Remember those 17 malls the Westfield Group put on the market a year ago? The Wall Street Journal reports that Starwood Capital Group is about to buy seven malls from the firm, including five that were part of that original disposition portfolio.
If it goes through, the impending deal will prove that there are indeed buyers out there willing to buy class-B malls or malls in secondary markets. But the length of time it has taken Westfield to find a serious bidder, and the fact that it couldn't sell all 17 centers as a portfolio, point to the continued perception of weakness in the class-B space.
According to the Wall Street Journal analysis:
The malls that Starwood Capital aims to buy have annual sales that are at or only slightly higher than the industry average for large, enclosed U.S. malls, according to people familiar with the matter.
That presents a challenge for Starwood Capital, since many mall owners and industry experts predict that shoppers and retailers increasingly will patronize stronger malls to the detriment of average and subpar malls. Investments in mediocre shopping centers can be successful if the properties can be rehabilitated and returned to higher prominence. Others may be doomed to obsolescence.
"Not all B [grade] malls are created equal," says Ben Yang, an analyst tracking real-estate investment trusts for Keefe, Bruyette & Woods Inc. "Some could be B-plus malls in the future, and some could be C malls at some point."
Compare this situation to the deal Westfield recently closed with the Canada Pension Plan Investment Board for a 45 percent stake in 12 of its best performing U.S. malls. CPPIB agreed to pay $1.8 billion in equity for those assets, jumping at the chance to make its largest real estate investment both in U.S. and globally.