Budapest's Arena Plaza Trading for $525M Plus

"This transaction consummated another Mega-Project sale in the field of shopping and entertainment centers," says Shimon Yitzhaki, president of Elbit Medical Imaging, Plaza Center's parent company. EMI's subsidiary has two other Mega-Projects in the regional pipeline, one in Budapest and the other in Bucharest. Arena Plaza is the 17th retail property developed by Plaza Centers in Hungary, while the firm is also active in other Central and Eastern European countries such as Poland and Romania.

Arena Plaza is notable for two other reasons, says Yitzhaki, one being the fast-track nature of the project that will see a record 18-month period to move from acquisition of the site to the opening. Also, Plaza Centers is expected to reap a far higher return than the norm, he says. The cost of development was about $460 million, while Plaza estimates the final price will be no less than $525 million and upwards of $550 million. The difference is dependent upon meeting certain leasing targets and rent levels achieved during the first month. Occupancy for the retail space is presently about 85%.

As part of the agreement, Plaza officials will be responsible for filling the un-let space for the first year. Profit from the sale will be recognized mostly this year with adjustments in 2008 in accordance with Plaza's dividend policy announced upon its listing on the London Stock Exchange last November. Arena Plaza is expected to sell with a capitalization rate of about 6%. The total profit estimated from its Hungarian retail development is estimated at between $2.1 billion and $2.3 billion.

For the buyers, Arena Plaza will provide entry into Hungary's thriving retail sector, with tens of millions of square feet constructed this decade, including 1.6 million sf being delivered in Budapest this year. Located on a two-million-sf site next to the city's prime rail station, Arena Plaza will have 220 stores, a conference center and 23-screen cinema featuring Hungary's first IMAX theater. Anchor tenants are Tesco, the Inditex Group and Peek & Cloppenburg, while other internationally known names include H&M, Electro World and Hervis.

Active Asset Investment Management is participating in the $4-billion European Symmetry Fund in partnership with Bank of Scotland. Arena Plaza is the European Symmetry Fund's first investment in Hungary.