Encinitas Village Shopping Center Disposition Exceeds Expectations
Encinitas Village is a Ralphs/Trader Joe’s/CVS-anchored asset located in the coastal community of Encinitas. While the asset provided investors an impressive tenant line-up, several challenges had to be addressed in order to meet seller expectations. First, the project's shops-to-anchor ratio was high with top of the market rents. This created investor concern about sustainable occupancy and future rent growth. Second, while the asset garnered significant interest due to its location and tenant line-up, not all tenant sales were commiserate with pricing expectations and rumors of a potential CVS relocation put potential pressure on pricing and dampened the buyer pool. Lastly, the seller had committed to gift the proceeds to a non-profit organization within 90 days of being awarded the assignment at pricing that resulted in achieving a cap rate of 5.5%.
In order to tackle the challenges, the Cushman & Wakefield team implemented the following plan. First, we staffed the marketing team appropriately. In addition to identifying the proper investment professionals, a leasing advisory team was utilized to address specific concerns relating to occupancy and rental rates. A Health-Ratio Analysis was performed to illustrate to buyers how tenants' current sales performance and lease structures were not only sustainable but that rental growth was possible and likely. The potential relocation of CVS was addressed by identifying a strong target replacement tenant list. As the asset was located within a retail hub, a majority of tenants were already located within the Encinitas market. Having a strong leasing team available to potential buyers allowed buyers to fully grasp the depth of the replacement tenant pool. Delivering on pricing and timing expectations was achieved by insuring and delivering the Offering Memorandum to the marketplace within two weeks of being awarded the assignment. This allowed buyers ample time to tour the asset, perform in-depth due diligence, and offer a quick close scenario to the seller.
Cushman & Wakefield closed the transaction within 75 days of being awarded the assignment at a high-water-mark cap rate of 4.8%. This pricing far exceeded the client’s expectations and allowed it to execute on its gift of proceeds within the allotted time frame.