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Rouse Plays a Risky Business

The new regional mall REIT Rouse Properties made news last week with its first acquisition as an independent company. The REIT bought Grand Traverse Mall, a 589,000-sq.-ft. enclosed regional mall in Grand Traverse, Mich., a class-B property that happens to be the only regional mall within a 100-mile radius.

Focusing on such assets should allow the REIT to amass a sizeable portfolio quickly, given most REITs’ desire to dispose of non-core assets, says Cedrik Lachance, managing director with Green Street Advisors, a Newport Beach, Calif.-based independent research and consulting firm. But it carries a significant risk if the economy continues to grow at its current sluggish pace, he and other research analysts note.

“Maybe if I had to buy five REITs, Rouse would be on that list,” says Todd Sullivan, a Massachusetts-based investor and author of the Value Plays blog. “But if I had to buy only one, I would rather own GGP.”

Competitive advantage

Rouse bought Grand Traverse Mall out of receivership for $66 million. The asset used to belong to General Growth Properties (GGP) before the REIT returned it to the lender along with 10 other malls in May 2011. At the time, the CMBS loan on the property had a remaining balance of $82.2 million.

GGP completed Grand Traverse Mall in 1992. Today, it reportedly has an occupancy rate of 85 percent and tenant sales of about $300 per sq. ft. Tenants at the center include Macy’s, JC Penney, TJ Maxx and Target.

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