New Hyde Park, N.Y.-based Kimco Realty Corp. continued the recent trend of REITs forming joint venture partnerships as a way to pursue acquisitions.
In June, the company acquired 12 properties in California and Nevada for $342.9 million. Of those, 10 are part of an existing co-investment partnership with UBS Wealth Management. The purchased properties total 1.1 million square feet of space, with a 98.7 percent occupancy rate.
REITs, bound by the requirements of being public companies, have higher return thresholds than individual investors or foreign buyers. They need returns in the 7 percent range to remain profitable. That creates a problem when trying to buy in some of the nation's hottest markets, where cap rates on straight acquisitions are in the 5 percent to 6 percent range.
The latest deal will beef up Kimco's holdings on the West Coast, historically the weakest link in its portfolio, according to Joseph French, national director of retail with Sperry Van Ness, a real estate investment brokerage firm.
“With the pricing being such as it is, it's been difficult for them to make acquisitions in the West where they could get 7 percent returns,” French notes. “The trend is to sell in portfolios and not necessarily at any discount.”