Originally established in 1989 as a privately held REIT owning eight centers in Texas, United Investors Realty Trust (NASDAQ: UIRT) went public in March 1998 through an IPO that generated $79 million in new equity capital. Flush with cash from the public marketplace, the Houston-based firm went on an acquisition binge, purchasing 16 strip centers in Texas, Florida and Arizona. By year's end, its portfolio contained 20 properties with 2.6 million sq. ft.

UIRT specializes in community/neighborhood strip shopping centers anchored by groceries, drugstores and/or other national tenants that provide consumer staples and services. Focusing on the acquisition of single assets and small portfolios, along with occasional development of its own, the REIT has a special preference for product in fast-growing primary and secondary markets in Texas, Arizona, Florida, and Tennessee.

Safety in strips Among the various categories of real estate investments, strip shopping centers are relatively safe, says Lewis H. Sandler, UIRT president and CEO. "The strip shopping center is least likely to be seriously hurt in a down market," he notes, "and is going to fare better than both the big boxes and the regional malls."

The typical grocery/drug/service-tenant alignment of the neighborhood strip is what helps these properties hold their value during slumps in the overall economy, says Sandler. "People have always had to eat," he notes, "and they need a place to get their clothes dry cleaned and pressed. These days, they also consistently look for a place to rent a video."

This common-sensical point of view comes from someone with more than a bit of experience in the real estate industry. A Columbia University Law School graduate who was the real estate partner for a midtown New York City law firm in the 1970s, Sandler moved to Texas in 1980 and became head of the master limited partnership that eventually became the Southwest Property Trust REIT. The company specialized primarily in multifamily properties, with some office and retail thrown into the mix.

In 1997, shortly after Southwest Property Trust merged with Richmond-based United Dominion, Sandler came on board with UIRT. At the time, UIRT was a privately operated REIT with 750,000 sq. ft. of GLA. It was run by financial planner Robert W. Scharar, then a Southwest Property Trust board member (and now chairman of UIRT).

"Rob (Scharar) invited me to head up UIRT with the intention of ultimately taking it pubic," says Sandler. "He knew what I could do, and he needed somebody who knew not only how to run a REIT but also how to run a public company."

As a private REIT, Sandler relates, UIRT had done about as much as it could in terms of growth and maximizing value for its shareholders. "It was also very difficult, as a small, private REIT, to tap the capital marketplace -- and especially the equity markets -- at attractive cost levels."

Fortunately, a personnel infrastructure was in place when Sandler took over. "Because UIRT was already up and running," he says, "I didn't have to bring on a bunch of new people all at once."

One component of that infrastructure was vice president and COO Randall D. Keith. A CPA and graduate of the University of Texas in Austin, he always had an interest in real estate. He learned the nitty-gritty of the business the hard way. Prior to joining UIRT in 1988, "I cut my teeth working out the old limited partnerships from the 1970s and 1980s," he says, "and learned about everything that can go wrong with a real estate deal."

Keith describes himself as the lead acquisition person for UIRT. "We like A-minus/B-plus properties with stable cash flow," he says, "and maybe with some upside potential through rolling over leases at higher rates, or building out available pad sites."

Small enough to respond quickly Sandler and Keith have different yet complementary approaches to analyzing the prospects for success of a potential shopping center investment. "I basically consider myself a real estate professional -- but not an expert on the fine points of retailing," says Sandler. "I can go out and walk a property, though, and get a pretty good gut feel for whether or not it's something we want to buy."

Keith adds quantitative factors to the analytical mix. "We look for strong sales by the anchor, which tells us that the location is good and the anchor is likely to stay in place," he explains, adding that UIRT buys on a minimum cap rate of 10%. "We look for good trade-area demographics, particularly incomes that will support retail growth."

Both Sandler's gut feel and Keith's number-crunching approaches are important at this stage of analyzing a potential investment, says Keith. "We run the numbers to make sure a center passes all the criteria we have in place," he notes. "But when you start analyzing the site plans of two competing centers, for example, there can be a lot of gray areas, and sometimes it all comes down to which one you feel better about."

In addition to increasing its portfolio of properties since Sandler took over as CEO, UIRT has grown substantially in staff, beefing up its accounting and operations personnel contingents. "We've gone from being a really tiny REIT with five dedicated people to one that has 20 employees," Sandler says. "And we're growing on almost a daily basis."

Still, the REIT is lean enough to respond quickly to opportunities. "One of our major strong points is that we are small, so we can move fast," Sandler says. "Property negotiations are done by only one or two senior (UIRT) executives. There aren't a lot of committees to wade through just to get a sale closed."

Smaller size also allows the company to take advantage of deals that bigger REITs may have to pass on. "We can do one-on-one deals -- UIRT does not have to acquire large portfolios to be effective," says Sandler. "And, because of our size, we can be flexible and creative in coming up with ways to help prospective sellers make deals work."

New development Look for UIRT to get bigger in the future. On the acquisitions front, the REIT's Texas/Arizona/Florida/Tennessee asset base allows for natural progressions into new markets. "We are looking at properties in Alabama and would like to expand our presence in Florida," Sandler notes. "We would also consider centers in Albuquerque, Oklahoma City and Tulsa."

UIRT is also doing what Sandler calls "a bit of new development." This includes a new, grocery-anchored, 10,000 sq. ft. center in Lake St. Charles, Fla., and a 12,000 sq. ft. addition to the Market at First Colony in Houston.

"These are small projects," he says. "But even though the returns can be much better when you build as opposed to buy, a small company like us has to be more careful about the risk involved."

This conservative point of view reflects Sandler's feelings about the real estate marketplace and REITs as a whole. "I like strip shopping centers as an asset class because of their relative safety," he says. "I'm not a believer that real estate is ever going to be an America On-Line (AOL)-type of product in the securities market."

Real estate has traditionally been an asset class whose value grows nicely over a long period of time, Sandler says, "and if you're doing things right, the growth will be steady, not rushed."