More Developers May Seek Wall Street’s Help : Property: With lending tight, they may try a real estate investment trust, as did A. Alfred Taubman.
After unsuccessfully asking tight-fisted bankers for loans, more real estate developers may sidle up to Wall Street in the wake of real estate magnate A. Alfred Taubman disclosing plans Monday for a public stock offering to raise up to $388 million for his company.
The Bloomfield Hills, Mich., developer, which owns 19 regional shopping malls--including Beverly Center near Beverly Hills--would launch one of the largest real estate investment trusts since the property slump began in 1989.
Last year, there were only eight public and private stock offerings of newly created REITs totaling $808.4 million. Experts say Taubman’s offering would be rivaled only by Roslyn, N.Y.-based Kimco Corp., which raised more than $100 million in a public offering last fall.
“The market is looking at this with a lot of interest; this represents a whole new” avenue of raising capital, said David Shulman, a real estate analyst with Salomon Bros. who said several similar deals are “in the pipeline.”
“REITs have been around for a long time, but this is the first time that shopping centers of this kind of institutional quality have been offered in an REIT,” added Bernard Winograd, executive vice president and chief financial officer of Taubman.
Investors aren’t being sought to bail out the company, said Winograd. “This is like any other investment,” he said. “There is both risk and opportunity.”
Although lending rates have been dropping, real estate developers have been getting a cold shoulder from banks and thrifts as soaring vacancy rates cause more real estate loans to go sour. Meanwhile, investor interest in REITs has been growing as falling interest rates make other investments, such as certificates of deposit, less attractive.
The National Assn. of Real Estate Investment Trusts said 136 REITs that it tracked posted an average return of 35.7% in 1991. Returns include both share prices and dividends.
However, despite the positive investment performance, the industry’s image has suffered in recent years because a handful of well-known REITs have run into financial trouble.
One of the nation’s biggest real estate investment trusts, Sierra Capital Cos. of San Francisco, faces two class-action lawsuits. Angry investors are seeking to oust managers of the concern, whose 134 properties have lost 18% of their value in two years.
But most analysts expect Taubman’s offering to draw a lot of interest on Wall Street because its malls are mostly located in well-to-do neighborhoods that attract blue-chip retailers.
“This is a very large REIT offering, and there is already a lot of institutional interest,” said Richard Klein, a partner in the Los Angeles office of the real estate consulting firm Kenneth Leventhal & Co. “What you are buying here is a blue chip portfolio of income-producing assets.”
The company plans to issue 26.8 million shares of common stock in Taubman Centers Inc., with shares selling for between $12.50 and $14.50.
Proceeds would go toward expanding the business and reducing $600 million in loans to the partnership from General Motors Corp. and AT&T; Master Pension trusts. The so-called equity loans provide for the trusts to gain a share of the properties in addition to interest.
The trust funds would end up owning 52% of the shopping malls, while investors who bought stock in the public offering would get 32%, Taubman officials said.
The 19 Taubman malls are among the nation’s most exclusive retail properties, featuring such stores as Saks Fifth Avenue and Abercrombie & Fitch.
In addition to the Beverly Center, Taubman has malls in wealthy communities such as Fairfax County, Va.; Short Hills, N.J., and Fairfield County, Conn. It also controls Sotheby’s Holdings and the Woodward & Lothrop department store chain.
