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An Investor in Grocery Retail Is Reacting to a Market in Flux

“This is the time to buy,” says Jake Bisenius, president and CIO of AmCap. The firm is also coming back to raising money through RIAs.

For more than 40 years, real estate investment firm AmCap has been focusing on finding investment opportunities among grocery-anchored shopping centers across the nation. Its typical strategy can be seen in the case of Norridge Commons in suburban Chicago: when the firm purchased the 331,979-sq.-ft. community center in 2015, its tenant roster included Bed Bath & Beyond, hhgregg, Kmart, Michaels, Shoe Carnival and Walgreens.

Norridge Commons is situated in the heart of a 1.5-million-sq.-ft. retail corridor, directly across from Harlem Irving Plaza, one of the highest volume malls in Chicagoland. AmCap acquired the center for $75.65 million on behalf of one of its institutional investors with an eye toward re-claiming and re-tenanting the Kmart space.

“We purchased Norridge, knowing it was great dirt and that we could get much better credit and rent for that space,” says Jake Bisenius, president, chief investment officer and managing principal of AmCap.

Once AmCap was able to negotiate taking control of the Kmart space, the firm immediately scraped the site and prepared it for a new tenant: Amazon Fresh, a bricks-and-mortar concept from the e-commerce giant that offers customers the ability to shop for groceries in-store or online.

AmCap negotiated the lease in the early months of the pandemic, according to Bisenius, and the store opened just two weeks ago. At 50,000 sq. ft., it’s currently the largest Amazon Fresh in the nation and serves as the anchor for the latest phase of the 22-acre shopping center.

“Amazon Fresh has created a halo over the entire center,” Bisenius says. “It’s a perfect example of how we create and add value for our investors.”

Today, AmCap’s portfolio consists of 23 necessity retail centers with 67 million sq. ft. of retail space across eight states. With a team of 37 people, the vertically integrated firm manages more than $1 billion in assets for its institutional investment partners.

WMRE recently spoke to Bisenius about its core investment base, how it’s raising capital for new acquisitions and the firm’s plans for the next few years.

This Q&A has been edited for length, style and clarity.

WMRE: What is AmCap’s investment strategy?

jake-bisenius.jpgJake Bisenius: We acquire centers anchored by the top performing grocer that’s doing big sales and bringing people to the property. We’re looking for deals north of $20 million.

As far as preferred locations, we start with the demographics. We typically look for top 100 metros, preferably the top 50, and we focus on growing, thriving markets with a large college-educated population.

We like to expand in markets that we know—ones that we’ve been in before. We look at barriers to entry, access and visibility. We want to be on the going-home side of the road and visible from the road. That’s the criteria that we use to weed deals out.

WMRE: Has AmCap’s mission or vision changed since its founding?

Jake Bisenius: AmCap has always focused on grocery-anchored, necessity retail. The company’s founder, Jay Kaiser, invested in various property types prior to forming AmCap. He really liked grocery-anchored centers, and when he formed the company in 1979, he made the decision to focus exclusively on that property type.

WMRE: What type of investors does AmCap target?

Jake Bisenius: We target large institutions, including state pension funds and endowments. Eighty to 90 percent of our money is institutional at this point, with investments ranging from $10 million to $300 million. Institutional investors like our track record and our attention to detail to drive NOI.

In the beginning, we raised money from high-net-worth investors. When I joined AmCap in 2005 from Vornado Realty Trust, I brought more of an institutional background with policies and procedures that were more institutional. We worked with an investment banker to recap our portfolio, and after accomplishing that, we hired an internal fundraiser in 2010.

We raised money though RIAs and broker-deals in a fund, but we shut it down because of all the reporting and regulations associated with so many investors. We decided to shift our strategy, and over a two-year period, we evolved from high-net-worth-investors to almost exclusively institutional investors, including pension funds and endowments, as well as a few select family offices, all U.S.-based. I feel like our mission is even more important now since we’re helping everyday people secure their golden years.

WMRE: What have been the biggest roadblocks that AmCap has faced in terms of raising capital and sourcing deals?

Jake Bisenius: In 2017, when Amazon bought Whole Foods, it put a chill on grocery-anchored centers from an investor standpoint. And then, our centers got painted with the broad retail brush, with no differentiation from malls or other less resilient retail.

COVID actually helped differentiate retail real estate, and institutional investors became very interested in this property type. This year, however, with the public equities being off, real assets are above the allocation threshold for a lot of institutional investors, which means they can’t invest in more real assets until they [rebalance their portfolio].

WMRE: Do you anticipate your investor base will change in the near future?

Jake Bisenius: Over the next five years, we’ll continue to raise equity through JVs with institutions. We’re seeing more demand from large family offices and high-net-worth investors that want to invest more in alts.

Investors like the steadiness of grocery-anchored retail, which offers great cash yields, in addition to appreciation—wealth preservation that also provides cash flow.

We have a lot more interest now in raising money from high-net-worth investors again, in addition to institutional. We want to serve all the investors that want to work with us, and the technology exists today to manage some of the reporting issues that were a challenge in the past.

