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Unibail-Rodamco CFO Says Acquisitions Harder to Find

Jaap Tonckens, chief financial officer of Unibail-Rodamco (Paris: UL.PA), joined REIT.com for a video interview at REITWorld 2013: NAREIT’s Annual Convention for All Things REIT at the San Francisco Marriott Marquis.

Unibail-Rodamco specializes in shopping centers in European capital cities.

Tonckens was asked to reflect on the pros and cons of both acquisitions and development in the current market.

“The pros of acquisitions are that you can acquire assets. As long as they’re the right assets, the right price, the right structure, you can acquire them and immediately get rental income. If it’s a good price, it’s a fairly low-risk proposition,” he said.

Development, however, can take as long as 10 to 15 years to move from initial concept to actual opening, Tonckens said, in part due to the important role that zoning laws play in Europe.

“Retailers in today’s world are no longer willing to commit many years in advance of opening a new shopping center. The development risk has gone up,” Tonckens said.

Tonckens explained that because so many investors are chasing the large shopping centers that Unibail-Rodamco specializes in, “it’s become very difficult to find these, as institutional investors typically have a cost of capital advantage.” As a result, he said, development will most likely account for a larger share of growth at Unibail-Rodamco.

Turning to the outlook for rental income, Tonckens stated that “overall, we see like-for-like growth continuing to be good.” However, on a more cautious note, Tonckens said retailers are showing some reluctance to commit to higher prices due to uncertainty about consumer spending.

“It depends very much on a country-by-country, almost a city-by-city basis,” Tonckens said. The trend is that retailers want fewer stores because of the Internet, he explained, “which also means they’re going to be more selective about where they’re going to take space.”

Tonckens also discussed general consumer trends.

“Customers want variety—a unique collection, if you will—of retailers. But not just in a big box where they can just go and get stuff. It really is about the experience and the amount of time they can spend there,” he said. Tonckens added that the larger shopping centers are doing well because they offer a variety of retail options and “the level of experience that people have come to expect.”