Simon Property Group is saying "Ciao!" to Italy. The United States' largest mall owner announced plans Monday to joint venture with Italian hypermarket chain Rinascente Group to own, manage and develop shopping centers throughout the boot-shaped country. Rinascente is to contribute 38 shopping centers valued at about $1 billion to the venture, which will be called Gallerie Commerciali Italia S.p.A. And Simon will purchase a 49 percent stake in the venture for about $500 million and an initial cap rate of 6 percent. The joint venture will develop about $250 million worth of new properties next year, and could build as much as 4 million square feet within the next five years.

"Simon's size, operating expertise and deep relationships with U.S. tenants make a European expansion seem very appropriate," says Morgan Stanley analyst Matthew Ostrower. And Simon's move is indicative of a larger trend among U.S. real estate companies, which are showing new interest in European properties. In the past, such investments were considered too expensive, with low cap rates driven by the relatively smaller supply of available properties. For example, Italy has approximately 1/20th the supply of real estate per capita that is available in the United States, according to Simon research. But in recent years, cap rates on U.S. acquisitions have become so low (Simon's recent purchase of Stanford Shopping Center scored 6 percent) that there's no longer much difference, says JPMorgan equity research analyst Michael Mueller.

"The transaction looks expensive on the basis of cap rate, but not quite so pricey on the basis of price per square foot and the price-to-tenant sales ratio," Ostrower concludes. Simon is paying approximately $373 per square foot, he adds, which is significantly lower than the $680 per square foot average price paid for A-class malls in the United States.

Most of the assets involved are not typical of any U.S. shopping center format. According to Ostrower, many are hybrid community/regional mall/lifestyle centers. Simon is already invested in Europe, with a $70 million stake in a joint venture that controls five malls in Poland and three in France. According to Simon, the company will be increasing its employee count in Europe, which is currently focused at the London headquarters of Simon Global Limited, run by Hans Mautner, president of the REIT's international division.