We think working with RIAs who have feeder funds could be a good option, and we’re also working with a large family office and evaluating different ways we can raise another fund through some form of quasi-crowdfunding.

WMRE: What is the most common way that you structure deals, e.g. LPs, GPs, JVs, or something else?

Jake Bisenius: We usually structure our deals as separate accounts or JVs.

WMRE: What is the range of returns that you expect on your investments?

Jake Bisenius: Typically, we’ve achieved historical returns of 14 percent net IRR, with an average cash yield of 6.0 to 8.0 percent. We’ve had some core investors that didn’t want us to use any debt at all, and those properties had returns in the high single-digits.

WMRE: What is your average hold period? Does it range from deal to deal or is it standardized?

Jake Bisenius: Often, many of our large institutional groups don’t want to sell; they want to continue receiving yield/dividends. We’ve owned some assets for more than 30 years, but usually our core plus hold is 10 years, and our value-add is five years.

We always look to grow NOI around 30 percent during our hold period. We can do that by leasing vacant space, renewing leases at higher rents or going to the municipality and getting an allowance to add pad sites. We look to increase tenant sales and increase cross-shopping so tenants can afford to pay more rent.

WMRE: What do you think differentiates AmCap from other investment management firms?

Jake Bisenius: We’re vertically integrated—meaning that we handle everything in-house. We focus on one niche and stick to our knitting. Since we’ve been in business for 40-plus years, we’ve been through multiple cycles and know when it’s a good time to buy and a good time to sell. That longevity sets us apart. Our deep relationships with national retail tenants are also a differentiator—it allows us to do repeat business.

We’ve been successful with our AmCap Fundamental Behaviors, which details how we expect everyone to interact with each other. I learned these fundamentals from a friend who owns a big construction firm. They include fixing the problem, not the blame; giving people the benefit of the doubt and looking to serve others. They’ve created a nice positive atmosphere and collegiate atmosphere.

Something else that makes us unique: our AmCap Employee Fund. Every employee, regardless of position, can participate in our deals. We’ve had large exits in the past, where employees were able to put their kids through college or pay off their mortgages with their returns. The employee fund creates an alignment of interest between ourselves and our investors because our team members are always looking for that extra nickel or dime because it turns into more for them.

WMRE: What lessons has AmCap learned during the pandemic?

Jake Bisenius: Our accounting and leasing folks really pulled together to get collections in the door during the early months of the pandemic. Our occupancy didn’t take a huge hit, maybe 5 percent overall, but it came roaring back.

This year has been one of our best leasing years ever (so far). We’ve seen a lot of activity for a couple of reasons: not much neighborhood retail has been built in the last 10 years or so, and more people and more people in suburbia. Work-from-home has really benefited our centers—it’s one of the reasons we have so much demand from shoppers and tenants.

WMRE: Given the current economic environment—inflation, rising interest rates, supply chain disruptions, locusts, plague, etc.—is AmCap doing anything differently?

Jake Bisenius: In the current climate, we’re staying away from box exposure and sticking to grocery stores. Those seem to be more financeable right now. We place debt on assets—60 to 65 percent LTV.

WMRE: Grocery-anchored retail is one of the most desirable asset classes right now. How are you finding deals?

Jake Bisenius: We’re buying properties from smaller owners that have fewer than five centers. They don’t have the deep relationships with retailers that we do, and they’ve squeezed all the value that they can. We’ll buy brokered deals because we see opportunities for value creation that other investors might not see. We’re able to find off-market deals because we have relationships with tenants who let us know when a center is in play. And because we have a reputation for being a good closer, we have access to the deals that are marketed quietly. In the current climate, surety of close is way more important than price.

WMRE: What is the most exciting or interesting deal that AmCap has closed in the past few months?

Jake Bisenius: We recently acquired a 146,263 sq.-ft. grocery-anchored center in suburban Chicago through a JV with Encore Enterprises. The property, Hoffman Plaza, is anchored by Jewel-Osco, the premier grocer in the Chicagoland area by both market and store count. They operated at this location for close to 50 years.

We really like Hoffman Plaza. It’s a solid center, but older center, and with a lot of below market rents. It’s located in a very infill, very wealthy neighborhood, and we got it at a good price point. While it was under contract, we received interest in the vacant space. It’s making more money than we initially projected.

WMRE: What plans do you have for AmCap for the remainder of 2022 and 2023?

Bisenius: We are going to continue to search for grocery-anchored deals to add to our portfolio, and we’re going to look into ways to serve non-institutional investors. This is the time to buy—prices are lower, there aren’t as many investors bidding on assets and we feel interest rates will come back in and create great unlevered returns.

WMRE: What is the biggest success that AmCap has experienced? What is the biggest failure?

Bisenius: Our biggest property-related success was a deal in Denver’s Cherry Creek area called Clayton Lane. When we acquired it, Sears was the anchor. We were able to change the FAR (floor area ratio) and replace it with Whole Foods. We sold that property for a profit north of $50 million.

Our biggest failure is Chicago-area shopping center that was anchored by a vacant Circuit City when we bought it. Before we could do anything with it, a nearby mall was de-malled and stole our tenants. We’ve since recapped our center, the market has improved and we’re seeing more leasing activity.

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