To gain some perspective on today’s real estate market, Western Real Estate Business profiled a few prominent real estate investment trusts in the West and asked them to discuss some of their investment strategies. We talked to Equity Office Properties Trust, Developers Diversified Realty Corporation and Regency Centers about their properties in the West.

Equity Office Properties Trust

Chicago-based Equity Office Properties Trust is currently the largest real estate investment trust (REIT) in the United States, owning and managing more than 124 million square feet of space. “We primarily own, lease and manage high-quality office space,” says Paige Steers of Equity Office.

A rendering of Kruse Woods V, a $33.9 million project that Equity Office built in Portland, Oregon.

The company’s western operations are divided into four main regions. These areas include the Los Angeles region with 15.7 million square feet of office space in 104 buildings in Los Angeles, Orange County and San Diego, California; the San Francisco region, which consists of 20 million square feet of office space in 199 buildings throughout San Francisco, Sacramento, Oakland and the East Bay, California; the San Jose region with 11 million square feet of office space in 156 buildings throughout Mountain View, North San Jose, Palo Alto and Santa Clara, California; and the Seattle region, which comprises more than 13.7 million square feet in 96 buildings throughout Seattle and Bellevue, Washington, and Portland, Oregon.

“Our strategy is to build critical mass in our core markets where we can leverage our local and national scale to deliver better service to our customers and bring attractive returns to our shareholders,” says Steers. “The markets we invest in are markets where we believe the underlying supply and demand fundamentals for office space will be in our favor over the long term.”

An example of this strategy is in Equity Office’s recent purchase of the $80.2 million U.S. Bank Tower, a 488,640-square-foot Class A office building located at 950 17th St. in Denver. In addition to office space, the building also contains 20,756 square feet of retail space and a six-level parking deck. This acquisition increased Equity Office’s presence in the Denver market by bringing the total space the company owns and manages in the area to 4.7 million square feet. “We invest in high-quality Class A properties that are well positioned competitively in the market,” she adds. “Redeploying capital from non-core markets into core markets, or from non-core assets into core assets, is part of this strategy.”

In addition to acquisitions and dispositions, Equity Office is also actively involved in development in the West. The company has developed projects such as Towers at Shore Center and the Ferry Building in San Francisco; Kruse Woods in Portland; and Water’s Edge in Los Angeles. “Our development strategy is to develop Class A office buildings in submarkets where we have existing concentrations, in keeping with customer demand and market conditions,” says Steers. Kruse Woods V, a $33.9 million project that the company built on spec, exemplifies this strategy. Despite the tough office real estate market across the U.S., Equity Office built the project without tenants after analyzing the demand in the Portland market.

When summing up Equity Office’s position in the West, Steers says, “Currently, we are leveraging the concentrated nature of our portfolio by streamlining our property management functions to provide greater value to our customers and shareholders. This strategy works in tandem with our long-term strategy of working closely with the brokerage community to leverage its support through streamlined leasing agreements, commissions on renewals and fast payment of commissions following completed lease transactions.”

Developers Diversified Realty Corporation

Developers Diversified Realty is developing The Pike at Rainbow Harbor, a 369,000-square-foot entertainment center located in Long Beach, California.

Developers Diversified Realty Corporation (DDR) is a Cleveland-based REIT that acquires, develops, leases and manages shopping centers across the U.S. In the West, the company is active in California, Utah, Arizona, Colorado, Nevada and Washington. DDR primarily deals with open-air shopping centers in the 250,000- to 500,000-square-foot range and has recently become more active with mixed-use retail projects. The company’s portfolio currently includes more than 87 million square feet in 400 properties across 44 states. “We have an active development pipeline, with more than 20 projects totaling more than 8 million square feet [in the West],” says Scott Schroeder, senior director of marketing and communications with DDR. The company’s strategy in the West is to be the leading consolidator of high-quality market-dominated community shopping centers. Some of the company’s current projects include The Pike at Rainbow Harbor in Long Beach, California; San Ysidro Village in San Diego; Flat Acres Market Center in Parker, Colorado; and Paseo Colorado in Pasadena, California.

