Real Estate Agencies

I love this article from the June 8 WSJ because it confirms what I have been saying since the CRE bubble burst. For the first time we are beginning to see the market wake up to the fact that good malls are going to remain good or get better while poor malls will continue in their death spiral.

While there should be no shortage of bidders for Westfield’s cast offs, I suspect the Australians are going to be disappointed by the prices being bid. For many years the Simon Company has been disposing of their bad malls one at a time to the less sophisticated investors who think they have the secret of spinning Simon’s flax into gold. By Westfield offering a package of 17 malls generating sales of between $300 to $380 per square foot that is on their books for over $2.5 billion, they are effectively limiting their buyer pool to the sophisticated mall buyers who understand the true costs of turning these under performing malls around (or for that matter, keeping them generating their below market sales levels). 

I strongly suspect that when the dust settles, all the bidders will have a firm grasp of just how much deferred maintenance is needed and the cost of bringing these 17 malls up to the standards of modern high quality malls. The many millions required to have any hope of maintaining their competitiveness will undoubtedly have a dampening impact on the final prices being bid and may be discouraging enough to force Westfield to pull them off the market to “milk” them of their profits for another few years until the cheap money market heats up again.

In any event, the article is worth reading and the GLG News readers whose job it is to monitor REITs should watch this new development with great interest. GGP already has said that if this works well for Westfield, they have a similar plan to package their under performing malls for another auction. If it does not work the REIT players will be stuck with their stinkers for a few more years.