Investors go shopping

When Naples developers Barron Collier and Lutgert opened Mercato in 2008, Southwest Florida was about to be engulfed in one of the most brutal recessions.
Seven years later, the partnership that now includes private equity firm Madison Marquette sold the 456,359-square-foot mixed-use development to Prudential Real Estate Investors for $239.6 million in cash, or $526 per square foot.

That price-per-square foot was nearly five times the average sale price for shopping centers measuring more than 100,000 square feet from Tampa to Naples, according to data tracker CoStar Group. The amount of space at Mercato is roughly equivalent to eight football fields.

Neither buyer nor seller could be reached, but the bidding was fierce. Chuck Taylor, a senior vice president with Madison Marquette, told an audience of commercial real estate brokers at a conference in Fort Myers earlier this year that it has signed confidentiality agreements with 180 prospective buyers.

“This was a highly sought after property by a number of private, institutional and foreign capital sources,” says Danny Finkle, senior managing director with Holiday Fenoglio Fowler in an email to the Business Observer. Holiday Fenoglio marketed the property on behalf of the sellers.

Finkle declined to address more specifics of the deal, but he noted Naples has some advantages despite its relatively small size compared with Tampa or Miami. “While a smaller market, Naples has barriers to entry, strong demographics and a strong tourism industry that made it a very compelling market for investment,” Finkle says in the email. “Market fundamentals, size and location remain important considerations, but the quality and position of a specific property is critical.”

Mercato is the only shopping center south of Sarasota with an upscale Whole Foods grocery store. It also has a 12-screen movie theater and a Nordstrom Rack store that anchor the center. There are 17 restaurants that attract patrons late into the evenings to dine and shop. Most of the space at Mercato is retail, but about 135,000 square feet is office space.

Rents for space at Mercato have been listed at $35 a square foot on Loopnet, a commercial listing service. Those rents are more than double the average rent per square foot at larger shopping centers from Tampa to Naples, according to CoStar.

The sale of Mercato is evidence of strong institutional investor interest seeking investments outside larger markets such as Miami or Tampa. “The No. 1 thing is there's a tremendous amount of cash out there,” says Raymond Sandelli, managing partner of CRE Consultants in Fort Myers. “People are looking to place it.”

What's more, there's been little new development. “You have a lot of cash chasing a limited amount of product, therefore prices start pushing their way up,” says Sandelli, who previously ran the statewide operations of brokerage firm CBRE.

Although Mercato is somewhat unique in its mix of top-shelf tenants, the sale should boost confidence in the market. “It means that there's a lot of interest again in Southwest Florida,” says Karen Johnson-Crowther, managing director and principal of Colliers Arnold Southwest Florida.

“In our office, we fielded a lot of underwriting calls from a number of big companies interested in Mercato,” Johnson-Crowther says.

Johnson-Crowther recently returned from a meeting of the International Council of Shopping Centers, where she says investors have rediscovered the region. “The values are coming back up,” she says.

Follow Jean Gruss on Twitter @JeanGruss