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Developers Diversified Buys Benderson Portfolio for $2.3 Billion

The public/private consolidation continues. Today, Developers Diversified Realty announced it is buying Benderson Development Company's 18.8 million-square-foot portfolio of shopping centers for $2.3 billion. The transaction, which represents an 8 percent cap rate, includes 110 centers mostly located in New York and New Jersey and will boost Developers Diversified's portfolio to more than 100 million square feet, making the Cleveland, Ohio-based company the third largest owner of retail GLA in the United States and the largest owner of grocery-anchored, power and community centers.

Developers Diversified will fund the acquisition through a combination of assumed debt, new debt financing, asset sales and equity from public and private sources, potentially including its joint venture with Australian partner Macquarie. Benderson will retain a portfolio of 23 million square feet of non-retail commercial properties and will retain a 2 percent interest in certain assets to be sold to Developers Diversified.

The grocery sector has seen a lot of action in the past week. Albertson's bought the Shaw's supermarket chain for a steal last week from U.K.-based food retailer J. Sainsbury. The low price--$2.475 billion--probably resulted from a lack of bidders and Sainsbury's desperation to unload the division and focus on intense price wars on its home turf, says Deutsche Bank analyst Edouard Aubin. Shaw's is the second largest grocer in New England, one of the last supermarket holdouts against the Wal-Mart Supercenter. Wal-Mart holds only a 3.4 percent market share of grocery sales in New England compared to 13.6 percent for the United States as a whole. But that won't last for long. Wal-Mart is scouting for a grocery distribution center site in New England. Aubin saysthe search indicates the behemoth is about to accelerate the conversion of its 115 traditional Wal-Mart stores into supercenters. The competition will not bode well for Shaw's, whose prices are currently 15 percent higher than Wal-Mart's according to a New England grocery pricing survey conducted in August 2003.

On the topic of supercenters, Wal-Mart opened its first California installation in La Quinta in the Inland Empire. And so far, the 225,000-square-foot store is an overwhelming success. Sales volumes are running close to $1 million per day -- twice the volume at an average supercenter, says UBS analyst Gary Balter. Wal-Mart will open two more supercenters nearby in Palm Springs and Palm Desert within two years, and eventually open 40 supercenters throughout the Golden State. In April, the residents of Inglewood, Calif., will vote on whether to allow the first Wal-Mart supercenter into Los Angeles County. The retailer recently won a big victory in Contra Cosa County, Calif., where residents voted down a ban of supercenters.

In other news, Macy's inked a deal with flat-bread sandwich shop Cosi to open shops within 10 Macy's stores this year. The first will open in Seattle this summer, and shops will open in Atlanta, Memphis and South Florida throughout the balance of the year. If the test shops are successful, Federated will open Cosi in a total of 250 Macy's stores. Paris-based Cosi opened its first U.S. location in 1996.

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