Prolific builder turns to existing properties

Bruce Goodman may not be a household name. But millions of households sure know the names of the stores the developer has brought to their communities.

Costco. Dick's. Target. Barnes & Noble. CVS. Lowe's. Best Buy. They are part of a long list of tenants that occupy more than 125 shopping centers and other retail space Goodman has created and managed, mainly in Pennsylvania and New Jersey.

Goodman has been at it since 1978, when he bought a gas station on the border of Philadelphia's East and West Oak Lane and turned it into a Burger King. Since then, the property has become a CVS - and Goodman a wealthy man, though how wealthy he won't say. His Goodman Properties and Goodman Management L.L.C. are private companies, with a commercial real estate portfolio of more than four million square feet that is valued by one estimate at more than $1 billion.

Yet despite all the riches development work has brought him, Goodman is steering his company away from it, at least for now. While the economy slogs toward recovery and shoppers continue to browse more than spend, the man considered one of the region's largest private developers has shifted his focus to buying the already built - and occupied.

Known as net-lease properties, these commonly include drugstores, banks, and other good-credit tenants that often assume maintenance responsibilities for their spaces.

"We're still developing shopping centers and specialty retail," Goodman said last week, "but opportunities are few and far between."

And they will mainly stay that way until 2015, said Jim Galbally, a vice president and specialist in retail-property sales at Jones Lang LaSalle Inc., a provider of real estate services.

According to its research, the retail-vacancy rate in the Philadelphia metropolitan area was 9.4 percent in the second quarter of 2011, up from 6.5 percent for the same period in 2007.

That equates to a little more than 5.7 million square feet in a total market of 60.9 million square feet in neighborhood and community retail centers, the most prevalent shopping venues.

Correspondingly, rental rates have dropped, reaching their lowest - $17.39 a square foot in this market - in the second quarter of 2010, down from a high of $18.17 a square foot in the second quarter of 2008, Jones Lang LaSalle has determined.

"Before you see new development, we have to have some of the excess space, the current vacancy, absorbed - which will take some time," Galbally said.

The entry of discount grocer Bottom Dollar and new electronics retailers into the market has helped fill some empty real estate, he said. Filling the rest is complicated by a lack of the very thing that precipitated much of the region's retail development for five to 10 years: construction of new homes.

"Shopping centers really just followed the rooftops," Galbally said.

So did Goodman, which meant many hours at municipal planning, zoning, and government meetings to get the necessary approvals to build.

"It's hard work going through the battle of development," Goodman, 57, who lives in Whitemarsh, said in his corner office along Old York Road in Jenkintown.

He became "a silent giant in the real estate world," as broker Steven H. Gartner, president of Metro Commercial Real Estate Inc., put it, by developing in prime locations with uncompromisingly "handsome properties."

Gartner, who has represented retailers that have leased space in Goodman creations for nearly 20 years, considers his current focus on net-lease property acquisitions a logical evolution.

"Developers . . . have cash flow that they need to continue to invest," he said. "You can either stick it in the bank for 1 percent [interest] or buy the thing you know better than anything else - which is commercial properties."

The beauty of net-lease acquisitions, Galbally said, is that those deals already have creditworthy tenants and, typically, 20- to 30-year leases, some with rent increases built in every five years or so. The sites are usually "Main and Main" locations, he added, making them easy to fill should a vacancy occur.

"It's a low-risk move with the potential for an excellent ability to make significant money," Galbally said.

At Goodman Properties, a company of 25 employees, net-lease acquisitions are overseen by one of Goodman's sons, Adam, 28, who joined the company in 2006, and real estate veteran Chris Anderson, hired in 2002.

Since 2008, they have bought 35 net-lease properties in more than 15 states. The plan is to make at least two net-lease buys a month, indefinitely.

"We're bound by the amount of money we can come up with," Bruce Goodman said.

So far, securing financing has not been a problem. That has a lot to do with Goodman's aggressive approach to paying down debt, which improves his equity, said one of his bankers, Jayson Tonkon, a vice president at Wells Fargo and a real estate/banking team leader.

The way Goodman sees it, this semideparture from development will actually help prepare his company's return to it in a big way when the market allows.

"Companies will need to grow again," he said. "When that time comes, we may be very well-positioned to get some larger developments done."