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Glimcher, Oxford Properties Ring In New Year With Joint Venture

The New Year started with the continuation of one of 2005's biggest trends as Columbus, Ohio-based Glimcher Realty Trust became the latest U.S. REIT to pair up with a foreign pension fund. Unlike its cohorts, however, Glimcher didn't look down under to Australia. Instead, it tapped the Great White North and has partnered with Oxford Properties Group, a real estate company owned by the Ontario (Canada) Municipal Employees Retirement System (OMERS).

The venture's first acquisition is the Puente Hills Mall in City of Industry, Calif. for $170.1 million. The deal's price represents a 7 percent cap rate. The mall was purchased from a group of tenant-in-common investors (TIC) headed by Passco Real Estate Enterprises Inc.

Oxford intends to allocate an additional $200 million into its joint venture with Glimcher for the purchase of anchored retail properties. Glimcher said that Oxford may also partner its 927,000-square-foot Tulsa Promenade in Tulsa, Okla for $58.3 million.

Oxford would not comment on the deal. It is the fund's first foray into the U.S. market as well as Glimcher's first joint venture with a pension fund.

However, Oxford's move could signify the beginning of Canadian money flowing into U.S. retail. Like in Australia, pension funds already own much of the nation's commercial real estate and so are beginning to look internationally for further opportunities. Oxford, for example, manages about $10 billion worth of real estate for OMERS including three malls in Toronto.

The announcement came after a record year for foreign investment in U.S. retail assets. In 2005, foreign investors purchased $4.2 billion worth of retail assets in the U.S. through joint ventures versus only $622 million in 2004, according to Real Capital Analytics.

"I would describe this joint venture as fairly typical for REITs today," says Marshall Loeb, chief operating officer at Glimcher.

The arrangement is advantageous for Glimcher because the REIT can earn a seven percent return on its investment for Puente Hills plus an additional 40 basis points from management fees from the partnership. "I can turn to stockholders and say I can earn a better return on your capital if I buy it with Oxford rather than just Glimcher," Loeb says.

The structure of Glimcher's joint venture with Oxford resembles many of the partnerships that Australian firms have with other U.S. REITs. Glimcher will manage any properties in the venture and collect management fees. The company also will be able to collect promotes on the property once Oxford reaches specific returns. For example, once Oxford receives a 10 percent return on its capital, Glimcher will get 60 percent of any additional cash flow. This may provide a boon for Glimcher as both properties, Puente Hill and Tulsa, have significant upside potential. Glimcher plans a $10 million interior renovation for Puente. "We are buying B- malls in the hopes of turning them in B+," Loeb says.

However, Glimcher owns a 52 percent majority interest in Puente Hills. That differs greatly from joint ventures with Australian firms, where the U.S. REIT usually owns a minority interest. Regency Centers Inc., for example, has a 35 percent stake in a joint venture it owns with a Macquarie Bank-controlled limited property trust. Developers Diversified Realty Trust owns a 14.5 percent piece in its Macquarie joint venture.

The acquisitions by Glimcher follow a relatively quiet period for the company. In the past two years, the company has focused on purging its portfolio of strip malls, according to George Schmidt, executive vice president of Glimcher. Its recent acquisitions are part of the company's plan to reinvest capital into better performing assets. The Puente Hills Mall is also its first purchase in Southern California, Schmidt says.

--David Koch

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