First Washington's $65m Midwest buy is a shop-space bet

First Washington Realty has acquired two grocery-anchored shopping centers, one in Minnesota and one in Missouri, for a combined value in excess of $65 million, according to IREI, taking its portfolio to 21.9 million square feet across 21 states. The Village of Blaine and Liberty Corners together measure 345,493 square feet, which against that consideration works out to a floor of roughly $188 a square foot. At about 1.6 percent of a 21.9 million-square-foot portfolio, the pair reads as portfolio maintenance, the same format in two more states, and that price only makes sense if the shop rents move.

Blaine does the heavier lifting at 220,685 square feet, where Interstate 35W and Lexington Avenue meet in the Minneapolis-St. Paul metro and the coverage attaches roughly 3.3 million annual visits: the only operating statistic offered on either property, and the number a buyer would put first if traffic, rather than the anchor's credit, were doing the underwriting. More than 1,700 homes are planned around the center, area household incomes are rising, and the National Sports Center, TPC Twin Cities and Aveda's headquarters sit nearby; the coverage describes Blaine as one of the Twin Cities' leading neighborhood shopping destinations.

Liberty Corners adds 124,808 square feet along State Highway 291, a little more than a mile from Liberty Triangle, and it is the one of the two with a quantified anchor: a 56,000-square-foot Cosentino's Price Chopper occupying just under 45 percent of the center, with Chipotle Mexican Grill and The Big Biscuit among the tenants in the balance. The coverage describes an affluent, highly educated customer base with the visibility and daily traffic that grocery-anchored retail leans on.

That composition, not the geography, is what these two trades underwrite. A grocery box delivers traffic and a credit tenant; the rent growth in a neighborhood center lives in the shop space that turns over every few years, and at Liberty Corners the majority of the square footage sits outside the anchor. First Washington looks to be buying small-format centers where a grocer's sales volume sets what the surrounding leases can eventually pay. Owning an anchor box for its credit is a different wager, and it is the safer one.

Liberty Corners alone holds 68,808 square feet outside the Price Chopper box, and the coverage does not break the $65 million out by property. That 68,808 square feet is where the returns on this deal will be earned.