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Pyramid Effect

The bidders continue to be few and far between, but Morgan Stanley REIT analysts Matthew Ostrower and Mick Chiang say the sale of the 16-center B-mall Pyramid Properties portfolio would have a positive effect on the national mall sector.

On October 9, the two analysts put out a note estimating that the portfolio is likely to garner a cap rate between a high 6 percent and a low 7 percent — below the current implied average of 7.8 percent to 8.2 percent for B-malls. As a result, the sale would signal a return of investor interest in U.S.-based B-mall properties.

The privately held, Syracuse, N.Y.-based Pyramid Properties announced in April that it was exploring strategic alternatives for its portfolio, and wanted to hold on only to the 1.6-million-square-foot Carousel Center in Syracuse, which it plans to turn into a 4.5-million-square-foot retail and entertainment center.

So far, however, Beachwood, Ohio-based Developers Diversified Realty Corp. remains the only U.S. REIT to publicly express interest in the portfolio. Many of Pyramid's properties are located in and around the Buffalo area, which makes up Developers Diversified's largest market, representing 6 percent of its GLA. Developers Diversified chairman and CEO Scott Wolstein estimates the value of the portfolio at approximately $4 billion.

Meanwhile, analysts speculate that Chattanooga, Tenn.-based CBL & Associates Properties Trust and Philadelphia-based Pennsylvania Real Estate Investment Trust might also emerge as possible bidders. In addition, during its second-quarter earnings conference call Macerich Co. said it was looking at the portfolio.

Ostrower and Chiang, however, believe it's more likely that an overseas firm will buy the properties, while firms like Simon Property Group and General Growth Properties will take the high-quality centers in the Palisades.

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