Barry Sternlicht’s Starwood Capital Continues Mall Buying Spree Adds 7 More For $1.4 Billion



This week Barry Sternlicht’s Starwood Capital Group agreed to buy a portfolio of seven regional shopping centers from Taubman Centers Inc. for just over US$ 1.4 billion. Starwood will pay US$785 million in cash when the deal closes, and then also assume another US$620 million of property-specific debt as part of the transaction.

Last November Barry Sternlicht’s Starwood Capital Group had bought seven regional shopping centres in the US as well, for its retail unit Starwood Retail Partners, from the Westfield Group for US$1.64 billion.

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The seven shopping centres involved in that Westfield deal are located in Ohio, Washington State, Indiana and California. They totaled almost 8 million square feet of rentable space, with four of them have over a million square feet each. Starwood Retail Partners already owned the nearby Chicago Ridge Mall in Chicago Ridge and the Louis Joliet Mall in Joliet as well.

The Fairlane Town Center in Dearborn,    Michigan

 

Starwood and Westfield had completed a very similar transaction together the previous year as well, in June 2012, involving another seven large malls which were acquired then by Starwood – with malls located in California, Illinois, Ohio, Nebraska and Florida.

That first transaction with Westfield helped lead to the formation of Starwood Retail Partners as a separate business unit of Starwood’s, to manage what was for them then basically a new asset class. With last November’s transaction Starwood had by then managed to put together a portfolio comprising a total of 19 high-quality regional malls and retail centers, paying an aggregate purchase price in excess of US$3.2 billion for the privilege by that date.

Scott Wolstein, Chief Executive Partner of Starwood Retail Partners said at the time, “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.”

After adding two more such centers earlier this year, we now learn this week that Starwood Capital have been out on yet another tear, buying seven more from Taubman Centers Inc. Taubman is one of the largest and most successful US shopping center developers, and it has now formally announced the signing of a definitive agreement with Starwood Capital Group. Under the agreement Starwoood will buy a portfolio of seven of Taubman’s twenty-four existing Taubman-owned shopping centers, for total consideration of just over US$1.4 billion, including US$620 million of property-specific debt to be assumed at closing.

Barry Sternlicht, Chairman & CEO of Starwood Capital Group said, “This acquisition is highly strategic for Starwood and its retail operating platform, Starwood Retail Partners, ” adding, “These assets will expand SRP’s retail portfolio to 28 properties totaling 26.8 million square feet across 15 states. The Taubman portfolio broadens our relationships with higher end department stores and in line tenants and gives us an excellent opportunity to continue to produce attractive returns for our investors.”

Robert Taubman, Chairman, President and CEO of Taubman Centers, and who also founded the company in 1950, said “Given today’s investor interest in high quality regional malls, we have taken advantage of the opportunity to further enhance our growth and valuation, while increasing our industry leading productivity and modestly reducing the size of our base, ” adding “As a result of these sale transactions, the company’s development and redevelopment pipeline will have an even greater impact on our growth.”

The malls being acquired by Starwood in this new transaction are the MacArthur Center in Norfolk, Viginia; Stony Point Fashion Park in Richmond, Virginia; Northlake Mall in Charlotte, North Carolina; The Mall at Wellington Green, Florida; The Shops at Willow Bend; The Mall at Partridge Creek in Clinton Township, Michigan and the Fairlane Town Center in Dearborn, Michigan.

 

Stony-Point-mall-600

Starwood Retail Partners generally leaves existing on-site management teams in place at all the malls it acquires, to take care of day to day operations. This deal continues to exemplify a move back into retail shopping centres by institutional investors and hedge funds, and comes as shopping center values, and their prospects looking forward, have distinctly recovered with the renewed 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 with prolonged recession and, to some extent, the emergence of online shopping habits. Now that consumer expenditure is finally looking up again, investors have been seeking to pick up choice mall assets at reasonable prices, something very difficult to do at the height of boom times.

Sternlicht, too, has been taking full advantage of this trend. For Taubman, on the other hand, it provides a sensible way to replenish its balance sheet and give it the freedom of choice to accelerate its own development pipeline – which is where the money is really made.

However for institutional purchases selectivity remains key, as there are literally hundreds of major malls in the US that have already died, or are on the way to doing so, having variously become the victims of demographic and economic changes in the American landscape.

This new transaction must bring Starwood’s total investment in shopping centers now to not much change from about US$5 billion. Starwood does not generally do things by halves and that is clearly the case here with Starwood Retail Partners mall investing.

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