Many struggling shopping malls are trying to find salvation by going small—in their purchasers, sales prices and, in some cases, size.
As the nation's largest mall owners sell off or give up their most-troubled properties—dogged by deteriorating neighborhoods, newer rivals and online sales—smaller real-estate companies are snapping them up at discount prices and trying to find ways to pull them out their death spirals. Sometimes, that involves demolition.
It is a high-risk turnaround game that is gaining favor among local companies and small specialists that are gambling they know local markets well enough to succeed where the big guns failed.
According to Real Capital Analytics, 48 of the 201 U.S. malls that traded hands since early 2010 were sold out of "troubled" situations, most often involving delinquent mortgages. In most cases, the value of those properties fell so sharply that they were sold for much less than was owed on them. In the past year, malls with defaulted mortgages were sold at prices amounting to an average of 63% of their mortgage balances, according to Real Capital.
"These mall transactions show that investors now are interested in higher risk but potentially higher yielding retail investments in the U.S.," said Ben Carlos Thypin, Real Capital's director of market analysis.
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A July report on retail real estate put out by Real Capital Analytics (RCA) notes that sales of retail properties worth $2.5 million or more amounted to just over $2 billion during the month, less than half of June's total and 20% lower than a year earlier. But there were a few deals which made real estate investors take notice.
The largest retail property sale closing in July was the buyout of a partner in a 123,000 square-foot retail condominium at 717 Fifth Avenue in Midtown Manhattan. Jeff Sutton, joint-venture partner with SL Green at the property, had owned 39.08% of the property and SL Green owned 60.92%. After this latest transaction, SL Green has 10.92% and Sutton has 89.08%, according to Ben Carlos Thypin, director of market analysis at RCA. The property was valued at well over $600 million, according to the RCA report.
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U.S. Office Property Investors Moving to Suburban Assets as Downtown Property Yields Become Too Low, Says RCA
Sales of office properties in the US worth $2.5 million or more totaled $5.4 billion in July, down 10% from a year earlier, the third consecutive month of decline, according to Real Capital Analytics' (RCA) "US Capital Trends Office" report for July.
Unlike in the recent past, suburban office buildings have gained popularity. The sales volume of suburban office properties in July was $3 billion, greater than the volume for CBD properties, which was $2.4 billion. While CBD property sale volume was down 40% year-over-year, the sales volume for suburban properties was up 51% year-over-year, according to RCA.
Sales of several medical office portfolios helped add to the sales volume of suburban office properties in July, but the trends are still positive for suburban offices, even excluding portfolio sales, according to the RCA report. Individual property transactions of suburban office buildings were up 39% year-over-year in July.
So what is going on? "Generally speaking, investors are moving to suburban offices, because CBD offices in primary markets are trading at such low yields that it doesn't make sense for most investors to buy in the CBD. As a result, many investors are shifting to the high quality suburbs," says Ben Carlos Thypin, director of market analysis at RCA.
Meanwhile, public REITs, that still have access to cheap, unsecured debt, have chosen to acquire a lot fewer offices in 2012 than in 2011. After accounting for 20% or more of office acquisitions in Manhattan, San Francisco, Boston and Chicago last year, they are responsible for 5% or less of the dollar volume in those markets so far this year, according to RCA. "Presumably, they too are looking for transactions with better yields," says Thypin. "Two office REITs, SL Green and Vornado, have been investing a lot more in retail (and, to a lesser extent, multifamily) than usual," he says.
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MetLife Inc.'s recent purchase of the Reynolds Plantation, a posh lakeside golf and resort development in Georgia, is the latest sign that the insurer is back in the acquisition game.
MetLife paid about $160 million in equity and assumed debt for the Reynolds Plantation, which was acquired out of receivership, people familiar with the property said.
The deal raises MetLife's acquisition volume this year to a postcrisis peak of $820 million. That is below the recent annual peak volume of $1.2 billion in 2005 but up from $259 million for all of last year, according to research firm Real Capital Analytics.
"We like what we're seeing," said Robert Merck, global head of real-estate investments for MetLife, who declined to comment on expected returns from the Reynolds transaction. "You get decent income, especially compared with what you can get on fixed-income assets in this low-rate environment."
"They're starved for yield like everyone else so they need to venture out further on the risk curve and get back into buying," said Ben Carlos Thypin, director of market analysis at Real Capital Analytics, a New York real-estate-research firm.
Read More: http://online.wsj.com/article/SB10000872396390443713704577601580295762576.html?mod=googlenews_wsj
Hawaiian-condo investors, homebuyers in Montana and travelers seeking a room at Miami Beach’s upscale Setai Hotel all can turn to one company to meet their needs: Lehman Brothers Holdings Inc.
Four years after filing the largest bankruptcy in U.S. history amid soured real estate bets, Lehman is still in the property business, wagering it can recover about $12.9 billion from mortgages and assets around the globe. Its $3 billion purchase this year of the remaining 53 percent of apartment owner Archstone Inc. made it the biggest buyer of U.S. commercial property by value in the last 12 months, according to research firm Real Capital Analytics Inc.
Of the U.S. real estate assets still held by the Lehman estate -- including joint ventures and loans -- 43 percent are located in major metropolitan areas, where values are recovering amid strong investor demand, according to Ben Carlos Thypin, director of market analysis at Real Capital Analytics. The majority are in smaller markets, such as Greensboro, North Carolina and Norcross, Georgia, where institutional investors aren’t interested in buying, keeping values low, Thypin said.
“That means that no matter how quickly and profitably they can liquidate the major market assets, the estate is still going to be sorting through a lot of smaller assets in small markets for years to come,” Thypin said.
Read More: http://www.bloomberg.com/news/2012-08-13/lehman-lives-to-pay-18-cents-on-dollar-with-new-sales-mortgages.html
Ben Carlos Thypin
I am currently the co-founder of Quantierra, the world's first data driven real estate brokerage and investment manager. In my former life as Director of Market Analysis at Real Capital Analytics, I worked with press outlets large and small to provide them with great data and insightful commentary. Here are some of the results of this collaboration. For the rest, please check out the News Archive.