Privately-owned fortress malls are an endangered species on the San Francisco Peninsula now that public REITs have acquired all but one, leaving Hillsdale Shopping Center the lone holdout in a highly desirable market.

In mid-August, General Growth Properties purchased Stonestown Galleria — a super regional mall located within San Francisco city limits — for $312 million from Heitman Financial LLC. A week later, Mills Corp., bought a 50 percent stake in Stoneridge Mall in suburban Pleasonton, as part of a $1.3 billion investment in nine regional malls previously owned by General Motors Pension Trust. Stoneridge is anchored by Nordstrom, Macy's and JCPenney. Mills will oversee day-to-day operations, taking them over from Taubman Centers, which had previously managed the mall for GM.

“These purchases were inevitable,” says Robert Webster, president and CEO of Bohannan Development Inc., a family-owned business that operates Hillsdale Shopping Center in San Mateo. Webster adds that he's constantly being contacted by REITs interested in acquiring Hillsdale. “I would say every public REIT in the business would like to buy us,” he says.

Looking at Hillsdale's trade area demographics, it's easy to see why. Average household income in the area exceeds $100,000. Sales per square foot at Hillsdale average about $500, says Webster. And according to Friedman Billings Ramsey research, Hillsdale is one of the 18 most profitable private malls in the country.

The situation in San Francisco mirrors a nationwide trend. REITs are gobbling up private malls throughout the United States. Of the country's 599 A-class malls, only 70 remain in private hands. REITs hold 73 percent of the highest-quality enclosed malls, according to Friedman Billings Ramsey. In the entire Bay area, only seven of a total of 23 malls, ranging from A-class to C-class, remain in private hands.

San Francisco is a premier market, with the highest median housing cost in the United States. “It's a terrific market and one of the best in the country,” says David Douglass, vice president of corporate communications at Mills. Public mall owners are attracted to the area's population density, strong income levels and high barrier of entry.

“If someone gets bought out, they'll be bought out at a premium,” says Kevin Chin, a senior investment advisor for Sperry Van Ness. For example, Stonetown's average sales of $475 per square foot ensured a competitive bidding process. Stonetown's price tag of $312 million was $42 million above the original asking price, with 10 bidders fighting for the mall, says Chin. Winner General Growth's deal ended up representing a cap rate in the sub-6- percent range.

But Bohannan isn't impressed enough to sell out. “We still enjoy it and can do things to improve it,” Webster says. “If the day ever comes when there is nothing we can do to make it better, then at that point in time we'll have to think of other possible alternatives.”