Shopping Centers Today -> October 2007
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CARREFOUR CASHES IN REAL ESTATE EQUITY

Carrefour is finally bowing to investor pressures to monetize its massive real estate portfolio, planning to split off 60 percent of its property assets into a separately listed company next year. The French supermarket group says it plans to make available about €3 billion ($4.1 billion) of the capital in the new company to outside investors. A first phase, valued at €800 million, will be put to a shareholder vote next year. The announcement marks an about-face for chief executive Jose Luis Duran, who in recent months has said grocery retailers cannot keep prices low if they are subject to landlord rent hikes. Duran said Carrefour will retain an 80 percent interest in the property unit in order to “retain control of our operational costs.” Carrefour’s competitors have already begun monetizing their real estate assets. Tesco sold a 50 percent stake in 21 stores to U.K. REIT British Land in March.



BUYERS SIT ON SIDELINES

How long will U.S. retail investment sales be affected by the current credit crunch? “Investors are waiting for the volatility to die down,” says Dan Fasulo, a partner with New York-based Real Capital Analytics (RCA), “but no one’s quite sure how long that’s going to take.”

By mid-summer, investors were getting nervous, including retail property buyers. According to RCA, sales of significant retail properties (those costing more than $5 million) totaled $3.4 billion in July, the lowest monthly total thus far in 2007, and about 14 percent less than the retail property sales in July 2006. “In theory, commercial property transactions should be disconnected from the meltdowns in subprime mortgages and short-term commercial paper, but the current situation only goes to show how interconnected real estate finance is today,” says Michael J. Christie, president of Investment Real Estate Services Inc. “So there are a lot of investors sitting on the sidelines.”

RCA also notes that despite a recent spike in real estate investment deals called off, the volume of transactions reported in contract - involving all major property types - grew to $73 billion by the end of July, up $3 billion since the end of June. Many deals are being delayed, not cancelled. “There’s still a lot of capital that needs yields, and the fundamentals are still strong,” notes Christie. “Things will calm down in a few months.”

— Dees Stribling



NEW YORK IS A BUSY REIT MARKET

Retail REITs purchased more than 1.5 million square feet of shopping center space in the New York City metro area between January and late August, making the market, which includes Long Island and northern New Jersey, the most active in the U.S. for public REIT acquisitions so far this year, according to SNL Financial. Three local REITs — Entertainment Properties, Urstadt-Biddle Properties and Vornado Realty — have driven most of the activity. Entertainment Properties alone spent about $150 million, including assumed debt, to buy a controlling stake in the 390,000-square-foot City Center at White Plains (N.Y.). The No. 2 U.S. market for REIT acquisitions, according to SNL, is Atlanta, where REITs bought 822,730 square feet of shopping centers between January and late August.



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