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Shopping Centers Today -> November 1999
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Wall Street analysts welcome Prime/Athena Europe venture
By Debra Hazel
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Prime
Retail plans to populate Europe with
its outlet centers in a joint venture with Athena. |
"This to me is a logical strategy when you consider that the outlet business is mature in the United States," said David Fick, a REIT analyst with Legg Mason Wood Walker, Baltimore.
Prime, a real estate investment trust that is the largest owner of outlet centers in the world, will contribute 20% of the capital to the venture, while Athena, a New York-based private equity investment company, will contribute the remainder. The result: Baltimore-based Prime has the opportunity to grow with a comparatively small investment.
"The deal is not meaningful one way or another in terms of Prime's capital structure," Fick said.
In a best-case scenario, he said, a new center would be complete in 24 to 36 months, with a capital outlay for Prime of only around $1 million.
"Athena/Prime would need a 50% partner — in Spain or wherever, you need a local partner, someone to deal with entitlement and other issues. The U.S. developers who tried to do this on their own were unsuccessful," Fick said. "If the project required $10 million in equity, that partner puts in $5 million, Athena/Prime the rest."
Prime's 20% contribution comes to only $1 million, he continued, but the firm would earn development and leasing fees.
Prime owns 50 such projects in 26 states, totaling 14.4 million square feet. The Athena Group has invested more than $400 million in residential and commercial real estate in the United States, Europe and Central Asia. The firm was founded in 1993 by Metin Negrin, COO; Louis M. Dubin, president; and A. Alfred Taubman, board member. Taubman also is the chairman of upscale regional mall developer Taubman Centers, Bloomfield Hills, Mich.
"We made the decision in the last year that we were going to come to Europe. We saw this as a way to grow the Prime Outlets concept and brand," said David Phillips, an executive vice president for Prime, who will be president of Athena/Prime Retail Europe. "But with our cash flow — as a REIT we have to pay out most of our dividends — and with our stock trading below asset value, we found an equity partner."
Their deal should have other benefits, as well.
"We expect that our expansion into Europe will allow us to develop a reciprocal leasing program that will bring many of the United States' most popular outlet brands to European consumers while also bringing famous European brands into our domestic tenant mix," Prime CEO Abraham Rosenthal said in a statement.
The number of outlet centers actually has declined in the United States, from 311 five years ago to 296 today, according to ICSC's Value Retail News. The industry is just beginning to take hold in Europe, with a handful of projects now open in the United Kingdom and on the Continent.
"... Western Europe alone has a population 20% larger than that of the United States, yet contains just 10% of the factory outlet space compared to the existing outlet space in the United States," said Negrin.
Negrin and Phillips of Prime will direct the venture, called Athena/Prime Retail Europe, as CEO and president, respectively. The firm has opened a European office in Nice, France.
Specific projects may be announced by year-end. The firm is looking at opportunities in Germany, Italy, southern France, Spain and Portugal, Phillips said. Secondary markets will be tourist destination areas.
"Stage one was to line up a joint-venture partner and announce our plans in the United States."
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