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Get Ready to Bid

The largest privately owned regional mall portfolio in seven years may be about to hit the market. The Pyramid Companies, a Syracuse, N.Y.-based privately held developer, which owned 19.5 million square feet of retail space as of April 2006, said in mid-April that it is exploring selling all but one of its 20 properties. If it sells the portfolio, Pyramid would shift its focus to its long-proposed project of transforming the 1.6-million-square-foot Carousel Center in Syracuse, N.Y. into a 4.5-million-square-foot retail and entertainment site called DestiNY USA.

Pyramid will have no shortage of bidders as every major mall operator in the country will try to get its hands on the rare portfolio, says Rich Moore, a REIT analyst with RBC Capital Markets. With the centers totaling about 18 million square feet in markets with high barriers to entry, Pyramid could easily fetch close to $4 billion, estimates Joseph French, a national director of retail with Sperry Van Ness, a real estate investment brokerage firm. Among the possible contenders are Simon Property Group, General Growth Properties, the Macerich Company and CBL & Associates.

Moore says it is also possible that Brookfield Asset Management Inc., a Canadian office REIT that attempted to acquire Mills Corp. earlier this year, could make a push for the Pyramid portfolio.

In addition, there might be a private equity investor or two among the bidders, according to David Leibowitz, an analyst with New York-based Burnham Securities, Inc. With private equity real estate funds set to surpass $60 billion this year, according to Private Equity Real Estate magazine, they will have plenty of money to buy the portfolio and then flip it at a premium shortly thereafter.

Pyramid has already secured the services of Goldman Sachs & Co. to review its strategic alternatives. It could take one of several routes, including a refinancing package, says Tim Ahern, independent trustee for the Congel family, which owns a controlling stake in the company. The company, which has resisted selling its portfolio or going public for years, is now ready to take advantage of the high values regional malls are fetching.

Average Sales Price per Square Foot, 3Q 06
East North Central $164
Mideast 119
Mountain 176
North America 81
Northeast 230
Pacific 241
Southeast 163
Southwest 151
West North Central 79
TOTAL $160
Source: The Institutional Real Estate Letter, 1/24/2007
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