Grocery Anchored center questions
Real Estate Investor · Miami, FL · Member since 2015 · 7 posts · 0 votes
If you're looking at a neighborhood shopping center with a major grocery anchor, how much in-line space is considered ideal?
Also, let's say you have a major grocery store, but also have a very popular restaurant, such as a local pizza or Mexican place. Would those kinds of restaurants or other popular in-line tenants improve the grocery sales? For example, stopping at the grocery store while picking up laundry or the kids from a daycare?
If the grocery store is dated, how difficult is it to remodel? Can this be done in a way to minimize hassle to shoppers or is a complete rebuild more usual?
@Max Powers with almost all shopping retail centers they have CC&R's (Covenants, Conditions and Restrictions) that outline that with the signing of a tenant that a similar tenant cannot interfere or be leased too. This also occurs within each individual lease. So the grocery store I am sure has a lease that says no other grocer can lease space. I am sure that the local pizza joint may have that they cannot lease to another pizza place. It can be as general or specific as the tenant and owner agree to.
I am sure that there are some cross affect compliments happening with the popular restaurants with the grocery. However that is a marketing question which is not my niche :)
To answer your question about a dated grocery. It really depends on what you mean by updates. Just a coat of paint can be several thousand, while I have seen TI work be done that cost hundreds of thousands and have to close for 3 months, depends on the work. Developers and investment owners always try to save the structure and remodel vs a tear down. The only exception is if a 50k sq ft retail space can be expanded immensely. That may be enough of a factor to tear down and build a much bigger space.
Along the same lines, what about developing a strip with a grocery anchor in a food desert? I've been thinking about this as a business model but it is so different from what I do that I'm not sure where to start. If anyone does this type of commercial development I'd love to hear one piece of advice about how to start.
The Local Safeway has a pizza place and a chinese restaurant and there don't seem to be any conflict.
@Max Powers with almost all shopping retail centers they have CC&R's (Covenants, Conditions and Restrictions) that outline that with the signing of a tenant that a similar tenant cannot interfere or be leased too. This also occurs within each individual lease. So the grocery store I am sure has a lease that says no other grocer can lease space. I am sure that the local pizza joint may have that they cannot lease to another pizza place. It can be as general or specific as the tenant and owner agree to.
I am sure that there are some cross affect compliments happening with the popular restaurants with the grocery. However that is a marketing question which is not my niche :)
To answer your question about a dated grocery. It really depends on what you mean by updates. Just a coat of paint can be several thousand, while I have seen TI work be done that cost hundreds of thousands and have to close for 3 months, depends on the work. Developers and investment owners always try to save the structure and remodel vs a tear down. The only exception is if a 50k sq ft retail space can be expanded immensely. That may be enough of a factor to tear down and build a much bigger space.
If you're looking at a neighborhood shopping center with a major grocery anchor, how much in-line space is considered ideal? It depends on your return. If you have a major grocer paying X amount in rent, how much additional square feet do you need to achieve a certain return? Be careful not to maximize GLA by limiting parking. Most grocers have a minimum parking requirement that may exceed city's parking requirements.
Also, let's say you have a major grocery store, but also have a very popular restaurant, such as a local pizza or Mexican place. Would those kinds of restaurants or other popular in-line tenants improve the grocery sales? For example, stopping at the grocery store while picking up laundry or the kids from a daycare? Negative. Major grocers are anchor tenants and restaurants flock to those shopping centers to be next to a grocer. It's never the other way around.
If the grocery store is dated, how difficult is it to remodel? Can this be done in a way to minimize hassle to shoppers or is a complete rebuild more usual? It depends on the grocer.
Along the same lines, what about developing a strip with a grocery anchor in a food desert? I've been thinking about this as a business model but it is so different from what I do that I'm not sure where to start. If anyone does this type of commercial development I'd love to hear one piece of advice about how to start. Grocers have criteria's to follow such as, but not limited to: demographics, traffic counts, and retail synergy. Food deserts are usually a food desert for a reason whether its low population density, low incomes, low retail synergy, low traffic counts, etc. I'd start by learning grocer's site selection criterias. It'll give you a better idea if there is a demand for the areas you want to develop. You can usually find them on their website.
If you're looking at a neighborhood shopping center with a major grocery anchor, how much in-line space is considered ideal? There is no one correct answer to your question as there are a lot of factors which will dictate what can be done (or should be done) with each specific site. Neighborhood grocery anchored centers are typically 75,000 - 125,000 sf in size. If you factor in most major grocers run 45 - 65,000 sf (some even a little larger), this is one factor that will help determine what might be done with the remaining, in addition to things like overall size of the site, how much is buildable, population density, parking ratio requirements, etc.
Also, let's say you have a major grocery store, but also have a very popular restaurant, such as a local pizza or Mexican place. Would those kinds of restaurants or other popular in-line tenants improve the grocery sales? For example, stopping at the grocery store while picking up laundry or the kids from a daycare? Sure, there's benefit that goes both ways between anchors and small shop tenants. However, at the end of the day, it's the anchor tenant that drives business to the center, and often anchors will dictate what types of tenants they will allow as co-tenants in the center and may even impose radius restrictions within so many feet of their door depending on the tenant use. There is one anchor tenant that comes to mind who will not allow restaurants, gyms, churches within 300 ft of their premises (within the center) as these tenants use up a lot of parking for extended periods of time.
If the grocery store is dated, how difficult is it to remodel? Can this be done in a way to minimize hassle to shoppers or is a complete rebuild more usual? Can't speak to the specifics on how best to handle other than I know remodels happen every so many years with national tenants to keep their stores looking current and modern. I have one center in particular that the anchor recently remodeled their store and did it in sections. At the same same, a smaller national tenant will be moving temporarily into the adjacent space while they do their store remodel.
In my experience you almost never make the money on the grocer. If you have a lease with them, the rent is fairly low and barely covers your debt service or capex costs. The in-line is where you make your money. You pack in as much inline space as the anchor lease and co-tenancy provisions allow.
Purchased a similar center like yours back in 1981. the first thing we did was to subdivide off the anchor grocer and sold the property to the grocery store. We reaped the benefit of the anchor without it dragging us down (no pun intended). We set up a small association spelling out the exterior maintenance ie painting and paving. Worked out very well.
I think in today's age, there are a number of buyers that would jump all over the purchase if the lease was firm and stable. Always good for a 1031 buyer coming out of vacant land into anything that creates income.
Do watch out for the remodel costs. The one above was just remodeled by the company that we sold it to for a total price tag of $2,100,000 for a 22,000 square foot in neighborhood shop. His rate increase more than made up for it.