This column of Strolling the Agora appears in the September 4th, 2010 issue of SHOPPING CENTER DIGEST
There are numerous reasons for the surge in the number of shopping centers that have been changing ownership recently – and each contributes to the accelerating trend of the marked increase in real estate mergers and acquisitions.
Whether it's due to cash-strapped landlords forced to sell distressed properties, pent-up capital finally pushing investors to begin financing deals, owners walking away from projects now worth less than their mortgages and adding to the available supply, mortgage-holders foreclosing on delinquent properties, the growing money supply, foreign-capital rushing to invest in real estate, all of the above – and perhaps some reasons not covered – throughout US and Canada, new names are replacing those of the former owners.
Among some of the more active acquirers in numbers of deals are RioCan and Cedar Shopping Centers, Kimco and BIG, Inland Real Estate Group, Edens & Avant, Weingarten. Since they're mainly targeting grocery-anchored, neighborhood projects, rather than large regional malls, it is understandable why they are in the forefront of done deals.
If the buyers have cash readily available, they don't have to search for the deals.
The Deals Keep Coming
From Edward Sonshine, CEO of RioCan, which is acquiring projects in the US and Canada and has some $500 million in its pipeline: “If you're a cash buyer, it's amazing… it just keeps coming at us.” In the US, “the properties are in great shape but the owners are a bit stressed.” The fact that the Canadian dollar and economy are stronger now than in the US, he added, doesn't hurt.
The company has acquired centers in PA, NJ, VA, and TX, and now has 15 US projects, with expectations that the number will climb to 25 by the end of 2010.
Weingarten is on target to acquire $75-$125 million in deals this year; executives said they could have acquired more properties this year but were expecting cap rates – which they estimated at 6.25%-7.25% for grocery-anchored centers in major markets – would improve even more in 2011 and 2012 as banks and lenders have to deal with more defaults from financially troubled owners.
Specific regions are being targeted by some landlords: Weingarten in Florida, and other metro areas it considers in its 10 prime target areas; Edens & Avant, the Washington, DC, area, for example.
Back To Lenders
Though many of the former owners may be having substantial money problems – according to one source, distressed commercial properties may reach $200 billion – that is not always the case. Nor are those returning properties to the mortgage holders always without capital; sometimes the landlords have the cash but decide it makes better business sense to give up the project.
For example, Taubman Centers stopping paying on its $135 million mortgage on the Pier Shops at Casesars in Atlantic City, NJ, because it estimated it was worth now – because of vacancies and depressed real estate values – only $52 million.
Similarly, Simon Property Group walked away from Palm Beach Mall in West Palm Beach, FL; Macerich ditto on Valley View Center in Dallas, TX; Vornado on Del Monte Square in San Francisco, CA.
Perhaps the biggest and most flipped project of all is the $2 billion, Xanadu complex in the New Jersey Meadowlands; there the five lenders headed by Colony Capital have taken it over with intentions of finally completing it. The overwhelming cost of the development led to the bankruptcy and demise of The Mills, which first proposed the project; it was approved in 2003 and was to have been completed in 2007.
Sound Business Decision
Some consider the defaults a sound business decision. “In many cases,” said one financial maven, “it's a strategic move” and hasn't hurt many of the companies. At this writing, shares of Macerich are up 51%, Simon 42%, Vornado 40% and Taubman 35%.
Several of these REITs are also taking advantage of low interest rates to refinance their debt – Simon, Kimco, Vornado, etc – putting them into a better position to acquire good properties in the near future. Or selling some of their properties at high prices: Kimco sold 33 assets in Florida, Southern California, and the DC area for $370 million; Simon acquired a portion of 2.3 million sq. ft. Galleria Mall in Houston for $260 million. And of ccourse, its recent $2.3 billion acquisition of the 21 outlet centers from Prime Outlets.
And for others, who have acquired some of the foreclosed shopping centers, they have been able to do so at substantially below their replacement cost.
World Properties acquired the 1.4 million sq.ft. Cincinnati Mall for $10.5 million, $7.50 per square foot; Moison Investment Co purchased the 847,000 sq. ft. Charlestown Mall outside of Chicago for $9.5 million, $11 per sq. ft.
Those in the industry eager to buy anticipate that the second half of this year will be even better. National Retail Properties has invested $38.6 million in 10 centers so far this year – less than it anticipated – but expects the second half of the year to be better. CEO Craig Macnab said “… our activity in the second half looks like it may allow us to reach our targeted acquisition goal of $170 million this year.”
Coming To Market
Several consultants closely watching the availability of properties, expect that “in hard-hit markets such as California, Arizona, Las Vegas – there will be more distressed centers coming to market that are priced to sell. “And,” said one, “more class A, B and C assets, which will result in more competition from knowledgeable investors and landlords.”
They see many new opportunities on the near horizon. With most of these shopping centers trading hands having substantial vacancies, experienced dealmakers anticipate an increase in third-party management for established companies with track records in management and leasing, and an opportunity for local brokers with a strong knowledge of the immediate market – and solid relationships in the trade area–to bring new tenants to these centers.
More information on Shopping
Center Digest, Expanding
Retailers, the weekly SCD Eflash, and Directory
of Major Malls may be obtained from our website, www.shoppingcenters.com.
Strolling the Agora was a twice-monthly column discussing trends, issues of importance, and commentary on the leasing/development aspects of the shopping center/retail chain industry in the US and Canada. Called Strolling the Agora, it was a part of Shopping Center Digest, a newsletter founded in 1973 published until September 2010. The column provided expert insight into various retail focused topics. It was primarily authored by Murray Shor, Editor & Publisher as well as industry and veteran retail experts. A smattering of archived columns are presented here for your reading “pleasure”. It's an interesting “look back” at what were current hot topics at the time with regard to shopping center/retail industry focus, development and leasing expansions and processes, retail mix, opinions and more.
About Murray Shor:
Reporting and writing on the shopping center/retail industry since the late ’60s. Began as editor at Chain Store Age, founded Shopping Center World (now Retail Traffic), Shopping Center Digest “The Locations Newsletter” in 1973, and the Directory of Major Malls in 1979. Each issue of Shopping Center Digest contained a column called Strolling the Agora which provides commentary on trends, activity, issues of concern to development and leasing in the shopping center/retail industry.