Cleveland Firm to Become Partner : May Department Stores to Sell Part of Park La Brea in $201-Million Deal
May Department Stores said Friday that it has signed a letter of intent to sell roughly one-third of its giant Park La Brea residential and retail complex in Los Angeles to Forest City Enterprises, a Cleveland-based developer, for $201 million in cash and notes.
The Park La Brea complex, in the Fairfax area on 3rd Street between La Brea Boulevard and Fairfax Avenue, includes a May Co. store on Wilshire Boulevard, of which May will retain ownership; a 90,000-square-foot shopping center, and 4,198 apartments.
Under the terms of the deal, May would sell outright 56 acres with 2,802 apartments. It also would lease for 12 years most of the remaining 117 acres to a 50-50 partnership of May and Forest City. The Cleveland company, a leading developer of senior citizen apartment buildings, would be the general partner and assume management of the entire property.
In a statement, May Chairman and Chief Executive David C. Farrell said the St. Louis-based retailing company had been “actively seeking an investor and partner for Park La Brea for several years.”
17,000 Apartments Nationwide
Forest City began operations in Los Angeles in early 1973. The company’s California division has developed more than 9,000 residential units, including Angeles Plaza and the Skyline in downtown Los Angeles. It also developed and owns the Galleria at South Bay in Redondo Beach and has under way in Victorville the Bear Valley regional mall. Nationwide, it owns or operates more than 7,000 conventional apartments and 10,000 apartments for the elderly.
Asked about Forest City’s plans for Park La Brea, spokesman Steve Albert in Los Angeles said: “We really have no immediate plans to do anything different than what’s there. We purchased it as an investment and expect to continue to operate it with no particular plan to change that.”
The vast majority of the complex’s 7,000 or so residents are over age 60, May spokesman Jim Abrams said.
Albert added that Forest City intends to retain as manager Frank Heavey, who assumed the post last November.
Farrell said in his statement that the Park La Brea transaction would be consistent with the company’s “strategy of focusing its real estate investments on its own retail-related properties.”
In addition to Park La Brea, May owns five shopping centers and has interests in 22 others, all of which contain a May Co. store. Abrams said the company has no plans to sell any other shopping center interests.
Plans to Sell Notes
Terms call for May to receive initially $15 million in cash, or $12.3 million after taxes, and $186 million in 12-year notes. May said it plans to sell the notes this year and expects to realize about $153 million after taxes.
In addition, May estimates that it will realize $160 million at present value from the 12-year leases and from an 82.5% share of future increases in rental and other revenue and a 50% share in any appreciation of the property. Participation in the cash flow and appreciation was negotiated “in exchange for May’s forgoing cash up front,” said Mark Hood, of the retailer’s accounting group.
As a limited partner in the venture, May will have limited legal liability, but Hood said details of the partnership have not been fully negotiated.
Under the agreement, May would retain responsibility for about $43 million in mortgage obligations on the property and $100 million in preferred shares issued to Metropolitan Life Insurance. Those were issued in connection with May’s purchase of Metropolitan’s 50% share in the complex in February, 1985.
May’s decision to buy that stake and become sole owner of Park La Brea prompted speculation that the move was made to thwart a possible takeover attempt by companies controlled by the Haft family of Washington. The Hafts are now making a play for Safeway, and May is embroiled in an effort to buy Associated Dry Goods, the New York-based parent of J. W. Robinson and Lord & Taylor. Analysts viewed Friday’s action as a way for May to raise cash for that takeover bid.
“It’s not out of the realm of possibility that it’s just chance timing, but it does put them in a better position,” said Sarah A. Stack, an analyst with Bateman Eichler, Hill Richards in Los Angeles. She said the deal is “especially attractive” for May because it will limit the company’s liability.
However, May spokesman Jim Abrams noted that the retailer already has a $1.5-billion line of credit at Citicorp that can be tapped for the merger.
