OCTOBER 11, 2012

CalPERS agrees to buy out partner in Chicago-area mall

by Andrea Waitrovich

The $245.3 billion California Public Employees Retirement System (CalPERS) has agreed to take full ownership of the Chicago area’s largest shopping center, Woodfield Mall in Schaumburg, Ill., in a deal valuing the shopping center at more than $1 billion. The deal is expected to close in first quarter 2013. The 2.2 million-square-foot shopping center was the largest mall in the United States when it opened in 1971. It is more than 97 percent leased.

CalPERS has agreed to pay more than $500 million for a 50 percent stake in the mall owned by the pension fund of Detroit-based General Motors Co., according to media reports. CalPERS already owns the other 50 percent.

Including all types of real estate in the Chicago area, only one property has topped $1 billion in value. The Gurnee Mills shopping mall in Gurnee, Ill., was valued at nearly $1.1 billion in March 2012 when Indianapolis-based Simon Property Group (NYSE: SPG) bought a stake in 26 U.S. shopping centers owned by partner Farallon Capital Management, according to Real Capital Analytics . Woodfield Mall is expected to have approximately the same sales price.

CalPERS is working with its partner Miller Capital Advisory, which specializes in fashion-oriented retail and mixed-use properties, on the acquisition. The pension fund and Miller Capital are in a co-investment venture called Institutional Mall Investors (IMI). Miller Capital serves as investment manager for IMI. In August 2012, CalPERS awarded $475 million to the venture, which was part of CalPERS’ new real estate investment plan for the 2012–2013 fiscal year.

In July 2012, IMI purchased the retail component of Bridge Street Town Center, a 603,000-square-foot retail complex in the 4,000-acre Cummings Research Park in Huntsville, Ala. The seller was O&S Holdings, a California-based firm specializing in development and management of mixed-used projects, and the sales price was $207 million. O&S Holdings manages and leases the retail center on behalf of IMI.

In another deal in April, IMI, with its joint venture partner Trademark Property, purchased two retail centers in Corpus Christi, Texas. The 15.53-acre Staples Center, built in the 1980s, and the 3.81-acre Mt. Vernon Center, built in the 1940s, will undergo rebranding along with a major redesign and renovation, scheduled to begin late 2012 with completion slated for 2013. The redeveloped center, to be named The Shops at La Palmera, will total approximately 200,000 square feet.

IMI currently owns interests in 22 different projects encompassing more than 18 million square feet as of April 2012.

CalPERS’ real estate portfolio is valued at $21.1 billion, or 9 percent of its total assets, as of Aug. 31, 2012. The real estate portfolio aims to invest 45 percent of its capital in the retail sector. Investments in income-generating properties such as office, industrial and retail assets returned approximately 15.9 percent, outperforming the pension fund’s real estate benchmark by more than 3 percent, as of July 2012.

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