Texas, Missouri malls head to market

Real Estate Alert, May 5, 2004

A private investor group is preparing to offer two Class-B malls, in Texas and Missouri, that could fetch a total of about $190 million.

Enterprise Asset Management of New York has held discussions with brokerages about a possible offering. The buzz is that Rockwood Really has the inside track on the listing.

The properties are the 1.2 million-square-foot Mall Del Norte, in Laredo, Texas, and the 990,000-sf Northpark Mall in Joplin, Mo., about 50 miles west of Springfield. It's not clear whether they would be offered individually or as a package. The malls, which are managed by General Growth Properties, are located in outlying markets where there is little competition from comparable properties.

Mall Del Norte is anchored by Dillard's, Foley's, Sears, JC Penney and Mervyn's. A sixth anchor store, now vacant, was formerly occupied by Montgomery Ward, which went bankrupt. The 600,000 sf of in-line space is about 85% occupied and produces $350/sf of sales. The center's net operating income is about $11 million. The property is encumbered by a $50 million mortgage with an above-market rate of about 8.5%. If a buyer assumed the loan, the sales price would probably be about $120 million, which would translate into an initial annual yield of about 9.2%, according to mall players. Otherwise, the property would command about $135 million, or an 8% capitalization rate.

Northpark Mall has three anchors: Famous-Barr, JC Penney and Sears. The 536,000 sf of in-line space is 90% occupied and generates $310/sf of sales. Net operating income is about $6.5 million. The property is expected to sell for about $70 million, which translates into an initial yield of about 9.3%.

Both malls were marketed in 2001, but did not change hands. Since then, one of Enterprise's controlling partners, Michael Steinberg, died, and his estate is now pressing for a sale. Steinberg's estate controls an 85% stake in the two malls, while the remaining 15% is controlled by Robert James of Enterprise. Full ownership of the properties would likely be offered. Enterprise owns full or partial interests in a handful of malls.