Starwood Retail to Buy 7 Taubman Malls for $1.4B

Starwood Capital's two-year-old retail affiliate agrees to acquire properties in Virginia, South Carolina, Florida, Texas and Michigan.

Taubman Centers, Inc. is taking advantage of investor interest in malls and selling seven shopping centers in five states to Starwood Capital Group and its growing retail division, Starwood Retail Partners, for $1.4 billion.MacArthurCenter_VA

Robert Taubman, chairman, president & CEO of the Bloomfield Hills, Mich.-based REIT,  said during a morning conference call that the transaction reflects the company’s strategy of recycling capital for growth.

Asked to name the number of bidders, Taubman declined but said there was “very strong interest” in regional malls.

“We’re very pleased with this transaction. It’s a win-win for both parties. We think Starwood is going to do a great job with this portfolio and we’re very pleased with our remaining portfolio,” he said.

In a joint statement with Starwood, Taubman said, “The seven centers we are selling are strong properties that fit well within the Starwood portfolio and will continue to thrive under their management.”

Starwood Retail will acquire MacArthur Center, Norfolk, Va., 934,000 square feet (pictured above); Stony Point Fashion Park, Richmond, Va., 607,000 square feet; Northlake Mall, Charlotte, N.C., 1.1 million square feet; The Mall at Wellington Green, Wellington, Fla., 1.3 million square feet; The Shops at Willow Bend, Plano, Texas, 1.3 million square feet; The Mall at Partridge Creek, Clinton Township, Mich., 607,000 square feet and Fairlane Town Center, Dearborn, Mich., 1.4 million square feet.

The malls feature major retailers such as JC Penney, Sears, Macy’s Dillards, Nordstrom, Neiman Marcus and Dick’s Sporting Goods.

The deal, which is expected to close in the fourth quarter, calls for Starwood to pay $785 million in cash and assume $620 million in debt.

Taubman was represented by Eastdil Secured, L.L.C. Kirkland & Ellis L.L.P. represented Starwood Capital Group. The Kirkland team was led by New York-based real estate partners Jonathan Schechter and Scott Berger. Honigman Miller Schwartz and Cohn L.L.P. represented Taubman.

SRP was formed in 2012 by Starwood Capital Group when it bought seven shopping centers in the United States from Australian-based Westfield Group for just over $1 billion to begin building a portfolio of regional malls. Barry Sternlicht, chairman & CEO of Starwood Capital Group in Greenwich, Conn., brought in Scott Wolstein, co-founder of leading shopping center owner and manager DDR, as its CEO.

“This acquisition is highly strategic for Starwood and its retail operating platform, Starwood Retail Partners,” Sternlicht said in the statement. “These assets will expand SRP’s retail portfolio to 28 properties totaling 26.8 million square feet across 15 states. The Taubman portfolio broadens our relationships with higher end department stores and in line tenants and gives us an excellent opportunity to continue to produce attractive returns for our investors.”

SRP, which is based in Chicago, has more than 200 employees and ranks among the largest regional mall operating platforms in the U.S. In November, Starwood Capital Group completed a second major acquisition from Westfield buying seven malls totaling 7.9 million square feet for just over $1.6 billion. As with the first Westfield transaction, Starwood Capital Group owns 90 percent of the portfolio with Westfield keeping a 10 percent stake.

For Taubman, the Starwood Capital Group deal will reduce its overall footprint, but boost the productivity of its portfolio by more than $100, up from sales of $721 per square feet in 2013. Within two years, developments in China, South Korea, Puerto Rico, Hawaii and Florida will be completed.

Taubman currently owns, leases and/or manages 27 retail properties in 15 states and South Korea. Its portfolio of 24 owned shopping centers is the most productive in the U.S. publicly traded regional mall industry, according to Taubman. The firm is also spending about $265 million to redevelop existing shopping centers in Los Angeles, Denver, Nashville, Miami and the San Francisco Bay area.

Taubman said the sale to Starwood Capital Group will provide the company with at least $268 million in capital for additional investment.

Lisa Payne, Taubman vice chairman and CFO, said during the conference call that the transaction has been structured to accommodate a Section 1031 exchange once the deal closes. Asked whether the company was looking at acquisitions, she said, “We would love to find a strategic asset to buy. But we’re not going to just buy anything. As you know, we’re very focused on quality.”

Payne said the firm would issue a dividend to shareholders if they do not find an asset to buy within the 1031 timeframe.

Both Taubman and Payne stressed during the call that the sale to Starwood Capital Group was not done for liquidity purposes.

“This was a very calculated, strategic decision that the timing was right,” Payne said.