Industry Questions Whether GGP Can Avoid Asset Sales
Retail Traffic Magazine reports: Selling assets in the current sales environment is not an attractive proposition. In February of 2006, mall sales closed at an average price of $167.48 per square foot and an average cap rate of 6.5 percent, according to research firm Real Capital Analytics (RCA). By February of this year, the average price on mall transactions had fallen by more than 35 percent, to $108.7 per square foot with the cap rate rising 70 basis points, to 7.2 percent.
In fact, with a debt to total assets ratio of approximately 98 percent, virtually any bid General Growth receives in today's environment will be at a discount to the book value of its properties, says Suzanne Mulvee, senior real estate economist with PPR, a Boston-based research firm. "Obviously the assets are attractive, but as attractive as they are, they are priced to perfection under GGP's structure," Mulvee notes. "[In this market], any transaction price on those assets will be at a discount."
One bit of good news in this scenario is that if General Growth will be forced to put a large number of its centers up for sale, the bids it will receive might help the market value retail assets more accurately. With the recent dearth of investment sales transactions (in February, closed retail sales totaled only $455 million, representing a 78 percent drop from the same month in 2008, according to RCA), real estate appraisers are having difficulty determining pricing on retail properties, Mulvee says. Sales of General Growth's centers might give them a fresh perspective.
"It will give the market a benchmark," Mulvee notes. "It will be an unwelcome benchmark, but it will be a benchmark that will have to be acknowledged."
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Posted by: Mark Alferman