Merritt Square Mall Sale Gives Sellers 100% Return

MERRITT ISLAND, FL-Described by Cushman & Wakefield of Florida Inc. brokers as "the perfect execution of an investment strategy," Coral Gables-based Bayview Financial LP has doubled its investment in 2.5 years with the $64.5-million sale of the 35-year-old, 945,490-sf Merritt Square Mall here to New York retail chain owner Thor Equities. Twelve bidders sought to buy the asset.

Bayview, a full-service real estate investment and mortgage finance company, paid John Hancock Life Insurance Co. $32.75 million, or $65.83 per sf, for the asset in December 2002, as GlobeSt.com previously reported. The mall was 88% leased at that time.

Thor paid $105.73 per sf for the regional center, based on about 610,000 sf, the total actual space purchased, according to Cushman & Wakefield of Florida Inc.'s Miami brokers Adam Feinstein and Mark Gilbert who handled the transaction. The sale did not include the Macy's, Sears or Dillard's buildings--which the retailers individually own--but did include a 4,700-space surface parking facility, says Thor chairman and CEO Joseph J. Sitt.

Thor plans to invest additional funds in upgrading the 81-acre mall "to ensure that it achieves its full potential as a preeminent retail center," Sitt says. Thor will manage and operate the entire mall. The mall draws its clientele from Port Canaveral, Kennedy Space Center and Cocoa Beach, 60 miles southeast of Downtown Orlando. The property was built in 1970 and remodeled in 1988.

The sale also marks one of the largest retail investment deals completed this year in Central and North Florida. Brokers Gilbert and Feinstein, who represented Bayview in the John Hancock and Thor transactions, say Thor Equities may also have an opportunity to increase the value of its investment. Inline mall space is 70% leased to 80 tenants at estimated rents of $16 to $23 per sf, according to area brokers. Gilbert and Feinstein declined to disclose the rent structure.

"Thor's hands-on approach to mall ownership and strong in-house leasing capability is expected to significantly increase Merritt Square Mall's occupancy level," Feinstein tells GlobeSt.com. "As owners of several national retail chains, Thor has a unique perspective on how a mall should be operated and leased because they understand better than most the needs and concerns of your typical retailer."

The broker adds, "Thor's deep relationship with national retail tenants, aggressive approach to leasing and ability to talk a language that retailers understand will produce significant leasing activity at the property."

Feinstein's transactional partner of 15 years, Gilbert says, "In just two years, Bayview has added substantial value to the mall by adding a 16-screen theater and two restaurant outparcels and dramatically reducing non-recoverable utility costs by replacing an antiquated central energy plant with a direct feed from the local utility."

Feinstein, adds, "Investor interest in Merritt Square was exceptionally strong and included many of the mall industries' most active REITs and private investment funds." Feinstein says "the abundance of capital chasing a relatively limited number of quality mall offerings is producing a very competitive atmosphere for properties like Merritt Square Mall."

The broker says "this offering had particularly strong appeal, given the perceived upside remaining with 30% of the inline space vacant and existing inline sales of nearly $350 per sf."

The deal was done at this time because of the "immediate attention Florida gets from national mall investors, because of its strong demographics," Gilbert says. "Brevard County, which is experiencing significant population growth, is viewed as an ideal location for the long term ownership of regional malls."

The Merritt Square Mall sale was another notch on the transactional belt of Gilbert and Feinstein. The Cushman & Wakefield team has completed $650 million of investment sale transactions in the past 12 months, according to the two brokers.