Michael Pollack is known as a renovation expert. Looking ahead, he considers some potential new strategies for his portfolio.
Interview by Randall Shearin
With the Four Corners market in focus this month, Shopping Center Business caught up with one of Arizona’s largest retail landlords, Michael Pollack, CEO of Michael A. Pollack & Associates. Pollack’s Mesa, Arizona-based company has made a name for itself over the past few decades by renovating and rehabbing older centers and making them viable properties that serve the needs of their communities. Here, we get Pollack’s thoughts on the Phoenix market, as well as the changing retail industry.
SCB: What is front and center on your plate now?
Pollack: We own approximately 4 million square feet of properties between Northern California, Nevada and Arizona. Over the past two years, we have been focused on the repositioning and renovation of our existing portfolio. We are always looking for potential opportunities — new centers — but at the moment I believe we are in a pretty frothy market. We haven’t found a lot of opportunities recently to do what we specialize in, which, is renovation of existing shopping centers. Right now, we are continuing to solidify and improve the position of our properties in their respective markets.
SCB: How would you describe your strategy in carrying that out?
Pollack: We are consistently upgrading our tenant profile, while at the same time making our centers more internet resistant. We have never focused heavily on just retail tenants, we have always worked with discount retail tenants like Big Lots, 99¢ Only, Planet Fitness, Food City and other retailers who have some form of a discount level. We have always specialized in working with many non-retail tenants. Many years ago, I felt that the internet was going to have a major impact on the retail marketplace. Ten years ago, we started converting many of our properties over to more internet-resistant centers. The way our centers are positioned, in many cases make that easier to accomplish. Most of our properties are right at or under 100,000 square feet. That gives us the flexibility to do a deal with a tenant like Goodwill and still have a gym and a discounter in the center. We have many tenants that are specialty and service oriented. All those are directions where we’ve been concentrating our efforts in finding tenants.
SCB: You have both anchored properties and un-anchored centers. What are your thoughts on anchored versus un-anchored centers? How do you position one versus the other?
Pollack: We look at each property individually. Each center has its own personality, nuances and challenges. Some of the properties in our portfolio are grocery-anchored. We have grocery tenants like Sprouts, Safeway, Fry’s and Food City; we love our grocery-anchored centers. We also have a number of centers that are not traditionally anchored. We have a center where Planet Fitness is the anchor. We have several centers that have large Goodwill stores and they are technically the anchor. We understand what we need to do; we are not necessarily going to get the same rent for a space next to a Goodwill that we would get next to Sprouts. But we absolutely love working with Goodwill and their incredible team. We are very realistic about our asking prices and our occupancies. Roughly 50 percent of our portfolio is not traditionally anchored. Our overall occupancy, however, is about 95 percent. For our product type, that is a great occupancy. Had we not wanted to change out and upgrade some tenants, we’d be closer to 100 percent. We’re looking to the future. While my crystal ball sometimes gets a little foggy, we want to make sure our centers are tenanted to withstand market conditions. Our industry is having a wonderful ride right now. Unfortunately, I’ve learned in my 45 years in Real Estate that nothing lasts forever.
SCB: Most of your centers are in the Phoenix Metropolitan area. How is that market doing right now?
Pollack: Again, if my crystal ball was always right I’d play the lottery every day. I think we are in the fourth quarter of a football game in this market. I have hope that the landing this time will be much smoother than it was during the last time — meaning 2008-2009. I don’t see a particular factor in the real estate market as a whole, but when you talk commercial real estate, there are some projects that just aren’t salvageable anymore. As a whole, retail was overbuilt in many states.
SCB: You have some projects where you have seen increasing land value. What are your plans for those?
Pollack: Of our approximately 4 million square feet, maybe 15 percent of that has the potential to be completely redeveloped. We’re positioning leases in those properties so that we know when the trigger can be pulled for a sale and potential redevelopment. We have a project that we are leasing in the Bay Area of California, for instance, where we are just marking time. We have several retail centers where we know the highest and best use is for another type of use. They will be scraped and redeveloped into a mixed-use property. When we have a property like that, we won’t sign long term leases when our ultimate feelings about the property are that it will be sold to another developer who will completely redevelop it. We have a few projects where we are getting property rents that are so low compared to the value of the dirt. Our advantage on those is that we have owned those properties for a very long time and our cost basis is low. We get inquiries from companies who specialize in scraping and developing new projects. Our specialty is redeveloping the existing product, not tearing down and completely redeveloping. It won’t be us that redevelops these properties; that’s not our interest. I love renovating, but I recognize that some of these properties are so underutilized and the land values have gone up enough that it makes sense for them to be sold to an organization that specializes in ground up renovation.
SCB: Will you be a partner in those deals?
Pollack: No. I’m not good at being a silent partner; I’m not good at being silent about anything. When we sell, we will either pay the tax or find something to trade into. I don’t see myself being involved in new development. Our typical project is not of the size and magnitude that some of these properties have the ultimate potential to be. It is good to be in a position where your land is worth far more than what your buildings are worth. We know where our niche is and at this point in my career, I’m really not looking to learn anything new. I have plenty of experience in the over 12 million square feet of real estate that we’ve redeveloped, and I also know what other people do well.
This article originally appeared in the February 2019 issue of Shopping Center Business magazine