Is Real Estate Ready for a Correction?
Location: Business Section, Front Page
Author: Ed Taylor
“Right now we’re seeing the ‘greater fool’ theory at work. People are paying too much, then looking to be bailed out by selling to a greater fool who is willing to pay even more.”
Michael A. Pollack
-President of Mesa-based Michael A. Pollack Real Estate InvestmentsThe East Valley commercial real estate market has enjoyed a prolonged boom thanks to low interest rates. But one of the area’s top shopping center moguls is warning of storm clouds on the horizon.
Michael A. Pollack, president of Mesa-based Michael A. Pollack Real Estate Investments, sees “a yellow flag” in the prospect of higher interest rates.
“I don’t see a crash and burn like the late 1980s, but I do see a mild correction,” he said.
“There is so much money chasing deals right now. That is not what I like to see...
There are some projects being sold that are overpriced and overleveraged.”
He added that when the correction arrives, “I do think there will be casualties.”
Pollack’s opinions carry weight because he hs gained a reputation for shrewd investing in the shopping center niche.
He came to Arizona from Silicon Valley in 1991, snapping up underperforming properties when prices were at rock bottom, then fixing them up and turning them into moneymakers.
Today the flamboyant 48-year-old investor owns or controls about 60 shopping centers in Arizona valued at some $400 Million. About half of his portfolio is in the East Valley.
Pollack notes that real estate is a cyclical industry, and higher interest rates will inevitably cool off the boom.
So he has a strategy to survive any slowdown that might occur. First he is doing mostly cash deals to avoid too much debt. And he is being selective in the centers he buys. It has to be a deal with price and rental rates that work, he said.
“We’re under no pressure to do a deal, so they have to make sense,” he said.
One strategy Pollack is not pursuing is selling now while the market is hot, even though he is receiving a lot of inquires about what he has for sale.
“We don’t buy with an exit strategy,” he said. “We want to hold long term. We’re in the business of acquiring and operating shopping centers.”
Despite his caution, Pollack does have a few projects under way. One of his prides is North Park Plaza at the northwest corner of Arizona Avenue and Ray Road. Built in the 1960's, it was one of the first shopping malls in Chandler. Pollack bought it in late 2002 and is renovating the property to look like a shopping village as part of a redevelopment project with the city of Chandler.
“This will be the most dramatic redevelopment I’ve done,” Pollack said. “It will demonstrate what infill redevelopment is all about.”
Pollack also is planning makeovers for two centers in Tempe - Southwind at the southeast corner of Rural and Elliott Roads and Marcos de Niza at the southwest corner of Rural and Guadeloupe Roads.
The talkative developer holds strong opinions about real estate investing. One of his basic beliefs is that the way to make money in the business is buying at the right price, not on the sale.
“Right now we’re seeing the ‘greater fool’ theory at work,” he said. “People are paying too much, then looking to be bailed out by selling to a greater fool who is willing to pay even more.”
He also wants to stay in the few markets that he knows best. For example, he has avoided buying shopping centers in Scottsdale because he wants to stay out of the high-end market.
“I’m looking for middle America; that is our niche,” he said. “Anyone who thinks they can do it all is a moron.”
Redevelopment specialists in cities where Pollack does operate say his projects have had a major impact. Not only has he upgraded down-and-out strip shopping centers, but he has kept them filled with tenants once they’re improved, said Garrett Newland, economic development director for the city of Chandler.
“He will go into that difficult failing center, even one that’s in an area without prime demographics, and he sees the value of that diamond in the rough,” Newland said.
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