Having syndicated approximately $4.2 billion of its GGP investment to various joint venture partners, Brookfield Property Partners (BPY) plans to sell another $2.5 billion in the next one to two years, chief executive Brian Kingston said during the Bermuda-based global real estate firm’s third quarter earnings call.
BPY, the real estate platform of Brookfield Asset Management, plans to raise the $2.5 billion over the next 18-24 months through partial and complete asset sales. Since the close of the GGP privatization in August, the company has sold $2.7 billion of equity in 35 GGP assets to joint venture partners and a 10 percent interest in the company to an investor for $1.5 billion, according to chief financial officer Bryan Davis. These syndications will help BPY reduce the acquisition facility used to buy the $15 billion mall owner.
When Brookfield proposed the merger in November, it was understood that the firm would likely come from the BPY balance sheet first and then be syndicated to institutional investors, PERE reported previously. In 2013, when Brookfield invested $2.5 billion for a 30 percent stake in GGP, the money came through its Real Estate Turnaround Consortium, which included major global investors including China’s sovereign wealth fund and Australia’s Future Fund.
Brookfield intends to spend up to $1 billion a year redeveloping malls in the portfolio by 2020, GGP chief executive Sandeep Mathrani said on the earnings call. This is twice the amount that the mall REIT previously had invested – about $500 million a year – in capital repositioning prior to its acquisition by BPY. Eventually, Kingston hopes to bring the number of malls in the GGP portfolio from 125 down to 100, focusing on the assets that have the best long-term outlook and redeveloping all or most of them into mixed-use properties.
“We do think within that 100 or so core portfolio of assets on a longer-term base, introducing other uses and effectively turning them into mini-cities is really how to future-proof all of these assets,” Kingston said.
Those 100 assets would account for around 90 percent of the GGP portfolio value, according to Kingston. The remaining 25 assets will be repositioned to be more marketable or will undergo some redevelopment before being put up for sale, he added.
Some of the GGP assets are already undergoing the change into mixed-use. The GGP-Brookfield team is drafting residential unit designs for two projects in the Atlanta market, and they are planning to build approximately 1,000 residential rental units in Ala Moana, according to Mathrani. The Stonestown Galleria shopping mall in San Francisco, which has 209 completed condos, expects an additional 300 more for-sale units, he said. He estimated a total of nine to 10 mixed-use projects have begun since the merger closed in late August.
Mathrani said the benefits of converting malls into mixed-use developments are twofold. First, “We’re seeing that the tenant demand from the retailers has increased, which is they actually view the residential component or the hotel component to be incremental shoppers to the shopping center,” he said.
Mathrani observed an uptick in retail sales when residential real estate is added to an existing mall property. For example, at GGP’s Ala Moana Center in Hawaii, the addition of a residential component added 200 “very high-net-worth individuals” to the potential shoppers at the mall. “And as you know in luxury, it doesn’t take that many people to move the needle, and they are moving the needle dramatically,” he said.
Meanwhile, existing infrastructure of retail in the base of a building increases the sales or rental value of the residential projects, according to Mathrani. He observed a rise in residential rents and condominium prices because of the existence of highly successful retail.
“We’re working it both ways,” Mathrani said. “Now we’re seeing an uplift on retail based upon the fact that they’re becoming mixed-use developments.”
BPY’s total real estate assets increased to $86.29 billion at the end of 3Q 2018, up from the $67.98 billion reported in the period last year.