Colorado Real Estate Journal - January 7, 2015
The troubled American Realty Capital Properties sold the Cornerstar shopping center in Aurora for $124 million. It was the largest retail deal of the year when it closed last fall. American Realty, plagued by accounting irregularities that led its CEO, Nicholas Schorsch, to resign in December, however, apparently made a good deal with the portfolio sale that included Cornerstar Greenwood Villagebased Alberta Development developed Cornerstar, a 430,000-square-foot center on 54 acres in southeast Aurora off Parker Road. The $124 million sales price equates to $288.37 per sf. Cornerstar is east of Interstate 25, south of I-225 and north and west of E-470. Alberta sold it early in the year to Phoenix-based Cole Real Estate. Cole, a real estate investmentrust that is owned by American Realty, paid $116.5 million to Alberta. American Realty purchased Cole in a $6.85 billion deal in 2013, as part of Schorsch’s strategy to create one of the biggest real estate empires in the country. Cleveland-based DDR Corp. and an affiliate of Blackstone Real Estate Partners VII, last fall bought Cornerstar with 70 other shopping centers from American Realty in a $1.93 billion transaction. As part of the transaction, the joint venture allocated $124 million to Cornerstar. “My understanding is this happened before all of the problems with American Realty Capital surfaced,” said Brad Lyons, who was part of the Denver CBRE team that represented Alberta when it sold Cornerstar to Cole. “From what I understand, this predated all of the issues, so the portfolio sale wasn’t used as a way to raise cash to address any of American Realty’s current problems,” Lyons said. In fact, he said it appears to have been a good deal for American Realty, whose stock has been hammered since the company’s accounting problems started making national headlines. It also appears to be a good deal for the buyers, he said. “I think it was a good deal for DDR to acquire high-quality, geographically diverse centers across the country,” Lyons said. “Frankly, there is not a lot of product like this available,” he continued. “The price they paid seems indicative of what you pay for the best-in-class centers.” Blackstone, as part of the joint venture with DDR, owns 95 percent of the equity. DDR owns the remaining 5 percent and will manage and lease Cornerstar and the other 70 shopping centers. The purchase includes an $800 million loan from Wells Fargo and Citigroup Global Markets Realty group, according to public records, said John Winslow, principal of locally based Winslow Property Consultants. That nonrecourse loan facility has a five-year term and an interest rate of LIBOR plus 160 basis points, according to DDR. Across the entire 71-center portfolio, the average household income is about $75,000, according to DDR. The average base rent, however, is about 6 percent below DDR’s current prime average rent, “representing a unique opportunity to drive growth,” according to the company. DDR invested about $20 million in common equity and $300 million in preferred equity with a fixed dividend rate of 8.5 percent into the venture. DDR also assumed its pro rata share of joint venture debt of $62 million. The joint venture has assumed approximately $437 million of senior nonrecourse debt, which has a weighted average term of 7.1 years and an interest rate of 4.45 percent. "We are pleased to once again announce the closing of a transaction with our partners at Blackstone, further highlighting our ability to source high-quality acquisitions in an opportunistic manner,” said David J. Oakes, president and chief financial officer of DDR, when it closed on the purchase of the portfolio. “In consultation with our partner, we are in discussions with various counterparties to sell a portion of the portfolio over the near term with the goals of improving the risk-adjusted returns and maximizing portfolio quality for the joint venture,” Oakes added.