asset is high.”
The focus of PREIT is retail properties, and Glickman explains that they intend to continue on that path; however, they will partner with other real estate companies to get the most out of a piece of property by including other uses. In addition to PREITs many properties in the Northeast, the REIT is also focusing on several burgeoning markets such as Florida, the Carolinas and Virginia.
REITS DIVERSIFY INVESTMENT PORTFOLIOS
REITs have been active players in the Northeast for several years and 2007 was no exception. With blockbuster deals such as the $36 billion Equity Office acquisition and the $21 billion Archstone Smith buy-out, REITs are here to stay. Northeast Real Estate Business sat down with Brad Case, vice president of research and industry information for NAREIT, to discuss the ins and outs of investing in REITs and their activity and presence in the market.
According to Case, REITs have become an integral part of any well diversified investment portfolio because they have historically had strong returns with relatively low volatility. “NAREIT has 35 years of data on REITS and the total return for REITs has been about the same as the stock market or generally a little bit higher than the stock market,” explains Case. “As far as volatility is concerned, it has been a little bit less than the stock market.” In the Northeast, REITs continue to be an excellent long-term investment.
Last year was a standout year for REITs, and although 2007 has been somewhat uncertain, REITs are still strong and active. “For several years, at both the individual level and at the institutional level, investors have been putting a lot more money into real estate,” notes Case. “For almost all individuals, and increasingly for institutional investors as well, investing in real estate means investing in REITs.” This trend has helped REITs outperform others in the stock market for 7 years in a row.
This year, Case notes that after a blockbuster 2006, REITs did feel the pinch at the beginning of 2007. “First of all, the uncertainty in the credit market affected REITs, and second, the non real estate portion of the stock market saw historic highs, and although it did not last, it did take the attention of investors away from REITs in the stock market,” says Case. Toward the end of the summer, investors did return their attention to the REIT market, but as a whole, REITs are undervalued and are currently a real buying opportunity. “Green Street Advisors, a preeminent analyst of REIT stock, thinks that REIT stocks relative to the value of the underlying asset are trading at a huge discount of around 16 percent to 20 percent,” remarks Case. “On average, REITs tend to trade at a premium to the value of the underlying asset, which is because of the quality of REIT management.”
Case notes that despite the ups and downs in the market, REITs are generally able to weather all business cycles because of their dual practices of not only acquiring assets, but developing them as well. For example, if the competition in the marketplace is focusing heavily on acquisition, REITs will generally not continue to work in that environment, but will turn their attention toward the development pipeline. “Now that the conditions in the capital markets have cooled off a bit, REITs are likely to go back to the property acquisition market,” explains Case. “And they will go from one to the other depending on which makes the most sense.”
As the economy and business becomes more global, REITs are beginning to expand geographically to other parts of the world. “Many REITs have current clients in this country who are extending their operations overseas and they want the REIT to follow them and provide the same kind of support in other countries that they provided in the U.S.,” says Case. REITs will also maintain their presence within the U.S. marketplace focusing on areas with high growth and expansion. “REITs only own 15 percent to 20 percent of the total investment real estate in this country, so there is a great amount of room for the expansion of REIT ownership of properties in every part of the country,” notes Case.
Since REITS offer diversity in investment, they will make headway going forward in 2008 and for years to come. Case notes that many institutional investors have been increasing their investments in real estate, much of which is targeted at investments in REITs. Individual investors have also been increasing their investments in REITs. “The percentage of 401Ks that include commercial real estate options, which almost always means REITs, has quadrupled in the last few years,” remarks Case. “Individuals are realizing that they need to have not just a large set of 401K options, but a well diversified set of 401K options. That means that they need to have real estate options as well as bond and cash options available to them.” As REIT investment grows and REITs continue to expand nationally and globally, capital flowing into the REIT industry is likely to persist for years and years into the future, positively affecting REIT stock prices and total returns.
— Stephanie Mayhew |
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