Have retail property prices peaked? With interest rates heading higher, many real estate executives think the answer is “yes.” As evidence, consider the fact that Beverly Hills-based First Allied Corp., a family-owned company known for holding on to its properties, is offering a portfolio of 37 of its 55 properties for sale. President Ed Glazer says he wants “to test the market.”

“It's foolish not to put a ‘for sale’ sign on your property if the house next door just sold for six times what you paid not that long ago,” says Glazer, who has enlisted the aid of Eastdil Realty in Atlanta to handle the proposed sale. “If the market knocks our socks off,” he says, “we'll sell. If not, we will keep doing what we've been doing.” Only cash offers will be considered.

First Allied isn't the first privately held real estate firm trying to cash in on high prices. In late March, Benderson Development Co., which was the largest privately held owner of retail space, sold all its properties to Developers Diversified Realty for $2.3 billion at a cap rate of 8 percent.

“Benderson sold and now you're considering selling; everybody should be listening,” Glazer says one developer told him at the ICSC Spring Convention in Las Vegas.

General Motors Pension Trust was also marketing properties from its mall portfolio at the convention. Experts guessed the high-quality portfolio, with annual sales per square foot averaging $375, would fetch a sub-6 percent cap rate. Macerich, Glimcher Property Trust, CBL & Associates and Mills Corp. are all said to be talking with GM.

The message: When successful firms bet that the market is at or near its peak, there's likely good reason to believe that prices will be headed down before too long.

Drop Ahead

Other industry experts agree. “As interest rates rise, prices will have to drop,” says John McDermott, national director with Irvine, Calif.-based investment advisor Sperry Van Ness. “The drop won't be as precipitous as it was in the 1980s and 1990s, though, because there hasn't been much speculative building.”

Still, he says, “if rates increase 1 percent to 1.5 percent, our clients could lose between 20 percent and 30 percent of their equity.” Nonetheless, he adds, there will “still be good deals for patient buyers.”

Relatively low interest rates, dearth of properties and high investor interest have driven prices to what some consider out-of-sight. “There's a lot of pressure because fund managers are throwing money at properties,” says Jeff Pintar, first vice president of brokerage services for CB Richard Ellis Inc. in Anaheim, Calif.

Investors with floating-rate debt will get squeezed the most when their mortgage payments climb along with interest rates. “The key is to lock in early, and lock in for as long as you can,” says McDermott.

Glazer is the first to admit that no one can say for sure if the market has peaked or that today's high prices will get buyers in trouble tomorrow. “Everybody has a business strategy, and if another strategy works for them, then, great for them.”

In fact, Bernard Haddigan, national director of Marcus & Millichap's national retail group, thinks some of the high prices could pay off long-term, although he says for a short-term “market timer,” a sale now makes sense. “As the economy continues to recover, owners will be able to raise rents dramatically,” he says.

If First Allied doesn't get an offer that “knocks” Glazer's socks off, the company will continue doing what it's been doing: collecting top-quality properties where little land is available. Average homeowner salaries within five miles of the properties for sale top $100,000. The portfolio includes 14 centers in Texas, five in Atlanta and seven in Washington, D.C.

As for potential buyers: “Who knows?” asks Glazer. He noted that Australian investors are seeking U.S. properties. “It could be the person you least expect,” he says.

First Allied is not normally “a motivated seller,” says Glazer, which makes this offer unique. “But there's a lot of money that needs to be invested, and if we get an outstanding price, we'll sell.”