A.CRE

Community Center (“Large Neighborhood Center”)

A community center is a retail subtype distinguished for its convenience-oriented offerings and general merchandise, wide range of clothing stores, and a higher variety of goods than Neighborhood Centers. Off-price retailers, supermarkets, and large-specialty discount stores are common types of anchor tenants for this retail subtype. The trade area is approximately 3 to 6 miles, with centers averaging around 200,000 SF or larger.

Source: ICSC

Putting ‘Community Center’ in Context

Scenario Overview:

SunWest Capital Partners, a real estate private equity firm specializing in value-add opportunities, has recently acquired the Desert Ridge Community Center, a 220,000 SF retail property located in a suburban area of Phoenix, Arizona. Built in 1998, this community center serves a trade area of approximately 5 miles and features a mix of convenience-oriented offerings, general merchandise, and a higher variety of goods compared to smaller retail centers.

Current Property Situation:

At the time of acquisition, the Desert Ridge Community Center is only 75% occupied. Its anchor tenants include a well-known off-price retailer, a large specialty discount store, and a regional supermarket chain, which collectively draw significant foot traffic to the center. However, the center’s vacancy rate is above market average due to outdated common areas, poor visibility of signage, and the departure of several smaller tenants in recent years.

Value-Add Strategy:

  • Renovation of Common Areas: The firm plans to invest in upgrading the landscaping, repainting the building exteriors, and modernizing the lighting throughout the property. This will improve the overall aesthetics and create a more welcoming environment for shoppers.
  • Re-tenanting Vacant Spaces: With 25% of the center currently vacant, SunWest aims to attract new tenants that align with the community’s needs. They plan to focus on securing leases with complementary retailers, such as a fitness center and a popular local restaurant, which are likely to drive additional traffic.
  • Upgrading Signage: The existing signage is outdated and lacks visibility from the main road. By installing new, eye-catching signage at key entrances, the firm expects to increase the center’s visibility and attract more customers.

Financial Projections:

  • Acquisition Price: $42 million
  • Renovation and Leasing Costs: $6 million
  • Stabilized Occupancy Target: 92%
  • Projected NOI Increase: 25% post-renovation
  • Expected Sale Price After 5 Years: $58 million

Putting the Term in Context:

The Desert Ridge Community Center is a prime example of a community center that offers a diverse range of goods and services catering to the local population. The center’s trade area spans approximately 5 miles, fitting within the typical range for a community center. With its anchor tenants driving significant foot traffic, the center has the potential to thrive once the value-add improvements are implemented.

By focusing on enhancing the property through strategic renovations, re-tenanting efforts, and improved signage, SunWest Capital Partners aims to increase the center’s occupancy and overall attractiveness to both retailers and shoppers. This case highlights the importance of maintaining and upgrading community centers to ensure they remain relevant and competitive in a dynamic retail landscape.

Click here to get this CRE Glossary in an eBook (PDF) format.
by