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.
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 an initial public offering or sale 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, Safeway 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 U.S. operations.
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.
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