Regency Square sale is sparking buyer interest

For a shopping mall that has seen its better days, Regency Square in Henrico County is generating lots of interest.

Maybe it’s the bargain basement price. The mall is expected to be sold in the range of $20 million, said Dave Monahan, vice president with JLL (Jones Lang LaSalle) Retail Capital Markets in New York, the real estate firm retained to sell the property.

Or maybe it’s the strong location on north Parham Road, not far from Interstate 64, which offers opportunities for mixed-use and redevelopment.

After two weeks of marketing the property through JLL’s proprietary data base of retail and mall investors — local, regional and national — Monahan says,  “We’ve seen a very strong response. Richmond is an attractive market. From a demographic perspective, there is strong household income and a dense population. It is well located real estate that has experienced some neglect over the past several years, which happens sometimes when you have an over-leveraged property that ultimately gets transferred to a special servicer.” 

The 39-year-old, 821,000-square foot property, which includes nearly 48 acres, has an appraised value of about $25 million. That’s far below what is owed on an outstanding mortgage of nearly $70 million, with Regency part of an original CMBS (commercial mortgage backed securities) deal that included other properties.

Its most recent owner, the Michigan-based Taubman Centers Inc., gave the title to the mall back to its lender in January 2012 to avoid foreclosure, and it went into special servicing.  At the time, Taubman said the move relieved the company of $72.2 million in debt obligations, plus accrued interest.  The servicer hired JLL to lease and manage the mall.

Taubman also developed and built Stony Point Fashion Mall in Richmond, which it is selling to Starwood Capital group, a private-equity real estate firm .

Trepp, a real estate analytics firm in New York, is keeping a watch on Regency’s sale, since investors are expected to take a hit.

Yet some potential buyers are viewing Regency as an opportunity. “What we are seeing across the country, there has been an increasing appetite within the enclosed regional mall space within the last 24 to 36 months. The space has received a lot of negative publicity. However, from an investment perspective, there is more liquidity today than there has been over the past three years,” Monahan said.

According to JLL, Regency’s 91 stores (not including anchors J.C. Penney and Sears which own their properties) are 95 percent occupied. The mall had annual sales in 2013 of $76 million, a big drop from sales during the mall’s glory years, which predated the construction of rivals Short Pump Town Center and Stony Point Fashion Park.

According to local real estate sources, the name of one out-of-state real estate investor already has been passed along to JLL, after the investor called to express interest in Regency Square.

Andy Little, a principal with John B. Levy & Co., a boutique real estate investment bank in Richmond, said, “At $20 million and down, I think people will be swarming all over it. My guess is that it will go higher than that.”

So what are retail investors looking for these days?  In a nutshell, something that can’t be provided on the Internet.

“We work with lenders and investors,” said Little. “What people look for are those stores anchored by tenants that aren’t going to be impacted terribly by the Internet. Which brings you back to grocery-anchored centers. You can’t get your nails done or your hair cut online. These retailers are generally concentrated near grocery stores. So there’s still a tremendous amount of demand for those grocery-anchored centers.”  

Regency doesn’t have a grocery store. With its central location in western Henrico, Little said a buyer might decide to renovate into a mixed-use property with apartments.

Brian Glass, a senior vice president with Colliers in Richmond, says a major renovation into mixed-use could be a hard sell.  Regency is a two-story mall with a two-story parking deck. “This is a tough one to redevelop. It’s not like Cloverleaf, where you had to knock down a one-level building on a level paved area,” he said referring to a former mall in Chesterfield County that was redeveloped into a grocery-anchored, mixed-use project. “This is on a hill. It’s more complex since it’s graded.”

Glass also noted that deals may have been cut with current tenants to keep them at the mall, or it could be that tenants could get out of leases if anchors like Penneys or Sears left. Together, they take up more than 300,000 square feet of the mall. Macy’s also has two stores at Regency.