A confident new player is targeting the factory outlet development market. Prime Retail, the largest US factory outlet Reit, has a $500m development programme and is eyeing other operators’ projects
In September, Prime Retail and property investment company The Athena Group announced a $500m drive to roll out factory outlet centres across Europe over the next five years. Since then, its ambitions have grown.
According to Metin Negrin, chief executive of Athena: “We’re also going to be looking at leisure and entertainment centres and thinking about combining them with FOCs. It’s a hot sector in Europe at the moment.”
As part of its joint venture with the New York-based Athena, Prime will be bringing all its US experience to bear on the sector. Prime claims to be the world’s largest developer, owner and operator of FOCs although it has no experience in Europe. It owns around 25% of all outlet space owned by US Reits, which comprises 1.37m m2 in 51 centres.
Based in Baltimore, the company has been developing retail and factory outlets since 1988 and went public in 1994. In June 1998 it acquired Horizon Group and integrated 22 of Horizon’s outlet centres into its portfolio.
It will be the first US Reit to take a direct role in the European factory outlet market. Chelsea GCA, another US Reit, is involved passively as one of the backers of Value Retail. In the shopping centre sector, another Reit, the Simon DeBartolo Group, bought a 44% stake in French shopping centre developer and manager Groupe BEG.
The Athena Group was founded in 1993 by Louis M Dubin, Metin Negrin, and Alfred Taubman. The company has invested over $400m in residential and commercial property in the US, Europe and central Asia.
Athena/Prime Retail Europe is aiming high. It expects its development in Europe to add up to 185,800m2 of outlets over the next few years. The market is an attractive proposition for the company, which points out that Europe has a larger population that the US but has only 278,700m2 of space currently devoted to outlet centres.
Its strategy is to link up with local partners. So far Athena/Prime has only a temporary office in Nice but it is planning to move 10 people to Europe from its bases in Baltimore and New York, plus one UK person to scout for opportunities. Negrin has already recruited three locals to head offices in Madrid, Paris and Frankfurt, with more bases to follow.
Athena/Prime will look primarily at out-of-town locations, depending on the local planning politics. Negrin is looking first at Spain, France, Italy and Germany, but it will be considering every country from Portugal to Poland.
“We have nearly tied up three sites in Spain, France and Italy,” Negrin says. “In Spain we are negotiating with a major public company with a view to setting up a joint venture. And we are talking to a landowner in Italy.”
The venture will target a mix of America and European tenants, which in time could attract new US names into Continental Europe. “If, three years from now, we can show those retailers six or seven viable sites this could well draw them in,” he says.
Abraham Rosenthal, chief executive of Prime Retail, adds: “We expect that our expansion into Europe will allow us to develop a reciprocal leasing programme that will bring many of the US’s most popular brands to European consumers while also bringing famous European brands into our domestic tenant mix.”
The US is experiencing a wave of new retailers into the outlet sector. Last year, for example, Banana Republic, Nieman Marcus, Bombay Furniture, Coleman Camping, Greg Norman Luggage and Max Mara all announced their first outlet stores.
In Europe, Athena/Prime plans to develop projects with a minimum size of around 15,000m2, with the potential to extend each site by around 10,000m2. “We believe you need this minimum size for critical mass and to get a good mix of brand names,” says Negrin. “We are guests in everybody’s country and will respect their different tastes and adapt to their cultures. What works in France does not necessarily work in Germany,” he adds.
Negrin is aware that going into new markets is not easy, but says his company’s strength will be management of the projects. “There is definitely local competition in terms of putting development together. But the challenge for the local guys is going to be the investment management.
“The FOC leases in Europe are for only five years and the developer assists the tenants with merchandising and promotions. Our job does not finish when the development programme is done,” he adds.
Negrin says that the three- to five- year period after completion is a crucial time to add value and this is where Athena/Prime will have the edge over local operators.
He sees his challenge in finding the sites and negotiating the planning consents. “BAA McArthurGlen is devoting a similar amount of money as us to its development programme but at the end of the day, it is not how much money you’ve got but how good you are at securing the sites,” he says.
“We are long-term investors with no intention of flipping the projects,” says Negrin. So confident is he of Athena/Prime’s chances of success he declares: “I think the local developers of FOCs could well end up selling their completed projects to us.”
