Assessing American Assets
American Assets is a quiet company with some not-so-quiet retail holdings.
Randall Shearin

You probably haven’t heard of American Assets, but if you have, you’ve probably been quickly impressed with the scope of the company’s holdings. The company has real estate holdings ranging from multifamily properties to office parks, but lately it’s been cashing in older holdings for a new property type: retail centers.

Shopping Center Business recently met with executives from American Assets while in Irvine, California. SCB met with John Chamberlain, chief executive officer; Bob Barton, executive vice president and chief financial officer; Patrick Kinney, vice president, retail operations; and Chris Sullivan, vice president, retail leasing.

Based in San Diego, American Assets’ real estate division is part of a larger company that has holdings in real estate, banking and insurance. Over the last 5 years, the company has focused on these three core businesses and has sold off holdings it had in other business sectors. American Assets started as an apartment builder in San Diego. The funds from the development and sale of its early projects were invested in new developments and other businesses.

And its holdings aren’t small: the company owns $1.5 billion in commercial real estate in the U.S. That figure represents only about 10 percent of the total assets that the company controls — it has other assets in business sectors not related to real estate.

Alamo Crossing and Alamo Quarry Market, San Antonio, Texas.

American Assets buys most of its properties one development at a time. It has a strategic plan that focuses on buying and holding to create long-term value. It also focuses on key locations within the markets that it is active, and only buys top properties. Since March 2003, the company has been selling assets — approximately 1.7 million square feet — and has purchased new properties through 1031 exchanges. It has acquired a number of more desirable properties. For example, the company sold a 25-year-old apartment complex in San Diego and an office project and exchanged the proceeds in November 2003 for Alamo Quarry Market and Alamo Crossing, a 600,000-square-foot prominent center in San Antonio, Texas. Developed by Trammell Crow around the remnants of a former cement plant, the center is now one of the top developments in the San Antonio area.

Alamo Crossing and Alamo Quarry Market, San Antonio, Texas.

Over the last 18 months, the company has made a deliberate effort to move more of its portfolio into dominant, irreplaceable retail properties. The company looks for centers that have high barriers to entry. In addition to Alamo Quarry, American Assets recently purchased Del Monte Center, in Monterey, California. The 100-acre center cannot be duplicated in the area due to the distinctiveness of the area and the community’s barriers to entry.

The company also owns two properties — Solana Beach Towne Centre and Lomas Santa Fe Plaza — in Solana Beach, California. These properties are strategically located adjacent to Interstate 5. Similarly, the company owns Carmel Mountain Plaza along one side of Interstate 15 in eastern San Diego County and Carmel Country Plaza along the other side.

American Assets purchased Alamo Crossing and Alamo Quarry Market in November 2003.

American Assets isn’t always so picky when it comes to the condition of an acquisition. With Del Monte, designed in the 1960s and not updated much since, the center is not designed with today’s amenities in mind. As a result, American Assets is looking to redevelop and remerchandise parts of the center to motivate consumers to stay longer. With Alamo Quarry Market and Alamo Crossing, however, the center — really two adjacent centers built in the late 1990s — had every possible convenience and was already the top center in the market in the very best location.

“Some of the properties we acquire do not require any renovation,” says Chamberlain. “To the other extreme, in cases like Del Monte, we are looking at a major retrofit with respect to the common area, tenant improvements and re-leasing.”

Whole Foods is an anchor at Del Monte Center in Monterey, California.

Other improvements that the company is making to Del Monte include the addition of a 13-screen movie theater and an upscale restaurant. The market has an established residential market of mostly baby-boomer residents. The center also serves the tourists visiting the area. The tenant mix has to reflect that lifestyle. Anchored by Macy’s and Mervyn’s, Del Monte is a classic open-air center that was built in the days before enclosed malls had gained mass popularity. In some ways, it is a pre-cursor to the mall, and in some ways it is a lifestyle center. American Assets and Madison Marquette, which leases and manages the center, hope to create an updated lifestyle center.

“The center has to reach out to the customer,” says Kinney. “The customers want a gathering place; they want a clean, safe environment. They also want it like Disneyland when they walk through — it should be beautiful and they should know that every time they come back it will be the same.”

American Assets purchased Del Monte Center in Monterey, California, earlier this year and has plans for a major renovation at the center.

“We’re improving things that increase the customer’s ability to be comfortable so that they will come back, hang out, have a cup of coffee and really enjoy and be part of the center,” says Kinney. “You have to activate the centers with the communities and we look at different ways that we can accomplish that.”

American Assets handles property management, accounting, lease administration, construction, and tenant improvements in-house. When it is not geographically feasible for the company to handle management of certain centers, it will outsource the management responsibilities. In San Antonio, American Assets has assigned Reata Management, the original developer of Alamo Quarry, to handle management.

Private investors handle financing for the company’s properties. The company has a select group of private investors that have placed capital with the company in many deals over the years. In most of its transactions, American Assets places at least 80 percent of the capital and allows its investors to carry the remaining percentage.

Sullivan joined American Assets from Regency Centers and Kinney joined from Caruso Affiliated Holdings in late 2003 to head up the company’s retail efforts. Kinney handles the operations while Sullivan handles the leasing of the properties. Their joining the company is part of American Assets’ decision to build a high power retail team to handle its relatively new retail portfolio.

“We have worked hard to find the right people to build our team,” says Barton. “We start with high ethical standards and high integrity. When we tell you we are going to do something, we do it. Our focus at the company is very customer-centric. Our tenants are our customers and we want them to be proud of the center in which they do business. We also want to help them make their customers happy.”

It is important for American Assets to carry its reputation through with every deal it makes. The company wants the seller at the opposite side of the table — mostly institutional investors like DRA, CalSTRS and AIG — to call American Assets first the next time they place a center on the market.

“Integrity is 99 percent of what you do,” says Chamberlain. “And we’re not going anywhere. We treat people the way we want to be treated because we are going to be here for a long time.”

American Assets currently owns 3.1 million square feet of retail space, 1.5 million square feet of office space, and 925 multifamily units. Total area owned is about 4.8 million square feet.

“Our ability to get an asset and reposition it really sets us apart,” says Barton. “We take it from a B property to a B-plus, from an A-minus to an A-plus.”

By doing 1031 exchanges instead of straight sells, the company estimates that it has saved — and reinvested into real estate — about $36 million. What is also interesting about American Assets, is that in all its acquisitions over the last 18 months, it has never been the highest bidder — simply the one that offered the most certainty for the seller.

“Deal after deal, being the one that can move the fastest, put our money down and make a timely decision is why we’ve been able to buy the best assets,” says Barton. “We listen, we react quickly and we do what we say we are going to do.”

The company is continuing to search for retail properties in the western U.S. With its entry into San Antonio last year, it would like to keep its retail portfolio west of that city. It is looking at additional properties in San Antonio as well as in Austin and Dallas, and in major markets on the West Coast.

“Opportunity will take us everywhere on the West Coast,” says Barton. “We are not set in a particular mold; we will go where we find opportunity. That’s where we find success.”