AKR
#Yes.
And it varies depending on which area of our core competencies we are referring to.
So and the way we think of it is, our core competencies are purely open air retail ranging from heavy lifting redevelopments in key markets where we think we can get rewarded for that, onto some of the more opportunistic high-yielding plays that you have seen us do over the last 10, 15 years.
On the heavy lifting side, what I would say is the overcrowded space of a few years ago for street redevelopments, et cetera, is less crowded on the equity side.
And lenders are being much more cautious about that.
So the high levered competitors don't seem to be showing up as aggressively, and sellers are saying, you know what, certainty of execution matters, we know Acadia has the capital.
In the fund side, it's not subject to where the REIT market may or may not be and the decision-makers are in the room.
Then when you turn to some of the more high-yielding plays, there is a steady step in the public markets, for instance, towards REITs shedding assets, and I think that makes sense.
I think that the public markets is the place for assets in the public markets and there is a place in the private markets.
Simultaneously with that, the non-traded REITs are less active.
You are seeing some news of them reloading but they are not showing up nearly as aggressively as they were a year or two ago.
And many lenders are being less aggressive as well.
So we are seeing cap rates that began to move up last January, pause for a second, continue to move higher for more generic retail, and we look at the spreads and the investing opportunity there, and that also feels really strong.
We'll see which deals in fact happen.
We'll see how long the public markets pause.
I would note that REITs seem to have predicted seven of the last three real estate corrections.
So given where risk-free rates are, I have no point of view as to how active the public REITs get or how reactivated the private REITs get.
They could come back tomorrow but right now, there's enough of a pause that we're seeing opportunities.
Absolutely, and we don't give specific cap rates, Mike.
So I'll sidestep that piece of it, but I do think it's important to explain how we think about our acquisitions, the core of our portfolio.
There is a couple key criteria and you have to check the boxes, otherwise we don't play.
First of all, is the asset consistent with our portfolio and our long-term growth strategy.
If the answer is no, then there is probably not a price that we play for that asset.
We have been pretty clear that we are going to stay disciplined about how we grow our core portfolio that because we are relatively small, we can achieve this 20% plus or minus a year, or we certainly have over the last several years, growth without taking on growth-for-growth say, or assets that are not consistent.
Once it has checked that box, which today means street, urban, and in a very few instances, suburban assets, in our key markets of DC, New York, Boston, Chicago, San Francisco.
If it checks those boxes, then the question is, is there enough growth in that asset or is there enough strength and resilience in the asset in terms of the tenancy that it complements our portfolio as well.
If the answer is yes to that, then pricing comes into play.
And the deal has to be accretive to our portfolio, first and foremost from an NAV perspective.
And then finally we look at it and say, will be accretive to earnings.
Chances are it will if we finance it correctly.
But the accretive to NAV on a leverage neutral basis requires that the REIT market be in a healthy and liquid perspective and requires that a seller is being realistic in terms of their timing, et cetera.
The deal we just acquired in Sulli<UNK> Center, it was an off-market transaction so the seller was cooperative in terms of our timing needs.
<UNK> and his team did an excellent job of making sure that we matchfund that exactly so that there was nice accretion to NAV.
Our goal for core acquisitions thus is checking those boxes, making sure the pricing works, and when it doesn't, and 2015, as I was pointing out, and we took some heat for it, not acquiring anything in 2015 on the street-retail front.
When the growth is not there, when seller's expectations for pricing is too high, when there's other bidders willing to underwrite growth that we don't see, then we step to the sidelines.
So it's that balance overall, and so far that has worked well for our shareholders over the long run.
Although we take heat when we're not acquiring in 2015, and now there's going to be a certain amount of heat about street retail.
We recognize that.
The good news is this current round of noise is going to create some good opportunities for us.
So to pretend that we're not somewhat focused on where the and how the Fed acts and how economy acts would be whistling in the dark.
What we hope is that the economy continues to improve, and that the improving job market comforts the consumer, the consumer continues to do well and that Fed follows in lock step.
Conversely, there's a chance that you'll see tightening even though the economy is not improving and in the short run, that could be disruptive to the economy and disruptive to the real estate industry.
Then on the other side, just because we can worry about this 10 different ways, is what if we go into a stronger growth in GDP than is currently anticipated, and the Fed has to play catch-up and rates start going up faster.
What I'd point out in that case is while it will be a short-term concern for real estate, we're pretty comfortable given the quality of our portfolio and the modest amount of leverage we use on a relative basis, that interest rate increases will not impact cash flow, might create some noise in terms of multiples and cap rates but in the long run a improving economy would and should be good for real estate, and specifically to our portfolio.
So it would more be if we saw tightening without economic growth would be concern number one.
And then the other is just more micro to what we do.
It would be nice to see our retailers take some giant steps forward in terms of their transition into 21st century retailing, which is omnichannel, which means picking these great locations.
We understand retailers are going to do more with less.
But it's important to see that next step kick in.
I think you will over the next few years, and again, I think it works well for our portfolio because we had these critical locations that our retailers are going to want to locate in as their business, as the omnichannel industry continues to evolve.
So there is a difference.
If you're going in yield is lower for these great locations.
You better see stronger growth over the next 3, 5, 10, 15 years, and we are in it for the long haul you better see that growth.
We are not simply trophy hunting.
So I would say if we can see, and I talked about it before, this 200 basis points of superior growth, it will translate through into superior returns for that portion of our portfolio.
And so far, we are seeing that validated.
The concerns are if you have some of these cyclical issues translate through into permanent.
So if the dollar remains strong forever, if tourism were to decline substantially, if the current move toward these major cities in terms of employment, in terms of where people want to live, work, play.
If any of that were to shift substantially, then you might see some falloff.
So far, we're not seeing that.
Again, I'm not particularly concerned when I see a little softness in residential occupancy rates in these gateway cities.
An extra month of free rent in Brooklyn just puts more money in our shoppers' hands.
The next generation is moving to these markets.
The retailers want to be there, and so far that feels all very positive in the long run given everything we see, but there are definite crosscurrents like I discussed earlier and like I was just touching on now.
Sure.
Thank you all for taking the time, and we look forward to speaking with you again next quarter.
