Retail REITs have had a roller coaster 2008. Shares of companies in the sector have experienced massive volatility and many firms remain closer to 52-week lows than highs. At the same time, however, fundamentals remain robust. And many firms, including Acadia Realty Trust, are sitting on piles of cash that can be deployed when the time is right to make prudent acquisitions. Acadia president and CEO Kenneth Bernstein sat down with Retail Traffic to discuss the state of the market and the plans for the White Plains, N.Y.-based company.

Retail Traffic: What have been some of the lessons learned from the current dire economic straits?

Kenneth Bernstein: We used to think sub-prime mortgages were just for the poor. We used to think we knew who got hurt by high gas prices — that it would be lower-income consumers. We used to think the Whole Foods shopper would weather this storm OK. We're finding out all of these things are not true…. Also, there are the three big “D”s right now: differentiation, deleveraging and denial. You need differentiation in your centers. We need to weather the storm of the deleveraging occurring throughout the economy from consumers to banks to the real estate industry and even the government. Lastly, the industry has to emerge from the denial that has gripped it since May 2007 that this was going to just be some kind of short-term situation.

RT: What does that mean in terms of the health of shopping centers?

Bernstein: Differentiation is key. High-quality centers are holding up if you've got the right value propositions and superior tenants in the right locations. … But people do need to adjust their expectations. The 2001 recession didn't really hit retail that hard. We need to be looking at 1991 as a more accurate frame of reference…. Furthermore, there were some centers built in recent years that I don't think will ever see 90 percent occupancy levels. They were built on the anticipation of 100,000 people moving into new housing developments. In some cases you've got 3,000 people and that's all that's going to be there for a while. Those centers will have a hard time ever succeeding.

RT: What is Acadia's strategy given the current situation?

Bernstein: Over the 10 years that Acadia has been a public company, we have done what we think has been a smart rotation. We took over Mark Center Trust's portfolio and shrunk the wholly owned square footage in half to focus on owning centers near markets like New York and Chicago that we think would be more stable. Besides that, we've had a focus on growing through funds. The first fund was $90 million in 2001, the second was a $300 million fund in 2004 and the third was launched last year at $500 million. With leverage, it gives us $1.5 billion in buying power. Those funds have been profitable — the first returned 30 percent annualized to investors.

RT: Do you see other opportunities?

Bernstein: In 2001, there was a real opportunity to buy real estate from distressed retailers — names like Kmart, Caldor, Montgomery Ward, Service Merchandise and Grand Union come to mind. In a partnership called Retailer Controlled Property Venture, our job was to close stores, re-lease them and then sell off the real estate. Today, the situation is different because of how bankruptcy rules have changed so you'd have to be more careful about how you do that. But when retailers file for bankruptcy, sometimes you can get the real estate at a 20 percent to 30 percent discount.