Innovative Real Estate Companies Get The Ball Rolling In A Struggling Retail Industry

With the retail industry still in a slump, local retailers continue to be buffeted by challenges such as market volatility and changing consumer habits. 

Unlike large chains like Macy’s or Walmart, mom-and-pop stores can’t handle the slow sales growth and wavering margins that have affected the sector. According to an SBAF Small Business Survey released in March 2022, 60% of small-business owners deemed inflation the top challenge they face.

However, some local retail centers continue to thrive because there’s an audience for in-person shopping despite the shift to e-commerce. According to a U.S. Census Bureau report, retail and food sales were up 10.6% in August 2022 compared to July 2021. Consumers are ready to shop and make up for time lost due to the pandemic. 

Natalie Kotlyar, a retail trend follower for advisory firm BDO, believes there’s a lot of emotional buying. “It’s the need to purchase something that will make them uplifting, that will make them feel better,” she said.

While business loan approval rates slowed due to the pandemic, small and midsized businesses have found real estate financiers willing to fund new retail developments. 

Broadmark Realty Capital, a nationwide commercial real estate lender investing across the entire capital stack, focuses on a wide range of asset classes, including large-scale residential and urban infill projects. While it has a diverse portfolio, more than 50% of its investments are in housing. Nevertheless, retail is a priority for Broadmark.

One of the projects it helped finance is the acquisition of the $57.2M Town and Country Square, a 16-acre retail center in Issaquah, Washington, an affluent suburb of Seattle. Broadmark provided a $10M mezzanine loan — behind a senior $33.5M loan — and was able to close the transaction in just 10 days. 

“Broadmark has the competitive advantage of being an internally managed REIT, which allows us to be flexible and responsive without reliance on the secondary capital markets,” Broadmark loan originator Thatcher Milholland said. “Because of our clear, proactive process, our clients are able to quickly capture opportunities with our dedicated underwriting, asset management, investment committee and draw administration teams."

Town and Country Square is close to a new Costco HQ on Interstate 90, making it an ideal location for redevelopment. 

The fully leased property already has a mix of tenants including Hobby Lobby, 425 Fitness and Rite Aid. The local group that developed the original property in the 1980s was able to close the deal with help from Dino Christophilis and Daniel Tibeau of CBRE’s National Retail Partners Group in the Pacific Northwest.

“Town and Country Square is a textbook example of the long-term potential for retail shopping centers,” Christophilis, a senior vice president at CBRE, said in a statement. “While the property is fully stabilized today with long-term tenants and 100% occupancy, the obvious highest and best use of the property is for mixed-use redevelopment.” 

Christophilis said the development could support more than 1,000 apartment units as well as commercial uses. The redevelopment of the Town and Country Square center is part of Central Issaquah’s plan to bring more walkable and affordable spaces to the area to encourage economic development.  

Broadmark is not only using its talents locally, but extending them to the self-storage industry — another sector of interest — in other parts of the United States such as Georgia and Tennessee. 

According to StorageCafe, the self-storage industry has grown to more than 1.6B SF in 2022. Additionally, the last five years saw 258.9M SF of storage space built — the equivalent of 16.1% of the country’s total inventory. 

StorageCafe also says one-third of Americans use a self-storage facility. The average person transitioning to a new home or going to college needs additional space, while retailers need it to secure documents, inventory and office equipment. 

Broadmark is providing a nearly $25M loan to help guarantors acquire The FreeUp Storage Space and its Tennessee portfolio, which consists of eight properties representing 370K SF of rental space. This includes 2,709 units of both climate-controlled and non-climate-controlled storage. 

Additionally, the portfolio includes 12K SF of office and retail space, 268 parking spaces and one billboard. The entire portfolio has 95.6% occupancy and net operating income of $2M. Broadmark describes the acquisition as a value-add portfolio with scale and major upside through expanding sites, rate increases, implementing revenue management and added management efficiency. 

Broadmark Senior Vice President Jordan Siao said Broadmark will continue to provide smart, reliable, rapid financing solutions across the real estate spectrum in the form of senior fixed, floating rate, bridge, mezzanine and other loan types.

“In a market that fluctuates daily, our clients partner with Broadmark for our agility, which allows them to act quickly and capture opportunistic investments,” Siao said.

This article was produced in collaboration between Studio B and Broadmark Realty Capital. Bisnow news staff was not involved in the production of this content.

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