Smith Farms is a 348,082 square foot shopping center located along highway 169 in Owasso, Oklahoma. The center, built in 2005, was hit hard by the 2008 downturn with the loss of the 28,000 square foot Linens N Things and a handful of local tenants. The losses were exacerbated by the Owasso market which is reliant upon drawing customers from a wide underserved area to the northwest.
At the end of 2009, the center was 89 percent occupied with several tenants demanding rent reductions. It’s 2009 net operating income was $2.5 million. Our firm was able to take the following steps to improve property performance and put the owner in a position to sell the property for maximum value:
· Work out 1 & 2 years renewals for the 4 national tenants requesting rent reductions. This kept the tenants and their cash flow while not committing the property long-term to reduced rent. This strategy worked well to get the property through the downturn without losing major tenants.
· Negotiated long-term deals with two major tenants to get them out of co-tenancy rent (due to the Linens closure).
· Maintained the property in a high-quality condition, particularly when compared to its competitors.
· Instituted an aggressive renewal campaign with existing tenants; just over 85 percent of tenants renewed at rates above their existing rates.
· Began an aggressive campaign to replace Linens and the handful of tenants that did not renew. Were able to attract and lease the Linens space to Ashley Furniture. Children’s Place, Sears, Mattress Firm and the expansion of Rue 21 were completed to fill remaining vacant space. A long-time local eye doctor was recruited to the center.
· At the same time, efforts to extend the existing tenants who had done short-term renewals were successful, getting these tenants on long-term leases at or above market rates.
As the result of these efforts, we improved occupancy to 99 percent, property income increased 17 percent and the property net operating income was increased to nearly $3.5 million. The value of the property over this period went up over $14 million. Our firm then partnered with HFF to market the property for sale. It was widely marketed to active national buyers and garnered significant interest. After a number of rounds of bidding, we were able to sell it at a 7 percent capitalization rate.
For the last 25 years, Price Edwards & Company has developed very targeted strategies for clients owning retail, office, multifamily, and industrial properties in order to protect and enhance their real estate investments, as we did with Smith Farms. We were able to analyze its condition, develop a strategy to improve its performance and implement the strategy, yielding superior results.
