Cooper Plaza will not look like a retail powerhouse when it opens in May. The 13,000-square-foot, Gilbert, Az, open-air center has no anchor, and its tenants are serving ice-oriented retailers.
But Cooper Plaza and properties like it are looking desirable these days, as developers and lenders alike come to realize that consumer convenience need not necessarily translate as "grocery store."
"There is a need for predominantly service-oriented businesses," said Michael Pollack, president of Mesa, Ariz. - based Pollack Investments. "We've got a list a mile long of people who would love to own strip centers, and unanchored is just fine by them."
To be sure, there have been unanchored centers with beauty salons, banks, dry cleaners and similar tenants for some time. But of late, developers are putting them up with particular zeal in Arizona, California and Florida.
Pollack Investments plans to build a dozen of these centers in Arizona this year, up from three last year, says Pollack. And Orlando, Fla. - based Century Retail broke into the business last year, completing one unanchored center and starting on two more, all of them in Florida. Century says it plans to build six or seven unanchored centers this year, including the two began last year, as many as 12 next year and perhaps 16 per year going forward. Real estate professionals attribute this boom in part to the drop-off in grocery chain expansion driven by competitive pressures within that sector and from Wal-Mart. The situation is most dramatic in Florida, where Publix is considered the only major grocery retailer, say developers there. "It makes it difficult when everybody in the state is going after one grocer," said Bill Drost, senior vice president of Century's retail and self-storage division.
An active house construction market, especially in Arizona and California, is fueling service-oriented center demand too, says Pollack. Besides, he adds, it takes 6 to 12 months to build a typical grocery-anchored project, whereas an unanchored center takes half of that, and maybe less.
Developers are also finding that unanchored center returns can be significantly better than those of grocery-anchored properties. Century's returns, for example, range between 10 and 15 percent on the unanchored centers it has owned and built, Drost says, which eclipses the average of about 7.8 percent on grocery-anchored between November 2004 to the end of January, according to New York City-based Real Capital Analytics.
To make things even better, lenders seem to be encouraged by tenant interest in these centers and are opening their wallets wider. "We've started to do a lot more because national tenants want to be there," said Leslie Lundin, a senior vice president of Inland Mortgage Capital Corp.'s California office. "A lot of national tenants don't care about anchors."
This tenant group, which includes the likes of pizza chain Domino's, EB Game and Starbark's, enjoys the high visibility and the good traffic counts they reap from these centers, observers say.
"Not all of them want to go into a large center, where you get lost," said Julia Sosa, Century's vice president of retail development. Furthermore, some in-line tenants find themselves obliged to leave centers anchored by struggling retailers such as Kmart, says Tina M. Prince, a vice president at Inland Mortgage Capital. They "don't want to be in that position again," she said.
Once a developer gets the center 50 percent pre-leased, it is easy to get financing. "Plenty of lenders out there will do a $2 million deal all day long," said Pollack.
Advantages aside, unanchored centers do not work by themselves. To succeed, they must be built on active sites with strong demographics, Pollack says. That seems to be no problem for Cooper Plaza - it shares a busy intersection with an Osco Drug.