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Deals of the Year: Westfield and GGP


The past six months have seen transactions that are realigning U.S. mall ownership. In December, Paris-based Unibail-Rodamco, the largest commercial property owner in Europe, announced plans to acquire Westfield Corp. in a $16 billion deal. In March, after an earlier failed bid, Brookfield Property, a unit of Toronto-based Brookfield Asset Management, said it would acquire the two-thirds of Chicago-based GGP it doesn’t already own in a $15 billion transaction. Meanwhile, other real estate investment trusts are facing challenges from activist investors seeking to maximize the value of their properties.

With all this activity, could there be another round of retail real estate consolidation similar to 25 years ago? Not likely, observers say. An already consolidated industry (at least in the mall sector) and plain old blood ties should keep major portfolio transactions down for now.

The past 15 years have seen a number of acquisitions, observed Alexander D. Goldfarb, a managing director and senior REIT analyst at New York-based Sandler O’Neill and Partners L.P., including Wilmorite by Macerich in 2005 and GGP’s purchase of Rouse Company in 2004. More recently, Forest City had considered selling itself, but could not come to terms with a potential buyer. A number of assets, however, were sold to Australia-based investment firm QIC.

Given that Brookfield already owns 34% of GGP, “The Brookfield bid for GGP was expected. The question is, what are the future pair-ups?” Goldfarb asked.

The Unibail-Rodamco/Westfield deal is a unique situation where two companies’ assets are complementary, said Herman Kok, head of research for Meyer Bergman, a Brussels-based pan-European investment manager specializing in urban mixed-use real estate. Westfield’s 35-center portfolio dominates in the United States and the United Kingdom, while Unibail-Rodamco has properties across the European continent. The combined entity will have 104 centers, 56 of them being flagships.

“Both companies have highly dominant centers in their markets,” Kok said. “Both boards respected each other a lot, making for a very strong opportunity for Unibail-Rodamco and Westfield to unite their focus.”

Each firm can learn from the other. Westfield’s branding capabilities will be transferred to Unibail-Rodamco centers. While Westfield is being acquired, it’s that name that will be rolled out to the combined company’s destinations. Kok observed that Unibail-Rodamco is known for four-star hospitality at its projects, but the greatest advantage may lie in leasing.

“Unibail-Rodamco deals with all of the European retailers, Westfield with the U.S. and U.K. retailers. There will be a lot of crossover,” Kok said.

In late March, Brookfield Property Partners and GGP finally reached an agreement, after Brookfield sweetened an earlier bid for the 66% of GGP it didn’t already own. Under the final agreement, GGP investors would have a choice between $23.50 per share in cash or stock in either Brookfield Property or a new REIT being formed. The deal, which will create a combined company with assets of more than $90 billion, is expected to close in the third quarter.

But that doesn’t mean we’ll see more international crossovers. The U.S. mall industry is more heavily consolidated than in Europe, Kok noted. Though Unibail-Rodamco is by far the largest player on the continent, other major owners include Klépierre, British Land, Hammerson, and a number of funds. And there’s plenty of easier consolidation to take place within the continent.

Instead, future activity could take place within U.S. REITs themselves. In March, activist investor Jonathan Litt of Land & Buildings Management made a second bid for a board seat on Taubman Centers. The company also has seen hedge fund Elliott Management take a stake. Dan Loeb and his hedge fund Third Point LLC similarly is targeting Macerich.

In a way, though, the activity can be seen as a testament to the power of the super-regional mall. In the industry’s early years, malls were built on the outskirts of metropolitan areas; but as populations have grown, and housing has expanded, many of these projects are now located within urban areas. This makes them appealing, Goldfarb said. Meanwhile, millennials seek social activities, while brands want foot traffic to build awareness.

“The Class A mall is still a powerful animal,” Goldfarb said. “The people buying Teslas are not kicking tires. And why are they based at malls? Because that’s where the people are.”

However, what could also be stopping further corporate sales is pure sentiment. Though the companies are public, many are still helmed by their founding families, Goldfarb said. It’s not surprising that the Westfield deal took place seeing as founder Frank Lowy is well into his 80s.

“It comes down to the CEOs,” Goldfarb said. “When the CEO is ready to hang up his hat, it will happen, but not yet.”

Debra Hazel is an international retail and real estate journalist and media consultant. She is the author and editor of several books for ICSC; plus, check out her blog

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