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Stuart Kline has had many sleepless nights over 40-plus years of dealmaking at Chase Properties Ltd.

“It could take two or three years before you even know if you’re going to be able to get a building permit,” says Kline, the company’s chairman. “It could take two or three years before you know if you’re going to be able to get anchor tenants to sign the lease. So those were the deals that kept me up at night.”

Chase operates more than 6 million square feet of real estate nationwide and has become one of the premier owners of shopping centers in smaller markets.

Kline took a few moments to talk about how he identifies lucrative real estate opportunities that others miss and the key metrics that can lead to a profitable deal. What follows is a transcript of the above video, edited for readability.

Be a principled dealmaker

I think you have to take a long-term view toward being a dealmaker. The first thing you need to always say to yourself is, ‘I have a reputation and I have to maintain this reputation.’ People in the future are going to look to that reputation to decide whether or not they want to do a deal with you. Or whether they want to do a deal with you versus somebody else who may be offering the same price, or a greater price.

We have bought many shopping centers over the years where we were not the high bidder. But we also knew that the seller knew that we would do what we said we would do. We would close on the property. We would not renegotiate the price unless there was something in due diligence that came up that made it necessary. But it’s maintaining that reputation that maintains you as a dealmaker for many years.

I’ve been doing this since I started the company 44 years ago. Our son and son-in-law are doing it now. They maintain the same feelings about maintaining the reputation. I’d say that’s the most important thing that a dealmaker could be doing.

Look for opportunities

First and foremost, when you do a deal, you have to say to yourself, ‘What’s the marketplace pricing? Where does the seller need to be in order to justify this sale?’ We’re not looking to steal something from somebody, and that’s always been my attitude. I’ve always been what I felt is a marketplace buyer. It doesn’t mean that we can’t look for opportunities where we may see something that somebody else may [not] see. Maybe our perception of the risk is a little different than what somebody else’s perception of the risk may be.

Maybe a chain only has two years left on their lease. And somebody else may say, ‘We’re going to stay away from that. We don’t want to buy it because they only have two years left.’ We may talk to the people at the chain, understand what their sales are, what their trends are, evaluate the market, make a determination as to whether or not that chain has another place they could possibly move to or not and say to ourselves, ‘They’re not going anywhere. So we’re going to buy the shopping center anyways.’ And as a result of that, that becomes an opportunity where we may be able to buy it at a higher yield — or what we call in our business a higher cap rate — than would be evident in the marketplace.

The deals that keep you up at night

What are the most memorable deals? When you’re doing development, you have an enormous amount of risk and an enormous amount of time that is involved. It could take two or three years before you even know if you’re going to be able to get a building permit. It could take two or three years before you know if you’re going to be able to get anchor tenants to sign the lease. So those were the deals that kept me up at night.

The longer you have to think about something, the more memorable it is. So I would say my development deals were the most memorable because I had a long time to think about them because I was thinking about them at 3 o’clock in the morning.

Location and competition

In any area of real estate, it’s all about location and about competition. That certainly applies to shopping centers as much as it applies to any other apartments, industrial, office buildings — whatever real estate you’re talking about. Shopping centers, however, have an additional nuance. That is you need to be sure that the retailers in your shopping centers are doing well, well enough to pay the rent levels they are currently paying. When we buy a shopping center, based on our 40 years of relationships with the chains, we’re able to determine the sales of each store within the shopping center that we’re looking at.

We then look at something called the health ratio, which is basically a fraction of the occupancy cost versus the total sales. From that so-called health ratio, we’re able to determine the likelihood of whether that store will stay when their lease is up, could stay at a higher rent or would need a lower rent. That’s probably the key determinant in retail versus other sections of real estate.