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December 20, 2017  

Grocery-Anchored Portfolio Split Up for Sale

Terramar Retail Centers has lined up buyers for $275 million of grocery-anchored shopping centers in suburban Seattle, as it breaks up a massive portfolio it put on the block a few months ago.

Donahue Schriber is under contract to pay about $200 million for four centers totaling 589,000 square feet. Separately, a joint venture between First Washington Realty and Calpers has inked a deal to pay roughly $75 million for a 215,000-sf property in Renton, Wash. Both purchases would generate initial annual yields just under 5%, although the marketing campaign touted the potential to boost returns by leasing up the small amount of vacant space and raising below-market rents upon rollover.

Eastdil Secured marketed the high-quality centers for Terramar, which is owned by Washington State Investment Board. The Newport Beach, Calif., company pitched the properties as less vulnerable to the e-commerce revolution rocking many other retail properties because the vast majority of rent comes from grocery stores, restaurants, pharmacies, movie theaters and health clubs.

The five properties changing hands were among 17 centers, encompassing 2.6 million sf, that Terramar listed with Eastdil. Although it pitched them as a portfolio, the seller was open to multiple deals. It is now talking with potential buyers for other chunks of the package. Three centers in Hawaii that total 413,000 sf and generate $12.2 million of net operating income are the most likely batch to go under contract next. There are also three centers in Northern California totaling 557,000 sf, four in Southern California with 645,000 sf and one each in Oregon (103,000 sf) and suburban Washington, D.C. (101,000 sf).

Donahue Schriber, a Costa Mesa, Calif., REIT, is buying the following centers in Washington state:

Point Fosdick Square, Gig Harbor (184,000 sf, 98% leased). Anchored by grocer Safeway. Developed in 2013. Net operating income: $3.5 million.

Covington Square, Covington (152,000 sf, 93% leased). Anchor Safeway has average sales of $525/sf. Rite Aid is another major tenant, with average sales of $261/sf. Net operating income: $2.1 million.

Lakeside at Canyon Park, Bothell (127,000 sf, 83% leased). Anchored by Safeway. The property includes two parcels that could accommodate 36,000 sf of development. Net operating income: $1.7 million.

Canyon Park Place, Bothell (126,000 sf, 95% leased). Anchored by grocer QFC, a Kroger subsidiary, with average sales of $625/sf. The grocer’s rent is 35% below market rates, under a lease that expires in 2019 with two five-year options to renew at fair-market value. Another tenant, Bartell Drugs, has average sales of $720/sf. Developed in 1990. Net operating income: $2.6 million.

First Washington, of Bethesda, Md., and Calpers are buying the 215,000-sf Fairwood Shopping Center in Renton. It is 93% leased and anchored by a Safeway supermarket with average sales of $820/sf. Other tenants include Bartell Drugs ($720/sf of sales) and LA Fitness.