Colby Village is an open format retail plaza previously anchored by Loblaws and Zellers. Strathallen purchased this asset in 2009 on behalf of its value add fund: Strathallen Retail Property Fund 2 (SRPF2), with the strategic objective of improving under market rental levels of the commercial retail units. In 2010 however, Strathallen recognized that Zellers’ steady underperformance at the plaza represented a risk that needed to be managed and saw an opportunity to improve the asset’s yield as well as overall customer foot traffic to the center.
Executing the Value Add Asset Plan
In 2011, Strathallen secured Walmart to assume the Zellers lease as pre-emptive move prior to Zellers exiting the retail landscape in Canada. Following the Walmart lease transaction, the Loblaws food store lease was extended ahead of lease expiration. Throughout the hold period, Strathallen worked to release the smaller retail tenants at market rental levels and several weaker performing tenants were replaced with better operators and stronger covenants.
Strathallen successfully mitigated a potentially large financial risk by pro-actively managing the Zellers space. Walmart brought a significant increase in foot traffic which benefited the overall performance of the asset. Throughout the hold period, Strathallen increased CRU rents by approximately 20%. The asset was subsequently sold in 2012 to SmartREIT, providing Strathallen Retail Fund 2 investors with double their equity investment, and a realized IRR of approximately 39%
over a 3-year hold and 2.5x equity multiple (pre-performance fees).