In the past week, both Federal Realty Investment Trust and Developers Diversified Realty made new deals with joint-venture partners. The transactions are part of a trend among retail REITs to sell stabilized properties into partnerships with pension funds and other institutional investors as a way to free up capital for new acquisitions and development.
Federal added two grocery-anchored shopping centers in the Northeast, valued at $45.5 million, to its existing venture with Clarion Lion Properties Fund, which is managed by ING Clarion Partners. Federal says it will use the capital for acquisitions.
“We are interested in a lot of markets, including New York, Washington, D.C., Philadelphia, New Jersey, Boston, San Francisco, San Jose, Los Angeles and San Diego,” says Jeff Berkes, vice president and chief investment officer of acquisitions with Federal Realty. “By having a joint venture with Clarion we can expand the number of properties that we can go after on the acquisition front.”
The properties involved in the Federal transaction include Barcroft Plaza, a 90,000-square-foot shopping center in Washington, D.C., and Greenlawn Plaza, a 102,000-square-foot center anchored by Waldbaum’s in Greenlawn, N.Y.
Meanwhile, Developers Diversified sold six shopping centers located in southern and midwestern U.S. to its Australian partner Macquarie DDR Trust for $122.7 million.
According to DDR officials, the company decided to add properties to its existing joint venture because the six centers fit Macquarie’s acquisition criteria and will give the venture exposure to some new major U.S. markets. Unlike DDR’s other joint venture partner, Coventry Real Estate Advisors, Macquarie prefers stabilized assets with high occupancy rates. In addition, the deal has been structured differently from previous transactions, giving DDR a greater share in future growth in exchange for a higher guaranteed return. On the six properties, Macquarie’s will reap a nine percent return.
The REIT believes the portfolio will prove a good investment as it anticipates tenant rollover and rent increases.
The sold properties include the 293,670-square-foot Shoppes at Turner Hill and Turner Hill Marketplace, Atlanta, Ga.; the 132,323-square-foot Frisco Marketplace, Dallas; the 183,810-square-foot McKinney Marketplace, Dallas; the 221,520-square-foot Flatacres Marketplace, Denver, Colo.; the 378,775-square-foot Marketplace at Town Center, Dallas; and the 339,692-square-foot Overland Point in Kansas City, Kan. Four of the centers have Kohl’s as the anchor tenant.
The joint venture strategy has been gaining popularity with retail REITs in the past couple of years, as real estate has become more attractive to investors. A number of major players, such as Acadia Realty Trust, The Mills Corp., Simon Property Group and Regency Centers Corporation, have been pursuing joint venture opportunities, which work particularly well with stabilized neighborhood shopping centers.– Elaine Misonzhnik