Simon shops Class-B Phoenix mall

Real Estate Alert, April 14, 2004

A Simon Property partnership is offering a Class-B mall in Phoenix that could draw the interest of private investment groups and mid-sized REITs.

The 1.4 million-square-foot Metrocenter mall is located on Interstate 17 in north-central Phoenix. Even though demand for retail properties is at a fever pitch, Metrocenter's so-so sales and location in a low-growth submarket will likely hold down the price.

The mall is expected to sell for around $185 million, which would translate to a relatively high initial annual yield of about 7.9%. Eastdil Realty has the listing.

Potential bidders could include private players like Gregory Greenfield & Associates and Somera Investment, as well as mid-sized REITs like Macerich. Mills Corp., which owns Arizona Mills in Phoenix, could also be considered a potential buyer.

Simon's partner in the mall is retail veteran Rusty Lyon, founder and former chairman of Westcor Realty.

Macerich bought Westcor two years ago for about 51.5 billion, assuming eight regional malls--six of which are in Phoenix of its suburbs. The deal gave Macerich a commanding share of the Phoenix area's mall market. Metrocenter is one of only two malls in Phoenix that are not owned by the company.

Separately from Westcor, Lyon held partial interests in some of the company's properties, two of which were excluded from the Macerich deal: Metrocenter and Foothills Fashion Mall in Fort Collins, Colorado. The latter was sold to General Growth Properties in December for $100 million.

Metrocenter has five department-store anchors encompassing 876,000 sf. The best performer is a 241,000-sf Sears store, which generates $35 million of annual sales. The worst is a 156,000-sf Macy's, with just $11 million in sales. The mall's projected net operating income for the next year is $14.6 million.

Simon, which also manages the mall, reports sales volume at the 210 in-line stores in two ways: $320/sf for shops that occupy 10,000 sf or less, and $245/sf for all in-line shops, plus food court tenants and junior anchors.

Simon acquired its 50% stake in Metrocenter in 1998 through a $5.8 billion buyout of privately held Corporate Property Investors.

Simon wants to sell, mall players said, because it sees little potential for growth in the Phoenix market now that Macerich is so dominant.