Q&A: Fundamentals Still Paramount in Retail Investment, Says Continental Realty Corporation’s Josh Dinstein

Dinstein, CRC’s senior vice president of acquisitions, spoke to Commercial Observer about how COVID-19 is impacting retail investing, what opportunities he sees, and what it takes to get a deal done in today’s unusual climate.

Commercial Observer: How would you characterize the state of retail investing as we head into the last months of the year in the Washington, D.C., metro and Baltimore sectors?

Josh Dinstein: The market has been quiet since the pandemic started, and the lack of activity combined with erratic cash flows at the asset level has made it difficult to figure out value. Lenders remain skittish on retail, and only certain types of retail assets are currently securing financing. The mid-Atlantic sector is holding up significantly better than other parts of the country, especially those areas that rely heavily on public transportation such as Chicago and New York City.

Historically, what makes these markets usually strong?

There is a level of stability that comes from the area’s multiple employment drivers, well-educated workforce, growing infrastructure, high quality of life and projected population growth. The D.C. metro job market held up well against other large United States cities during the last recession and seems to have experienced lower job losses than the Gateway cities in this most recent downturn. Tech investment is occurring in the area, and I believe government and military investment is only going to grow no matter who wins the presidential election.

How has COVID changed your views on properties throughout the mid-Atlantic and Southeast? What areas do you feel are the best to invest in right now?

Our team is being more selective as to where we spend our time and which opportunities to pursue. The level of fallout from the pandemic cannot be truly known at this time, and it is important to be careful in terms of how we underwrite expected cash flows. CRC is a value-add retail and multifamily investor and there is a certain level of risk we will accept when evaluating each opportunity. 

We remain attracted to the Carolinas and many parts of Florida due to the secular migration that is occurring, and we are bullish on Maryland and the D.C. area as well. CRC has historically focused on first- and maybe second-ring suburban locations and we expect that trend to continue, likely on a national basis as we roll out subsequent retail funds.  

What makes a solid retail investment opportunity today in your view?

Fundamentals are very important. We analyze various items, including below-market rents, tenant health ratios, expected population growth, barriers to entry, access and visibility. Well-located sites that drive traffic, are necessity-based, or have an entertainment component that we believe will survive are also attributes that appeal to us. 

We love to invest in tenants that are forward-thinking. Even pre-pandemic, CRC was mindful of evolving retailer needs such as curbside pickup capability and reconfigured store formats, and we constantly look for ways to partner with our tenants to make sure they are positioned best to succeed in the long-term.

What notable acquisitions have you been involved with since the pandemic started?

CRC has not closed on any acquisitions since the pandemic started. However, our Fund V has $105 million in equity remaining to be deployed, and so we are closely tracking the market, and making sure brokers and owners know who we are and what we have been able to accomplish in the past. 

What’s the key to getting something completed during this time?

Underwriting, due diligence and certainty of close. CRC’s reputation as a strong sponsor, combined with our longstanding lender relationships, will help us make deals with sellers and push them over the finish line. Also, there needs to be some creativity involved, and trust on both sides is paramount.

How will the upcoming election impact your strategy in the months ahead?

As an investor, I think the election itself, which is now less than 30 days away, will be a non-issue as it relates to our strategy in the long run. The level of uncertainty and anxiety will only increase as the election approaches and once that element of uncertainty has been removed, no matter the outcome, that is one less question mark for investors.

Looking further, what is your strategy going into 2021?

Thematically, I believe interesting opportunities in retail real estate will materialize in 2021 and we are hopeful that we will be able to deploy the balance of our Fund V. 

While we have not seen widespread distress in the retail investment market yet, we are beginning to see special situation opportunities with short fuses and off-the-run deals that not everyone is able to get their arms around. We are in the fund business, and so as we think about our fundraising program going forward we are considering a national retail fund given the opportunity set on the horizon.

What is CRC’s philosophy for growth and how will you be working toward that?

CRC is a vertically integrated organization, with in-house leasing, property management, asset management, legal, HR, accounting and marketing capabilities. These are operational teams that have all worked together for many years, and so on the acquisition front we are able to absorb single assets or portfolios with confidence.

We have been in business since 1960, and we have a history of investing in challenging environments. Culture is important at CRC. We believe we are building an enterprise, and we invest in things like technology and team member satisfaction, and it is intangibles like these that establish the foundation for continued growth. Of course, we also need to scour the market, make smart acquisitions, and continue fundraising.