Blackstone, DDR Make $1.4B Retail Play

BRE DDR Retail Holdings L.L.C., a joint venture between Blackstone Real Estate Partners VII L.P. and DDR Corp., has just spent $1.4 billion on a 47-property retail portfolio formerly owned by EPN Group.

January 11, 2012
By Nicholas Ziegler, News Editor

While it’s not quite hitting the level of last year’s $9.4 billion purchase by The Blackstone Group for 588 retail properties owned by Centro Properties Group,  it’s still the biggest news in retail for the nascent year.  BRE DDR Retail Holdings L.L.C., a joint venture between Blackstone Real Estate Partners VII L.P. and DDR Corp., has just spent $1.4 billion on a 47-property retail portfolio formerly owned by EPN Group.

The transaction, which is expected to close in June of this year, includes a $934 million assumption of debt. Blackstone will own 95 percent of the joint venture, and DDR will own 5 percent and invest $150 million in preferred stock with a fixed dividend rate of 10 percent. To finance its investment in the joint venture, Beachwood, Ohio-based DDR began a public offering of 15 million shares and expects to give underwriters an option to buy up to 2.25 million more shares.

“This transaction enables the retention of significant fee income and enhances our current ownership and future access to prime assets,” Daniel Hurwitz, DDR’s president & CEO, said.

The properties, totaling 10.6 million square feet and located across 20 states, are 90 percent leased. The largest tenants by base rent are TJ Maxx, Kohl’s and PetSmart.

Blackstone has been aggressively pursuing retail assets in the last few quarters, as evidenced by its $473 million purchase of 36 properties from Equity One Inc. in December as well as the $9.4 billion Centro purchase.

Israel-based Elbit Imaging Ltd., the affiliate company of EPN, saw its shares jump 19 percent on the news. According to Bloomberg, Plaza Centers N.V., the Elbit unit that owns the malls that are being sold in the U.S., climbed as much as 21 percent in London trading, the biggest gain in two years.

Goldman, Sachs & Co. advised DDR and JP Morgan advised EPN on the deal. Citigroup Global Markets Inc. and Eastdil Secured advised Blackstone.

A 2011 year-end report by services firm Jones Lang LaSalle noted that the retail sector “continues to edge tentatively toward recovery,” but will likely “remain in a holding pattern for at least the next three quarters.”