The Pike at Rainbow Harbor is a 369,000-square-foot entertainment center, located on 18 acres along the waterfront in downtown Long Beach. The center will feature tenants such as CineMark Theater, GameWorks, P.F. Chang’s, Club V, Gladstone’s, Tokyo Wako, Bubba Gump Shrimp, Buca di Beppo, Island Burgers and California Pizza Kitchen, with occupancy scheduled for November.

San Ysidro Village is a 262,000-square-foot open-air shopping center, located near the U.S.-Mexico border at Interstate 5 and Camino de la Plaza. The property was developed in 1988 as San Diego Factory Outlet, before being purchased and re-developed by DDR. The $6.5 million renovation and redevelopment involved upgrading the tenant mix with Ross Dress For Less and Marshalls, relocating existing tenants, upgrading all parking lot lighting, repainting all buildings, adding landscaping, replacing all signage and improving the parking lot.

Flat Acres Market Center is currently under construction at the intersection of Parker and Twenty Mile roads in Parker. The 372,000-square-foot open-air shopping center will feature Kohl’s, Gart Sports, Bed Bath & Beyond and Michaels.

Paseo Colorado was acquired by DDR in January 2003. The 600,000-square-foot center, located in Pasadena, features Macy’s, Pacific Theaters, Yard House and 387 luxury apartments.

DDR has also expanded with the purchase of JDN Realty. “In 2003, we completed our largest acquisition to date, JDN Realty, which added more than 15 million square feet to our portfolio,” says Schroeder.

In regards to growth in the West, “Developers Diversified is committed to growing our portfolio of shopping centers through aggressive development and acquisition programs,” says Schroeder.

Regency Centers

The West is a prime real estate area for Jacksonville, Florida-based Regency Centers, a REIT that focuses on grocery-anchored shopping centers across the U.S. Regency started as an apartment development and land brokerage company in 1963, but has become one of the country’s leading grocery-anchored shopping center owners, operators and developers. Today the company’s portfolio is valued at $3.2 billion, with 262 properties totaling 29.9 million square feet.

“The Pacific region is a critical part of our company’s overall investment strategy,” says Brian Smith, managing director of investments for the Pacific and Mid-Atlantic regions for Regency Centers. “We like the West because of the continued population growth, the population densities, and most importantly, the incredibly high barriers to entry,” says Smith.

Regency Centers has taken advantage of these characteristics, with 12 projects currently under construction in the region and 17 that are slated to begin in the near future. Some of these projects are: Valencia Crossroads, a 180,500-square-foot center in Valencia, California, anchored by Kohl’s and Whole Foods; Vista Village, a $35 million, 203,000-square-foot entertainment and retail center in Vista, California, with tenants such as Krikorian Theaters, Chili’s, Starbucks and Staples; Slatten Ranch, a 442,000-square-foot center at Highway 4 Bypass and Lone Tree Way in Antioch, California, that is anchored by Target, Mervyn’s, Sport Chalet, Barnes & Noble and Bed, Bath & Beyond; and Gilroy Crossroads, a 475,000-square-foot center in Gilroy, California, that is anchored by Target, Kohl’s, Michaels, Ross Dress For Less and PetsMart.

When developing a center, Regency usually looks for major metro markets with high traffic volume, good purchasing power, high barriers to entry, good job growth and forward-looking demographic and economic trends. The populations surrounding Regency centers average 74,000 people with an average household income of $75,000. More than 90 percent of Regency grocery anchors are among the top three in regards to market share and include leading chains such as Kroger, Publix, Safeway and Albertsons.

Regency is also active in dispositions in the West. The company plans to sell more than $112 million worth of assets in 2003. “This total [$112 million] consists of three portfolio properties, four for-sale development projects (non-grocery anchored) and six outparcel sales at various centers under development,” says Smith.

Regency has been successful in the West, but acknowledges that these markets can often be difficult for investments. “The downside is that there is tremendous competition and costs are high,” says Smith. Regency, however, plans to remain active in the West by continuing to invest in solid properties and develop new projects in thriving areas. “It is very difficult to find and entitle good properties, and the risks are high, but once you succeed, the investment is usually very good for the long haul,” says Smith.

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