Through the 1980s and beyond, Bill Gerrity spent the better part of his real estate career digging up deals in the office and industrial sectors. In 1992, however, he took a look at retail and the floundering California economy and noticed that less institutional capital flowed into neighborhood shopping centers. He then pursued what he considered an opportunity.
“I thought I could form a professional management team that would attract institutional capital to that property type,” Gerrity says. “And I wanted to position the company to take advantage of the expected inflow of capital back into California when the economy turned around.”
Bill Gerrity President and CEO GMS Realty Carlsbad, Calif.
“If we're just trying to place our tenants into a center, we're not going to be helping them meet their goal to connect with consumers. Consumer demand is really shifting around, and all the different retailers are doing whatever they can to meet that demand.”
In 1996, those observations led to the beginning of GMS Realty, a Carlsbad, Calif., real estate developer and manager of neighborhood centers, mostly in California but also in Washington and Colorado. The company owns, leases or manages some 5.5 million sq. ft. — some as a third party provider — and is aggressively seeking acquisition and development opportunities throughout the United States. During the next three years, the company hopes to double its portfolio, though as an active buyer and seller, its transaction volume will likely be much larger, says Gerrity, the company's president and CEO. Indeed, GMS Realty's transaction volume to date totals 6.6 million sq. ft., with expected revenues of $60 million this year alone.
Gerrity had the right hunch about institutional capital finding its way to neighborhood centers. Today, GMS Realty's equity partner is Principal Enterprise Capital, an institutional investment fund of Principal Financial Group of Des Moines, Iowa. Principal Enterprise bought the position of GMS Realty's former partner, Morgan Stanley Real Estate Funds, in February 2000 in a deal valued at more than $287 million. Wells Fargo is GMS Realty's primary lender.
GMS Realty's major tenants include grocers such as Albertson's, Safeway, Vons and Ralphs and a variety of other apparel, discount and drug stores. Gerrity attributes the company's rapid success not only to its strong relationships with its tenants, but also to its ability to give clients a fuller understanding of trade areas and the consumers within them.
“We're intrigued by the communities and the industry, and that seeps into all the activity within our business,” he says. “It's an enjoyment that flows into the cities, the communities and the retailers.”
Alliances are key
In addition to retailers, GMS Realty counts the public sector as its client, as well. For example, the firm is putting together an $80 million to $100 million project in San Diego that will have some level of public involvement, though Gerrity declined to provide specifics. At press time, GMS Realty was finalizing a deal with San Marcos, Calif., to lease about 25 acres from the city for a 300,000-sq.-ft., $30 million project at San Marcos Boulevard and California 78 highway (see sidebar).
Again, Gerrity's pursuit of institutional capital for neighborhood centers — and his access to that capital — paid off when San Marcos requested proposals from developers for the site. “One of the things we really liked about GMS' proposal is they didn't require any financing contingency; they had their financing already wrapped up. That's a huge consideration when you're talking about a ground lease,” notes Paul Malone, assistant city manager with San Marcos. “We also like the company's willingness to work with us as far as the mix of tenants we're looking at — and quite frankly, their sales tax potential.”
The changing neighborhood
While GMS Realty strictly concentrates on neighborhood centers, the structure of those centers, or at least ideas that retailers have about them, are starting to change, Gerrity says. Whereas in the past traditional neighborhood center tenants sought a co-tenancy opportunity, now almost all of them will stand alone. GMS Realty's management has shifted its thinking in that area, as well. “If we're just trying to place our tenants into a center, we're not going to be helping them meet their goal to connect with consumers,” Gerrity says. “Consumer demand is really shifting around, and all the different retailers are going whatever creative direction they can to meet that demand.”
Gerrity also is seeing the “smart growth” strategy of creating more pedestrian-friendly communities finally being adopted by developers. “Some multi-use projects that were shunned some years ago now all of a sudden look pretty interesting,” he says.
GMS Realty's expansion strategy centers on developing centers in newer areas experiencing significant population growth and, in established areas, finding communities with stable or rising household incomes. No matter where GMS Realty ends up, however, Gerrity promises the company's full attention. “This isn't just one of the many property types that we do — this is it,” he says. “We own it, we manage it, we lease it. We are constantly studying it, analyzing it, talking about it.”
Joe Gose is a Kansas City-based writer.
Spicing up San Marcos
The city of San Marcos, Calif., hopes to benefit from GMS Realty's aggressive growth strategy. It is working with the company to develop Creekside Marketplace, a 300,000-sq.-ft. community shopping center that will house a big-box discount store or home improvement retailer and other tenants such as apparel stores and restaurants. The project will be located on some 25 acres at the intersection of San Marcos Boulevard and California 78 highway.
San Marcos bought the ground in 1999 for $14.4 million from a construction company that for years had used it for storage. Part of the deal calls for GMS Realty to lease the land from the city for an initial 55 years.
The city and GMS Realty were in final lease negotiations at press time, but the parties hoped to have the center open by the end of 2003, if not sooner. “The city really has a good vision for creating a better use for the community around that site,” says Bill Gerrity, GMS Realty's president and CEO.
San Marcos is spending about $3 million to provide infrastructure and upgrade the site, which includes building it up with 100,000 yards of dirt. “You drive by and say, ‘My gosh, why didn't this happen sooner?’” Malone says. “It's a premium site.”
— Joe Gose