The shopping center sector is still reaping the rewards of intense investor interest in real estate, but overarching questions still remain about the influence of long-term interest rates, the impact of super-retailers like Wal-Mart, and the looming speculation of when the frenzied investment bubble will burst.

NREI recently talked with Bernie Haddigan, national director of Marcus & Millichap's National Retail Group, on the eve of this year's International Council of Shopping Centers (ICSC) conference in Las Vegas. In 2004, the 275 brokers under his leadership closed more than 1,600 single and multi-tenant properties nationally, valued in excess of $4.5 billion.

NREI: Ten years ago, everyone said that grocery-anchored shopping centers were recession-proof. Now, all we hear about is the threat of Wal-Mart. What's the reality?

Haddigan: As an investor, all these changes create opportunity. With respect to grocery stores, though, unless you have prime locations and you are the market-share leader, you are in trouble. You already have Wal-Mart going into the food business; you have the drugstores offering convenience food products, and you have the gas stations like the BPs and Chevrons that are redeveloping in order to offer convenience-oriented food. You also have the warehouse clubs selling food, so unless you have a great location as a grocery store you are at huge risk of having store sales falling off.

NREI: What's the biggest question on the minds of shopping center owners today?

Haddigan: Most investors are asking, “How do I make money in this market?” Most property owners have enjoyed huge appreciation over the last three to five years. In many instances, their properties have doubled in value. There are a lot of wealthy people walking around, saying, “What do I do with my money, if I sell my property? What kind of development concepts are interesting?” Everybody and their brother is looking for a value-add deal, something they can re-tenant, or put a coat of paint on, or restripe the parking lot and raise rents.

The big shopping center owners are asking themselves how they can get bigger, how they can drive more revenue. Some of my contacts at Kimco [Realty Corp.], for example, indicate they are looking at, among other things, a Toys R' Us situation like Vornado. (An investment group that includes Vornado Realty Trust agreed to buy Toys R' Us this spring.) Kimco has got a small group of guys who are out there targeting companies that they can buy just to control the real estate.

NREI: A lot of investors in this cycle seem to think the sky is the limit. They're paying more for retail, and the debt capital is flowing. There is concern over the prospect of rising interest rates, but the 10-year Treasury yield hasn't really gone up. Do you wonder if it will lull investors into the false sense that this will never end?

Haddigan: The 10-year Treasury yield was under 4.1% when I checked a few hours ago. So, interest rates haven't gone up. One of the big issues is whether this trend is cyclical or secular. Will the markets trade differently going forward? You could make a case that there is so much information and that there is such an abundance of capital now crossing geographic barriers seeking yield that was not doing so in the past … There are more price efficiencies being driven into the marketplace across the U.S. Does that speak to a fundamental shift? I still believe that the markets run in cycles. When will the cycle end? I have no idea.