Fundamental Developer
Dallas-based Archon Group builds retail platform using capital from its parent company, Goldman Sachs.
Randall Shearin

In the early 1990s, after the placements of many real estate assets in the Resolution Trust Corporation after the savings and loan bailout, there were many opportunity funds created. They all had the same purpose: to acquire properties from the RTC at a discount. Archon was one of those companies, and one of the few survivors among the original group. Today, however, Archon has a different purpose: to create great retail properties, whether they are from the ground up or redeveloped.

Shopping Center Business recently spoke with Steve Lipscomb, national director of retail investments for Dallas-based Archon Group.

Archon started as a joint venture between Goldman Sachs and a division of the J.E. Roberts in 1991. Later, Goldman Sachs purchased J.E. Roberts’ share of the company and since then, Archon has operated as a wholly owned subsidiary of the investment bank. In essence, Archon is the real estate arm of Goldman Sachs.

In the early years, Archon purchased portfolios of properties and loans, renovating and selling properties as needed. For many years, Archon focused on office and multifamily properties. In 2001, Lipscomb joined the company to form Archon Retail and focus on developing and acquiring retail properties.

Today, the company is very active in the new development, redevelopment and repositioning of retail properties. The company’s equity source is the Whitehall Funds managed by Goldman Sachs.

Three years ago, one of the company’s first retail projects was Nobody Beats The Wiz Plaza in Lake Grove, New York. Archon purchased the 251,000-square-foot center, located across from Smithaven Mall, when it was about 40 percent vacant. Archon fully leased the center and sold it in 2003.

One of Archon’s most notable redevelopments to date is The Brickyard Mall in Chicago, which the company redeveloped in cooperation with Oak Brook, Illinois-based Mid-America Development. Today, The Brickyard is a 550,000-square-foot open-air center anchored by Lowe’s, Target, Jewel-Osco, Marshall’s and Office Max.

The company has purchased Prestonwood Mall in Dallas and is in the process of building a new center on that site. Archon has letters of intent for the 500,000-square-foot center from Wal-Mart Supercenter, Circuit City, Ulta Cosmetics, Eatzi’s and Office Depot.

Two years ago, the company purchased an old Wal-Mart in Southlake, Texas, and has completed redevelopment of the property. A new 135,000-square-foot center on the site that opened in fall 2004 contains Circuit City, Pier 1 Imports and several smaller tenants.

Archon has recently closed on two sites where it plans to build centers. The first is a former landfill in Allen Park, Michigan, that was purchased from Ford Land. Archon plans to develop a 405,000-square-foot center anchored by Target, Barnes & Noble, Cost Plus and Bed Bath & Beyond. In Hoffman Estates, Illinois, Archon plans to build a 420,000-square-foot center anchored by Target, Linens ‘N Things, PetsMart and Cost Plus.

In addition to building centers, since Archon Retail is only 4 years old, it has also been building a strong development team. It has hired a number of people from strong retail developers across the country. But because Archon was active in purchasing portfolios for years before it became active in retail, it has a number of strong capabilities already in-house. These include environmental, legal, title and due diligence departments. These capabilities enable Archon to consummate a deal quickly.

“One of the great things about being part of an organization like Archon that owns millions of square feet of office buildings and thousands of apartment units, you have the core staff that all those groups can call on,” says Lipscomb.

To identify sites, Archon has regional directors located in its offices in Washington, D.C., Chicago, Dallas and Southern California. Most have site selection backgrounds with companies like Trammell Crow, Opus and Cousins. Their job with Archon is to find development opportunities for Archon. Most of the company’s opportunities come from tenant relationships and its relationships with clients of Goldman Sachs. Over the next year, Archon plans to open an office in Florida, creating a fifth region for the company’s development activities.

“California, Texas and the Southwest, Florida, Chicago and the Midwest and the Northeast is where we think the opportunities are,” says Lipscomb.

Archon looks for the upside opportunity when it looks for redevelopment projects. It will purchase single properties or portfolios. For instance, the company recently acquired a vacant Kmart in Alexandria, Virginia, which it is working with another developer to redevelop into a mixed-use project. Archon also purchased 10 vacant Albertsons in San Antonio, Texas, when the retailer left the market. It has since redeveloped and sold seven of the properties and is working on redeveloping or selling the other three.

“We are very opportunistic,” says Lipscomb. “We are looking for any type of retail property that we can turn around and hit our investment hurdles.”

Those hurdles do include timeframes on how long the company can hold properties before doing something with them. Archon is very much a merchant builder; it builds strictly to sell it as fast as possible, when prudent.

“With the cap rates the way they are today, it is prudent to sell anything today,” adds Lipscomb.

Archon prefers to develop power centers because of the size of the deals, but it has also developed a number of grocery-anchored centers. Archon uses local real estate brokerage companies to lease and manage its projects. For example, it has used Mid-America in Chicago and Staubach in Dallas to manage and lease its properties. Archon works in partnership with the third-party company to make sure that the tenant mix for the center is right for the property and for the market.

Acquiring sites for redevelopment and ground-up development is competitive today. Archon succeeds because it has the ability to be a straight equity partner, a joint venture partner or a ground-up developer by itself on any size project. It also has its own expertise in-house so it can make up for any joint venture partner’s weakness.

When it steps into a joint venture, Archon is usually filling the void where a developer isn’t large enough to tackle a project that it wants to do. Archon helps them fill the shoes. For instance, a developer’s credit line may be tapped out but the time is right for its next project; or a certain project is larger than a developer has done in the past.

Lipscomb sees Archon continuing its role as a merchant developer on behalf of the Whitehall Funds and Goldman Sachs’ investors in the future. With a large development pipeline, and plans for a new regional office shaping up, the company plans only to spread its wings farther over the next few years.