REIT to market Orlando mall

Real Estate Alert, March 31, 2004

Colonial Properties is preparing to market an Orlando mall in what could presage an offering of the rest of its 17-mall portfolio.

The 1 million-square-foot Orlando Fashion Square is expected to fetch about $125 million. Colonial owns the property in a 50-50 joint venture with Prudential Real Estate Investors. It's not known if the duo has already awarded the listing.

Mall players were expecting Colonial to bring its entire portfolio to market this year. The REIT, which is based in Birmingham, Ala., has evidently decided to move ahead separately with the Orlando property. The rest of Colonial's 9.6 million-sf mall portfolio consists of Class-B and -C properties located primarily in Georgia, North Carolina and Florida. The total market value is thought to be close to $1 billion.

The Orlando mall, on Colonial Drive, is anchored by Burdines, Dillard's, ]C Penney and Sears. The 424,000 sf of in-line space is 92% occupied and produces sales of about $340/sf. The 31-year-old property was renovated in 1993 and 2002.

The owner of a vacant nearby store that was formerly occupied by Kmart is in talks with potential tenants, including Bed, Bath & Beyond, Petco and Dick's Sporting Goods. The recruitment of a tenant should boost foot traffic at the mall.

Orlando has a heavy concentration of retail properties, which span the gamut from the high-end Florida Mall, a 1.6 million-sf center owned by Simon Property that caters to tourists, to several large discount-oriented shopping centers. Florida Mall is the city's dominant retail property.

The heavy competition means that Orlando Fashion Square provides less upside potential for investors that seek to re-tool properties and squeeze out higher returns. On the other hand, demand is extraordinarily strong for stable, productive malls, so Orlando Fashion Mall could attract numerous bidders. Its sales are probably high enough to lure the major mall REITs, although stronger interest may be shown by private investor groups.