Combined’s Evolution
Part of the way Combined Properties is changing the way it does business includes the development of specialty mixed-use centers.
Randall Shearin

Along Sunset Boulevard in West Hollywood, Combined is developing a mixed-use project with retail, hotel and condominium uses. The 25,000-square-foot retail portion will be comprised mainly of restaurants and boutiques, as well as a rooftop bar and spa. The star of this property will be a high-end 150-room boutique hotel and 40 super-luxury condominiums.

Washington, D.C.-based Combined Properties has changed the way it does business. It has changed not just how it does business, but what it develops as well. Combined has transformed itself from a regional owner of neighborhood shopping centers to a national owner and developer of high quality retail and mixed-use assets. Combined recently topped $1 billion in assets, and continues to grow in its core markets of Washington, D.C. and Southern California.

Shopping Center Business recently met with Ron Haft, chairman, and Kathy Roberson, president, of Combined Properties, at the company’s Washington headquarters to find out how the company has changed and where it is going.

Development Focused

For Combined these days, it is not how much the company is developing, but what it is developing. In Southern California, in addition to retail centers, the company is developing a number of smaller, mixed-use projects that look nothing like the conservative strip shopping centers the company has been known for creating.

“One of the things we always ask is, ‘where do we belong?’ What makes us stand out in the market from all of our competitors?” says Haft. “What we have done is focused on what we do best.”

About 6 years ago, Combined looked at the retail business and where it wanted to be. The company defined three niches in which it had the most expertise. Haft refers to it as Combined’s “tweener” strategy — as in between small and large. The company focuses on projects that are bigger than those that small developers can do, but too small for larger developers. Its second sweet spot is with complex deals. That could be anything from buying a center out of bankruptcy to a project with a long ground lease or environmental issues. Lastly, because Combined is private, it can take a long-term outlook on a project. It is able to develop projects over a long period of time. This includes ground up development, redevelopment and buying properties where the upside is a long time away.

In the Venice Beach area of Los Angeles, Combined is retenanting and redeveloping Lincoln Rose Shopping Center, which will be anchored by a new Whole Foods grocery store. The center will include some environmentally friendly aspects, such as a living wall and recycled building materials. The center will be completed in August 2008.

At the same time, Combined has created a strategic plan that outlines three lines of business where the company will grow. The first area is acquiring core retail properties similar to those that the company already owns, and managing those properties to deliver superior returns. Secondly, the company is expanding its development efforts, which is buying land for development or existing centers for redevelopment and value enhancement. Thirdly, in California, the company has started a mixed-use development program.

“We are really focused in those three areas, and we’re applying our niche expertise to find those opportunities,” says Roberson.

As part of its aggressive growth strategy, Combined has launched and funded two institutional funds. The first fund, a partnership with Black Rock which closed in 2004, acquired its last property earlier this year. The second fund, launched in June 2007 with Heitman, will allow a leveraged $200 million for Combined to continue acquiring core properties.

“These funds have allowed us to bring in capital to continue our growth strategy,” says Roberson.

Applying Strategy

Since becoming president at Combined 7 years ago, Roberson hasn’t let things sit still. The company now has 4.7 million square feet in its portfolio and a $500 million development pipeline. The management strategy — with the company’s centers — Haft and Roberson term “activist asset management.” By that, Haft says, he will never settle on a property.

“We are always thinking how we can buy a lease out, expand a tenant or the center; how do we change things?” he says.

In 2005, the company purchased Courthouse Plaza in Fairfax, Virginia, which had long term leases in place with Safeway and CVS/pharmacy. When Combined purchased the center, it appeared that it would be set for the next 30 years. Combined was able to purchase an adjacent parcel of land. It has since negotiated with the tenants and it is in the process of expanding and renovating the center to ultimately better serve the community in which it resides.

In the Venice Beach area of Los Angeles, Combined purchased an older shopping center at a 2.7 cap rate in 2006. It was the lowest cap rate reported in California for the year. The location, however, is excellent and has extremely high barriers to entry, so it was in demand by retailers. Today, Combined is retenanting and redeveloping the center.  Anchored by a new Whole Foods grocery store, as well as CVS/pharmacy, the center will include some environmentally friendly aspects, such as a living wall and recycled building materials. The center will be completed in August 2008.

