Stock Offering’s Effect Unclear on Burbank Mall

On a monthlong tour of Asia, Europe and the United States, officials of the Alexander Haagen Co. will introduce their new company to potential investors.

In meetings in 35 cities, they will explain that the prominent mall developer is going public, placing about 95% of the company--36 properties, including the Burbank Media City Center--into a real estate investment trust, with shares traded on the New York Stock Exchange.

If cleared by the Securities and Exchange Commission, the sale of stock could provide Haagen with a source of much needed capital to pay construction loans and other debts and to fund future acquisitions.

For the Burbank Media City Center, developed by Haagen in partnership with the city, the transaction could result in the project finally obtaining long-term financing.

But don’t ask the folks in Burbank about the newest change in plans for their beloved mall--they very well may be the last to know.

In this city that has poured millions of redevelopment dollars into the mall, once ballyhooed as the salvation of downtown Burbank, there has been no such discussion, and no presentations or public debate, on what the move will mean for the city.

Depending on which city official is being interviewed, the deal either “won’t mean anything for the city of Burbank,” “will have ramifications” that are still being studied, or will be a definite “win-win” for Haagen and the city.

“There’s a high level of frustration,” said resident Ted McConkey, who has raised the issue at City Council meetings. “People in the city know something is going on. We know it’s not good, but we can only speculate on how bad it is until the City Council comes out in public session and says, ‘This is what Haagen wants.’ ”

And in this city that historically has had high hopes for the mall, some believe that they have a right to more information than the city is releasing.

“We’ve mortgaged the whole city to pay for this,” said Mike Nolan. “I’ve never seen a council so tied up in red tape that they can’t discuss one of the biggest transactions in the history of Burbank.”

For their part, some council members, such as Councilman Dave Golonski, said they could not discuss the deal for fear of revealing the city’s position in its negotiations with Haagen. Others said they don’t want to say anything about the deal until the final SEC decision.

“We’ve been warned by the city attorney not to be involved in discussion that might lead to a charge by the SEC that we’re trying to hype their issuances of stock,” said George Battey, Burbank mayor.

Haagen outlined its plans to form the trust in a 150-page preliminary prospectus filed with the SEC. Company officials declined to discuss the specifics of the proposal until the SEC has released its comments.

In a REIT, investors pool money to purchase property or make loans, typically investing in shopping centers, medical buildings, apartment buildings and mortgages on commercial properties. REITs trade on stock exchanges, are pooled securities, like mutual funds, and pay profits to shareholders.

According to the SEC filing, Haagen officials expect to offer 10 million shares and raise about $338 million upon completion of the offering. Trading could begin by the end of the year, said Fred Bruning, a spokesman for the Haagen company. About $219 million will be used to repay mortgage debt. According to the document, a large portion of that amount--$131 million--will be used to repay debt on the Media City Center.

In this latest move, Haagen joins a growing list of real estate developers who are turning to the public marketplace to obtain much needed capital. The boom in REITs began over the past few years, fueled by the possibility of high yield given the current low interest rates. For developers the entities have become the favored source of recapitalization.

“If you look at the real estate industry, the top 50 real estate developers in the country--roughly 80%--are in the process of going public as we are,” Bruning said.

Experts such as Richard Klein of Kenneth Leventhal and Co. agree that a major advantage of forming a REIT is its ability to allow the owners of projects to substantially decrease debt.

“Most of the capital being raised is used to pay off debt that exposes a developer or owner to risks of being forced into a foreclosure situation,” Klein said.

Part of the reason for the lack of public discussion on the Haagen plan is that city staff determined that the city’s approval is not necessary, even though Haagen officials initially approached the council for its approval.

According to the original agreement between the Burbank Redevelopment Agency and Haagen, sale or transfer of the mall before November, 1994, requires the consent of the city. The city now has a land-lease agreement with Haagen and in exchange for leasing the land to the developer for 99 years the city is entitled to “50% of all annual cash flow from the operation of the center after debt service.”

Bruning said Haagen officials sought the city’s approval of the deal “because we felt it was the right thing,” he said.

But after discussing the plan in executive session, city officials determined that their consent was not necessary.

“Our approval is not required since it’s a refinancing of the project,” said Bob Tague, director of the city’s Redevelopment Agency. “Our position with the mall remains the same, our relations as far as our land-lease are exactly the same.”

Placing the mall in a REIT amounts to a refinancing, not a sale, because all of the previous agreements, including the land-lease agreement and the amendments between Haagen and the city, remain intact, said City Atty. Joseph Fletcher.

But for those not privy to the executive sessions, or the presentations that Haagen officials are making to potential investors on their international roadshow, the city’s silence has left confusion and frustration.