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Retail Center Sales Standouts from the Third Quarter

With Sales Activity Down, Fewer Large Shopping Center Sales Occured During Third Quarter
October 31, 2007
Cushman & Wakefield and Falcon Real Estate Brokered the $275M Sale of Tiffany's Rodeo Drive Home
Cushman & Wakefield and Falcon Real Estate Brokered the $275M Sale of Tiffany's Rodeo Drive Home
Total shopping center sales volume is down The market recorded $5.4 billion in sales volume during the quarter, which is down 6.8% over last quarter and up 5.5% over third quarter 2006.

Pricing hasn't waivered significantly this year, with an average sale price of $148.43-per-square-foot down just 2.5% over last quarter, but up 1617.6% over third quarter last year.

Seller's Average Capitalization rate is down slightly; 7.27% was the average for third quarter, which is down 11 basis points over last quarter, but up 15 basis points over third quarter last year.

Transaction activity is on the decline; 416 transactions were recorded during third quarter, down 21% over last quarter and down 12% over third quarter 2006.

Days on the market continues to rise. The parameter, which measures the average amount of time a property is marketed for sale before it enters escrow, was 211 days for third quarter, which is an extension of 15 days over last quarter's average and an extension of 78 days over the average for third quarter 2006.

The preceding summarizes the results of a CoStar COMPS query tallying pure national shopping center sale transactions (mixed property type transactions were excluded) that closed during third quarter 2007. Next week, we'll take a closer look at the trends underlying in these statistics, so stay tuned. For now, read about some of the more exceptional deals that stood out nationwide during third quarter.


SPOTLIGHT ON: Tiffany's Rodeo Drive Home Sells for $275M; $2,174.46-PSF


Sale Price: $275 million; $2,174.46 per square foot
Sale Date: 8/23/2007
Property Name: Two Rodeo Drive
Location: 268 N Rodeo Drive, Beverly Hills, CA 90210, Los Angeles Metro, CA
GLA: 126,468 square feet
Year Built: 1990
Property Type: Urban Street Retail Center
Seller: Rodeo Owner Corp.
Buyer: Sloane Capital
Anchor Tenant(s): Tiffany & Co. (20,744 sq. ft.)
CoStar COMPS ID#: 1391343

Scott Sweeney, executive vice president of San Diego's Falcon Real Estate and facilitator of the deal on the sale side for a European-based family trust, told CoStar that Falcon and its co-advisor, Strategic Real Estate Advisors (StratReal) were contemplating putting Two Rodeo on the open market for sale; but Sloane Capital beat them to it with an offer. "It was such a strong price we had to see if we could make a deal happen," said Sweeney.

The "strong" sale price has this sale ranking as one of the largest and most expensive retail property sale transactions that closed during third quarter 2007.

Steve Algermissen and Andrew Harper of Cushman & Wakefield's Southern California Capital Markets Group represented Sloane on the buyer side.

Algermissen told CoStar the buyer had identified a variety of assets it was interested in in Beverly Hills and the company already owned One Rodeo Drive, a freestanding building occupied by luxury retailer, Bulgari. Through a London co-worker that had a close relationship with StratReal, Ashley Marrison, Cushman & Wakefield approached StratReal and Falcon about Sloane's interest in purchased Two Rodeo.

In addition, Falcon had worked with Sloane in 2006 on another luxury retail deal. The company purchased 220 Post Street, a 37,425-square-foot urban retail building in San Francisco's famed Union Square that was leased to Saks Fifth Ave Men's store, from Falcon for $42 million, or $1,1124 per square foot.

Algermissen explained that the transaction was complicated, taking about nine months from initial contact.

"There was some idiosyncrasies of UK tax law and the ability to exchange a profit to another deal complicating the transaction. Everybody was trading in this deal. In order to effect a trade for the buyer, we had to wait until late August to close," said Algermissen.

Sweeney told CoStar the deal was the down leg of the seller's 1031 exchange.

Falcon knew it had a gem with Two Rodeo, as it was purchased as a value-add play in August 2000. At the time, the property had expiring short team leases that would leave it 40% vacant within one year. Sweeney said 9-11 slowed leasing up the vacant space down, but Falcon renewed leases with Tiffany's and Versace, and signed several luxury tenants including Boucheron (Gucci), Jimmy Choo, Lalique, George Jensen, Breguet, Rene Caovilla, Damiani, Porsche Design, Cole Haan, Jose Eber, and more. At the time of sale, the property was considered stabilized, which is why Falcon was likely going to put it on the market regardless of being approached by Sloane.

Why is Two Rodeo worth more than $2,000 per square foot? Sweeney says, "It's a unique and architecturally appealing property with a fantastic location in Beverly Hills and the rent roll that we created really added value to the property. And its a pride of ownership property where economics can become secondary and there's more of a desire to just own this piece of real estate."

Algermissen said, "This property is the gateway to the 'Golden Triangle' on Rodeo Drive and has high visibility and identity with a highly complementary tenant mix. Plus, Its architecture created an independent environment with an interior street and there's subterranean parking, which is virtually unique for retail stores in that area. So it’s a pretty remarkable asset."

