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PHOENIX-With two regional malls in its portfolio and one under contract, Feldman Equities Inc. has gone public as Feldman Mall Properties Inc. The launch has earned $138.7 million from the sale of 10.7 million shares to investors.

Shares sold for $13 each instead of the projected $14 to $16 valuation. “When you see a company that goes public with only two assets and prices in the low end of the range…the fact that it can tap the capital markets may be an indication that the REIT market is overheated,” Keven Lindemann, director of real estate for SNL Financial Inc. of Charlottesville, VA, tells GlobeSt.com.

Feldman Mall Properties declined comment about the IPO launch. The locally based investment group acquires, renovates and repositions enclosed retail shopping malls. The REIT’s investment strategy is to opportunistically acquire underperforming malls and transform them into physically attractive and profitable class A, or near class A, properties through renovation and re-tenanting efforts to increase foot traffic and sales.

According to SEC documents, Feldman’s team says the IPO will provide the financial capacity to buy roughly another $250 million of mall properties. About $84.2 million of the IPO proceeds will be used to acquire the 1.2-million-sf Colonie Center, an 85.7%-leased regional mall in Albany, NY. Feldman intends to spend $9 million to reposition the 38-year-old asset, documents show.

“Upon completion of this offering, we believe that we will be the only publicly traded REIT exclusively focused on the acquisition, renovation and repositioning of underperforming or distressed malls,” the REIT wrote in the filing. “Most of the existing mall REITs are primarily focused on acquiring and owning stabilized malls with predictable in-place cash flow and are generally disinclined to purchase or own underperforming assets.”

Currently, the Feldman REIT owns the 892,802-sf Foothills Mall in Tucson and a 25% interest in the 725,011-sf Harrisburg Mall in Harrisburg, PA. The remaining interest in the joint venture is held by affiliates of the Lubert Adler Funds. The Tucson mall is 91% leased and the Harrisburg asset is 91.7% occupied.

Industry experts expressed concern Feldman Mall Properties does not have a robust enough portfolio to provide economies of scale and create leverage with retailers like other mall REITs. Moreover, several experts expressed doubt regarding the REIT’s management experience. “They don’t have much of a track record, and there’s a lot of concern that the properties they own have not shown any improvement,” says an industry player who wished to remain anonymous.

Feldman’s Tucson mall has Bass Pro Shops, Boscov’s and Hecht’s while Harrisburg has Wal-Mart, Barnes & Noble and Linens ‘n Things. Colonie, though not yet part of the portfolio, features Macy’s, Sears and Boscov’s.

Feldman Mall Properties is headed by chairman and CEO Larry Feldman, who started Feldman Equities along with his father, Edward Feldman, in 1985. Larry Feldman formerly served as chairman and CEO of Tower Realty, which owned interests in 21 office buildings totaling 3.4 million sf in Manhattan, Phoenix, Tucson and Orlando. In May 1999, Tower Realty was sold for $700 million to Melville, NY-based Reckson Associates Realty Corp.

The IPO was underwritten by Arlington, VA-based Friedman, Billings, Ramsey & Co. as sole book-running manager. Toronto-based RBC Capital Markets Corp. and Richmond, VA-based BB&T Capital Markets, a division of Scott & Stringfellow Inc., served as co-managers. Feldman Mall Properties granted an option to the underwriters to purchase up to 1.6 million additional shares.

Feldman Mall Properties is the second retail-related REIT to go public this year. Indianapolis-based Kite Realty Group Trust went public at $13 per share for a total IPO of $212 million in August. Kite’s portfolio has interests in five million sf in 34 operating properties and 1.4 million sf under development in 10 projects.

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