Staying nimble

Jaffe Corp. founder Richard Jaffe, left, and son Sam Jaffe, executive vice president, are turning their attention to maintenance and upgrades of projects like The Trails at Ormond Beach shopping center.

ORMOND BEACH - With its recent purchase of a 234,000sf community shopping center here, The Jaffe Corporation is continuing to implement its business strategy in the midst of a market paralysis that its founder hasn’t seen in three decades of commercial real estate work.

Richard Jaffe, who relocated the company’s headquarters to Ormond Beach from Boston in 1985, said the market woes hinge in no small part on the disparate economic messages coming out of Washington. While politicians are demanding that banks start lending, he said, regulators continue to force them to build cash reserves.

“We’ve been positioning ourselves for this day for a number of years. I know we’re not alone in this. Many companies have been trying to accumulate a war chest. But it many not help us because the banking situation just in the last few weeks alone has gone from difficult to almost impossible. It’s ludicrous what’s going on right now,” he said.

“The (federal) right hand has no idea what the left hand is doing - or what the implications are. In over 30 years in business, I’ve never seen the paralysis we’re currently seeing.”

Jaffe said his company, nevertheless, is moving ahead with its strategy of acquiring retail centers that are in prime locations and anchored by the major grocery store player in the vicinity. Jaffe Corp. paid Developers Diversified Realty Corp. some $22 million for Ormond Towne Square, 1458 W. Granada Blvd., the intersection of SR 40 and I-95. The center is anchored by Publix, Bealls and Ross, and the deal closed in less than 55 days.

The speed of the transaction highlights the advantage Jaffe Corp. has over some competitors in a difficult economic environment, Jaffe said.

“Right now, we’re only in acquisition or redevelopment mode. Developing something just makes no sense today for obvious reasons,” he said.

“We’re a small niche player. We’re approaching two million square feet in total development. We’re not flippers and have all of our inventory. We just can’t compete against the Simons and the other behemoths in the industry. They have the tools and financial backing to be years ahead of us in the development spectrum. But we don’t have to answer to the regulators or shareholders. In this uncertain time, we can make movements that they can’t.”

Ormond Towne Square joins The Trails at Ormond Beach shopping center and The Shoppes at Beville Road in Daytona Beach as part of the Jaffe Corp.’s Florida portfolio. Most of the company’s holdings remain in New England where Jaffe started the company after serving as the managing partner in a Boston law firm representing developers. But frequent trips to Florida, Georgia and Texas kept Jaffe away from his family, so he decided to make a change.

“Instead of representing developers, I decided to be one,” he said. Jaffe recently promoted his son, Sam, to executive vice president of the company.

Jaffe said Volusia County retail property - and retail property statewide - is vastly overbuilt, driven by easy money, exuberant new developers and publicly traded retailers answering to the stock market.

“Up until a few years ago, people were just putting up nonsensical retail offerings every place you could look,” he said. “I’m looking at some of these properties now that are at or near 100% vacancy and wondering what they were thinking - even in the go-go days.”

Even so, Jaffe said he’s been able to maintain about 93% occupancy in his Florida shopping centers - and 99% occupancy up North. The biggest problem in the portfolio has been space occupied by Bennigan’s restaurants, he said, most of which were re-leased prior to the chain filing for bankruptcy.

As for the current economic downturn, Jaffe said his company is approaching the situation with patience.

“One of the things we’re not doing is leasing to substandard tenants at substandard rates to totally screw up our tenant mix. We see a lot of that going on. It obviously works for some companies, but we just don’t want to do that,” he said.

“It’s not that we don’t want to maximize our profits, but we’re not going to mortgage our future with lousy deals or tenants that don’t fit our tenant mix.”

Jaffe said his company will spend its time maintaining and upgrading its existing properties, with special emphasis on The Trails at Ormond Beach. Acquired eight years ago and located in one of the most affluent areas in Volusia County, the center had as its major tenants a tattoo shop, a drug rehab center, two thrift stores, an arcade and an Alzheimer’s patient care facility.

“It had just a whole bunch of tenants who serve good purposes but weren’t an appropriate use and didn’t provide a national tenant mix for the most affluent area of Ormond Beach,” Jaffe said.

The company proceeded with substantial architectural renovations and eventually got rid of 40% of the tenants, Jaffe said. The first major new tenant was the leading hair salon in the area.

“Our philosophy was if we could bring the women back to the center, it would be a good start for a redevelopment,” he said.

Since then, Talbots, Panera Bread, Ann Taylor Loft, Chico’s, Coldwater Creek, White House | Black Market and Jos. A. Bank have joined the lineup, with Panera and Ann Taylor Loft achieving award-winning sales figures. The Publix store is in the middle of a multimillion-dollar renovation.

Jaffe said the company will also keep its eyes open for more acquisition opportunities, but market conditions will have to change.

“We are astounded at how unrealistic the overwhelming majority of these offerings are. I don’t know if it’s that sellers haven’t realized what’s going on or that brokers are making unwarranted representations,” he said.

“There are sellers out there that seem to feel they can sell properties that have rental rates that are totally unreachable in today’s market - with zero or very low vacancy factors and cap rates that are several points below the market. You put those together, and you end up with a center that’s 20% to 50% overvalued.

“There’s a degree of realism that still hasn’t sunk in on a surprising number of people.”