Cedar Shopping Centers, Inc. has formed a joint venture with Homburg Invest, Inc., a Canadian real estate corporation, to expand its portfolio of grocery-anchored shopping centers.
Through the joint venture, the Port Washington, N.Y.-based REIT has enough liquidity to leverage $200 million dollars in acquisitions and development. Cedar received $73 million in cash in exchange for Homburg receiving 80 percent interest in Cedar's nine centers located in Pennsylvania. They are valued at $170 million.
“This [partnership] permits us to redeploy money invested in properties with flat income,” says Leo S. Ullman, CEO of Cedar Shopping Centers. “Homburg is effectively taking properties at a 7 percent cap rate on development built to 9 to11 percent yields.”
The joint venture was unanimously approved by Cedar's board of directors, with the exception of Richard Homburg, a director since 1998 and Homburg chairman and CEO, who abstained from the vote.
Although Cedar retains just a 20 percent interest in its properties, the deal structure entitles Cedar to “self promote,” meaning if the company meets the targeted 9.25 percent rate of return on a leveraged basis, its interest in the nine properties goes to 40 percent.
The agreement, structured as a limited partnership, gives Homburg the ability to sell a portion of its interests in the properties to individual investors in Europe. Shortly after the deal, Cedar announced a partnership with Tristate Ventures LP, a wholly owned subsidiary of Pennsylvania-based Fameco Real Estate LP, to build a 700,000-square-foot community shopping center in Pottsgrove, Pa. Cedar is an equity partner in the $105 million project, providing $17.5 million in capital.