Industry consolidation may have peaked with Macerich Co.'s December purchase of Wilmorite Properties Inc., a privately held shopping center owner and manager.

Ownership of A-quality regional malls is concentrated in the hands of the REITs with a shrinking pool of top malls remaining in private hands. “Overall, there are about 450 malls that are still not owned by the mall REITs,” says Paul Morgan, a senior analyst and senior vice president at Friedman, Billings, Ramsey Group in Arlington, Va. The more important statistic, by his reckoning, is that only 59 strong, Class A regional malls are still in private hands.

Just a few families and smaller portfolios, such as the Richard E. Jacobs Group and The Pyramid Cos., are left on the private side. But those groups don't intend to sell their top assets. In fact, most of the remaining private players are trying to grow themselves or are holding on to strong properties that they have no reason to sell.

“The flow of acquisitions will trickle,” says Morgan “It's going to be very difficult to keep this pace going unless we get a greater number of public-company to public-company mergers.”

Some of those deals have already been made. General Growth Properties Inc. acquired Rouse Co. in 2004, for example, and Simon Property Group Inc. nabbed Chelsea Property Group Inc.

The deals are more likely to be with institutions this year, says David Shulman, a managing director at Lehman Brothers in New York. “There are portfolios held by institutions and opportunity funds. REITs may buy up the pieces held by institutions.”

A number of malls have mixed ownership, Shulman says, some of which rest in the hands of institutional investors. Alaska's Permanent Fund, for example, still holds a 50 percent interest in Tysons Corner Center, one of the malls acquired by Macerich from Wilmorite.

From Hunted to Hunter

The one thing the deal definitely did for Macerich was take it out of the target column. “It had been viewed as a potential acquisition by some of the larger mall REITs,” says Morgan.

In the past couple of years, Macerich grew through internal development and targeted one-off transactions. In June 2002, it acquired privately-held, Phoenix-based Westcor, now a Macerich division.

“When you have to compare yourself against Simon and General Growth, there's a desire to get to a bigger scale so when you are speaking with retailers you have better leverage,” says Robert Gadsden, portfolio manager with Alpine Woods Investments in Purchase, N.Y. “Macerich wasn't a small company before, but the deal gives it a broader national platform, which is the relevant thing.”

The Wilmorite acquisition, expected to close in March 2005, will be its largest. The $2.3 billion deal (including the assumption of debt) will bring Macerich 11 regional malls in several northeast states.

At completion, Macerich will strengthen its position as one of the top five regional mall REITs (behind Simon, General Growth, Westfield Group and CBL & Associates Properties Inc.) in the United States, with ownership of 74 properties.

This deal, however, was mainly about three malls, Tysons Corner Center in Virginia, Freehold Raceway Mall in New Jersey and Danbury Fair Mall in Connecticut that bolsters the company's Northeast presence. Macerich has up to now operated mostly on the West Coast.

“When we combine these three centers with our Queens Center in New York City, these four centers by themselves make us a very major player on the East Coast,” Macerich Chief Executive Officer, Arthur Coppola, told analysts on a conference call after the purchase was announced.

Eighty percent of the deal's value can be attributed to those three malls, Gadsden says. The other Northeast shopping centers, mostly in upstate New York, include a group of five malls in the Rochester area that the seller will likely reacquire in 2007.

For Wilmorite, selling the assets and buying them back is a tax-driven decision. According to the terms of the deal, it has the option to re-acquire the five properties in 2007, which both sides in the deal expect will happen.