Pittsburgh Business Times
National REITs find lots to like — and buy — in Pittsburgh area
CBL & Associates, Inland see retail opportunities
Tim Schooley
August 16, 2004

Looming amid the Pittsburgh real estate market are a couple of retail investment giants roaming the region's hills and valleys, spitting money as if it were fire and looking for big deals to feed their endless hunger for space.

Last month, Chattanooga, Tenn.-based CBL & Associates Properties Inc. finished a deal for $231.2 million to buy Monroeville Mall, which had been owned for years by Florida-based Turnberry Associates, the CEO of which helped to found Oxford Development, a major local development firm.

The deal matched one of the five-largest Real Estate Investment Trusts in the country with the second-largest retail development in the region. With a new open-air addition on the way, Monroeville Mall boasts of 1.3 million square feet of space.

And just last year, Oak Park, Ill.-based Inland Group of Real Estate Cos. -- a collection of REITs -- bought a major portion of the region's largest major shopping center, the sprawling 1.5 million square feet of the Waterfront complex in Homestead. Inland paid $123.8 million.

Expect such companies to buy more here.

In fact, Inland also closed on its third acquisition in the Pittsburgh region in July, buying a collection of retailers in Cranberry totaling more than 300,000 square feet.

All told, Joe Consenza, vice chairman and director of the Inland Group Inc., quickly totaled up the amount of shopping centers Inland has acquired since it closed on its purchase of the Waterfront last November.

The results: 116 retail properties bought in a period of little over nine months. Total amount Inland spent: $2.4 billion -- all of it in cash at the closing -- which the company prides itself in completing within 30 days.

"The REITs all have the problem of having more money than property," said Jim Aiello, a local developer. "Inland's inflow of money is probably staggering because of their outstanding performance. They have to buy properties."

REITs are commonly described as the real estate equivalent of a mutual fund. Instead of stocks, investors buy into a portfolio of properties, diversifying their investment and reducing their risk.

While stocks of REITs can be bought and sold as publicly traded companies, the fastest-growing REITs today are private.

With substantial investment requirements, private REITs offer safe yet substantial dividends of 7 percent to 8 percent annually. Given their current popularity, and since such shares are sold through a private placement, which is then closed, new REITs are starting all the time.

They're growing quickly. And retail REITs are growing even faster than REITs that focus on office, hotel or residential development.

After $2 billion was invested nationally in private REITs in 2001, the amount doubled the next year, then grew to $7 billion in 2003, according to the Wall Street Journal.

One local real estate source, who did not want to be identified, saw a major demographic trend coming together with an investment trend.

Aging baby boomers staring retirement in the face are seeking investments with stable returns and less risk. With the stock market continuing to stumble and interest rates still relatively low, real estate continues to be a hot investment choice right now.

Forget tech, he added, with its bursting bubbles. Investors are kicking the bricks instead.

"All the investors are afraid to invest in anything but real estate. Stocks are iffy," he said. "Even if the market crashes, typically, if you hold it a couple years you get your value back and then some. Everybody is hungry for deals."

And when a REIT such as those Inland operates, or CBL, which operates with a major infusion of money from Australian investors, is successful, their credibility pays off in more investors lining up.

"Once you're a proven player, you have available to you as much capital as you want because people want to be in the game," he said.

REITs have grown so substantially that they now are the largest owner of institutional real estate in the United States, according to the Brookings Institution.

Walnut Capital Partners, a local real estate firm, sold off its portfolio of 19 Eckerd stores to Inland a year ago for $59 million.

Todd Reidbord, a principal with the company, believed the big REITs are latecomers to Pittsburgh after buying property aggressively throughout the rest of the country.

"If you look at other markets in the country, they've probably discovered Pittsburgh more recently," he said. "When they did, they probably discovered it's a pretty good retail market."

While other kinds of development languish, the region -- long considered lacking in retail for a market its size -- still is in the midst of an ongoing retail development boon.

SouthSide Works; the Pittsburgh Mills, under development in Frazer; Victory Center, a major outlet mall planned for Washington County; Collier Crossing, planned for Interstate 79 southwest of the city; and Bloomfield-based Luna Square -- are all major retail-anchored real estate developments under way in the region.

In recent years, Cleveland-based Forest City Enterprises opened the Mall at Robinson in Robinson Township -- the first new enclosed mall built in the region in nearly 10 years.

And Continental Real Estate Cos., based in Columbus, Ohio, developed the Waterfront out of the space formerly occupied by the Homestead Works steel mills.

"That certainly focused more attention on Pittsburgh because Inland made a major acquisition here," said the real estate source.

"Say what you want about Pittsburgh real estate, but it's safe. It's not sexy, it's not greatly inflated. But it's worth more next year than this year."

Mr. Consenza confirmed that Inland's interest in Pittsburgh properties remained, even if it's a market where there's not much it can buy.

"It's more difficult because there's a close-knit group of people who own most of the assets, most of the good shopping centers. They were smart enough, early enough to see how good Pittsburgh really is," he said.

"Unless they're in sell mode, it's almost impossible to be able to purchase them."

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