CLEVELAND —Forest City Enterprises Inc. and QIC Global Real Estate have teamed up on a major US retail portfolio valued at over $2.05 billion. The real estate arm of government-owned Queensland Investment Corp. will acquire a 49% equity interest in the eight-asset portfolio for $435.6 million in cash.
The purchase, the first US direct investment for the Australian institutional investment manager, is part of the firm's long-term investment strategy. “Expansion into the US retail sector is a natural progression and comes after extensive investigation of the real estate market,” says Steven Leigh, managing director of Brisbane-based QIC GRE. The investment, he adds, provides the firm with scarce, premium-quality offshore properties that met the global real estate needs of institutional clients.
The portfolio consists of eight US regional retail malls that are currently owned by Forest City. The locally based firm will serve as managing member of the individual joint ventures and will continue to handle the leasing, operations, marketing, financing, development services and asset management of the properties. All the retail centers are said to be in attractive locations and have high occupancy, with further opportunities due to their lifecycle stage.
The agreement is another example of Forest City's strategy of securing strategic capital partners in both existing assets and new opportunities, points out president and CEO David J. LaRue. “The transaction clearly demonstrates the tremendous value of these properties,” he says. “Unlocking a portion of that value allows us to advance our deleveraging efforts while also reinvesting in our portfolio and new development.” Forest City's transaction team, he adds, was led by James Ratner, Duane Bishop and Frank Wuest. A Skadden, Arps, Slate, Meagher & Flom LLPteam led by Los Angeles partners Meryl Chae, Jonathan Ko and Michael Beinus advised QIC.
The valuation of the portfolio represents a cap rate of about 5.75% on forecasted 2013 net operating income. Sales at the eight malls currently average approximately $500 per square foot, on a rolling 12-month basis. Upon closing, Forest City expects to raise cash liquidity of approximately $330 million, after transaction costs. The transaction is expected to close before the end of the company's fiscal third quarter.
Among the first moves the JV will make is to renovate and/or expand four of the malls—Galleria at Sunset in Henderson, NV; Antelope Valley Mall in Palmdale, CA; Short Pump Town Center in Richmond, VA; and South Bay Galleria in Redondo Beach, CA. Rounding out the portfolio are Victoria Gardens in Rancho Cucamonga, CA; Charleston Town Center in Charleston, WV; the Mall at Robinson near Pittsburgh; and Promenade in Temecula, CA. Forest City initially plans to use most of the liquidity from the deal to reduce its debt loan, but also plans to use some capital to fund the expansion and renovations, as well as invest in the balance of its real estate portfolio and new development opportunities in its core markets.
The driving force behind QIC GRE's decision to partner with Forest City was the firm's strong balance sheet and operational performance. “We have the opportunity to work with Forest City to add value over the short and medium term through additional development, and to jointly access future deal flow,” says Leigh.
QIC itself has more than 20 years' experience in investing, managing and adding value to prime retail assets in Australia and globally, as well as CBD office buildings. Its current global property portfolio comprises over $10 billion in assets.
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Sule Aygoren
Aygoren oversees the editorial direction and content for ALM’s Real Estate Media Group, including Real Estate Forum and GlobeSt.com. In her tenure with ALM, she’s held roles of increasing responsibility, including Managing Editor. Aygoren has received several awards for her coverage including Best Trade Magazine Report from the National Association of Real Estate Editors and the James D. Carper Award for Young Journalists. Under her direction, Forum has received four national NAREE awards for Best Commercial Real Estate Trade Magazine.
