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Barry Sternlicht’s Starlight Capital Closes $1.6 Billion Purchase of 7 Shopping Malls From Westfield Group

Two months ago, on September 16th, The Westfield Group announced it had entered into agreements to sell seven of its US regional shopping centres to Barry Sternlicht’s Starwood Capital Group for US$1.64 billion.

Westfield Group Co-CEO Peter Lowy, one of founder and Chairman Frank Lowy’s two sons who share the CEO position, said at the time “Today’s announcement continues the implementation of our strategic plan which positions Westfield to generate greater shareholder value.”

belden-village

                                         Belden Village Mall in Canton, OH                                                                                                Barry Sternlicht/ Getty

This week the Connecticut-based hedge fund – with $29 billion in assets – announced it had finally closed the deal and is now the proud new owner of seven additional regional shopping centres to add to its growing US portfolio.

The seven regional shopping centres involved in this deal are :

Belden Village Mall in Canton, OH
Capital Mall in Olympia, WA
Franklin Park Mall in Toledo, OH
Great Northern Mall in North Olmsted, OH
Parkway Plaza in El Cajon, CA
Plaza West Covina in West Covina, CA.
Southlake Mall in Merrillville, IN

They total 7.9 million square feet of rentable space and four of them have over a million square feet each.

plaza-west-covina

 Plaza West Covina in West Covina, CA.

Starwood Retail Partners also owns and operates the nearby Chicago Ridge Mall in Chicago Ridge and the Louis Joliet Mall in Joliet.

Westfield will continue to retain a 10 percent equity interest in the malls. The total consideration of US$1.64 billion paid would therefore represent an indicative price of approximately US$2, 200 per rentable square foot if Starwood were buying up the remaining 90% of each one.

However the press releases for the transaction from both Westfield and Starwood do not confirm this directly – stating only that Starwood is acquiring the “majority interest” in the centres, which is a little coy frankly. Westfield certainly listed them all as 100% held in its last Annual Report, but it is possible there could well be other partnership interests involved in the new transaction, perhaps associated with the financing of the deal.

The latest acquisition builds on a longstanding relationship that has built up between Starwood Capital Group and Westfield. The two firms indeed completed a similar transaction in June 2012 involving seven earlier large malls which were acquired then by Starwood – located in in California, Illinois, Ohio, Nebraska and Florida.

This earlier transaction in fact helped lead to the formation of Starwood Retail Partners as a separate business unit of Starwood’s to manage all its new malls.

“I believe we can build a differentiated company in the retail mall marketplace and are pleased we have reached ‘critical mass, ‘” said Barry Sternlicht, Chairman of Starwood Retail Partners. “We intend for Starwood Retail Partners to be an important new player in this industry, with fresh ideas and collaborative partnerships with tenants and to attract great people talent to power our growing platform.”

“Over the last 18 months, we have assembled a portfolio of 19 high-quality regional malls and retail centers with an aggregate purchase price in excess of $3.2 billion, ” said Scott Wolstein, Chief Executive Partner of Starwood Retail Partners. “We believe that regional shopping malls offer an attractive value proposition for our partners. We look forward to selectively pursuing new opportunities to expand our portfolio.”

Starwood plans to leave the existing on-site management teams in place at all the newly purchased malls, which presently have a combined occupancy rate of 96 percent. The push back into retail shopping centres by institutional investors and hedge funds comes, of course, as their values have recovered with the economic fortunes of the United States.

Even three years ago the outlook for the mall business was rather bleak in the US as consumers had simply stopped spending money. Now that shopping habits are slowly resuming in the US, investors have been picking up choice assets at good prices, something very difficult to do in boom times.

Sternlicht has been taking full advantage of this trend. For Westfield it represents a chance for portfolio re-balancing, with asset sales to a party who is not a major direct competitor and yields significant liquidity for its balance sheet.

Overall therefore, a happy seller and a very happy buyer.

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