3 REITs vie for California mall

Real Estate Alert, July 7, 2004

Westfield America, Macerich and General Growth Properties are competing to buy a 75% stake in a mall near Los Angeles.

Lennar Partners is marketing its interest in Valencia Town Center without using a broker. Westfield owns the remaining 25% interest, but apparently doesn't have a right to match a bid for Lennar's stake.

The property's value is unclear, but retail players said the mall is likely to trade for a price that translates into a cap rate of about 6.5%.

The property, located in Valencia, was built in 1992 as a 790,000-square-foot mall. Six years later, a $20 million expansion was completed that added an 800,000-sf open-air "promenade." The addition, called Town Center Drive, comprises four city blocks of streetfront stores, offices, restaurants, hotel rooms and housing. It's not clear whether Lennar's offering includes the entire property. Before the expansion, the property's annual net operating income was about $7.5 million.

The two-level mall portion is leased to about 150 stores. The in-line space is 85% to 90% occupied, with healthy sales of $350/sf. There are three anchors--JC Penney, Robinsons-May and Sears--with room for a fourth. Both Macy's and Nordstrom are interested in the space. The outdoor promenade is leased mostly to fashion and houseware retailers.

The property was formerly owned by Newhall Land & Farming, a California development firm that built masterplanned communities.Miami-based Lennar Partners and its former parent, Lennar Corp., bought Newhall early this year for about $1 billion. The two players divided up Newhall's assets. Lennar Partners, which is not a mall investor, ended up with Valencia Town Center.

Westfield acquired its 25% stake in the property in 2002 from Rodamco, which had acquired the stake from one of the original developers, Urban Retail Properties of Chicago. Westfield's interest entitles it to a right-of-first refusal only if Lennar were to sell a significantly smaller piece of its ownership than it is currently marketing.A right-of-first-refusal typically allows its holder to match a competing buyer's bid.