09.01.04
Patience Pays Off For Lengthy Retail Deal

By SHEILA MUTO
Special to RealEstateJournal.com

In a commercial real-estate deal, it can take anywhere from two months to a year from the time a property or portfolio is put under a purchase agreement until the buyer walks away as the new owner.

But for AMC Delancey Group Inc., it took nearly 3 1/2 years to close the deal on the purchase of Rosemore Shopping Center, a modest, 87,000-square-foot retail strip center in Warminster Township, Pa., from Davisville Center Inc. of Feasterville, Pa.

"It typically takes three to four years to build something from the ground up," but not to do an acquisition deal, says Kenneth Balin, AMC Delancey's president and chief executive.

Back in April 2001, a few months after the Rosemore Shopping Center and another Davisville holding, the 80,600-square-foot Richboro Plaza Shopping Center in Richboro, Pa., first went on the market, AMC Delancey put both properties under contract for $13.5 million. The Philadelphia-based real-estate investment company finalized the purchase of the Richboro center a few months later, but it wasn't until last week that the $5.85 million purchase of the Rosemore center closed.

The Rosemore Shopping Center deal is rather unusual these days. The amount of time it takes to complete a deal has been getting shorter during the past few years, particularly when the deal involves retail properties, which "have been getting snapped up fast," says Robert White Jr., president of Real Capital Analytics Inc., a real-estate research company based in New York.

The average amount of time it takes from the first notice that a retail strip center is up for sale to the closing date of a purchase has shrunk to 8.4 months from 10.6 months in 2002, according to Real Capital. For all apartment, industrial, office, and retail properties, the average time has shrunk to 8.4 months from 9.6 months during the same period. A two- to three-month due-diligence period, during which the buyer assesses and inspects the property or properties before the deal closes, is typical.

Mr. White expects many deals will be expedited during the remainder of the year, as is typically the case. Often, many sellers begin to push for deals to close by year-end for tax or other reasons. And this year, buyers "may also be closing faster to lock in rates before they rise," he says.

As for the Rosemore center, the first stumbling block came when gasoline contamination was found in the soil, prompting a time-consuming process of identifying the responsible parties and cleaning up the site. The lender that helped AMC Delancey finance the acquisition of the Richboro Plaza Shopping Center "got cold feet" as delays over the cleanup ensued, says Michael Wachs, AMC Delancey's vice president.

The company secured another lender, which required additional testing of the groundwater at the property "out of an abundance of caution," says Mr. Wachs. A dry-cleaning solvent turned up in the groundwater, prompting another delay of a year or so, he adds. The contamination and cleanup meant 13 amendments to the sale agreement -- mostly extensions for the deal -- were required, says Mr. Wachs.

Adding to the purchase process was dealing with the three families that make up Davisville Center, says Mr. Wachs. "That's also what made the process take a long time," he says. David Beavers, a lawyer who represents Davisville Center, could not be reached.

Patience has its virtues. AMC Delancey could have walked away from the Rosemore Shopping Center deal, given the environmental issues and particularly since it "was considered the less desirable of the two" centers, says Mr. Balin. AMC Delancey made an offer to buy both the Rosemore and Richboro shopping centers, fearing that if it went after only the more desirable Richboro center, which is anchored by a grocery store and located in a higher-income neighborhood than the Rosemore center, it wouldn't get the deal. The Rosemore center is anchored by a Dollarland discount store.

"There was not a lot of interest in Rosemore and several offers for Richboro," says Paul Rumley, a broker at Metro Commercial Real Estate Inc. of Mount Laurel, N.J., who represented the seller. AMC Delancey offered to pay "more for Richboro and made a good offer on Rosemore and that's why the seller decided to go with them."

Sticking with the Rosemore deal also helped AMC Delancey, which also invests in apartments, hotels, and office and industrial properties, burnish its image with sellers. "We have a reputation for closing deals we put under contract," which is important to maintain, says Mr. Balin. "That track record is important to sellers. Outside of the price" that you offer for a property, "sellers want certainty" that a buyer will close the deal.

AMC Delancey's patience may also have had a financial payoff. "Probably during that time period, the sellers could have remarketed it and potentially could have gotten more" than the $5.85 million AMC Delancey agreed to pay more than three years ago for the center, says Mr. Balin. But "we stuck to our word and they stuck to their word."

-- Ms. Muto is a national real-estate writer for The Wall Street Journal. Her "Bricks & Mortar" column appears most Wednesdays exclusively on RealEstateJournal. She is based in the Journal's San Francisco bureau.