Lehman team marketing four Class-B malls

Real Estate Alert, June 30, 2004

A Lehman Brothers partnership is preparing to market four Class-B malls with a combined value of about $350 million.

The 4.3 million-square-foot portfolio consists of properties in Texas, Illinois, Michigan and Maryland. The malls will likely be auctioned off to separate buyers, because they're scattered among diverse markets and attract a fairly wide range of consumers. Lehman and its partner, mall operator Shopco Advisory of New York, gave the listing to Rockwood Realty without staging a beauty contest.

Private operators and redevelopers will likely chase the malls--which generate solid in-line sales of $320/sf to $390/sf. It's unclear whether large mall REITs will join the hunt, in part because none of the malls are dominant in their markets.

Of the four, Rigmar Mall in Fort Worth, Texas, is expected to trade at the lowest cap rate--probably in the neighborhood of 7.5%. That would translate to a price of about $90 million. The 1.2 million-sf mall was built in 1976, expanded in 1998 and renovated in 2000. There are five anchors: Dillard's, Foley's, JC Penney, Neiman Marcus and Sears. The mall's 110 in-line stores, encompassing 345,000 sf, are 90% occupied. In-line sales are about $325/sf.

Rigmar, like all the malls in the offering, is managed by Shopco. Much of its in-line space is leased to mid-tier and value-added retailers that have longstanding relationships with Shopco. But there are also a handful of upscale tenants. While Rigmar is a solid performer, it competes with a somewhat stronger Fort Worth center, the 938,000-sf Hulen Mall, owned by Rouse, which is known for its high-quality mall holdings.

The other three malls being offered are:

* Chicago Ridge Mall in Chicago Ridge, Ill. (856,000 sf). Estimated value: $100 million. Expected cap rate: 8.5%. In-line sales: $390/sf.

* Eastpoint Mall in Baltimore, Md. (860,000 sf). Estimated value: $100 million. Expected cap rate: 9%. In-line sales: $352/sf.

* Eastland Center in Harper Woods, Mich. (1.4 million sf). Estimated value: $60 million. Expected cap rate: 10.5%. In-line sales: $320/sf. In-line occupancy rate: 77%.

Two of the four malls serve ethnically diverse populations: Eastland Center, located near Detroit, has a minority consumer base, while Chicago Ridge Mall, on the southwestern edge of Chicago's city limits, serves an established blue-collar community with mixed demographics.

Household incomes within five miles of each property range from $39,000 to $50,000, with Rigmar at the top of the range.