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Thursday, Mar 28, 2024

Empire Center Purchased for $160 Million

Burbank Empire Center, the largest shopping center in that city and considered a trophy property by any standards, has been sold to an institutional real estate investment group for an estimated $160 million. The 619,000 square foot center, which opened in 2002, was acquired by Principal Real Estate Investors LLC, a unit of Principal Life Insurance Co. in Des Moines, in a deal that surprised the market both for the high price of the sale and the institutional interest the center drew. “Individual investors have been beating guys out in retail,” said Dixie Walker, senior vice president for the institutional investment group at Grubb & Ellis, who was not involved in the transaction. Private investors have typically been willing to offer higher prices for retail properties whereas institutional investors have tended to focus on office and multifamily properties. The value of power centers, which operate on long term leases, can fluctuate with inflation and other economic conditions, making them somewhat more risky for institutional investors. But Empire Center has an “A” list of tenants, including Lowe’s, Best Buy, Target and The Great Indoors, that has remained stable since the opening. “In the three years that we operated Empire Center I think we only had one vacancy and that was for a nanosecond,” said Ben Reiling, chairman and CEO of Zelman Development Co., which built the center. At the same time, the Fed has been chipping away at inflation fears for some time now. “Leases for power centers don’t have a lot of escalation tied to inflation,” Reiling explained. “So (institutional investors) tended to stay away from them. But if you look at the average for inflation, it’s been negligible and the Fed has been holding inflation down. I think institutions are convinced that’s going to continue, so it makes them far more aggressive.” Zelman acquired the center, which sits on about 103 acres at Buena Vista Street and the Golden State (5) Freeway, in 1999 from Lockheed Martin, which had used it as an aircraft manufacturing operation. The purchase drew considerable attention at the time because several high profile developers were interested in the site, and another prospect had fallen out of escrow prior to Zelman’s acquisition. The center, with its strong demographics and proximity to the freeway, drew such interest that it was nearly 100 percent leased before it was completed. Reiling said the company decided to divest the property, along with two other retail centers which were listed at the same time, because of the current real estate climate. “We just felt the time was right,” Reiling said. “Interest rates are at an all time low, cap rates are at an all time low and capital gains taxes are at an all time low and there’s huge demand. So we listed it.” Reiling said a confidentiality agreement prevented him from disclosing the purchase price. Officials at Principal did not return phone calls. But other sources familiar with the deal put the price for the center at more than $160 million. The center drew some 20 offers, many from other institutional investors in the same price range. “Institutional guys have a lot of money backed up, and they’re trying to be more aggressive in pricing and in the areas that they will look at,” said Walker. “It’s the best center around sometimes you can’t get in and out of it because it’s so busy,” said Allen Young, a broker specializing in retail properties with CB Richard Ellis and a nearby resident who also shops at the center. “If there was ever a trophy property, this is it.” Principal, which claims to be the fourth largest institutional real estate manager in the country with $31 billion under management, invests in all real estate sectors throughout the country. According to the company’s Web site, its largest holdings segment is office properties and investments between $50 million and $100 million make up the largest percentage of its holdings.

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