Very quietly Teachers Insurance Annuity Association has made a big change in its retail real estate investment strategy. In separate moves, both with far-reaching consequences, TIAA-CREF announced on Nov. 2 that it has sold its stake in Mall of America (taking Simon Property Group out of the property in the process) and the next day revealed it is Developers Diversified Realty's previously unnamed institutional partner in acquiring 67 community centers from Inland for $3 billion.

Together, the moves signal a shift in the giant pension fund's strategy for retail investment and reaffirm its commitment to the category by more than tripling its tripling its exposure. According to a June SEC filing, TIAA-CREF's Real Estate Account included $9.2 billion of commercial real estate property, of which retail accounted for just $689 million (excluding its Mall of America stake.)

"To me the key is that anyone that has a large pool of capital just can't ignore the results that have taken place in returns in retail real estate," says Howard Davidovitz, chairman, Davidowitz & Associates Inc., national retail consulting and investment banking firm. "If you're managing a major pool of capital, you want to get in this game. I think that's what's happening."

TIAA-CREF's move also greatly diversifies its retail asset base, swapping a huge investment in Mall of America, and spreading it to 67 in the Inland portfolio. The Inland properties, largely discount-anchored community centers in southeastern U.S. markets, complement TIAA-CREF's existing retail portfolio, which as of June 30, included nine centers with a total of 3 million square feet. Four of those assets were acquired in 2002, two more in 2004 and two others in 2005. The other retail property has been in its portfolio since 1995.

Moreover, in conjunction with its joint venture announcement with DDR, TIAA-CREF disclosed in an SEC filing that it might increase its overall leverage level on its real estate assets from 20 percent to 30 percent.

TIAA-CREF will contribute 85 percent of the equity in the joint venture while DDR will put up 15 percent. The joint venture expects 60 percent of the deal will be leveraged. That would put TIAA-CREF's equity contribution at just more than $1 billion.

The Mall of America deal brings an end to a tumultuous 19-year partnership between TIAA-CREF, Simon and Triple Five Group-the Canadian-backed firm run by the Ghermezian family that originally conceived the project.

The trio came together in 1987, when Triple Five was having trouble gaining local approvals as well as the financing it needed to fund the $650 million construction of Mall of America. Simon Property Group-then known as Melvin Simon & Associates in its pre-REIT days-came to the rescue. The Simons became 22.5 percent owners of the project and took on leasing and development. Triple Five also retained 22.5 percent and TIAA-CREF held a majority stake of 55 percent in the project.

Simon quickly was able to cobble together financing from a series of banks and convinced Bloomingdale's, Macy's and Nordstrom to sign on to the project by throwing a total of $30 million in incentives at the department stores. Still, it took five years before the Mall of America opened Aug. 11, 1992.

Things got more complicated in 1999 when Simon moved to buy half of TIAA-CREF's stake, which would have given it 50 percent control of the property. Triple Five filed a lawsuit in 1999 challenging the sale on the grounds it was done without Triple Five's knowledge and without them having a fair crack at making an offer. In 2003, a federal appeals judge ruled decisively in Triple Five's favor, enabling them to acquire a 27.5 percent stake from TIAA-CREF.

Since then, Simon and TIAA-CREF retained their financial positions in the Mall of America as other lawsuits have brewed. In August TIAA-CREF made a bold move to end the saga. Then it notified both partners saying either it wanted to divest its stake or buy out its two partners. The latest agreement, reached on November 2, puts an end to the legal battle and leaves the property entirely in Triple Five's control.

Simon will continue to manage the property for 90 days before handing the reins over to Triple Five.

Financial terms of the agreement were not announced, but published estimates put the combined value of the stakes held by TIAA-CREF and Simon at $1 billion-which would translate into $550 million for TIAA-CREF and $450 million for Simon. In an SEC filing Simon says it expects to record a net gain of $85 million during the fourth quarter as a result of this transaction. Simon and Triple Five did not return calls seeking comment.

With the partnership picture cleared up, Triple Five can renew its efforts to expand the property. It has proposed a $1.3 billion project that would double the size of the mall and add hotels and high-end retail to the complex.

-- David Bodamer