Benderson Buys Back Properties at Discount

Mostly of interest because these two companies are fairly big players in the local market here. DDR has a project near my home that has managed to go empty very slowly. I mentioned the woes of this particular mall last August in this very blog. Click here for the original article.

Benderson Development Co. is buying back eight local shopping plazas, plus three more in other parts of New York, from Developers Diversified Realty Corp.
Charles Lewis/Buffalo News

Updated: 06/07/09 07:31 AM
Benderson buys back local plazas at a discount
Firm pays 30% lessfor properties it soldfive years ago
By Jonathan D. Epstein NEWS BUSINESS REPORTER

Benderson Development Co., Buffalo’s biggest homegrown retail landlord, is pulling off a major financial coup, buying back 11 shopping mall properties in upstate New York for significantly less than it sold them for just five years ago.

The commercial developer has signed contracts to buy eight malls or shopping plazas in Western New York, and three in other parts of the state, from Developers Diversified Realty Corp., a publicly traded real estate investment trust based outside Cleveland, according to sources familiar with the deal.

That will return more than 3 million square feet to Benderson’s local portfolio. Sources said the purchase price was between $160 and $175 million.

The plazas are among the same properties that Benderson had first sold to DDR in March 2004. That deal, worth $2.3 billion, involved a total of 110 properties, 52 of which were in the Buffalo Niagara region.

Since then, however, the real estate market has turned soft, slumping retail sales have driven up vacancy levels at shopping plazas as stores have closed, and the credit crunch that hit last fall has further squeezed property owners.

“It’s good that the ownership is going in the direction that it is,” said Michael C. Clark, director of retail tenant services at CB Richard Ellis in Buffalo. “There’s going to be a lot of markets in other parts of the country where they have portfolios for sale by different REITs and they don’t have someone like Benderson to step up.

“We’re pretty fortunate in terms of the market, in regard to that. How much better can you get than the folks that developed them and are intimately familiar with them and live and breathe here? They certainly know what they’re doing,” Clark said.

The average price five years ago was $21 million, versus an average of about $15 million for the current deal — a discount of almost 30 percent.

“They’re buying them back for something like 70 cents on the dollar from what they sold it,” said Greg Klauk, president of Buffalo appraisal firm KLW Group.

“Nobody ever expects the prices to drop that quickly,” said William J. Kimball, managing director and principal in the Syracuse office of Integra Realty Resources, the nation’s No. 1 commercial real estate property valuation and consulting firm.

Benderson must still complete its “due diligence” on the properties, but that’s likely to be pretty short, since Benderson is familiar with the properties.

“It’s a very positive thing that they want to continue with these assets,” Kimball said. “They’re going to be the ones to make them work.”

Benderson and DDR officials declined to comment, citing confidentiality. However, DDR spokeswoman Betsy Keck noted that the company has already announced that “we are in active negotiations to sell shopping centers.” DDR has already sold more than $67 million in assets through the first quarter, she added, and has $175 million in assets under contract.

“It is our policy not to comment on potential asset sales before they close,” Keck said in an emailed statement.

The eight Western New York properties being acquired are:

• Boulevard Consumer Square in Amherst, with 700,810 square feet.

• Eastgate Plaza in Clarence, with 520,876 square feet.

• Marshall’s Plaza in Buffalo, with 82,196 square feet.

• Sheridan/Delaware Plaza in Tonawanda, with 188,200 square feet.

• Sheridan-Harlem Plaza in Amherst, with 58,413 square feet.

• Tops Market in Hamburg, with 84,000 square feet.

• Transit Commons in Amherst, with 114,177 square feet.

• Transit Wehrle Retail Center in Lancaster, with 112,949 square feet.

“Benderson is very savvy,” Kimball said. “They’ve done similar type deals where they’ve purchased properties that have been underperforming and done wonderful things for them.”

The sale of the shopping plazas has been the subject of speculation during the past two weeks, including at an International Council of Shopping Centers conference in Las Vegas last month. Local brokers reported hearing discounts of as much as 40 percent or more on the price Benderson was paying, versus what DDR paid in 2004.

That reflects the significantly changed circumstances confronting real estate developers and owners, especially those with shopping centers, like both DDR and Benderson.

Retailers have been struggling to maintain sales and post profits, as consumers pulled back sharply on spending in the last year. Many stores have filed for bankruptcy protection, and big names like Circuit City have even gone out of business.

As a result, landlords like DDR have struggled to maintain their rental income and the values of their own properties have fallen along with the broader commercial real estate market. “There’s a lot of REITs that aren’t in the position they were 12 or even 24 months ago,” Clark said.

DDR owns and manages 720 properties with 153 million square feet of space in 45 states, Puerto Rico, Brazil, Russia and Canada, including what it got from Benderson.

The company has already been whittling down the original Benderson portfolio, selling an 85 percent interest in 14 properties in April 2004 to a joint-venture trust with Australia’s Macquarie Bank, a major real estate investor worldwide.

It also sold a 90 percent interest in 13 shopping centers — including four Tops Market plazas in Western New York — in October 2004 to Prudential Real Estate Investors. And it sold another four Western New York shopping centers anchored by Tops to New York investors in January 2007.

Finally, as the market started to turn down last year, it sought to sell two bundles of properties with 1.5 million square feet of space, including Office Depot Plaza in Tonawanda, Sheridan- Harlem Plaza in Amherst and Regal Cinemas in Niagara Falls.

But the company was hampered last fall and early this year by the freezing of the capital markets, which constrained its cash flow and ability to make payments on its debt. It lost $179.6 million in the fourth quarter before rebounding for an $87.4 million profit in the first quarter of 2009. And its cash fell by $20 million last year, raising questions about its ability to pay its debts.

In February, it agreed to sell 30 million common shares and issue warrants to buy another 10 million shares to Germany’s Otto family, which owns or controls major European and North American shopping center firms, plus the Crate & Barrel chain. That makes the family DDR’s largest shareholder.

The company also got a commitment from the family for a $60 million, five-year fixed-rate secured mortgage, and got $125 million in new debt financing.

“All of these transactions are important steps in lowering our leverage and improving our liquidity, and we continue to work diligently on additional initiatives,” DDR CEO Scott Wolstein said.

Still, its stock has been hammered in the past two years, falling 98 percent from a height of $67.07 in February 2007 to a low of $1.34 on March 3, 2009. The shares closed at $5.60 on Friday.

Hence the need for property sales, even at big discounts. “They need some liquidity and in order to sell something in today’s market, this is the price,” Kimball said. “There really is a dearth of activity. This isn’t a time when you’d want to sell.”

For its part, Benderson, founded in 1950 by Nathan Benderson, is one of the nation’s top retail developers with more than 250 properties and 25 million square feet of commercial space in 35 states, and another 4.5 million square feet under development. It also owns and develops office buildings, industrial parks, residential communities, and self-storage facilities, and owns the Delta Sonic car wash company and its Buffalo Lodging Associates hotel division.

Originally based in Buffalo, the privately owned company moved its headquarters to University Park, Fla., in early 2004, but is still a major player in Western New York, with a regional office and 52 properties.

But it also has properties throughout New England, New Jersey, Pennsylvania and Ohio, as well as one in St. Louis. And it has 21 properties in 13 cities in Florida, especially in Bradenton and University Park — areas that have seen significant drops in property values.