The property still has upside as well. It has a lot of second floor space not being used by retailers that makes sense to lease as office space, which Falcon hadn't marketed.

Harper explained "office rents have grown to a huge number in that area, so it has become much more viable to use the space as office as opposed to typical retail."

Harper added, "There is upside over time in the deal as well. There was a number of below market leases signed offering rent growth when they do expire, which is a long time from now."

Harper said market rents for retail space in Rodeo Drive proper range from $200 per square foot on the low end to $550 per square foot on the high end. Office rents for the market range $45 to $55 per square foot, full service gross.

Rhinelander MansionSloane has been actively purchasing high profile properties. Aside from buying One Rodeo, Two Rodeo, 220 Post Street, and owning the buildings hosting Harry Winston in London and New York, Sloane bought the U.S. home to Polo Ralph Lauren's 27,720-square-foot flagship store, the Rhinelander Mansion in New York City, for $78.75 million ($2,841 per square foot) in 2005.

Algermissen added, "They're very keen on the luxury tenant type. They have such properties in the US and France, and are looking hard in Canada, the UK, Ireland, and Tokyo."

Falcon's specialty is procuring U.S. real estate for international investors and it has carried out transactions totaling more than $4 billion since the company's inception.

When asked if the U.S. is seeing more foreign investors snatching up U.S. commercial real estate, Sweeney said, "It's our niche. And it has picked over the last couple years."

In regards to dollars flowing in from specific nations, Sweeney said, "Middle Eastern players are always active, we've seen Ireland come on the map very strong, European-based investors are always very strong and we've also got South American Investors."

"There's no shortage of interest in high visibility trophy assets, no matter what the market is. This experience reinforced that for us. Throughout the course of the transaction we talked to people wanting to buy this property from the buyer," said Algermissen.

Algermissen told CoStar the Cushman & Wakefield Southern California Capital Markets Group does a lot of retail deals, primarily urban and multi-level, with many involving luxury retail. The group is currently marketing another building on Rodeo Drive and the Chanel building in San Francisco. In addition, the group recently brokered the sale of the Gucci building on Rodeo for $40 million (more than $3,000 per square foot), the Tiffany building in Pasadena for $37 million ($1,318 per square foot), The Shops at the Fordham in Chicago, and the Bellevue Galleria in Washington.


Want to share your opinion on shopping center sales activity trends this year or the CoStar Advisor newsletter? We'll post pertinent comments as updates in this story throughout the day. Reach the editor, Sasha Pardy at spardy@CoStar.com.


Third Quarter's Largest Shopping Center Sale Transactions


Along with the Two Rodeo sale, the following shopping center sale transactions stood out among the largest deals closed during third quarter.

Dividend Capital Acquired 1.8M-SF New England Retail Portfolio
Tedeschi Realty Sold 26 Shopping Centers To Denver REIT

Denver-based Dividend Capital Total Realty Trust closed on the acquisition of a 1.85-million-square-foot portfolio of 25 retail centers in Massachusetts, Connecticut, and Rhode Island from affiliates of Rockland, MA-based Tedeschi Realty Corp. for $377 million, or approximately $207 per square foot, which includes the assumption of $26 million in debt plus $2.2 million in acquisition costs.

At the time, the sale ranked as the largest retail property sale in Massachusetts history. The portfolio included nearly all of Tedeschi's assets. The centers, which were built between 1952 and 2004, were 99% occupied at the time of sale and are primarily grocery-anchored neighborhood centers featuring Stop & Shop and Shaws Markets. Other notable tenants include Hannaford, TJ Maxx, CVS, Starbucks, and more.

Dividend Capital's chairman, John Blumberg explained the importance of the portfolio acquisition in building the company, "Aquiring this portfolio is a significant milestone (that) provides an opportunity to develop significant operating efficiencies and create value in the portfolio."

WestRidge Realty Advisors of Westport, CT, acted as strategic advisor to Dividend Capital in the transaction and reported "aggressive bidding" on the portfolio.

In late May, 2007, Dividend Capital closed on a joint venture with Developers Diversified Realty (DDR) for $161.5 million, resulting in 90% ownership in a portfolio of three newly-developed retail properties in Pennsylvania and North Carolina totaling about 1.5 million square feet. Prior to this May acquisition, the company's portfolio only contained 24 properties totaling 5.2 million square feet. The DDR and Tedeschi transactions nearly doubled Dividend Capital's portfolio to 57 assets totaling 9.6 million square feet.

For more on this transaction, including a complete list of the properties involved, see CoStar COMPS ID# 1377528.


Simon Property Group Acquires San Diego Outlet Center for $283.5M
Stoltz Real Estate Sheds 560,000-SF Shops at Las Americas

Indianapolis, IN-based Simon Property Group, the country's largest retail property owner, acquired The Shops at Las Americas, a 560,000-square-foot outlet shopping center at the San Diego / Tijuana border off Interstate 5 in San Diego County, CA, at the end of August.

