Beverly Connection, Del Amo on Market as Values Rise
By DANNY KING
Staff Reporter
Two longtime landlords of high-profile retail centers are preparing to sell their properties, the latest in a year-end surge of activity that is expected to continue into the new year.
Faced with the choice of embarking on major capital improvements or selling into a market where low interest rates have fueled price increases, many developers are opting to take the money and run.
The most recent examples are L.A.-based Trident Group, which has a deal to sell the Beverly Connection to a joint venture led by Apollo Real Estate Advisors, and Torrance’s 3 million-square-foot Del Amo Fashion Center, which will be put on the market by octogenarian Guilford Glazer, who developed the property in 1971.
The 320,000-square-foot Beverly Connection on La Cienega Boulevard between Beverly Boulevard and 3rd Street, which Trident redeveloped in 1986 from what was a hodgepodge of buildings, is selling for about $108 million, according to real estate sources.
Del Amo, the country’s second largest retail center only Bloomington, Minn.’s 4.5-million-square-foot Mall of America is larger could trade for up to $500 million.
Officials of Apollo, which is developing the three-block Sunset Millennium mixed-use project in West Hollywood, and Trident declined comment. Glazer, ranked No. 34 on the Business Journal’s 2002 list of richest Angelenos, did not return calls seeking comment.
The sales continue a spate of high-profile trading that started in early fall and is expected to continue over the next few months.
Since September, at least four high-profile retail centers totaling more than 2.2 million square feet have either been sold or have gone into escrow.
Leading the rush of major deals are the Fashion Square Sherman Oaks, Glendale Galleria, Pasadena’s Paseo Colorado and the Beverly Connection. The aggregate value of the properties is about $700 million. The largest deal on a square-foot basis is the $415 million ($657-per-foot) sale of the 26-year-old Glendale Galleria by a partnership of Cigna Corp., Costa Mesa-based private REIT Donahue Schriber and New York State Teachers’ Retirement System, to Chicago-based REIT General Growth Properties Inc.
Values seen peaking
The activity comes as longtime owners respond to low interest rates that have been pushing capitalization rates down and prices up.
“Sellers feel as though the market has maxed out on values and depreciation has run out,” said Christopher Maling, senior director at real estate brokerage Marcus & Millichap. “They’re in a position to recycle their equity by selling off these assets.”
Steve Sakwa, senior real estate investment trust analyst at Merrill Lynch & Co., said the region is prime for the turnover in retail properties.
“Southern California has held up better than other parts of the country,” said Sakwa, who follows both Trizec Properties Inc., owner of Paseo Colorado, and Developers Diversified Realty Corp., its buyer. “Retail properties are in demand because the fundamentals are holding up.”
A tepid holiday season will do little to slow the activity, according to Matthew May, president of May Realty Advisors.
“Unless it’s disastrous, it’s not going to have a major impact,” he said, noting that the loss of a smaller, cash-starved retailer is still likely to be replaced by a national tenant willing to pay higher rents.
With capitalization rates for apartments down to the 6 percent level and the office-leasing environment not expected to improve for at least another year, retail property remains in demand.
Upside potential
While newer successful projects like Paseo Colorado are in the mix, many of the deals are happening with centers at a crossroads.
Trizec Properties, which had said it wanted to sell its Hollywood & Highland property as part of an overall disposition retail assets, has opted to delay any sale for at least a year, looking for the property to stabilize.
“That’s a troubled property,” added Sakwa, who estimated that the capitalization rate paid for Hollywood & Highland could approach 10 percent. “No one’s going to buy that at a 6.5 cap rate.”
While buyers of Paseo Colorado and Glendale Galleria will take over healthy centers with solid cash flow, the Beverly Connection and Del Amo will probably need millions of dollars worth of renovations, suggest area retail brokers.
The Beverly Connection faced the prospect of losing its two largest tenants when the parent companies of General Cinema and Strouds, which together take more than 20 percent of the center, filed for bankruptcy protection in 2000.
Since then, Strouds was taken private and has regained its footing, while General Cinema was bought by AMC Entertainment Inc. for $167 million. Meanwhile, the center, where rents range from $2.50 to $5.00 a foot, has remained nearly full.
Still, with many leases expiring within the next two to three years, the center could be reconfigured for better efficiency and increased leasable square footage.
Little has been done to update the 31-year-old Del Amo, whose north wing, which was anchored by a 160,000-square-foot Montgomery Ward, sits empty.
As a result, at $500 million, the center would sell for just $166 a foot, versus the $278 and $657 a foot paid for Paseo Colorado and Glendale Galleria, respectively.
“We’re in limbo right now,” said Doris Johnson, leasing agent with Del Amo, who noted that the north wing is slated for renovation but denied knowledge of the property being put on the market.
Glazer owns more than 40 million square feet of industrial property nationwide.
The listing was first reported in industry newsletter Real Estate Alert and confirmed by sources.
