Federal Realty Investment Trust is joint venturing with a fund formed by ING Clarion Partners. The new entity aims to invest $350 million in stabilized neighborhood shopping centers in California and on the East Coast in the next two years, using as much as 60 percent leverage. Federal says it intends to provide one-third of the required equity, with ING funding the remainder. Federal is seeding the joint venture with the $20.5 million Plaza Mercado center in Montgomery County, Maryland.

Federal will receive 3.5 percent of rental revenue as a property management fee for acquired properties. The purpose of the venture, the company says, is to provide Federal with fees that will offset the more expensive nature of the high-quality assets to be acquired. In fact, the fee stream associated with the venture at full investment has the potential to add as much as $6 million in fee income annually, even before the achievement of any promoted interests and excluding Federal's share of property-level income, says Wachovia Securities analyst Jeffrey Donnelly.

“This transaction points out the main issue we have with the grocery-anchored sector,” says Stifel, Nicholas & Co. analyst John Roberts. “Low cap rates on stabilized assets make it difficult to generate an adequate profit in the current environment. Only by using high leverage can Federal make adequate returns.”