By Jon Peterson
Solano Beach, Calif.-based The Gerrity Group has seeded its new value-add retail investment fund, Gerrity Retail Fund 2, with two properties in the Seattle market, according to a document from the Los Angeles City Employees’ Retirement System.
Bill Gerrity, a managing partner with The Gerrity Group, did not respond to phone calls seeking comment for this story.
The properties placed into the investment fund are the 129,000 square foot Redondo Square shopping center in Des Moines and the 158,000 square foot Bethel Junction shopping center in Port Orchard.
Redondo Square was acquired for $25 million or $193 per square foot, according to the pension fund document. The property was bought with $9 million of equity and the balance was debt. The deal was underwritten with a 16.2 percent gross IRR and a 1.9X gross multiple.
This asset is considered to be a neighborhood shopping center. It’s currently anchored by a Safeway, Bartell Drugs and Ace Hardware. The center was 82 percent occupied when the deal was completed.
Gerrity Group does have several ideas as to how to improve the performance of the center going forward. One is to increase the occupancy up to at least 96 percent. It plans on replacing an underperforming Ace Hardware store with a new operator or fitness tenant. It wants to secure lease renewals with Safeway and Bartell and pursue ground lease with Safeway for a fuel station on an undeveloped pad.
Gerrity Group bought Bethel Junction for $20.8 million or $131 per square foot, according to the pension fund document. The real estate manager put $7.6 million of equity into the deal and the rest was financed. The deal was underwritten at a 15.2 percent gross IRR with a 1.8X gross multiple.
The property is a 158,000 square foot grocery-anchored shopping center. The property’s two biggest tenants are Safeway and Big Lots.
Gerrity has a few value-add initiatives in mind, according to the pension fund document. This would include increasing the cash flow by leasing up some of the 13 percent vacancy in the property and retain existing shop tenants and mark rents to market.
Gerrity is still in the process of raising capital for Retail Fund 2. The real estate manager is looking at a $400 million equity raise for the commingled fund. Among its most recent new investors was a $20 million commitment from Los Angeles City Employees’ and $50m from the Ohio Police & Fire Pension Fund.
Gerrity is planning on placing 2 percent of the commingled fund’s total commitments up to $5 million with its own capital as a co-investment. The targeted return for the commingled fund is a 12 percent net IRR. The leverage on the commingled fund can’t exceed 65 percent.
Retail Fund 2 will be looking to buy value-add shopping centers located in Washington, Oregon and California. These are typically grocery-anchored properties. The long range plan for the investment fund is to have 25 to 30 assets in the fund with an average deal having a $15 million equity investment.
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