GM may divide malls by region

Real Estate Alert, June 23, 2004

General Motors Pension Trust, which has an eight-mall portfolio on the block, could be leaning toward dividing the properties among multiple buyers according to location, rather than quality level.

The portfolio, whose value is estimated at $1 billion, consists of 50% stakes in five Class-A malls and full ownership of three Class-B malls. It was originally expected that, unless a buyer made an overwhelming offer for the whole 8.4 million-square-foot portfolio, the GM fund would probably sell the A and B malls to different players.

Now, however, there are signs that GM thinks it might get the best prices by selling combinations of A and B properties to different players, based on their regional bases. West (three), Midwest (two), Mid-Atlantic (two) and Southeast (one).

That's the indication that some bidders are getting from AEW Capital Management, the fund's advisor, which held a first round of talks with investors in early June during the annual convention of the National Association of Real Estate Investment Trusts in New York. The bidders said that while it was still possible for the portfolio to go to one bidder or to be divided by A or B status, it seemed that AEW was now leaning toward a regional breakdown.

California's dominant players--Westfield America and Macerich--are likely to pursue the three Western properties: Stoneridge Mall in Pleasanton, Calif.; Hilltop Mall in Richmond, Calif.; and Meadowood Mall in Reno, Nev.

Wilmorite and Mills Corp. are seen as potential bidders for two malls in Maryland: Lakeforest Mall in Gaithersburg and Marley Station in Glen Burnie.

General Growth Properties and CBL & Associates are the favorites for the two Midwest malls: Tuttle Crossing in Columbus, Ohio, and Briarwood Mall in Ann Arbor, Mich.

Westfield and Simon Property are seen as contenders for the remaining property: The Falls in Miami.

If the portfolio went to one player, General Growth would be the most likely buyer. Simon would also have the potential to take down the whole package, but its agreement this week to buy Chelsea Properly for about $3.5 billion probably knocks it out of the picture. If the properties are divided by quality level, Taubman Centers and Rouse are likely to be in the running for any or all of the Class-A properties, which include the management and leasing rights.

The malls collectively are expected to sell at prices translating into yields at or below 6%.

Taubman currently manages all of the properties being offered. It often leaves in-line space vacant in order to hold out for above-market rents. It also does not typically lease space to kiosks, believing that they detract from in-line sales. However, some bidders indicated that they would seek to lift the properties' income by quickly leasing vacant space and renting out kiosks.

GM is expected to invite a smaller group of players to the auction's second round, which should take place shortly.