Macerich Joins Rival REIT in Malls Purchase

Real estate investment trust Macerich Co. of Santa Monica has signed its largest deal yet, forming a 50/50 joint venture with one of its toughest competitors, Simon DeBartolo Group Inc., to purchase 12 regional malls for $974.5 million.

This is Macerich’s first joint venture with another public company. Although Macerich is among the 20 largest shopping center operators in the country, it is a far smaller player than Indianapolis-based DeBartolo.

The boards of both REITs have agreed to purchase the malls located in smaller cities such as Sioux Falls, S.D., and Leesburg, Fla., from a pension fund client of ERE Yarmouth. The deal, which comprises more than 10.7 million square feet of retail space, is expected to close in February, the company said.

Such joint ventures are becoming increasingly common as real estate investment trusts repeatedly find themselves bidding on the same properties, analysts say.

“We’ve seen over the last few months a handful of joint ventures between major REITs. It’s better to have 50% of something than 100% of nothing,” said Jim Sullivan, senior analyst with Newport Beach-based Green Street Advisors.

Indeed, the Macerich/DeBartolo venture will probably pursue other retail acquisitions after this deal closes, said Macerich Chief Executive Arthur M. Coppola.

Macerich and DeBartolo zeroed in on this group of malls because in most cases they face very little competition.

“They are literally the only game in town,” said Coppola. “With most of these malls, there’s not another shopping center around for 70 miles.” The portfolio’s occupancy currently stands at 89%, according to Macerich.

The $974.5-million acquisition price includes the assumption of $485 million in debt. Macerich will finance the rest of the purchase by issuing equity or debt, Coppola said. Macerich, which has a larger presence in the Western United States, will manage the six malls west of Des Moines. DeBartolo will manage the rest. None of the properties are in California.

Sullivan predicts more of these public partnerships will be formed in coming months as competition heats up for prime real estate and as companies seek out larger mixed-use projects. For instance, a company that owns office buildings might partner with an apartment REIT to purchase a large downtown commercial and residential project like Boston’s Prudential Center.

The Macerich/DeBartolo agreement follows on the heels of Macerich’s $108-million purchase last week of the The Citadel, a 1.1-million-square-foot mall in Colorado Springs, Colo. The REIT purchased the 90%-occupied center from a partnership of Teachers Insurance and Annuity Assn. and an affiliate of the Rouse Co.

Simon DeBartolo is one of the largest owners and managers of regional malls in the country, owning 200 centers in 34 U.S. states. In Southern California, DeBartolo owns Laguna Hills Mall and Mission Viejo Mall, as well as a part interest in the Ontario Mills outlet mall and entertainment center.

Macerich was started in 1965 by Mace Siegel, a shopping center developer who built properties anchored by discount stores. The company switched its focus to regional malls beginning in 1972, acquiring and redeveloping properties throughout California, including Lakewood Mall. But the firm’s biggest growth spurt has come since its initial public offering in March 1994.

Since that time, the REIT has acquired an interest in more than 13 million square feet of malls and retail centers, mainly in smaller cities. Not counting the pending purchase, Macerich owns 26 regional malls and three community shopping centers, half of which are in California. Among them are Huntington Center Mall in Huntington Beach and Buenaventura Mall in Ventura.