Inland Sees Mervyns Upside

Michelle Napoli is the editor of Net Lease forum. It’s new issue comes out tomorrow.

OAK BROOK, IL—A portfolio of 25 operating Mervyns department stores was purchased by Oak Brook, IL-based Inland Western Retail Real Estate Trust Inc. for $221.8 million. Similar to another Mervyns portfolio deal closed in September by Developers Diversified Realty Corp. and Macquarie DDR Trust, the Inland acquisition functions somewhat like a sale-leaseback though technically is not, since the Mervyns real estate and operating companies are separate entities.

Properties being purchased by Inland Western total almost 1.8 million sf; 23 are in California and two are in Texas, and the purchase price represents a 7.72% cap rate. The properties are now subject to bond type triple-net leases and the average annual rent is $9.03 a sf, with 1.2% annual rent increases over their 20-year terms; the leases are cross-defaulted and backed by security deposits totaling $50 million. The agreement between buyer and seller also “allows for the sale and development of certain outlots on these 25 properties,” according to an Inland announcement. “Inland Western would share in the profits from those outlot deals.”