At the height of the retail real estate feeding frenzy investors had to pay the same cap rates for assets across the country regardless of location or quality. But observers say in recent months things have cooled a bit and that for the first time in a while the price difference on Class A and Class B assets and prices in primary and secondary markets is growing.

"For a while, those cap rates converged and you'd pay as much for Class B in secondary as Class A in primary, which made it very difficult to make acquisitions," said Paul Simmons, managing director at GE Real Estate. "Now with some spread being priced in, we are able to focus on turnaround assets where there is opportunity to grow NOI as well as make that cash flow more solid from credit standpoint so we can benefit from a lower exit cap rate."

Observers think the re-pricing reflects the fact that while retail remains a hot property type, buyers are being a little more conservative about their plays. For example, grocery-anchored centers with the number one or two-ranked supermarket in the area are still trading strong. But bidding on weaker centers is not as fierce. The spread of cap rates reflects that risk is being taken into account and money isn't being spent blindly.

The risk is being priced into new loans as well as some lenders are underwriting cap rate increases into loans they are originating.

"We're going to write to an 8 or 9 percent cap rate, at minimum," says Rick Gallitto, executive director with Tremont Capital.

The recent re-pricing has occurred on the heels of a third-quarter that saw cap rates stabilizing--and even rising slightly for strip center assets. According to Real Capital Analytics, cap rates on regional malls stabilized at 7.1 percent nationally while on strip centers they rose slightly to 7.6 percent.

"It's been a robust market and 2006 will be another strong year, but I don't think we will have valuation growth of past," says Bernie Haddigan, national director of Marcus & Millichap's Real Estate Investment Brokerage Inc.'s retail group.

-- David Bodamer