Warner Plaza Trades in UPREIT

LOS ANGELES—Private investor Plaza international has sold Warner Plaza, a 115,000-square-foot retail center in Woodland Hills, CA, to Retail Opportunity Investment Corp. The property traded hands for $76.3 million in an UPREIT transaction, meaning that ROIC paid for the property in stock so that the seller could avoid capital gains tax.

"In the middle of 2015, the owner came to me and said that he was ready to sell, but only if he could sell to a REIT," Kyle Miller, senior managing director at Savills Studley, tells GlobeSt.com. "I found that interesting, and he said that he wanted to do an UPREIT, which is a mechanism that allows him to defer capital gains tax by taking shares of the publicly traded company for the shopping center." Miller represented the seller and buyer in the transaction, along with EVP Bill Bauman.

Because the seller wanted an UPREIT, the sales team shopped the property to specific buyers rather in lieu of bringing it to market. ROIC showed immediate interest. "I honed in on ROIC because they have a track record and because we completed a three-property sale to them earlier in 2015 and they executed exactly on what they said they would do," explains Miller. "Anytime that happens, you always want to go back to that buyer and reward them by showing them off-market deals."

Because of the unique nature of the deal, Miller brought the buyer and seller together to hash out the terms and decide on pricing. "The ownership didn't give us a number. Over time, I introduced the buyer and the seller, and it took 45 days before they came to an agreement on the price," he adds. "They worked out the details as it related to the UPREIT transaction. It was important to both of them that they wanted to close toward the end of the year."

Last year, 1031 exchanges were incredibly popular, especially for investors moving capital out of multifamily into other asset classes. Miller said that in the retail sector, where cap rates haven't compressed as much as other asset classes, he is hearing more and more investors consider UPREITs as a way to avoid capital gains taxes—and he expects even more transactions like these to pop up in the year ahead.

Located at 21841 Ventura Boulevard in Woodland Hills, the property houses a Sprouts Farmers Market, Coffee Bean & Tea Leaf, Dickies BBQ and Jerry's Famous Deli. Plaza International purchased the land for the property in 1972 and developed the center in 1974, and has been the sole owner and operator of the property. "This is such an interesting property and the real estate really speaks for itself. It is such a dominant intersection at Ventura Blvd. and Topanga, and not a lot of assets of this size change hands," says Miller. "The buyer really saw a unique opportunity to acquire an asset that has been owned by the same individual for 41 years, and come in an invest some capital to take the property to the next level."