Sterling Organization buys West Hollywood Pavilions Marketplace for value-add fund

Retail-focused private equity real estate firm Sterling Organization, based in West Palm Beach, has acquired Pavilions Marketplace, a 69,622-square-foot grocery-anchored shopping center in West Hollywood, on behalf of its institutional value-add fund Sterling Value Add Partners IV, the 11th investment for that fund. The center is 89 percent leased, and the announcement names no seller and no purchase price; the vacancy is the point of the deal.

The property occupies roughly 3.4 acres at the intersection of Santa Monica and North Robertson Boulevards, close to Beverly Hills and Century City, in what the firm describes as one of the country's most densely populated and affluent urban neighborhoods — a three-mile trade area with more than 244,000 residents and average household incomes above $194,000. A 54,087-square-foot Pavilions, the Albertsons banner, anchors the center, with Chase Bank, Insomnia Cookies and Nothing Bundt Cakes among the co-tenants.

"Pavilions Marketplace embodies the type of investment we have been targeting for Sterling Value Add Partners IV," Bob Dake, a principal at Sterling Organization, said in the announcement. He called the immediate opportunity to lease "high-quality, high-rent, vacant space" at what he believes can become a trophy grocery-anchored asset "very compelling."

The square footage shows where that vacancy sits: the Pavilions box accounts for 54,087 of the center's 69,622 square feet, leaving about 15,500 square feet of shop space, so most of what Sterling has to lease likely sits in the smaller non-anchor component rather than the grocery store itself. That is a rent-setting exercise in a trade area where average household incomes top $194,000 — which is high-rent in Dake's phrasing — and it is how a fund buys a fully built center and still has something to add. Against an anchor of that size, the unleased 11 percent is small in absolute terms; Sterling is buying the lease-up, not the whole center.

The anchor is what holds that underwriting together: a high-volume grocery store, in the release's description, whose shoppers are the daytime traffic the shop tenants pay for. For a firm based in West Palm Beach, the deal also shows how far dedicated retail capital will travel for the right grocery-anchored corner.

The 11th investment puts Sterling Value Add Partners IV deep into its deployment, though the announcement gives no fund size, vintage or equity total, so how much capital remains and how quickly the fund has moved cannot be established from it. The shop-space rent roll is what Sterling can still move; the price and the exit date are not in the announcement, which leaves the lease-up as the visible part of the return.