Friday, September 26, 2008

Real Estate Group Selling the Four Wal-Mart Marketside Small-Format Grocery Stores Set to Open on Oct. 4; Plus Data on the Store's Exact Sizes

Santa Ana, (Southern) California retail real estate development company Red Mountain Retail Group (RMRG), which owns the four former drug store buildings in Mesa, Chandler, Gilbert and Tempe, Arizona that Wal-Mart has turned into its small-format Marketside food and grocery stores which are set to open on October 4, has sold one of those buildings and has the other three on the market. (The Mesa Marketside store is the one pictured above.)

Red Mountain, which acquired the four drug store buildings in Arizona along with three others in a seven unit purchase, has sold the Wal-Mart Marketside store building at 910 East Elliot Road in Tempe, Arizona for $6,061,604 at a 6.3% cap rate, according to a Red Mountain group executive. The deal closed on September 19. It was arranged by Kevin Boeve of the Marcus & Millichap real estate firm. The Tempe Marketside store is 16,480 square feet.

RMRG, which has offices in Phoenix, Arizona and the Central Valley, California city of Clovis near Fresno, as well as having its headquarters office in Santa Ana, also has the other three Wal-Mart Marketside store buildings -- the stores in Mesa, Chandler and Gilbert -- up for sale, according to Pete Oakley, who is handling the sale out of the firm's Santa Ana office.

Below are the locations, square footage and asking prices (in millions) of each of the remaining three Wal-Mart Marketside store buildings:

>Mesa, Arizona: 7561 E Baseline. Mesa, AZ 85209. Store Size: 16,516 square feet. Selling price: $6,516,000 at a 6.00% cap rate.

>Chandler, Arizona: 950 N McQueen Rd., Chandler, AZ 85225. Store Size: 17,075. Selling price: $6,602,000 at a 6.00% cap rate.

>Gilbert, Arizona: 838 West Elliot Road, Gilbert, AZ 85233. Store Size: 14,841 square feet. Selling price: $5,738,000 at a 6.00%.

The store sales information data provides us with the exact size of each of the Wal-Mart Marketside stores set to open on October 4., which is information no publication has previously published to date.

The Gilbert, Arizona Marketside store is the smallest of the four units, at 14,841 square feet, which is just slightly below the 15,000 -to- 20,000 square foot range we've said the stores will fall into.

The other three Marketside stores are closer to the same size. From least -to- most square feet they are: Tempe at 16,480; Mesa at 16,516; and Chandler at 17,075, which has the most square footage of the four stores.

Red Mountain Retail Group was founded in 1999. The group says it currently has a retail portfolio consisting of 75 centers in seven U.S. states. According to the company, that portfolio totals 4,860, 568 square feet of retail space worth about $1 billion.

The retail real estate firm focuses on acquiring distressed or challenged shopping centers and buildings in those centers, rehabilitating the centers, and then finding new tenants, which is what it did in working with Wal-Mart to locate its first four Marketside stores in the Phoenix Metro region in the vacant, former drug store buildings.

RMRG also buys selected portfolios of retail real estate, with an eye towards those it thinks have untapped opportunity if rehabilitated and then marketed properly, as well as participating in other facets of the commercial retail real estate industry

Michael Mugel, the founder and CEO of Red Mountain, says the deal with Wal-Mart to convert the four former drug stores into the small-format Marketside food and grocery markets was a "short notice, thrill ride."

"We are thrilled to have had the opportunity to work with Wal-Mart in the opening of their first Marketside stores in the nation," Mugel says. "We enjoy short notice, thrill ride opportunities like this where we can serve our client's needs by matching our core values (relationships first, execution second and the belief the 'Anything is Possible') with their ever expanding concept requirements."

In other words, Wal-Mart didn't spent lots of time in the location phase of the development process for Marketside in terms of wondering where its first stores would go. It knew where it wanted the first four Marketside stores -- in four cities where Tesco has existing Fresh & Easy stores, along with at locations in those cities close to existing Fresh & Easy markets -- and then found a real estate firm to find it four locations within 1 -to- 2 miles from Fresh & Easy store locations in each of those four cities, which is the geographical case of each of Wal-Mart's first four Arizona Marketside stores.

Selling the first of the four Marketside store buildings, along with putting the three others on the market, isn't being done by RMRG for any other reason other than the fact that's what the company does -- acquires centers and buildings, improves them sometimes, then finds a tenant for the buildings, as it did with Wal-Mart for its Marketside stores.

Once that cycle is completed, the firm, like most others in its business, then sells the buildings for a profit since the buildings not only now have a tenant in them but also come with the improvements done to them by that tenant. This adds value and creates a profit. The firm can then use that cash flow generated from the sales to purchase other "challenged" properties it can improve, find tenants for, and then turn over.

Leasing rather than owning the buildings also provides many cash-flow and other advantages to Wal-Mart, not the least of which includes not laying out upfront cash to own the store buildings of what is a brand new format, Marketside, for the retailer.

Don't be surprised if additional Wal-Mart Marketside stores open in Arizona -- and in California -- in centers and buildings acquired, owned and rehabilitated by the Santa Ana, California-based retail real estate development company.

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