Simon DeBartolo Group Inc. and Macerich Co. are partnering to buy a $974.5 million portfolio of regional malls from investors represented by real estate advisers ERE Yarmouth.
Under an agreement announced Monday the partners will buy 12 regional malls comprising 10.7 million square feet of gross leasable area in eight states.
DeBartolo and Macerich will assume $485 million of debt on the portfolio.
The partnership brings together two real estate investment trusts with very different strategies. Indianapolis-based DeBartolo, the largest REIT in the U.S., has been the lead consolidator of regional malls. Macerich, based in Santa Monica, Calif. has been a "one-off acquirer," profiting by remaining a small, opportunistic and nimble company.
DeBartolo was a major consolidator of malls in 1997. One of its big deals was an agreement announced in September to buy Retail Properties Trust for $1.2 billion.
DeBartolo owns or has an interest in 200 properties, including regional malls, community shopping centers, and specialty and mixed-use properties. Macerich owns 26 malls and three community centers.
REITs have been scooping up malls at a rapid clip this year. In fact the regional mall industry has consolidated much faster into the REIT form than other real estate sectors. REITs own 23% of regional malls, according to Kenneth Campbell of CRA Real Estate Securities in Radnor, Pa.
The consolidation will continue as REITs rush to get the market-dominant malls under their wings and gobble up malls that have such potential but lack capital, said Christopher Hartung, an analyst with NationsBanc Montgomery Securities Inc.
Another driving force is the changing nature of what it takes to manage a regional mall. As the environment grows more competitive, more management depth is required to survive. As a result, institutional investors that lack the resources to be retailers are looking to shed those assets.
"There is a sense of taking real estate to a service level, where you use the real estate to be a gatekeeper to the consumer," Mr. Hartung said. "There are certainly a number of institutional investors wanting to get out of their exposure to retail."
Mr. Campbell, who manages about $1.8 billion of real estate securities for CRA, said that this may be the beginning of a "long-run bull market in the pricing of malls." If that is so, "we will see a lot more of this consolidation," Mr. Campbell said.
"This business has been capital-constrained for a long period of time," he added. "Now that there's capital, it's become a viable business again."