By Greg A. Oshins, Vice President of Acquisitions
Targets for potential acquisitions come from a wide variety of sources. In other words, the acquisitions team must utilize any and all means available to them to find opportunities. In many ways, it’s not dissimilar to retail leasing, or more broadly, to lead generation in any industry. While it’s not uncommon for the acquisitions team to spend the overwhelming majority of their time running out leads that ultimately do not come to fruition, the rewards are often high for the company when they are able to connect on the right deal.
Here at DLC, the best targets for acquisitions are those where all our teams can work towards generating upside. As an owner/operator, our comparative strength in the industry is our ability to draw upon the talent and knowledge base of all of the team members in our organization.
For example, an acquisition for which, post-closing, the leasing team can immediately go to work to procure tenants while the construction team puts investment dollars into physically enhancing the property, and while our property management, legal, and accounting teams generate value through enhanced efficiencies and innovative new initiatives, is far and away the best type of opportunity for us.
Everyone evaluates potential acquisitions through their own unique lens. For me, the evaluation of the property’s location is first and foremost. While the old real estate axiom “location, location, location” remains true for all sectors of our industry (whether commercial or residential), retail real estate presents perhaps the purest example of why and how location matters.
As we all know from our experiences every day as retail consumers, there are a number of crucial attributes that define an ideal retail location; it’s where people will shop and retail tenants will be successful in return. Our team looks at the following for our prospective acquisitions:
The property’s visibility and identity;
The property’s access;
The physical condition and configuration of the property;
The overall market quality including demographics, retail competition, and co-tenancy/ relative strength of the trade area.
Once the team has qualified the location, they will look closely at any vacant space, assess its viability for future lease-up, and then brainstorm with the leasing team to come up with some hypothetical ideas for which tenants might be a good fit. In short, the goal is to determine in broad strokes whether or not we believe that this asset could be materially improved through leasing and prudent capital investment if we were to acquire it.
The important next step is to evaluate the quality of the in-place tenants. We will ask, “What’s the credit profile of the tenants?”, “Do the tenants complement one another so that the merchandising mix will help the property be successful?”, “Are the rents above or below market and are there opportunities to push rents higher?”, and “Where are the risks and how do we mitigate them?”
All of these come together to help us formulate the key assumptions that lead us to decide the value of the asset. When we see the potential success outweighs any potential risk, then we submit our offer.