AFTER SPENDING THE PAST three years strengthening its existing shopping center portfolio with $31 million worth of improvements, Combined Properties is now looking for high-yield redevelopment deals with third-party partners.

Throughout its history, the Washington D.C.-based company is known as a buy-and-hold shopping center developer. The company's strategy is successful, making the privately held firm one of the D.C. area's market share leaders. It has an impressive portfolio of 35 properties under management totaling more than 5.1 million sq. ft.

However, instead of stabilized leveraged return goals of 12% to 15%, a switch to buying, redeveloping and then selling properties promises higher yields of 25% or more.

"We obtain a stable 12% or more from our existing portfolio of properties," says Kathy Roberson, executive vice president. "So now we're trying to marry our existing portfolio with a higher-yield play. This strategy also allows us to stretch our capital and ultimately do more deals."

The strategy positions Combined Properties directly against huge REITs that have also exhibited similar interests in buying, redeveloping and selling properties, especially in off-balance sheet deals. While its considerably smaller, Combined Properties is busy organizing a pool of willing third-party sources such as pension funds, individuals with high net worth and other equity capital sources.

With these sources lined up and Combined Properties having the flexibility that private ownership lends, the 17-year-old firm believes it can outmaneuver large REITs on deals because it doesn't have to factor in shareholder considerations.

Besides generating higher-yield deals, Combined Properties also hopes to strengthen its budding Los Angeles market position by adding more properties. The developer is considering markets in California and along the East Coast within the next five years.

Emerging Successfully

Combined Properties spent the past three years successfully shoring up its existing portfolio's occupancy rates that previously lagged during the company's Chapter 11 bankruptcy. Unlike most bankruptcies, Combined Properties managed to keep its solid reputation intact, because its Chapter 11 filing evolved from a feud within the family-run business rather than financial insolvency. Eventually, Ronald Haft, the current chairman, president and CEO, led a 100% buyout from his father, company founder Herbert Haft, as well as from his mother, sister and brother.

One reason Combined Properties held onto its financiers was the strong health of the organization's assets, combined with the fact that creditors were paid back 100 cents on the dollar. Some pre-bankruptcy financiers such as Metropolitan Life Insurance Co. and Bank of America (formerly NationsBank) were partly responsible for the $300 million in financing the developer obtained since the reorganization.

"We tried to make everyone (creditors) as whole as possible after going through such a sticky situation," Roberson adds.

Combined Properties did carry some baggage from the bankruptcy such as an occupancy rate that dwindled to 82%. Once the reorganization was finished, the first task was to strengthen the portfolio's infrastructure.

The company added only 250,000 sq. ft. to its portfolio since emerging from bankruptcy, but it spent more than $31 million on improvements throughout its centers, including three major redevelopment projects. The investment made a difference. Last year occupancies rose to 94%. This year appears even more promising, Roberson says.

One boost to its portfolio's infrastructure was the redevelopment of Sugarland Crossing, a 1960s-style, 207,000-sq.-ft. shopping center in Sterling, Va. Combined Properties bought the dilapidated property in 1993 with intentions of redeveloping, but the bankruptcy delayed the completion until last year. The redevelopment added 48,000 sq. ft., plus a brick façade and tower elements. The improvements increased Sugarland's occupancy from 40% to 94%, including new anchor tenants, Shoppers Food, Burlington Coat Factory and The Room Store.

With its infrastructure now sound, Combined Properties hopes to capture a significant share of the Los Angeles market. Ronald Haft, who was schooled in California and still spends approximately half his time there, will lead the market penetration, Roberson says. "Los Angeles is similar in demographics to Washington, D.C., in that there are opportunities for value-added centers," she says. "The only difference is the palm trees."

Combined Properties' stride toward the West is exemplified in the Granada Hills Town Center in Granada Hills, Calif. It was acquired as a brand new center two years ago as a like-kind property deal. Bank of America financed the 202,000-sq.-ft. community center's $22 million acquisition loan and subsequent $28 million permanent loan.

Another Los Angeles acquisition was The Center At Coldwater in Studio City, Calif. Purchased in 1998, the 49,000-sq.-ft. strip center was a prime redeveloping opportunity because the property was only 80% occupied. Today the center, which is anchored by Bistro Garden, is nearly 100% occupied.

Those two acquisitions, plus two existing properties — the 177,000-sq.-ft. Loehmann's Plaza in Receta, Calif., and 213,000-sq.-ft. Mart of Montebello in Montebello, Calif. — serve as a solid foothold to help Combined Properties strive toward a significant share of the Los Angeles market. "Within the next five years we hope to develop a dominance in California like we have here in Washington, D.C.," Roberson says.

John Frantz is a Chicago-based writer.

Recent deals

Projects

  1. Sugarland Crossing, Sterling, Va., 255,000 sq. ft. — purchased in 1993, but completed a $17 million redevelopment last year that included brick façade and tower elements. Anchors include Shoppers Food and Burlington Coat Factory.
  2. Granada Hills Town Center, Granada Hills, Calif., 202,000 sq. ft. — acquired for $40 million in 1998 with a like-kind property deal, the brand new center's anchors include Ralphs, Longs Drugs, Michaels, OfficeMax, Orchard Supply Hardware and Suit Max.
  3. The Center At Coldwater, Studio City, Calif., 49,000 sq. ft. — purchased in 1998, the small strip center had an 80% occupancy that has since been increased to nearly 100%. The anchor tenant is Bistro Garden.

Key players

  1. Ronald Haft, chairman and CEO, led the company out of Chapter 11 bankruptcy by buying out other family members in 1998.
  2. Kathy Roberson, executive VP, a 10-year employee who runs the day-to-day business operations.
  3. Thom McKee, senior VP, a five-year employee who heads up real estate development. McKee was formerly the president of leasing/sales broker, Hicks & Rotner, Washington, D.C.

Kathy Roberson
Executive
Vice President
Combined Properties

" Los Angeles is similar in demographics to Washington D.C., in that there are opportunities for value-added centers. The only difference is the palm trees."