a Comeback
(Sort Of)
the power center category. A JV of DDR and the Blackstone Group
signed a purchase and sale agreement in January to acquire all but
two of the 48 power centers now owned by the Skokie, IL-based
EPN Group for $1.4 billion. The deal, which includes the assumption of $640 million in debt, is expected to close in June.
EPN first acquired its interest in the assets in June 2010 with a
$116-million investment in EDT Retail Trust, originally listed on the
Australian Stock Exchange in 2003 as the Macquarie DDR Trust.
Fourteen months later, EPN
bought 100% of EDT for $242
million. When the sale to the
Blackstone/DDR JV was
announced, EPN CEO Alex
Berman said although the sell-
off was “bittersweet,” it nonethe-
less positioned the firm “for the
next business stage. EPN Group
sees further exciting investment
opportunities and intends to
continue raising funds.”
From the buyer’s standpoint,
the acquisition of a mall can
represent a value-add opportu-
nity. For example, the first foray
into retail by private equity giant
KKR & Co. LP was its $196-mil-
lion acquisition of Yorktown
Center, a 1.5-million-foot super-
regional mall in the Chicago
suburb of Lombard, IL that’s
85% leased. “Through a combi-
nation of proactive manage-
ment, a focus on leasing, cos-
metic and other improvements,
we aim to add value to the cen-
ter with the hope of offering a
more pleasant and practical
shopping experience for resi-
dents,” Ralph Rosenberg, head
of KKR’s recently launched real
estate group, told GlobeSt.
com’s Robert Carr in April.
Rosenberg cited “a number
of near- and long-term improvements” KKR plans for the mall,
reportedly the nation’s largest
when it opened in 1968. “For
You won’t see
many new
malls coming
on line these
days. What
you will see
is investors
snapping up
existing
product for
repositioning
opportunities.
example, some of our immediate initiatives include upgrading the
lighting, signage, food court and entrances. Over the long term, we’ll
also look at ways to improve the tenant and merchandising mix.”
Similarly, Rouse Properties Inc. had value add in mind when it
made its first acquisition since launching as a publicly traded
regional company in January. The 20-year-old Grand Traverse Mall
in Traverse City, MI, had been turned over to lenders last year, and
in February, Rouse paid $66 million for the note on the 590,000-
square-foot property. “Acquiring Grand Traverse Mall is an excel-
lent example of our long-term strategy of owning and managing
dominant and protected regional enclosed malls in secondary mar-
kets,” says Andrew Silberfein, president and CEO of Rouse
Properties. “This asset is not only being acquired at an attractive cap
rate, but also represents an exciting opportunity to improve the ten-
ant composition, occupancy levels and overall economics of the
mall through an aggressive leasing, management and marketing
program by Rouse’s dedicated management team.”
The plans of KKR and Rouse for their new acquisitions square
with what Gerald Mason, executive managing director at Savills US
in New York City, is seeing in the marketplace. “We have about
seven regional malls in the market, and I would say four of those
are repositioning or de-malling opportunities,” he says.
One such property is a shopping center in Pennsylvania,
anchored by Walmart and Kohl’s, that also contains an enclosed
section. “The inlines are all temporary tenants; we’re selling it
based on a redevelopment scenario, and the new buyer will knock
down all the inline space and build big boxes with sort of a street
front, bookended by the Walmart and Kohl’s,” Mason explains.
“There’s another big mall in town that put this one out of business,
and there’s a need for some of this big-box retail.”
Under the redevelopment plan, the property’s formerly enclosed
section might be replaced by a big-box sporting goods retailer, a mid-
tier clothing chain and a small-format electronics store. That the
center, which Mason did not identify, may live to fight another day in
a new configuration represents “a real success story,” he says. “Some
of those malls lose their anchors and they kind of fade away. It’s hap-
pening all over the country.” That being said, he notes that regional
malls’ vacancy has steadily declined over the past few quarters.
Notwithstanding the improving fundamentals and the rash of
investor interest, Greg Maloney at Jones Lang LaSalle doesn’t think
we’ll see many new malls coming on line any time soon. “The first
developments you’re going to see are on the value-add, outlet center
side,” says Maloney, CEO and president of JLL Retail. When grocery-anchored strips can be built, they will be built in certain markets.
“You’re going to have a mall built here and there in an under-served market,” he adds. “But for the most part, you’re not going to
see a lot of development.” ◆
