"This is the second acquisition we've completed this year that has been sourced as an off-market deal in a difficult acquisitions environment," according to Donald C. Wood, president/CEO of the Rockville, MD-based REIT, which has a 16.2 million-sf portfolio of shopping centers and street retail. "We were able to identify a property and structure an acquisition that met the previous owner's objectives, while providing FFO accretion and enhancing our long-term property operating income growth."

The master lease with the private owner, who was not identified, covers some 390,000 sf of the mall. Under the lease, Federal also has the option to acquire the fee interest in 20 years at a fixed price of $55 million, according to Jeff Berkes, the company's SVP and CIO. Federal also acquired the fee interest in another 20,000 sf of the property, using $5 million in proceeds from recent property dispositions to fund it.

Finally, Federal has the remaining portion of Mercer Mall, a contiguous 40,000-sf outparcel, under contract for purchase, according to Berkes. That deal is expected to close by the end of the year.

Built in 1975, Mercer Mall is currently anchored by such national retailers as DSW, TJ Maxx, Ross Dress For Less, Bed Bath & Beyond, Kids R Us and Drug Emporium. Until very recently, the most significant vacancy was an 85,000-sf space once occupied by Kmart, but Foodarama has already grabbed 75,000 sf for one of its ShopRite supermarkets.

"We plan to add GLA to the property and lease that additional area along with the remaining Kmart space to another national big box retailer," according to Berkes.

Federal also has a general upgrade of the property in the works, according to Berkes, and expects to recapture and re-lease the below-market 23,600-sf space currently leased to Drug Emporium. The latter, of course, recently filed for bankruptcy protection.

"Through this acquisition, we control a dominant asset with significant upside potential in an area that has high barriers to entry," Berkes explains. "We expect to continue to add value in the coming years by redeveloping, expanding and improving the property's position in the market."