Mall shopping

尽管它是全国领先的商店之一pping mall owners, Macerich Co. has had no presence in the high-octane retailing zones of the East Coast, save for a center in the New York City borough of Queens. That is due to change dramatically this month when Macerich, a Santa Monica, Californiabased real estate investment trust, closes a $2.3 billion deal to acquire Wilmorite Properties, a private REIT based in Rochester, New York. The deal boosts Macerich's portfolio from 62 million to 75.4 million square feet and involves 13 major properties.

Among them: the high-profile Tysons Corner Center in McLean, Virginia, one of the highest-grossing malls in the country, and Connecticut's Danbury Fair Mall. Macerich is paying $174 per square foot, including transaction costs, far more than the $119 per square foot that the average mall sold for last year, according to Real Capital Analytics, a research firm in New York.

The California company is hardly alone among its retail REIT peers in paying up to grow by large-scale acquisitions. Chicago-based General Growth Properties last year paid $12.6 billion to acquire Rouse Co., a Columbia, Marylandbased REIT that owns such assets as the Fashion Show Mall in Las Vegas and Faneuil Hall Marketplace in Boston. That deal, which closed in November, was the biggest merger in the history of REITs. A month earlier Indianapolis REIT Simon Property Group closed on its $4.8 billion acquisition of Chelsea Property Group, a Roseland, New Jerseybased REIT focused on high-end outlet centers.

Several forces are driving the mall-shopping spree. First, a lot of capital is looking for real estate of any variety. REITs raised $38.8 billion in 2004, up from $24.2 billion in 2003. Retail REITS -- primarily shopping malls and shopping centers -- raised $7.9 billion in 2004, up from $4.7 billion the previous year. Retail REITs are attractive as potential acquisitions because they've outperformed all other types of real estate trusts. And retail REITs are attractive as potential acquirers because they have cash to spare.

Several other factors are sparking these deals. The more retail properties a REIT owns, the more leverage it has with tenants. Also, investors worry that although many large retail REITs plan to build additional shopping malls, the prime sites have largely been taken. And consumer spending has surprised even economists by thriving during the recession, making retail properties among the best-performing -- and therefore the highest-priced -- assets in this capital-rich real estate investment market.

To be sure, the retailing industry is struggling in the face of intensified competition from online shopping malls, and U.S. households are saddled with credit card debt. Still, would-be acquirers aren't finding many bargains. Real Capital found that buyers of retail portfolios in 2004 gained only a 6-basis-point discount on capitalization rates (a property's income divided by its purchase price), compared with a 31-basis-point discount in 2002.

"At various points in the cycle, there's been an argument as to whether there should be a discount or a premium for a portfolio," says Dale Anne Reiss, the global director of Ernst & Young's real estate, hospitality and construction practice. "Today it's such a challenge to put money to work that investors are prepared to pay a premium to get a large volume of property at one time."

Peter Linneman, a principal of Philadelphia-based real estate advisory firm Linneman Associates, reflects on the implications: "There are people running public companies, including some founders, who will say to themselves, 'We have really good pricing by historic standards. Maybe I should get out now.'" The question is: Should investors get in?