A marketplace in a growing Chicago neighborhood is struggling at 63% occupancy, managed by an inefficient and disengaged owner. Is this a property to be acquired and revitalized? If so, how? That was the conundrum posed to 11 teams of undergraduate students in the ICSC Foundation 2023 Virtual Retail Real Estate Challenge.

PMAT Cos. founder and CEO Bob Whelan created the competition’s prompt:

Southside Commons is a 2011 construction of a 128,004-square-foot shopping center in an affluent suburb of Chicago. The center sits on 15 acres on an arterial roadway with traffic counts exceeding 60,000 vehicles per day. Despite this location, it has struggled with leasing, as the developer and owner is inexperienced, disincentivized and financially incapable of stabilizing the property. It’s 63% occupied with a vacant, 58,000-square-foot box.

You’ve been offered the opportunity to buy the open-air shopping center at an attractive price at an 7.5% cap rate on existing net operating income. You also will incur closing costs, approximately $900,000 in upfront deferred maintenance capital expenditures, and tenant improvement and leasing costs. Assume you’ll be able to attain debt financing at 65% loan to cost at an 8% interest rate with two years interest only, then converting to a 25-year amortization on the initial financing. Also assume you can include the initial costs of the center and the closing costs in that loan. You may be able to apply other project costs to the leverage if it’s feasible based on market underwriting. Any additional tenant allowance and leasing commission costs will have to be funded with cash equity or cash flow. Any loan you get will have a five-year term and is prepayable anytime without penalty.

The teams were tasked with choosing one of five strategies:

1. Purchase the center, fill the vacant space with neighborhood center-type tenants and resell the property within three years, including the possibility of selling individual buildings as condominium units.
2. Purchase the center, fill the vacant space and retain ownership.
3. Purchase the center, convert the 58,000-square-foot box to non-retail use and then resell the property. Assume operations are stabilized for the last year of the hold period.
4. Purchase the center, convert the vacant space to non-retail use and retain ownership.
5. Decline to purchase the center.

Temple University, advised by Phillips Edison director of property management and ICSC member volunteer Ran Meng, took first place. Team members Brianna Boughton, Jake Lewis, Tina Nguyen, Myles Savage and Nicole Stone recommended buying the property, filling existing vacancies and ground-leasing a 10,000 square-foot pad site while holding the property long term. They presented a cohesive and well-researched plan for acquiring, enhancing and stabilizing the property. Watch their presentation here and then keep reading below:

Teams received the case prompt on Nov. 8 and spent a week reviewing documents, determining strategy and organizing it all into a video presented Nov. 15 and defended before the judges: Bedrock executive vice president and COO Ivy Greaner; Ken Lamy, founder, president and CEO of The Lamy Group and of DataPoint International; and Acadia Realty trust senior vice president and chief investment officer Reginald Livingston.

Rutgers University–New Brunswick’s Max Chen, Amanda Collado, Raj Mitaliya, Adi Parikh and John Profaci, advised by Edens senior vice president Nicole Shiman, took second place. Watch their presentation here:

University of Wisconsin–Madison’s Alexis Fernando, Xun Lu, Kathleen Selden and Jake Stevens, advised by Raider Hill managing director John Dunion, took third place. Watch their presentation here:

The winners received cash prizes, and first place winners also received all-expenses paid trips to ICSC LAS VEGAS in May.

The other teams were The University of Alabama, advised by Centennial president Whitney Livingston; California State University, Northridge, advised by Vestar vice president of development Ryan Ash; Georgia State University, advised by SimonCRE founder and CEO Josh Simon; Indiana University, advised by Brixmor executive vice president of operations and chief transformation officer Haig Buchakjian; Michigan State University, advised by Pine Tree vice president of development Jasmyn Sylvester; The University of Mississippi, advised by Vestar director of finance Kean Thomas; Rutgers University–Newark, advised by Dollar Tree/Family Dollar director of real estate for the Midwest Kien Tsoi; and Toronto Metropolitan University, advised by Wells Fargo vice president of real estate transaction negotiations Chanelle Barnes.

“This competition gives students the chance to put their classroom learning into practice by solving a complex real estate problem,” said ICSC director of University Partners and student engagement James Dulin. “This year’s teams took the challenge seriously and impressed the judges with their preparation and grasp of the material.”

For more information on the ICSC Foundation’s programs, click here.