This Strolling the Agora column appears in the May 3, 2010 issue of the twice-monthly newsletter, SHOPPING CENTER DIGEST
While much of the shopping center/retail chain industry has been focusing on opposing forces waving billions of dollars to acquire or joint venture with bankrupt General Growth Properties, the financial markets are also finally opening their purses wide to begin investing once more in retail properties. Traditional life insurance companies such as TIAA-CREF, Prudential Mortgage Capital and Pacific Life Insurance Co have stated their interest in large offerings primarily directed at top regional malls and grocery-anchored neighborhood shopping centers; the requirement for one is malls with annual sales over $400 per sq. ft..
And there are a number of real estate investment trusts that have already announced they would be launching IPOs (Initial Public Offerings) to raise capital to acquire new shopping center properties.
Since March 1, there have been more than 90 filings in the US for companies seeking to raise more than $50 billion, and more offerings are anticipated within the next few months. (Note. These are for REITs of all categories, residential, hospitality, medical, etc., not just retail).
In addition, the US, according to many, is the main locale for foreign interests seeking to invest in commercial real estate; leading the offshore pack are investors from Germany, Mexico and Israel, and, of course, the Far East.
But to personalize the quest for prime retail properties, one cannot discuss acquisitions and mergers of landlord portfolios without concentrating on the two leading behemoths in their respective niches: Simon Property Group, which owns some 387 or so properties totaling 263 million sq. ft., and Kimco Realty Corp, with about 1,478 shopping centers totaling 152 million sq. ft. This includes relatively minor interests each has around the globe, with the two giants focusing on distinctly different types of properties.
FTC Attention?
SPG emphasizes the larger retail centers, and is also, by far, the largest and most powerful landlord in the niche within a niche, outlet centers; in number of projects and total GLA, it easily outranks the number two landlord of regional and super-regional malls, GGP. The number three owner-developer is Westfield USA, which has less than 60 malls.
Because of its already looming presence that over-shadows all other owner-developers in the field, many in the industry have raised the question of whether its acquisition or jv with GGP would create a monopoly because of its control of such a large percentage of projects within this category, and could result in restraint of trade action by the Federal Trade Commission. This issue was raised by Brookfield Asset Management, which is competing with SPG over GGP.
David Simon of SPG said his proposal would limit its board representation to two people who do not work for his company.
Retailers, especially, are nervous about what would happen if SPG is successful in its quest. Their fear is that in key markets, Simon may be the only landlord in the trade area and they either deal with SPG and its rent demands or “multi-center deals” or be “locked out” of that market.
Some years back the FTC took a look at possible restraint of trade issues within the shopping center industry. Some token concessions were made; tradition has it, however, that many private arrangements were never written down, but that personal relationships between department store anchors and owner-developers existed and helped maintain retail orientation and control within malls.
Kimco And CPP
It is unlikely that the federal government would take a close look at any acquisitions made by Kimco, which recently announced a long-term partnership with the Canada Pension Plan to acquire shopping centers in the US (see the item in this issue’s column of didja hear…???); its first deal of $370 million was for five centers. Though it is, by far, the largest owner of neighborhood or strip shopping centers in the industry, it does not control the much-smaller trade areas served by these centers, where there could be four and five retail centers in single market, each owned by a different landlord. Once the supermarket and/or discount anchors are in place, landlords must compete among each other to line up the best merchants and rent-paying tenants, many of them Moms and Pops or small franchisees.
Though Kimco may control nationwide some 1,300-plus properties, that is a small percentage of the total number of neighborhood shopping centers in the US, estimated at close to 70,000. There are numerous other landlords who own a substantial number of grocery-anchored, neighborhood centers: Developers Diversified, Regency, Weingarten, Inland, Edens and Avant, Vornado, Sembler, etc., etc.
Certainly Kimco could package multiple leasing deals with retailers, but it does not have the same type of leverage as SPG would have with a mall-oriented tenant with many less locations meeting its criteria.
Some Could Be Sold Off
If SPG were to acquire GGP, some in the industry believe, some of the malls in the package could be sold off to other owner-developers; the only way this could happen, they believe, is if one property was a bad fit with the rest of the portfolio, for one reason or another, or Simon wanted to reduce its debt obligations. Among those landlords mentioned who might be interested in certain properties are other REITs: Westfield, Macerich, CBL.
Since Kimco would be acquiring much smaller portfolios or individual, it is unlikely that any of these shopping centers would then be put on the block to be sold off.
Of course, anyone can speculate. There are a number of very prominent landlords who might be interested in specific GGP malls, if any of these were to go to market, say a high-end operator such as Taubman, or a major player in secondary markets as Cafaro, or those who are mainly owners of strip and community centers, but who also have projects that range in size up to small malls. All, or any of these landlords, could be interested in acquiring a mall or two if they meet their criteria or make a good fit within their existing portfolios.
So, few expect any action regarding GGP to be completed any sooner than by late summer. With Kimco and the amount of funds waiting to be placed into solid US real estate, another announcement could be only weeks away.
More information on SHOPPING CENTER DIGEST, EXPANDING RETAILERS, the weekly SCD Eflash, DIRECTORY OF MAJOR MALLS, and our other products may be obtained from our website, www.shoppingcenters.com .
Strolling the Agora
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As an Architect that represents a lot of retailers going into these malls, I have had to deal with all these REITS and I find the GGP bankruptcy oddly satisfying. GGP started out well but over the years has become bloated and very hard to deal with. On the other hand Simon has remained responsive and a is still a pleasure to deal with. Let's hope that if Simon does acquire all or part of GGP they only get the property and not the attitude.
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