Return of the shopper

As the Las Vegas economy starts to regain its footing, investors buy into strip malls

Tropicana Centre fell on hard times during the recession but is now recovering and adding tenants.

Click to enlarge photo

Customers stroll about the Trop-Aquarium store owned by Dan Riggs, an original tenant at Tropicana Centre, a plaza bought by investors recently for $40 million.

At first glance, Tropicana Centre doesn’t seem like a great buy for a landlord.

The plain-looking Las Vegas strip mall has several empty storefronts, a bunch of discount shops and a check-cashing business. With a police helicopter circling overhead one recent morning, Metro officers held two men in handcuffs — one’s face covered in tattoos — in front of Wal-Mart.

But the mall is faring better than it was a few years ago, and some New Jersey investors bet it will improve even more. They recently bought the plaza for $40 million.

They’re not the only ones who see opportunity in local retail.

Investors have been buying valley shopping centers at the fastest clip in years amid falling prices, improved vacancy rates and higher consumer spending. Like Tropicana Centre, many properties trading hands have a history of financial woes and are being sold to landlords outside Nevada.

Overall, investors bought 39 retail centers in Southern Nevada last year, up from 30 in 2012, 27 in 2011, six in 2010 and four in 2009, according to Colliers International.

Properties that sold last year include Boulevard Mall for $54.5 million, Deer Springs Town Center in North Las Vegas for $50.5 million, Mission Center near UNLV for $16.5 million and Craig Promenade in North Las Vegas for $10.1 million.

Boulevard, a once-thriving shopping hub, has slid in popularity and, before it sold to its current owners, traded hands through a process that lets people acquire debt-laden real estate. Craig Promenade was listed for sale during the boom years at about $25 million — more than twice what it recently sold for — but was seized through foreclosure after the economy crashed.

If landlords can sign more tenants and raise the valley’s stagnant rental rates, their investments will prove lucrative. Using that same logic, out-of-state buyers have also snapped up valley office buildings the past few years.

“Investors feel the Las Vegas market is becoming healthier,” said broker Marlene Fujita, a vice president with CBRE Group.

Mall owners lost tenants in droves during the recession as consumers cut back on spending and put stores out of business. But with locals and tourists opening their wallets again and landlords giving months of free rent, renovation dollars and other perks to lure tenants, shopping hubs are getting a steady trickle of new retailers.

The vacancy rate for anchored retail centers in Southern Nevada, which had soared from about 4 percent in 2007 to 12 percent in 2011, ended 2013 at 9.3 percent, according to Colliers. Average asking rents hovered around $1.35 per square foot last year. In the past decade, average asking rents peaked locally in the fourth quarter of 2007, at $2.28 per square foot, and hit bottom in the second quarter last year, at $1.34.

Clark County had almost $14 billion in taxable sales from July through November, up 7 percent from the same period in 2012, according to state data. The top categories — food and drink places, car and auto-parts dealers, clothing and accessories stores, and general merchandise shops — are all getting more business.

That spending, and the boost it’s giving to local real estate, might carry a steep cost, though. Nevadans have some of the worst personal finances in the country, and the mini-shopping boom has raised fears that people are returning to the bad habits of the boom era, buying consumer goods they can’t afford.

Meanwhile, strip-mall sales prices have actually fallen the past few years despite rising investor demand. Landlords paid an average $95.91 per square foot last year for local retail centers, according to Colliers, down from about $109 in 2012 and $118 in 2011.

Fewer people are looking for properties that are well-stocked with tenants, said Sun Commercial Real Estate owner Cathy Jones, and the widespread bargain hunting might explain the volatility in pricing.

“It depends on how distressed the properties are,” she said.

Tropicana Centre, at the southwest corner of Tropicana Avenue and Pecos Road, wasn’t always problem real estate.

Business boomed for several years after it opened in the early 1990s. Storefronts were occupied and the mall was packed with shoppers, said Dan Riggs, owner of Trop-Aquarium, an original tenant.

Like other malls near the city’s core, Tropicana Centre took a nosedive last decade when the recession and suburban sprawl drained business from older plazas. Shoppers fled and stores closed, and Tropicana’s occupancy rate plunged to 40 percent at one point.

“It was empty,” Riggs said.

The strip mall, which sold for $61 million during the boom years, fell into court-appointed receivership in 2009, after the economy tanked and the owners reportedly stopped paying the mortgage.

Receiver Gregg Williams, of Trident Pacific Real Estate Group in Newport Beach, Calif., took charge in June 2012 and brought some life to the center. He striped and resurfaced the parking lot, painted and repaired the stores and, using Colliers brokers, signed a slate of new tenants.

“It was in pretty rough shape,” Williams said.

The occupancy rate is now about 80 percent, and shoppers are coming back. Riggs estimates that his sales revenue has climbed 8 percent in the past year and a half because of rising foot traffic.

A few months ago, Williams sold the center for $39.8 million to New Jersey developer James Demetrakis.

The new owner’s investment group had read about the uptick in local construction, thought the job market was improving and figured it was the right time to buy, partner David Carmel said.

The landlords have signed a lease with Conn’s, an appliance and furniture retailer, and are working to bring a Ross Dress for Less.

Tropicana Centre is their first purchase locally, and the group is looking for more deals.

“I hope we were right about the market turning,” Carmel said.