“Now, the center is no longer a ‘tweener’ property,” says Haft. “When complete, it will be something that an institutional owner will want.” Combined, however, intends to hold the center when completed.

Mixed-use

Sugarland Crossing, Sterling, Virginia.

Combined started its aggressive entry into the Southern California market in 2002 and the company has made its presence known. Combined has purchased 16 properties over the last 5 years, mostly in greater Los Angeles, and has plans to develop and buy many more. The company now has 22 employees based in its Beverly Hills regional office, and has recently expanded to the San Diego market.

In the Los Angeles area, Combined is focused on both retail and mixed-use development. The mixed-use projects look nothing like the Colonial-inspired strip centers Combined owns in the Washington, D.C. area.

Combined is taking a modern approach to its mixed-use developments in Los Angeles. To say the designs for its properties there are contemporary is an understatement. They are designed with a mid-Century modern flair, but with up-to-date uses and amenities.

“We have, by choice, become very design intensive over the last several years,” says Haft. “While we launched this with our projects in California, we expect to have more of a design focus in all of our markets in the future.”

Along Sunset Boulevard in West Hollywood, Combined is developing a mixed-use project with retail, hotel and condominium uses. The retail, at a modest 25,000 square feet, will be comprised mainly of restaurants and boutiques, as well as a rooftop bar and spa. The star of this property will be a high-end 150-room boutique hotel and 40 super-luxury condominiums. 

“We are trying to build properties we feel passionate about,” says Haft.

For its next step, Combined intends to select a new East Coast market into which to expand with core acquisitions and to bring the development growth strategy that it has successfully implemented in California to the D.C. market, starting with retail development and eventually adding the mixed-use component. Rich Neville joined the company’s Washington office in May 2007 to head up the development effort. While Combined will be developing new properties in the Washington, D.C., market, it may not design them in the same modern manner as it has in California.

“We build projects that fit their environments,” says Haft. “There is a lot more tradition in the architecture of Virginia and Washington, D.C. We will adapt our projects to the environment, just as we did in California.”

Combined is expected to have one new development project under contract by the end of the year in the Washington area. The project the company has in mind is in an upscale neighborhood where the average household income is close to $250,000. The entitlements for the project are in place, so Combined expects to start construction by June 2008. The company expects to have two to three more sites under contract in Washington in 2008. In an 18 to 24 month horizon, the company anticipates several new projects underway.

“It will take a little bit of time to get the first one or two going, then we expect to have two to three projects per year in the Washington market going forward,” says Roberson.

Another way that Combined is looking to maximize its development dollars is to partner with other developers and equity providers on properties.

“To date, we have been doing all of our development with our own capital,” says Roberson. “Going forward, we will likely be using development capital from outside investors to partner with us on our development projects.”

This brings another change to Combined, as most likely its partners will want to sell the properties after the developments are completed. It is Combined’s hope that it will be able to use its institutional fund with Heitman to purchase these stabilized properties and ultimately retain long-term ownership.

“These will be great projects that will fit perfectly into our core portfolio,” says Roberson.

For their roles, Roberson says that Haft is the creative one, and she is the implementor.

“Ron is the visionary; he knows retail inside and out,” says Roberson. “I am the operator. While he creates the vision, I marshal the resources to pull things together. That combination has allowed us to do some really unique developments and some great steering of the company.”

While the company has been intently focused on growth, Roberson and Haft have been rebuilding the inner workings of Combined as well. In addition to making many new hires, they have transformed the company’s culture and its environment. New employee benefits and programs, such as an 8-week paid sabbatical for employees with long service, an aggressive telecommuting policy, flexible work schedules, and paternity leave, have helped attract new employees and retain experienced ones, and have made the company a better place to work. One unexpected benefit to the changes has been the number of employees returning to Combined after a few years’ hiatus.