With private equity and institutional investors pumping an increasing amount of capital into commercial real estate, REITs are finding the current environment provides a compelling option to raise equity by selling off properties rather than raise debt levels through new offerings in the public markets.
That is one of the primary drivers behind The Macerich Co.’s decision to put more than $1 billion of its malls on the market.
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During its fourth-quarter conference call, Macerich executives said they had placed 17 malls and one office building on the market. While the firm initially did not intend to sell all of the assets, the REIT said it has received significant interest from prospective buyers, and now plans to sell assets worth between $500 million and $1 billion with a cap rate in the mid-7% range.
“It’s possible that we can raise a $1 billion of equity from these dispositions,” said Art Coppola, chairman and CEO of Macerich. “We’ve got this development pipeline here that we would prefer to fund with either rollover from asset sales or potentially common equity… We can fund our whole development pipeline doing that, but that would tend to drive our debt levels up. And as I said last quarter: You can never have too much equity, and you can never have too little debt.”
All of the centers Macerich has put up for sale are classified at levels less than the REIT's top 30 performers out of its portfolio of 70 centers, according to Normura Research CMBS strategist Lea Overby.
Four of the properties have CMBS exposure:
• Chesterfield Town Center - Richmond, VA; WFRBS 2012-C9; $110 million;
• Valley Mall - Harrisonburg, VA; CMBS: BACM 2006-2; Current Loan Balance: $42.9 million;
• Great Northern Mall - Clay, NY; BSCMS 2004-PWR3; $36.3 million; and
• Towne Mall - Elizabethtown, KY; WFRBS 2012-C10; $23.4 million.
“We started the conversations (with prospective buyers) in late November,” Coppola said. “We had a broker (Eastdil Secured) who exposed 14 assets to the market. We also had another broker expose the three assets we own in the Greater Seattle area to the market. So there are 17 assets that are being exposed on the retail side of the market, and the office complex at Redmond Town Center is also in the market right now."
Coppola said the REIT did not intend to sell all 17 assets, but rather to offer a sampling on a limited time offer. "And that’s what we did,” he added.
Macerich has received a significant amount of interest in the properties, Coppola said. Half a dozen groups are bidding on the 14 assets with some groups bidding on more than one.
“We are at that point to where we are picking buyers on the 14 (assets). The Seattle group is about a month behind and we’ll see,” Coppola said. “I think that certainly by three months from now we will have great clarity on all of those events.”
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