Grocery Shopping Centers Lure Buyers as $200 Million U.S. Venture Formed

CB Richard Ellis Group Inc. (CBG)’s investing affiliate formed a joint venture with a real estate investment trust to buy more than $200 million of retail centers anchored by grocery stores as demand for the properties climbs.

Phillips Edison-ARC Shopping Center REIT Inc., a Cincinnati-based company that isn’t listed on an exchange, will contribute $52 million to the partnership, and clients of CBRE Investors will put in $50 million, the REIT said today in a statement. They will borrow about $102 million for U.S. deals.

Retail centers with supermarkets are attracting investors because of the perceived safety of properties that consumers have to visit for necessities in a slow-growing economy. Sales of such real estate in the first half of the year exceeded the total for all of 2010, according to research company Real Capital Analytics Inc.

“We believe firmly that it is a recession-resistant -- not recession-proof, but recession-resistant -- real estate category,” Jeffrey Edison, chief executive officer of Phillips Edison-ARC, said in a telephone interview. “Even in a recession, people are eating and they’re buying their food.”

The economy expanded at a 1 percent annual pace in the second quarter following a 0.4 percent gain in the first three months of the year, capping the weakest six months of the recovery that began in mid-2009, according to Commerce Department figures. The International Monetary Fund yesterday cut its forecast for U.S. growth this year to 1.5 percent from 2.5 percent in June.

Grocery-Center Sales

About $5.58 billion of grocery centers were sold this year through the second quarter, 22 percent more than the $4.57 billion in all of 2010, according to New York-based Real Capital. The 2011 total is the highest since 2007, the peak of the commercial real estate market.

Supermarket-anchored centers haven’t been immune to the economic slowdown. Vacancy rates have risen as local retailers, such as dry cleaners and restaurants, have gone out of business. Reduced access to capital has prevented other stores from taking up their space.

The vacancy rate at grocery-anchored centers was 7.7 percent in the second quarter, matching the highest since the recession, according to Reis Inc. (REIS), a provider of property data. That’s lower than the 9.3 percent rate for regional and super- regional malls. The asking rent at supermarket-anchored centers was $21.18 per square foot in the second quarter, unchanged from a year earlier, the New York-based company said.

“It’s a much more defensive type of property, where they know that the performance is going to hold up a bit better,” Ryan Severino, a senior economist at Reis, said in a telephone interview. “The key is having that anchor there.”

Phillips Edison-ARC owns 250 shopping centers in 35 states, according to Co-Chairman Michael C. Phillips. CBRE Investors, based in Los Angeles, had $60 billion of assets under management at the end of June.

To contact the reporter on this story: Brian Louis in Chicago at blouis1@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net