A New Day Dawns For 6 Outlet Centers

The portfolio's new owner is rebranding the properties to Preferred Outlet Centers while ratcheting up leasing and marketing and scouting for more projects to acquire.

(Value Retail News)

by Linda Humphers

September 1, 2006 - Life has pretty much come full circle for James Harris, Don Chapman, and Susan Stupin.

As the principals involved in the acquisition of six outlet centers from Horizon Group Properties in early August for $110.4 million, the trio is anything but new to the outlet business, each tracing their industry roots to the McArthurGlen era of outlet development starting in the late 1980s.

A trip down memory lane reminds the industry that Harris and Chapman worked for outlet pioneer McArthurGlen Group, and Stupin's company, The Prescott Group, arranged financing for the developer's projects back in that day.

By 1995, McArthurGlen had grown to 19 centers and was the first publicly held outlet center real estate investment trust. That summer, McArthurGlen merged with 13 center Horizon Group, forming a 6.4 million square foot entity of which Harris was a senior VP and managing director of leasing.

Three years later Prime Retail acquired 22 Horizon centers for nearly $1 billion, leaving behind 15 projects tagged as underperforming. Gary Skoien, a former Prime Group associate, was named CEO of the remaining portfolio, and at the time, speculation ran high that the centers would be sold off as quickly as possible. However, Skoien told VRN then that he wasn't going to be hasty. "Clearly, when you look at [the centers], there is almost a palpable lack of attention, whether it's on the physical, leasing, or marketing side," he said. Today Horizon retains centers in Gretna, Neb., and in Holland and Monroe, Mich., and is developing two projects in Texas.

Attrition has occured slowly at Horizon, and the six center transaction marks a new beginning for a new company headed by Harris, Ariel Preferred, a subsidiary of New York City-based Prescott Group. Chapman is the new executive VP of the Williamsburg, Va.-based Ariel Preferred, and Jodi Griffin, a long-time Horizon Group associate, has joined Ariel as a leasing executive. Additionally, all personnel from the six centers will remain in place, becoming Ariel employees.

"We have a new new name, but we're not a new team," Harris says. "I was actually involved in either the development or opening of most of these centers, so I'm very familiar with them. It's one thing to do due diligence on a group of centers and another to have actually experienced them. I know the managers and marketing people at the centers - it's like going home."

Stupin, who applauds the team's institutional memory and tenant relationships, is enthusiastic about the portfolio, which is 87 percent leased. "We wound up with an attractive, well priced opportunity that already has a proven track record," she says. "This protfolio offers geographic diversification, strong operating cash flow, excellent potential for capital appreciation over time, and it should provide very attractive investment returns.

"When we invest," she explains, "we're asset specific. We evaluate the market, the asset, and the demand. We didn't take any centers we didn't want in this transaction. Some have slightly greater opportunity than others - Warrenton is more challenging, for instance - but one of the disciplines we imposed on Don and James is to be specific on each property."

Harris says he's ready to launch ramped-up, targeted marketing and leasing programs tailored to each centers particular needs. And while he intends to focus on the communities surrounding the properties, he and Stupin have another strategic goal. "We want to grow the company to a size that would be more attractive to retailers," he says. "And we're not limited to growth in the continental U.S."

Stupin concurs, adding that Prescott has an interest in Mexico, and that the company anticipates at least doubling its outlet portfolio in the next 18 to 24 months, if not sooner. "We're already seeing other opportunities in complementary markets and in the Mid-Atlantic and Northeast," she says. "The centers we'd be interested in will have enough size to create critical mass, enough space for expansion, and anchor tenant sales in the $250 per square foot range.

"We see a platform of growth in outlet retailing," she says. "We see an industry with inherent strengths and possibilities."

Preferred Outlets Portfolio
Center/Site GLA Opening Date Tenants include *
Preferred Outlets at Tulare, CA 267,000 sf 1995
Opened by Horizon/Glen Group
Galaxy Theatre, Journeys, Ecko, Stride Rite, Country Clutter
Preferred Outlets at Darien, GA 198,110 sf 1995
Developed by Prime Retail
Coach, Cosmetics Co., Nautica, Rockport, Strasburg Children
Preferred Outlets at Traverse City, MI 154,000 sf 1990
Developed by Horizon Group
Horizon Cinemas, Hush Puppies, Pendleton
Preferred Outlets at Medford, MN 224,860 sf 1991
Developed by McArthurGlen Group
Columbia Sportswear, Maurices, Harry and David, Eddie Bauer
Preferred Outlets at Warrenton, MO 200,000 sf 1993
Developed by McArthurGlen Group
Carter's, Nike, Nine West, Perfumania
Preferred Outlets at Laughlin, NV 256,800 sf 1996
Opened by Horizon/Glen Group
Geoffrey Beene, Maidenform, Stadium 9 Cinemas, Swimwear Outler, Vitamin World
6 Centers 1,300,770 sf Average age, 10 years Over 200 tenants from 85 companies
* Tenants in all six centers include Bass, Book Warehouse, Factory Brand Shoes, Gap, Kitchen Collection, and L'Eggs Hanes Bali Playtex.
Tenants in most centers include Big Dog, Dress Barn, Farberware, Izod, KB Toys, Koret, Liz Claiborne, Mikasa, Rue 21, Van Heusen, and Welcome Home