Bloomberg news - Real Estate Rebound Will Reap '04 Prices

By Daniel Taub Sept. 16 (Bloomberg) -- Prices of U.S. shopping malls may return to 2003 or 2004 levels as consumer spending and the commercial real estate market recover, Simon Property Group Inc. Chief Executive Officer David E. Simon said. That would represent a decline of as much as 23 percent. Simon, the biggest U.S. shopping mall owner, has $3.8 billion on its balance sheet and is looking at... [more]

By Daniel Taub Sept. 16 (Bloomberg) -- Prices of U.S. shopping malls may return to 2003 or 2004 levels as consumer spending and the commercial real estate market recover, Simon Property Group Inc. Chief Executive Officer David E. Simon said. That would represent a decline of as much as 23 percent. Simon, the biggest U.S. shopping mall owner, has $3.8 billion on its balance sheet and is looking at possible acquisitions, Simon said in an interview in New York. “There is still a decent bid and ask difference between the buyer and the seller,” Simon said. “I think the sellers’ expectations certainly have gone down from where we were at the end of ‘07, early part of ‘08.” Prices may go “back to the ‘03, ‘04 period of time, somewhere in that range.” Sales of retail properties in the U.S. fell 71 percent in the first half of the year, to $3.6 billion, according to New York-based research company Real Capital Analytics Inc. The announcement by Glimcher Realty Trust this week that it agreed to sell Lloyd Center, a regional mall in Portland, Oregon, for about $192 million is one indication that buyers and sellers are beginning to come to terms, Simon said. “We’re getting closer,” he said. Sellers are no longer demanding prices equal to 20 times the cash flow from a mall, Simon said. “I think those days are over. Yet are they willing to sell it at 12 times, and are we willing to part with our capital at 12 times? That’s the rub.” 2003 Prices In 2003, 120 regional malls sold in the U.S., with an average price of $123 a square foot, according to Real Capital Analytics. In 2004, 119 sold at an average price of $133 a square foot. This year, only four regional mall sales show up in Real Capital’s database, with an average price of $159 per square foot. If prices fall to the 2004 level, it would be a 16 percent decline, while a drop to the 2003 average would be 23 percent. The dearth of sales is in part because companies such as Simon are waiting for prices to fall further, said Peter Slatin, Real Capital’s editorial director. “When a buyer of that scale sits on their hands, that’s not going to help prices come up,” Slatin said. “They’re waiting to squeeze the last dollar that they can before they start scooping up assets.” Founder’s Son Simon, 48, has been the company’s chairman for two years and CEO since 1995. He is the son of Melvin Simon and nephew of Herbert Simon, who founded the company in 1960 and took it public in 1993. Melvin Simon died today after a short illness, the company said. He was 82. Simon Property’s 1993 initial public offering was the biggest IPO of a real estate investment trust at the time. David Simon’s total compensation last year was $3.09 million, down 11 percent from $3.46 million in 2007. Simon Property, based in Indianapolis, owns or has stakes in 387 properties with 263 million square feet of space in North America, Europe and Asia. It is both the largest U.S. owner of shopping malls and the largest U.S. real estate investment trust, with a stock-market value of $20.1 billion. Its malls include Roosevelt Field in Garden City, New York, and Fashion Valley in San Diego. Simon Property rose $3.11, or 4.4 percent, to $73.36 in New York Stock Exchange composite trading. The shares have dropped 21 percent in the past year, less than the 29 percent decline in the Bloomberg Real Estate Investment Trust Index and the 39 percent drop in the Bloomberg REIT Regional Mall Index. In the second quarter, Simon Property’s funds from operations fell 8.2 percent to $313.1 million, and the company had a net loss of $20.8 million. ‘Warehousing Cash’ Simon Property is up 44 percent this year through today after raising almost $1.7 billion from equity sales. The company also sold $1.75 billion of bonds. It is “warehousing” $3.8 billion in cash on its balance sheet, Simon said. In hindsight, the company’s fundraising plan was cautious, with equity offered in March at $31.50 a share, Simon said. “It looks like we were too conservative,” he said. “On the other hand, I’ve seen a lot of brinksmen go to the brink and lose. So it is what it is. I think we made the right decision.” The company is monitoring the bankruptcy filing of its largest rival, General Growth Properties Inc., and may try to buy properties from the Chicago-based mall owner, he said. Occupancy at Simon’s regional malls declined to 90.9 percent from 91.8 percent a year ago. Sales per square foot at those locations declined to $442 from $494. At premium outlet centers, occupancies dropped to 97 percent from 98.3 percent and sales per square foot fell to $493 from $510. Recession’s End U.S. Federal Reserve Chairman Ben S. Bernanke said yesterday that the U.S. recession, the worst since the 1930s, has probably ended, while saying that growth may not be strong enough to quickly reduce the unemployment rate. U.S. retail sales excluding automobiles, gas stations and restaurants rose 0.7 percent in August from the previous month, and fell 4.3 percent from a year earlier, the Washington-based National Retail Federation said yesterday. “The consumer’s still a little under pressure,” David Simon said, and unemployment will have to decline before retail spending recovers. Companies cut payrolls by 216,000 workers last month, boosting the U.S. jobless rate to 9.7 percent, a 26-year high, according to Labor Department data. “It’s too early for us to declare the recession over,” Simon said. At the same time, he said, Christmas sales may surprise even some of his tenants. “I actually think it could be a little bit better than what the retailers are anticipating,” he said. To contact the reporter on this story: Daniel Taub in New York at dtaub@bloomberg.net. Last Updated: September 16, 2009 17:04 EDT [less]