University Square community shopping center in San Diego

Wien & Malkin Strategic Capital V (SC V) has closed on its second transaction, a $6 million hybrid debt/preferred-equity investment that recapitalizes a San Diego shopping center.

The investment, which is for a period of seven years, will yield a 12 percent annual return to the partnership on a current basis, with a "look-back" provision that will raise the yield to 14 percent upon redemption. The investment will ultimately be preferred equity, but while it goes through a formal approval process with the existing senior lender, it has been structured as a loan and has additional collateral in a second shopping center, located in a Seattle suburb.

The San Diego property, known as University Square, is a 205,000-square-foot neighborhood retail center anchored by a 53,000-square-foot Food 4 Less grocery store, a successful division of Kroger's. The sponsor will use the funding to complete a 25,000-square-foot facility for a Marshall's department store, which replaces a movie theatre, and for additional pad sites comprising nearly 15,500 square feet that are scheduled to open in the fall.

University Square is situated in a densely populated neighborhood about four miles northeast of downtown and three miles east of Balboa Park and the famed San Diego Zoo. The shopping center serves a population of 225,000 residing within a three-mile radius of the property.

"The sponsor is upgrading the tenant mix and making other important improvements, including signage and capital upgrades, which are significantly revitalizing University Square," says George S. Perry, Senior Vice President and Director of Investments for W&M Properties, which sources and structures investments for the Strategic Capital program. "This property has been an important part of its community for many years and the sponsor is modernizing it to keep it fresh and appealing."

Its owner, Amin (Andy) Lakha, is an established operator of retail centers along the West Coast. He has owned University Square since 2005.

Currently in due diligence and negotiation phases are three other potential SC transactions that may close prior to Labor Day. They involve two apartment communities and an outlet mall. SC V's first investment was its participation, together with SC III and SC IV, in the discounted purchase of a mezzanine loan collateralized by a midtown Manhattan office building, 119 West 40th Street.

"We're evaluating a large number of diverse and interesting deals all across the country," Mr. Perry observes. "The contraction in the credit markets is definitely resulting in more opportunities coming our way, and we're taking our pick. There will be no easing of our very strict underwriting standards. Safeguarding our investors' money remains the overriding objective." (Please see related story on this page.)

Strategic Capital, initiated by the Malkins in 2000, has traditionally provided funding solutions for real estate entrepreneurs with financing needs that could not be met through ordinary lending channels. With the current liquidity crisis impacting borrowers of all types, Strategic Capital is finding more high-quality opportunities at higher yields. The program has consistently provided Wien & Malkin investors with attractive current yields.