REIT Industry Veteran Michael Carroll Plotting Growth for Newest Venture: ShopOne Centers

ShopOne Banking on Convenience, Adaptability of Grocery-Anchored Neighborhood Centers to Stave Off Online Competition

ShopOne Centers REIT Inc., a private real estate investment trust focused on owning what it calls "market-dominant" grocery-anchored shopping centers, launched this past October with the backing of funds managed by Davidson Kempner Capital Management in New York. Michael Carroll who previously served as CEO of Blackstone Group's Brixmor Property Group Inc. (NYSE:BRX), was tapped to lead the new REIT.

Carroll has 25 years of experience in the retail REIT arena. In 2009, he spearheaded the $9 billion sale of Brixmor (formerly Centro Properties Group US) to The Blackstone Group and Brixmor's subsequent IPO in 2013. By raising almost $950 million in its market debut, Brixmor's was the largest retail REIT IPO in US history. During his tenure, the enterprise value of the company grew to over $14 billion.

The new ShopOne and its affiliates own and/or manage 48 shopping centers in 10 states from Michigan to Georgia with 5 million square feet of gross leasable area. While much smaller than Brixmor, Carroll said he has big plans for the approximately $400 million retail REIT.

ShopOne has recently added three properties in three new markets. It recently acquired Conyers Commons, a 118,420-square-foot shopping center in Conyers, GA. It entered the New York metro market with the purchase of Oak Park Commons, a 139,717-square-foot grocery-anchored shopping center in South Plainfield, NJ. And acquired McKinley Crossroads, a 13.89-acre site in Corona, CA.

It also lined up a $325 million senior credit facility to pay off existing mortgage debt on 16 properties and support repositioning efforts and moves to upgrade the tenant merchandising mix to increase value.

CoStar News had the chance to ask Carroll about the private REIT's growth plans.

CoStar News: In announcing the formation of ShopOne Centers REIT, you are quoted as saying: "We believe strongly in the long-term fundamentals supporting continued investment in shopping centers anchored by top-performing grocers, leading discounters and off-price apparel retailers." As you well know, apparel and groceries are both growing consumer targets for online giant Amazon. What do you see as the long-term fundamentals that can withstand Amazon's intents and the growing trend of online shopping?

Carroll: Grocery has proven to be a very difficult Internet model. In simple terms, people like to pick their own produce and to date they have displayed an unwillingness to delegate the selection of perishables to a third party.

Grocery is a very local business where regional products matter. Almost every market has unique products or tastes that are nearly impossible for a national online company to replicate. We believe that leading grocers are very strong competitors and will continue to differentiate themselves with products and services that bring value to their customers.

One example that comes to mind is the strength of fuel programs at several top grocers. They've worked very well as an important loyalty vehicle for supermarket chains.

Many grocers have also added cafes and restaurants to their offering, while others have developed outstanding prepared-food options.

Off-price apparel continues to draw customers by presenting value and unique product assortments that are constantly changing. These businesses are also very difficult to build online due to the fact that the product is generally acquired by the merchant, through various channels in odd lots, so there is not the depth of product to fulfill orders across all sizes and colors. It is the treasure hunt aspect of finding high-quality products that draw consumers in to their stores.

CoStar News: The "Amazon Effect" on malls has been daunting and affected viability, ownership and tenancy in unforeseen ways and with a deeper impact than many expected. What are the lessons that can be taken away from the impacts on malls and be applied to grocery-anchored centers?

Carroll: The open-air, grocery-anchored center is very flexible and easy to change and adapt. The centers are located close to neighborhoods, at key intersections and have ample parking. They have proven to be resilient over several changes in the retail.

Throughout my career, I have watched drug stores and specialty apparel stores leave grocery-anchored centers and seen the emergence of fast casual restaurants and service-oriented tenants as high rent paying replacements. These centers can accommodate all types of uses and will continue to be the preferred method of delivery for daily necessity items.

CoStar News: Your recent acquisition of Conyers Common near Atlanta takes you into a new state, and McKinley Crossroads in Corona, CA, takes you into a whole new geography outside of the Midwest. What do these two deals reveal about your geographic strategy going forward?

Carroll: Our focus going forward will be to acquire strong grocery-anchored properties in major metro markets. We are looking to focus on key Mid-Atlantic, Florida, Southeast and West Coast markets. Our focus is to be in high density population and with strong incomes. Over time you will see us continue to diversify from our Midwest footprint.

CoStar News: With your focus on grocery-anchored centers, what is the strategy for your properties that don't fit that description? I'm thinking here of such properties as Huntington Mall in West Virginia, and the Tractor Supply store in Michigan.

Carroll: We have several smaller properties, in terms of size and markets, that will be sold over time. Our focus will be on larger grocery-anchored centers in larger markets.

CoStar News: You clearly have a background in publicly traded REITs and initial public offerings. At what point in ShopOne's growth and under what market conditions would going public be an option for ShopOne?

Carroll: We are setting up the company to focus on being a best in class institutional-caliber organization. We are migrating to industry standard systems and controls to support such a platform. In addition, we are focused on strong corporate governance and we are in the process of putting together a board of directors with several independent directors. We feel that running the company with an institutional perspective will allow us the most optionality for the long term success of the organization.