NEW YORK CITY—Having already agreed to take American Realty Capital Properties‘ shopping center portfolio off its hands for $1.98 billion, the Blackstone Group is now bringing in a partner. The New York City-based private equity giant and Beachwood, OH-based DDR said Thursday they had forged a joint venture to acquire the 76-asset portfolio, with Blackstone owning 95% of the JV’s common equity and DDR the remaining 5%.
Accordingly, ARCP, also headquartered in New York, said Thursday that it had executed on a purchase and sale agreement to the JV, with the all-cash deal expected to close late in the third quarter. The REIT’s president, David S. Kay, says the sale will allow the company “to accretively recycle the capital from our multi-tenant business into Red Lobster and our single-tenant, self-originated acquisition strategy.”
ARCP, which inherited the multi-tenant portfolio as part of its merger with Cole Real estate Investments, had considered other options including spinning off the properties into a separate REIT. A few days before announcing the portfolio sale to Blackstone, ARCP acquired more than 500 Red Lobster locations in a $1.5-billion sale-leaseback deal.
DDR has partnered with Blackstone on two previous ventures, and will also invest up to $300 million in preferred equity in this JV, along with managing and lease the portfolio. In addition, DDR will have the right of first offer to acquire ten of the assets under specified conditions consistent with past transactions. Following the close of the deal, the JV plans to sell of non-prime asset sales within the portfolio.
Currently spanning 16.4 million square feet, the portfolio primarily consists of prime power centers in major markets including Los Angeles, Houston, Denver, Chicago, Atlanta, Phoenix and Washington, DC. Its tenant roster includes Whole Foods, Trader Joe’s, Costco, Target, Walmart, Kohl’s, PetSmart, Dick’s Sporting Goods and the TJX Cos.
It’s 95.1% leased, while the average base rent per square foot is 6% below DDR’s current prime portfolio, thus providing an opportunity for growth. Additionally, the ARCP portfolio contains eight vacant junior anchor boxes, over 100 available small shop units, more than 20 outparcel expansion opportunities and over 30 potential candidates for “Project Accelerate,” DDR’s recently announced initiative to recapture below-market spaces from underperforming retailers.