Starry Skies For StarPoint
StarPoint Properties is trading a portion of its multifamily properties for retail.
Randall Shearin

StarPoint Properties has come a long way since the roots of the company in 1980s. Paul Daneshrad, now the company's CEO, started with a single property in the late 1980s. After working at the real estate subsidiary of Glendale Federal Bank, Paul Daneshrad had decided to go on his own. He started with one duplex, which he bought by maxing out his credit cards and borrowing from his brother-in-law and mother. He rehabilitated that building and sold it, did the same with a few others and then closed on his first apartment building — a 73-unit complex in Northridge, California. That was in December 1993, and a few weeks after the closing, the building was destroyed by the Northridge earthquake. Daneshrad, though he had put nearly all his money — and a lot of his family's money — into the building, was not dismayed. With a small business association loan and some FEMA financing, he rebuilt the complex in 8 months, gaining valuable construction experience along the way.   Since then, doing things quickly has been a hallmark of negotiating business deals with StarPoint Properties.

Shopping Center Business recently met with Daneshrad, CEO of StarPoint Properties, as well as Robert Budman, director of acquisitions, at the company's headquarters in the Brentwood area of Los Angeles.

Through the Northridge apartment complex, Daneshrad developed a relationship with Coast Federal Bank. During the 1990s, the banks were heavily involved in disposing of properties formerly held by savings and loans. StarPoint bought a 20,000-square-foot shopping center from Coast Federal in the mid-1990s that was completely vacant. The company rehabilitated the center and re-leased it in about a year. It was the company's first foray into retail, but it was also its last for a number of years. StarPoint continued to grow its multifamily properties through the 1990s, adding many in California, Texas and other states.

In 2004, StarPoint made a strategic decision to acquire retail properties. Since multifamily properties in California were trading with cap rates between 4 to 5 percent, the time was right for StarPoint to sell.

“It was a great opportunity for us to sell our multifamily product that was of C and D quality at 5 percent cap rates and move into Class A or B retail to take advantage of the arbitrage in cap rates,” says Daneshrad.

StarPoint has purchased Sawgrass Center, a Circuit City-anchored center in Fort Lauderdale, Florida, located across from Sawgrass Mills.

“This deal structure gave us the opportunity to upgrade the quality of our assets by at least one or two grades and avoid capital gains taxes,” says Daneshrad.

With $200 million of capital, StarPoint quickly acquired a variety of retail properties. It purchased centers like University Plaza, a Barnes & Noble- and Best Buy-anchored center in Huntsville, Alabama. The center is located in a growing area with strong demographics. The company also bought a 48,000-square-foot retail center in Kent, Washington. The Staples-anchored, 5.75-acre retail strip center is 100 percent leased and is located in a busy commercial corridor. The company also purchased Sawgrass Center, a Circuit City-anchored center in Fort Lauderdale, Florida. Sawgrass Center was developed in 1997 and sits on 7.6 acres of land located across from Sawgrass Mills.

StarPoint has purchased two retail buildings totaling 39,979 square feet in Tempe, Arizona, near Arizona State University. Both buildings are centrally located on Mill Avenue.

“Most of our focus is on grocery-anchored and big box centers,” says Daneshrad. “We pay particular attention to a few elements: demographics, location and traffic counts. We also like to see the drawing power of the center within a 1-mile radius. We want to be in the hub of the area's retail.”

Since the company likes to be in the hub, StarPoint has purchased a number of centers adjacent to regional malls. Its centers in Huntsville, Alabama; Baton Rouge, Louisiana; Arizona; and Florida are all located near regional malls. StarPoint also pays close attention the anchors' credit tenants and sales. As a successful multifamily investor, StarPoint also wants to be a nationwide player in retail. It has acquired properties in the South and Pacific Northwest, and recently made its first retail acquisition in the West. Southern California is a market where StarPoint hopes to begin purchasing properties.

StarPoint recently acquired University Plaza, which is anchored by Barnes & Noble and Best Buy in Huntsville, Alabama.

Most of the centers that StarPoint has purchased have been offered by brokers, and most were extremely competitive deals, because of their location and sales strength. Because StarPoint was a 1031 exchange buyer, this gave the seller confidence that the company was a buyer that was going to perform during the deal process. A few of the deals it has purchased were off-market transactions where StarPoint was able to maximize its value in the deal.

“We do look for some value-added opportunity in our deals,” says Budman. “There is often a problem that we can fix: we might have to rehab the exterior or fixing a visibility problem. This creates a lot of interest in our projects from national tenants.”

Management of the retail properties is handled in-house, while leasing is assigned to a local third party brokerage firm. The company looks for the best retail leasing broker in the market for its centers. Internally, the company added several positions to accommodate its retail properties. Recently, StarPoint added property analysts to adapt to retail and manage its properties.

“We added a lot of components to our personnel, infrastructure and knowledge base to accommodate our entry into retail,” says Daneshrad.

At the start of 2004, StarPoint's portfolio was 95 percent multifamily and 5 percent retail. At the start of 2005, the company held 70 percent of its properties in multifamily and 30 percent in retail. By 2006, the company's goal is to be 50 percent multifamily and 50 percent retail. Most of that growth, says Daneshrad, will come from new acquisitions. The company will not sell as many of its multifamily properties in the foreseeable future.

Why did StarPoint decide to invest in retail versus office or industrial? Daneshrad did not like the long term outlook for office and industrial space. The leasing resources that have to be committed to those property types are also much greater.

A new venture for StarPoint is the launch of a new program — ExchangePoint, LLC, which focuses on 1031 exchanges and TIC investments.   Daneshrad expects that 25 percent of its transactions will go through this new program and will be in the retail or office sector. StarPoint is working with the broker-dealer community to find investors in its TIC program. StarPoint predicts that most of its investors will be trading from inferior properties and negotiating 1031 exchanges to enter higher quality assets

“I think this will be a relatively large business for us,” says Daneshrad. “We are predicting $350 million in TIC business for our firm in 2005.”

StarPoint feels that the TIC business will be a huge growth vehicle for the company in the future. As it does with its own capital, StarPoint wants to invest in strong quality product on behalf of its investors. It will place its own money in all of the deals. StarPoint's ultimate goal moving forward is to help its investors maximize their yields and minimize their risk.