LOS ANGELES - The global economic crisis has created unprecedented upheaval in the retail sector across the United States, toppling major retailers and exposing vulnerable shopping center owners. As shopping center owners and lenders come to terms with the new economic and retail environment, funds targeting retail real estate will begin to find acquisition opportunities at realistic values in the coming year, particularly as loan payments come due and terms readjust, according to retail real estate veteran and Managing Principal of Pacific Retail Capital Partners, Steve Plenge.

"Recognizing that there are opportunities in this climate is the simple part of the equation. Knowing where the best opportunities are located and assessing the long-term viability are the keys to success," notes Plenge. "We formed Pacific Retail earlier this year with both capital and an experienced retail real estate team to tackle the challenges associated with retail real estate, whether it's as an owner and manager or as an operating partner."

Retail centers are still a very viable product. They serve as a social gathering place and are part of the urban fabric of a community. People will continue to shop, meet friends for a meal or coffee, or go to a movie," he observes. "While it is expected that even more national retailers will go out of business and/or close large numbers of stores next year, this can be viewed as an opportunity to recreate the retail experience. This could be the beginning of the next major shift with more differentiation and less of the sameness that has overtaken retail centers in the past few decades."

Lenders, still grappling with a bulging portfolio of residential real estate owned (REO) will soon be coping with troubled commercial real estate loans which will include a substantial amount of retail property. While many companies will try to develop a workout strategy or restructure loans there will be a significant number that will not be able to renegotiate creating a new REO problem.

"We are well positioned to partner with lenders on troubled real estate loans or partner with equity funds that want to invest in retail, but do not have the required in-house retail expertise. Our team has the background and experience to understand how to underwrite a retail property in these very challenging times. With expertise in managing, redeveloping and repositioning retail centers we can quickly make a realistic assessment of a property and develop a thoughtful strategy and time horizon for improving its performance," he stated. "Each property and each market is different, there's not a one-size-fits-all solution. One of our firm's key strengths is our individualized approach. An important first step is evaluating the property's leasing condition to determine which retailers are at risk and then looking at the center's position in the community to understand why it is or isn't a draw for the neighborhood."

Plenge cites altering and stabilizing the tenant mix, connecting the center with the community and improving the physical environment such as large comfortable family lounges, improved food court areas and better overall lighting, along with community focused activities as simple adjustments to activate the shopper's interest.

Our first action in this market will be to stabilize properties. When an owner is going into default often paralysis sets in and they simply stop managing. This creates a scenario of underperforming centers that are in solid markets but have declined either due to neglect or lack of capital to maintain and enhance the property," added Plenge. "One upside in this economy is the resulting reduction in construction costs. Contractors are more willing to negotiate and materials are more affordable due to diminished demand. If you have the capital, now is a good time to invest in property improvements."

The executive team at Pacific Retail Capital Partners has experience with all types of retail properties, community and neighborhood centers, lifestyle centers, regional malls and urban mixed-use developments.

Pacific Retail Capital Partners was formed in January 2008 by principals Steve Plenge and Michael Miller. Plenge and Miller have a combined 50 years of retail real estate experience and have worked together for more than 15 years. Pacific Retail has as its principal partner private equity firm Lubert-Adler, which has provided an initial $200 million for the firm's retail real estate investments. The company also looks to co-invest with other funds on various opportunities. Previously, the Pacific Retail principals have worked in partnership with numerous institutional investors including AEW, AT&T Pension Fund, JP Morgan and Rockwood Capital. Pacific Retail Capital Partners is headquartered in Los Angeles.