By KRIS HUDSON and CRAIG KARMIN
Starwood Capital Group is in talks to buy seven U.S. shopping malls from Westfield Group
for more than $1 billion, a deal that would mark the latest in a flurry of big-ticket acquisitions of retail property.
Starwood’s talks with Westfield aren’t yet in the final stages and still could collapse, according to people familiar with the matter.
Blackstone recently agreed to sell its stake in Shoppers World, Framingham, Mass., to DDR.
The discussions come as retail property continues to rebound from the economic downturn while fending off competition from online shopping. In addition, buyers are emboldened by low interest rates and the increasing availability of financing, notably from the resurgent market for securitized mortgages.
In another recent deal, private-equity firm Blackstone Group LP
this month agreed to sell its majority stake in 30 U.S. shopping centers to DDR Corp.
for $1.46 billion. Meantime, Blackstone also is preparing for a likely initial public offering of its strip-center owner, Brixmor Property Group, by the end of this year.
Retail was one of the last property sectors to begin recovering from the downturn. Occupancy rates and rents showed little increase as consumers held back, retailers contracted and Internet retail expanded.
But the outlook has improved lately. The average vacancy rate for retail properties in the top 63 U.S. markets was 6.8% in the first quarter, down from a recent high of 7.5% in 2010, according to CoStar Group.
Construction of new retail space remains relatively low, allowing landlords to fill vacancies with restaurants, health clubs and expanding retailers such as Ulta Salon, Cosmetics Fragrance Inc.
“Sales productivity has come back with a vengeance,” said Cedrik Lachance, an analyst with Green Street Advisors Inc. “The occupancy rate at better properties is either back to or in excess of the previous peak in 2007. So you have an industry that is far healthier than is commonly believed.”
Commercial-real-estate sales in all categories have been gaining thanks to the strengthening economy, rising values and low interest rates. Last year, deal volume hit $294 billion, compared with $229 billion in 2011 and $66 billion in 2009, according to Real Capital Analytics. Retail deals in 2012 totaled $55 billion, up 25% from 2011.
Buyers of retail property have been taking advantage of debt financing available from the sale of commercial mortgage-backed securities, a market that has been gathering steam. Of the $34.1 billion of commercial mortgages securitized so far this year, 32% have been backed by retail properties, more than any other commercial property type, according to Trepp LLC.
Westfield, based in Sydney, owns stakes in 100 malls world-wide. Since 2010, the company has been focusing on its highest-performing malls, selling its mediocre properties. Last year, Starwood acquired a 90% stake in seven U.S. malls from Westfield for $1.05 billion.
Blackstone’s public sale of Brixmor is expected to be one of the largest real-estate IPOs since the financial crisis.
The New York-based private-equity firm values the business around $13 billion, say people familiar with the matter. Brixmor owns 90 million square feet of space at approximately 525 properties, making it the largest wholly owned shopping-center portfolio in the U.S.
Blackstone has spent hundreds of millions of dollars upgrading the shopping centers, much of that to attract anchor tenants, such as Wal-Mart,
and TJ Maxx.
While Blackstone has added about 50 centers to the portfolio and shed about 75, the bulk of Brixmor’s assets were acquired in 2011 in a $9.4 billion purchase of Australian landlord Centro Properties Group’s
In that deal, Blackstone assumed $8 billion of debt and eventually refinanced it. Brixmor has reduced some of that debt, but it isn’t clear how much debt the company currently has.
Write to Kris Hudson at email@example.com and Craig Karmin at firstname.lastname@example.org