This positive outlook for the sector’s future drove, also at
least in part, one of April’s mega-transactions: healthcare REIT
Welltower’s agreement to acquire Quality Care Properties for
$20.75 per share, or approximately $1.95 billion in cash. This
was a deal with many moving parts, a reflection of the current
troubles in the sector. Welltower also negotiated a separate
agreement with ProMedica Health System in which ProMedica
will acquire Quality Care’s troubled skilled nursing tenant HCR
ManorCare when it completes its Chapter 11 bankruptcy.
ProMedica will also acquire Quality Care’s other major tenant,
Arden Courts, the nation’s second largest provider of post-acute
services and long-term care.
The two deals are expected to close concurrently, with
Welltower forming an 80/20 joint venture with ProMedica to
facilitate the transactions and to hold the HCR ManorCare and
Arden Courts real estate. The total deal value, including all of
these moving parts, comes to $3.117 billion.
RETAIL’S DRY POWDER
Along with skilled nursing, the retail asset class is suffering its
share of woes. As of mid-April retailers have announced 77 million square feet of closures, according to CoStar Group—
compared with the 105 million square feet that closed for all of 2017.
For all the energy and enthusiasm exhibited at the industry’s
RECon show in Las Vegas this year, it is clear that retail’s shakeout shows no sign of abating any time soon.
And yet Seritage Growth Properties, a 2015 retail spinoff from
Sears Holding Co., is finding paths toward growth. What Seritage
has been doing is converting some of the Sears stores in the port-
folio it inherited to other uses or finding higher-paying tenants
for the property, says David Berliner, leader of BDO’s restructur-
ing and turnaround services practice. “They can double or triple
the rent they were getting for the same space and also bring some
new vitality to the shopping centers.”
Timing is everything with this strategy, though, he continues. If
Sears were to suddenly liquidate, for instance, Seritage probably
wouldn’t make it. But Sears is still plugging away, which has given
Seritage the time needed to reposition the real estate.
“I’ve seen some with a Whole Foods on the first level and other
uses on the second and third level,” Berliner says. Seritage has
converted other former Sears stores to movie theaters and in
other cases, demolished some properties, he adds.
Most recently it has been forming joint
ventures to sell stakes in its best assets in
order to redevelop them into new uses.
For example, Seritage and Invesco Real
Estate recently announced a joint venture
partnership to own what they call The
The transaction values The Collection at UTC at $165 million,
including costs to complete the project. Seritage sold a 50% interest in the asset to a separate account managed by Invesco and
received proceeds of approximately $44 million, which it used to
repay existing mortgage debt associated with the property. The
partnership plans to convert the Sears store and auto center into
226,200 square feet of space that will be leased to retailers and
dining, entertainment and fitness brands.
But perhaps the most impressive endorsement of retail as a
viable investment category is the $19 billion that private equity
funds have raised as of mid-May for investments that have a
retail component, according to Preqin. In fact, the figures show
that investor activity in retail has remained robust despite the
numerous store closings and bankruptcies in recent years. Total
deal value for retail assets was $38 billion in 2016 and $43 billion
in 2017. Fundraising for vehicles that include retail has also
stayed steady and in 2017 these funds raised $42 billion—the
highest total since 2008. Preqin noted that a third of funds
closed in each year since 2013 includes some retail property
within its mandate, “indicating the abiding appeal these invest-
ments have within the industry.”
The retail sector also saw a few of its own mega-mergers: earlier
this year Brookfield Property Partners and GGP entered into a
definitive agreement for Brookfield to acquire the rest of the
shares of GGP that it doesn’t already own. The cash-and-stock
deal totals $9.25 billion.
However, the market signaled its disapproval of the deal,
promptly punishing retail REIT stocks in the wake of the news.
The theory behind the upset was that it had been broadly
expected that GGP would trade at a higher price. The fact that it
didn’t (assuming shareholders approve the deal) thus points to a
decline in valuations across all mall stocks, including the REITs
that hold high-quality assets. Trepp’s Jen Loukedis, though, noted
in a blog post that this reaction belied a year-over-year increase in
inline store sales for such REITs as Macerich, Simon Property
Group, Taubman and GGP.
The takeaway from that episode was a bit disconcerting for the
industry: For some time, the market had been making a distinction
between high-end retail REITs and those that held class B and C
One interesting component of Unibail-Rodamco’s proposed
$15.7-billion takeover of Westfield Corp. is OneMarket, the
network for retailers, venues and partners. Based out of the
1.6-million-sf Westfield San Francisco Centre, the retail tech lab
will be spun off and listed on the Australian Stock Exchange.
FORUMPLUS: SEASON OF THE DEAL...continued on page 64