1.
REAL
ESTATE
UPDATE
OCTOBER
2015
Introducing
HLA’s
Real
Estate
Update
(Volume
I)
Over
the
past
3
quarters
of
2015,
HLA
Ventures
has
underwritten
and
pursued
numerous
projects.
We
have
been
very
selective
about
the
location
of
our
investments
and
mindful
of
risk-­‐adjusted
returns.
We
consistently
endeavor
to
provide
our
Investors
with
projects
that
provide
both
in-­‐place
cash
flow
and
a
mid-­‐term,
moderately
leveraged,
value-­‐add
component.
Aside
from
our
consulting
involvement
earlier
this
year
in
the
acquisition
of
Smithridge
Shopping
Center,
a
138,000
square
foot
Trader
Joe’s
retail
project
located
in
Reno,
we
have
passed
on
many
opportunities.
HLA
opted
to
consult
to
the
buying
entity
on
the
Smithridge
transaction
as
opposed
to
engaging
as
a
general
partner
primarily
due
to
the
fact
that
sponsorship
was
focused
on
the
enhancement
of
returns
by
leveraging
the
acquisition
with
90%
loan-­‐to-­‐cost
financing.
This
included
both
senior
and
mezzanine
debt.
We
continue
our
search
for
projects
in
Northern
California
with
an
emphasis
on
the
true
execution
of
a
value-­‐add
business
plan.
This
includes
identifying
assets
with
meaningful
vacancy,
in
need
of
significant
renovation,
and
that
require
unique
value
creation
strategies.
In
the
meantime,
we
plan
to
send
out
periodic
updates
that
offer
updates
on
the
commercial
real
estate
market
that
have
some
relevance
to
your
investments
with
us.
The
National
Commercial
Real
Estate
(CRE)
Landscape:
Notwithstanding
the
past
4-­‐5
years
of
yield
compression,
the
recent
influx
of
capital
from
domestic
and
foreign
investors
to
core
US
markets
is
shifting
the
transaction
landscape.
Given
the
volatility
in
the
capital
markets,
CRE
has
demonstrated
a
notable
increase
in
investment
activity
as
investors
search
for
product
and
yield
at
perceived
risk-­‐adjusted
returns.
Recent
European
and
Asian
woes
have
failed
to
derail
activity
and,
in
fact,
have
encouraged
real
estate
investment
in
the
U.S.
Although
the
pending
interest
rate
rise
will
test
CAP
rates
and
other
valuation
metrics,
it
is
widely
agreed
that
continued
positive
market
fundamentals
will
continue
in
2016.
The
retail
real
estate
recovery
has
lagged
behind
all
of
the
major
property
types
but
its
current
pace
of
growth
translates
into
real
opportunity
in
the
next
several
years.
The
acquisition
of
Class
“B”
and
“C”
shopping
centers
in
secondary
and
tertiary
markets
continue
to
be
on
the
rise
as
“cap
rate
compression”
is
rampant
in
the
primary
markets.

2.
1. Wikipedia
2. Globe Street
Despite
this
compression,
the
anticipated
modest
interest
rate
increases
(still
historically
low
interest
rates),
strong
rent
growth,
and
deepened
liquidity
should
support
the
continued
interest
in
lagging
secondary
and
non-­‐core
markets.
This
bodes
positively
on
our
acquisition
and
operating
strategy
of
assets
located
in
Sacramento,
Petaluma,
and
Stockton.
The
Rising
Popularity
of
Pop-­‐Up
Retail
Stores
A
pop-­‐up
retail
space
is
a
venue
that
is
temporary.
The
trend
involves
stores
that
"pop
up"
one
day,
then
disappear
anywhere
from
one
day
to
several
weeks
later.
These
shops,
while
small
and
temporary,
can
build
up
interest
by
consumer
exposure.
Pop-­‐up
retail
allows
a
company
to
create
a
unique
environment
that
engages
their
customers
and
generates
a
feeling
of
relevance
and
interactivity.
1
There
are
different
benefits
to
popups
such
as
marketing,
testing
products,
locations,
or
markets,
and
as
a
low
cost
way
to
start
a
business.
Some
pop
up
shops,
such
as
Ricky's
and
other
Halloween
stores,
are
seasonal,
allowing
brands
to
capture
foot
traffic
without
committing
to
a
long-­‐term
lease.
The
Ritual
Expo
was
one
of
the
first
iterations
of
the
pop-­‐up
retail
store.
Not
yet
referred
to
as
pop-­‐up
retail,
the
1997
Los
Angeles
event
was
later
branded
as
a
one-­‐day
"ultimate
hipster
mall.”
The
event
quickly
caught
the
eye
of
large
brands
such
as
AT&T,
Levi-­‐
Strauss,
and
Motorola
that
saw
the
potential
of
creating
short-­‐term
experiences
to
promote
their
products
to
target
audiences.
Recently,
The
UGG
brand,
a
division
of
Deckers
Brands,
opened
an
UGG
for
Men
pop-­‐up
shop
in
San
Francisco.
Complementing
the
brand's
permanent
men's-­‐only
locations
in
New
York
and
Hawaii,
the
new
554-­‐square-­‐foot
pop-­‐up
store
is
located
in
the
Westfield
Centre
in
the
Union
Square
area
of
San
Francisco.
"San
Francisco
is
a
city
known
for
being
on
the
cutting
edge
of
technology,
making
it
the
perfect
home
to
our
first-­‐ever
UGG
for
Men
pop-­‐up
shop,"
says
Gerard
Marceda,
vice
president
of
North
America
retail
for
Deckers
Brands.
"Our
UGG
for
Men
collections
are
built
on
a
legendary
foundation
of
comfort
and
innovative
technology,
which
are
key
points
of
differentiation
that
distinguish
UGG
from
other
men's
brands
in
the
marketplace.
Our
new
pop-­‐up
men's
location
offers
our
tech-­‐savvy
customers
a
chance
to
experience
firsthand
all
the
brand
has
to
offer."2
Although
we
do
not
expect
pop-­‐up
stores
to
appear
anytime
soon
in
secondary
and
tertiary
markets,
we
see
this
trend
continuing
to
expand
in
popularity
and
to
have
a
noticeable
effect
on
how
retailers
promote
their
brands
in
the
future.

3. We
hope
that
this
letter
provided
some
interesting
information.
We
look
forward
to
sharing
the
next
of
these
updates
with
you
before
Christmas.
Yours
truly,
HLA
Ventures,
LLC.
Jeffrey
S.
Leon
JSL/