May 4, 2007
The Answer Has Far-Reaching Implications
Analysis of:
Pyramid Stirs Up the Question: What's a Mall Worth? | online.wsj.com
This analysis is solely the work of the author. It has not been edited or endorsed by GLG.
Implications: This article details some of the important issues surrounding the upcoming sale of one of the last, large, high quality portfolios of regional malls remaining in private hands.
However, it completely misses a very key determinant of value and consequently distorts the underlying logic of why this portfolio is being watched so closely by the mall industry.
It correctly summarizes most of the main reasons underlying the sale and the circumstances leading up to the Congel family's decision to sell at this particular time. In my opinion though, it gets the real reason for the broad interest expressed in this auction all wrong.
The article correctly points out that most of the malls in this portfolio are located in secondary markets with limited growth prospects in the New England and Upstate New York areas. The reporter then incorrectly categorizes them as "Class B" malls.
This is wrong! These are almost all "Class A" malls whose desirability is enhanced by having little likelihood of facing serious competition anytime in the foreseeable future!
Analysis: Because the industry experts all recognize the unique desirability of this portfolio, I expect the bidding to be fierce and likely to set new record per square foot prices.
If I am correct it will immediately cause many industry analyst to readjust upwards the values of all 5 of the major mall REITs! As Mr. Twain observed long ago,"G-d in not making any more land". This is particularly true when applied to most of the top 400 American regional malls.
One of the most important but less well understood determinants of the value of these top 400 is that for the most part, they are located in the heart of their trade areas in such a way as to be virtually immune from serious new competition. In the case of the Congel package, the fact that there is little growth in these smaller markets actually works to their advantage because there is even less likelihood that they will ever be challenged by competition.
Their virtual monopolistic position in each of their trade areas is well understood by the industry. There is a real premium to be had for this coveted monopolistic position and I look forward to a lively auction and record setting price level for similarly situated malls in the portfolios of the major mall REITs.
However, it completely misses a very key determinant of value and consequently distorts the underlying logic of why this portfolio is being watched so closely by the mall industry.
It correctly summarizes most of the main reasons underlying the sale and the circumstances leading up to the Congel family's decision to sell at this particular time. In my opinion though, it gets the real reason for the broad interest expressed in this auction all wrong.
The article correctly points out that most of the malls in this portfolio are located in secondary markets with limited growth prospects in the New England and Upstate New York areas. The reporter then incorrectly categorizes them as "Class B" malls.
This is wrong! These are almost all "Class A" malls whose desirability is enhanced by having little likelihood of facing serious competition anytime in the foreseeable future!
Analysis: Because the industry experts all recognize the unique desirability of this portfolio, I expect the bidding to be fierce and likely to set new record per square foot prices.
If I am correct it will immediately cause many industry analyst to readjust upwards the values of all 5 of the major mall REITs! As Mr. Twain observed long ago,"G-d in not making any more land". This is particularly true when applied to most of the top 400 American regional malls.
One of the most important but less well understood determinants of the value of these top 400 is that for the most part, they are located in the heart of their trade areas in such a way as to be virtually immune from serious new competition. In the case of the Congel package, the fact that there is little growth in these smaller markets actually works to their advantage because there is even less likelihood that they will ever be challenged by competition.
Their virtual monopolistic position in each of their trade areas is well understood by the industry. There is a real premium to be had for this coveted monopolistic position and I look forward to a lively auction and record setting price level for similarly situated malls in the portfolios of the major mall REITs.
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