Mall offered in shifting Iowa market

Real Estate Alert, June 23, 2004

A family-run development firm is offering an established mall in Des Moines, Iowa, that's about to face stiff competition from a new retail complex.

The 1 million-square-foot Merle Hay Mall has an estimated value of $90 million, based on its current income. But the local market's looming changes could hold the price down. In about six weeks, General Growth Properties will open a 2 million-sf shopping complex called Jordan Creek Town Center. It will consist of an enclosed two-level mall, an open-air lifestyle center leased to specialty retailers, and an adjacent 3.5-acre park and entertainment district, with lakeside restaurants, a hotel and an amphitheater.

Jordan Creek appears poised to take on the two big existing Des Moines malls--Merle Hay and the 842,000-sf Southridge Mall, owned by Macerich Co. The new property will have a wide-ranging store lineup that includes such high-end tenants as Coach and Sharper Image, as well as mid- to lower-end retailers.

Merle Hay Mall's owner, Abbell Credit of Chicago, has given the listing to Jones Lang LaSalle.

An unusually large proportion of the property--about 715,000 sf--is allotted to the four anchor stores: Famous-Barr, Kohl's, Sears and Younkers. Sears and Famous-Barr own their own stores.

The anchor lineup is about to undergo some changes. The Famous-Barr chain, which is exiting Iowa and Nebraska, will soon close its 165,000-sf store. That space will be occupied by Younkers, which is vacating its 195,000-sfsite. A new anchor is close to being signed for that space.

The 317,000 sf of in-line space generates sales of about $290/sf, according to mall players. Jones Lang, in an unusual way of breaking out performance, said in its marketing materials that sales from tenants occupying 4,000 sf or less were $355/sf.

Total sales from the mall this year, excluding the Sears and Famous-Barr stores, are estimated at about $115 million. Net operating income is believed to be about $8.7 million.

At a $90 million price tag, the buyer's initial annual yield would be about 9.7%.

Merle Hay was built as an open-air center in 1959, and was enclosed in 1973. It is the oldest mall in Iowa.

Abbell was long run by Joseph Abbell, who began building malls in the 1950s and died in 1999. The firm is now headed by Elizabeth Holland. It owns at least one other mall: the 765,000-sf Westgate Village Shopping Center in Toledo, Ohio.