Clarion Sells 50% Stake in IN Retail Fund to Inland

Inland Real Estate Corp. acquired the 50 percent ownership stake in IN Retail Fund held by its JV partner, New York State Teachers Retirement System, for $121 million in cash, making it the sole owner of the 2.3 million-square-foot Midwest retail center portfolio.

Inland Real Estate Corp. acquired the 50 percent ownership stake in IN Retail Fund held by its joint venture partner, New York State Teachers Retirement System, for $121 million in cash, making it the sole owner of the 2.3 million-square-foot Midwest retail center portfolio.

IN Retail Fund was established by Inland, an Oakbrook, Ill.-based REIT, and NYSTRS in 2004. It currently has 13 shopping centers, most located in the Chicagoland area, and is valued at approximately $395.6 million. The acquisition capitalization rate is 6.7 percent. The portfolio has total current outstanding mortgage debt of about $152.2 million, plus other related assets and liabilities, according to an Inland news release.

Clarion Partners, the real estate investment manager representing NYSTRS, issued its own news release stating the sale was for $197.3 million.

“The difference between $121 million in cash noted in our release and NYSTRS’s number of $197.3 million is NYSTRS’ portion of secured debt on the portfolio,” an Inland spokesperson told Commercial Property Executive.

“While we have enjoyed a successful partnership with Inland, the opportunity to exit at this pricing level on a highly efficient basis was very compelling,” Mark Weld, a managing director at Clarion Partners in charge of the portfolio for NYSTRS, said in the Clarion release.

Inland President and CEO Mark Zalatoris also used the word “efficient” in his comments about the transaction.

“This venture has been a capital-efficient way for the company to acquire premier retail assets while enhancing our yield on investment,” he said in the Inland release. “However, the opportunity to acquire NYSTRS’ interest at this time advances our strategic goals to increase the size and quality of our consolidated portfolio, simplify our ownership structure and strengthen our balance sheet.”

As of March 31, the portfolio was 97.5 percent leased. It is comprised of 11 neighborhood, community and power shopping centers in the Chicagoland area; one neighborhood retail center in a suburb of Minneapolis-St. Paul; and one community retail center near Racine, Wis. The acquisition increases the amount of total assets owned by Inland to $1.6 billion. Inland’s consolidated portfolio now derives 65.1 percent of its net operating income from properties in Illinois and 16.3 percent of NOI from Minnesota properties. Wisconsin assets will comprise approximately 5.7 percent of NOI, according to Inland.

The REIT’s top five retail tenants are Roundys, 5.8 percent of the consolidated portfolio’s annual base rent; Safeway, 3.8 percent; AB Acquisitions (Jewel Food Stores), 3 percent; CarMax, 2.9 percent, and TJX Companies, 2.8 percent.

The largest shopping center in the IN Retail Fund portfolio is Orland Park Place, a 592,495-square-foot power retail center in Orland Park, Ill., that includes Old Navy, Bed, Bath & Beyond, Dick’s Sporting Goods, Marshall’s and Ross Dress for Less. Two other Chicagoland shopping centers with more than 200,000 square feet each are Randall Square in Geneva, Ill., which also has Marshall’s, Old Navy and Bed, Bath & Beyond as tenants, and Woodfield Commons E/W in Schaumburg, Ill., which features Toys R Us, REI and Hobby Lobby.

Several grocery stores are included in the portfolio, including Food 4 Less, Jewel Food Stores, Whole Foods Market, Cub Foods and Pick ‘N Save.

“The joint ventures we have established with institutional partners such as NYSTRS, have been instrumental in advancing our growth objectives,” Zalatoris said in the Inland release. “Since its formation in 2004, the IRC-NYSTRS joint venture has added more than $300 million in gross value to our total portfolio and provided approximately $8.5 million in high-margin fee income as of March 31, 2013.”

The REIT is paying for the acquisition with the proceeds of a public offering expected to have net proceeds of between $91.6 million and $105.3 million, before expenses, as well as cash on hand and its $175 million credit facility.

Inland is a self-administered and self-managed publicly traded REIT that owns and operates open-air shopping centers and single-tenant properties primarily in the Midwest.

NYSTRS is the second largest public investment system in New York and one of the largest systems in the United States.

Clarion Partners, based in New York City, has offices throughout the U.S. and in Mexico, Brazil and England. It has more than $28 billion in total assets under management. Also this week, Clarion acquired 100-104 Fifth Ave., a 17-story, 277,412-square-foot, Class A, office property in New York City’s Midtown South submarket for $230 million.