February 14, 2020
Whatever the long-term wisdom and profitability of Simon Property Group’s $3.6-billion agreement to acquire rival Taubman Centers, in the near term investors are jittery about shopping mall exposure. Bloomberg News reported that real estate funds in the U.S. and Europe are scrambling to meet a surge in investor requests to get their cash back, due to those funds’ investments in mall properties in the e-commerce era.
“Large investors basically invested in these funds because they were conservative,” JLL’s Michael Hirschfeld told Bloomberg. He added that now the general attitude has become, “OK, let’s reduce exposure to retail.”
A case in point is UBS Group, AG’s flagship real estate fund, which has raised about $25 billion and owns malls across the U.S. Investors are waiting to withdraw about $7 billion from the bank’s Trumbull Property Fund after it underperformed for an extended period, Bloomberg reported.
Illinois’s State Universities Retirement System has attempted to withdraw its investment from the Trumbull fund since the end of 2017, Bloomberg reported, citing minutes from a December meeting. It’s gotten back $294 million so far, but expects that it may take a few years to recoup the remaining $103 million, because “the exit queue has significantly increased,” according to the minutes.
UBS has offered to cut some fees for investors who stay in its Trumbull fund, a source told Bloomberg. The Swiss bank’s asset-management unit had inflows of about $18 billion last year, and oversees assets of $900 billion, including $206 billion in the Americas.
The increasing number of requests for withdrawals may force real estate funds to sell off mall properties at a time when buyers are in short supply. In the U.S., there have been relatively few sales of individual malls, according to Lindsay Dutch, an analyst at Bloomberg Intelligence.
“If you’re the seller, you have to find someone who believes in the long-term value of those assets and can reinvest in them,” Dutch said. She cited the price of the Simon deal for Taubman as an illustration of the scarcity of buyers for malls.
Conversely, though, Seeking Alpha contributor WY Capital wrote that the Simon/Taubman deal demonstrated that Class A malls are “incredibly undervalued.” In recent years, estimates around the worth of Taubman’s best-performing properties, such as the Mall at Short Hills in Short Hills, NJ, valued them at $1 billion or more each.
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