Although Simon kept the deal price quiet, CoStar COMPS researchers were able to uncover a sale price of $283.5 million ($506.25 per square foot), which includes the assumption of approximately $180 million in existing liens on the property. Built in 2001, the center last sold for $97 million in 2004. The property sits on 60 acres and is only 61.5% improved, meaning there is room to add to the outlet center. However, neither Simon Nor Chelsea has announced plans for any improvements or additions.

Las Americas was acquired by Simon from a joint venture between Bala Cynwyd, PA-based Stoltz Real Estate Partners and institutional investors advised by Pacific Coast Capital. Simon has renamed the center Las Americas Premium Outlets and its Chelsea Property Group subsidiary is managing and operating the property.

Las Americas' 125 stores include the outlet retail versions of Adidas, Banana Republic, BCBG Max Azria, Bebe, Calvin Klein, Coach, Gap, Kenneth Cole, Neiman Marcus, Nike, Polo Ralph Lauren, Tommy Hilfiger, and more.

For more information, see CoStar COMPS ID# 1378062.


Want to share your opinion on shopping center sales activity trends this year or the CoStar Advisor newsletter? We'll post pertinent comments as updates in this story throughout the day. Reach the editor, Sasha Pardy at spardy@CoStar.com.


Cabot Buys Three Midwest Malls from Cafaro for $100M
JLL Gains Leasing of 1.7M-SF Portfolio

At the end of August, Boston, MA-based Cabot Investment Properties, private equity real estate investment firm more well known for being a player in the industrial space rather than retail, closed on a portfolio acquisition of three Midwest malls from Youngstown, OH-based mall developer, The Cafaro Co. Mid-America Real Estate Corp. represented the seller in the transaction.

For the three enclosed malls totaling 1.7 million square feet, Cabot paid $100 million, or about $59-per-square-foot. Cabot soon after awarded Jones Lang Lasalle's retail division with leasing and management of the malls. According to CoStar Property Professional, the portfolio is currently 95% leased.

Reportedly, Cabot plans a substantial renovation of the malls, spending in the range of $15 million.

  • The 820,368-square-foot Ashtabula Mall (Ashtabula, OH) was built in 1992 and is anchored by JC Penney, Sears, Dillard's, Steve & Barry's, and a Super Kmart.

  • The 424,939-square-foot Southland Mall (Marion, OH) was built in 1969, renovated in 1998 and is anchored by Elder-Beerman, Jo-Ann Fabrics, Regal Cinemas, Sears, and Steve & Barry's.

  • The 458,940-square-foot North Park Mall (Marion, IN) was built in 1978, renovated in 1998 and is anchored by Elder-Beerman, JC Penney, Lance's Supermarket, and Sears.


  • For more information, see CoStar COMPS ID# 1414622.


    Leasco Investments Acquires South Coast Home Furnishings Centre for $100M
    Birtcher Development Unloads Redeveloped Office Property

    In late summer 2005, Irvine, CA-based Birtcher Development acquired the former Southern California regional headquarters of State Farm Mutual Insurance Co. for $29 million. Fueled by a joint venture with Newport Beach, CA-based Buchanan Street Partners, Birtcher proceeded to demolish the office buildings occupying 20.5-acre site just off the 405 Freeway in Costa Mesa, Orange County, CA, to make way for a one-of-a-kind, $90 million retail project.

    Dubbed the "South Coast Home Furnishings Centre," Birtcher built a 300,000-square-foot retail center designed to house 30 home furnishing retailers leasing space for showrooms. Birtcher had experience in such projects, it had developed design centers, a similar concept, in California, Phoenix and Dallas.

    Through the aid of Jim Morrison, president of Morrison & Co., Birtcher signed a contract in September 2006 to sell the furnishings center to Leasco Investments of Costa Mesa, CA. The project was never available on the open market. The contract was contingent upon a meeting a certain preleased level in order to close, reasonable in light of the housing market beginning to take a dive at the time.

    Complemented by an Ikea only one-quarter-mile away, Birtcher, along with third-party brokerages Reza Investment Group and Lee & Associates, had 75% pre-leased South Coast Home Furnishings Centre by October 2006. The project's list of signed retailers included Wickes, Banner Mattress, La-Z-Boy, Legends, Creative Leather, Salmo’s Furniture, Munro’s Furniture, Easylife Furniture, Interior Surroundings, C.S. Wo, NW Rugs, Office Furniture Gallery, LA Carpet, Faucets Galore, Flexa, and more. The project also has a food court featuring The Great Steak and Potato Company, Samurai Sam’s, and Taco Time, among others.

    Escrow on this $100 million transaction ran about 11 months, and Leasco closed on the property in early August 2007 when construction was completed and certificates of occupancy were issued.

    For more information, see CoStar COMPS ID# 1376091.


    Want to share your opinion on shopping center sales activity trends this year or the CoStar Advisor newsletter? We'll post pertinent comments as updates in this story throughout the day. Reach the editor, Sasha Pardy at spardy@CoStar.com.


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