(Photo by Mike Mozart)
DDR Corp. and a real estate-focused arm of private equity giant The Blackstone Group said Thursday they have teamed up to buy 76 shopping centers from American Realty Capital Properties in a deal valued at $1.975 billion. The properties being sold are anchored by retailers like Trader Joe’s, Costco and Target.
Under the transaction’s terms, the buyers will assume $461 million in debt and arrange $800 million in new financing. An affiliate of New York-based Blackstone Real Estate Partners VII will own 95 percent of the common equity in the joint venture, and Beachwood, Ohio-based DDR will control the balance.
DDR will also invest up to $300 million in preferred stock in the joint venture with a dividend rate of 8.5 percent, and provide leasing and managing services for the properties. In return, it gets right of first offer to acquire 10 of the properties being acquired. The acquisition is expected to close in the third quarter of 2014, subject to the usual approvals, according to a DDR press release announcing the deal.
The portfolio changing hands comprises 16.4 million square foot of retail space spread across middle-market shopping centers in Atlanta, Chicago, Denver, Houston, Los Angeles, Phoenix and Washington, D.C. The properties—whose tenants also include Whole Foods, Kohl’s and PetSmart locations—are 95 percent leased.
In a statement included in the DDR press release, company CEO Daniel B. Hurwitz said, “We expect to generate outsized asset-level growth by leveraging our operating platform.” DDR owns 396 “value-oriented” shopping centers in the U.S. and Puerto Rico, the company says.
American Realty Capital Properties president David Kay said the company plans to use proceeds from the sale to pay for its acquisition of 500 Red Lobster restaurants in a deal announced last month. It intends to lease those properties back to private equity firm Golden Gate Capital, which agreed last month to purchase the seafood chain from Darden Restaurants for $2.1 billion. ARCP says it wants to concentrate on buying and holding single-tenant commercial properties instead of multitenant ones.
Jones Day is representing DDR Corp. on the shopping center deal with a Cleveland-based team led by real estate partner Michael Haas. The other lawyers from the firm working on the matter are real estate partner Steve Mixter, capital markets partner Kimberly Pustulka and tax partner Ron Weitz, who works out of Jones Day’s Chicago office.
David Weiss is DDR Corp.’s executive vice president and general counsel.
For its part, the Blackstone entity on the acquiring side of the transaction turned to its longtime outside counsel at Simpson Thacher & Bartlett. The Simpson team working on the matter is being led by real estate partners Greg Ressa and Erik Quarfordt. Executive compensation and benefits partner Greg Grogan and tax partner Nancy Mehlman are also advising. Rounding out the firm’s team are associates Kevin Boroumand, Beatrice Branch, Allan Chorny, Charles Clinton, Danielle Jackson, Alexander Labowitz, Jason Mohr, David Mollo-Christensen, Sophie Staples and Justin Vilinsky.
The Blackstone Group’s managing director, general counsel and chief administrative officer of the real estate group is Judy Turchin, according to its website.
Simpson also represented Blackstone in its sale last month of 46 shopping centers to DDR from an existing joint venture between the two for $1.46 billion. They had purchased the properties together in 2012. Other major real estate deals in which Simpson recently represented Blackstone Group include Real Estate Partner VII’s buy of the Cosmopolitan of Las Vegas for $1.73 billion in May and its $2.8 billion sale of an interest in the Broadgate Estate in London to GIC in January.
American Realty Capital Properties, meanwhile, is relying on a Proskauer Rose team led by partner Steven Lichtenfeld, who serves as cochair of the firm’s real estate capital markets practice, and partner Perry Cacace, who cochairs the real estate department. Real estate partner Wendy Schriber is also advising. The Proskauer associates working on the matter are Michael Ellis, Andrea Miller and Jennifer Wong. Proskauer Rose counseled American Realty Capital Properties last year on its $11.2 billion cash-and-stock buy of Cole Real Estate Investments—a deal that made it the largest REIT in the U.S. in the net-lease sector.
Richard Silfen is American Realty Capital Properties’ general counsel.