Private-equity firm that bought Westfield Franklin Park relatively new to malls

9/21/2013
BY JON CHAVEZ
BLADE BUSINESS WRITER
Franklin Park is one of seven malls Starwood Retail Partners is buying from Westfield for $1.05 billion.
Franklin Park is one of seven malls Starwood Retail Partners is buying from Westfield for $1.05 billion.

By Christmas, the region’s premier shopping mall, Franklin Park, is almost certain to have a new owner overseeing its 167 retail tenants.

On Monday, it was announced that Chicago-based Starwood Retail Partners, the mall acquisition and management arm of billion-dollar private equity firm Starwood Capital Group, had acquired 42-year-old Franklin Park mall from the Westfield Group LLC as part of a seven-mall package valued at $1.64 billion.

The deal, which is expected to close in the fourth quarter, will give Starwood Retail a 90 percent ownership stake in the seven malls — Westfield will retain a 10 percent stake — and full operating control of the properties, which include three malls in Ohio, two in California, and one each in Indiana and Washington.

It’s also certain that the current name of Toledo’s 1.2 million-square-foot mall, Westfield Franklin Park, is going to change once Starwood Retail takes control and Westfield’s 11-year stewardship of the property ends.

But what other changes Starwood Retail may have in mind for Franklin Park, located at 5001 Monroe St., is anyone’s guess.

Starwood Retail owns 12 malls nationwide but has a relatively brief history.

The company was formed in May, 2012, a month after Starwood Capital Group founder and chairman Barry Sternlicht decided to venture into mall ownership by agreeing to buy seven malls from Westfield for $1.05 billion.

Starwood Capital of Greenwich, Conn., a private investment firm that controls $23 billion in assets, previously had owned retail properties. It formed Starwood Hotel & Resorts Worldwide Inc. in 1994 before cutting ties with the hotel properties company in 2000.

Barry Sternlicht is chairman and CEO of Starwood Capital Group.
Barry Sternlicht is chairman and CEO of Starwood Capital Group.

But Mr. Sternlicht was not involved in the mall industry until last year, when the first of his two Westfield deals was struck.

After forming Starwood Retail to manage its fledgling mall portfolio, Mr. Sternlicht hired Cleveland native Scott Wolstein to be chief executive officer of the firm.

Mr. Wolstein is familiar with Toledo. He is the former co-founder and CEO of Developers Diversified Inc., now known as DDR Corp.

The development firm, based in suburban Cleveland, built and owns two Toledo-area shopping centers: Springfield Commons on Holland-Sylvania Road in Springfield Township, which is anchored by Kohl’s department store, and North Towne Commons on Alexis Road in Toledo, which is anchored by Dick’s Sporting Goods and Target.

Both Mr. Wolstein and other Starwood Retail officials declined to discuss Franklin Park’s future or the Westfield deal, saying they will wait until the transaction is completed.

But in May, Mr. Wolstein spoke publicly in Las Vegas at a shopping center convention, and his comments suggest that radical changes are unlikely in the short term.

At a session sponsored by commercial real estate company CBRE Inc., Mr. Wolstein said Starwood Retail viewed purchasing malls as a new investment strategy after several real estate investment trusts put many prime mall properties up for sale.

“It’s really kind of exciting, because I think the general wisdom was that there would never be another regional mall company, that it’s such a consolidated industry,” Mr. Wolstein said. “But what we’ve seen is the public REITs are being forced to divest a lot of assets that we consider to be a very high quality. And we’re taking advantage of that.

“And I think, you know, by the end of this year we’ll have a very significant critical mass of assets, and we’ll be a real player in the mall space,” Mr. Wolstein said.

Starwood Retail wants “to own the market-dominant property wherever we are,” Mr. Wolstein said.

“It doesn’t have to be a big city. If it is a big city, we have to be the dominant center within the submarket. If it’s a smaller city, then we have to be the dominant center in the market,” he added. “We just don’t want to own property where we’re the second choice in a market.”

Mr. Wolstein said Starwood Capital’s goal to acquire retail is a safeguard against future inflation.

“I think we all know that with this aggressive monetary policy that we’ve seen in this country to bring us out of the recession we all expect that someday there’s going to be hyper-inflation or at least much higher inflation than there is,” he said. “And retail is still the best hedge because rents are directly tied to sales, and sales are directly tied to the value of the dollar and, you know, inflation,” he added.

“So if you want to balance your portfolio with one product that can give you a very direct hedge against inflation, retail is the place to be,” Mr. Wolstein told the Las Vegas conventioneers.

Some tenants at Westfield Franklin Park say they don't expect many changes when Starwood takes over.
Some tenants at Westfield Franklin Park say they don't expect many changes when Starwood takes over.

But Starwood Retail plans only to buy malls, not to build them, the CEO added.

“You know, one of the things I think we bring to the table as an operator is the ability to put a fresh set of eyes on an asset and be willing to make changes. So I expect we’ll be doing a lot of [redevelopment and expansion]. But no greenfield sites warrant investment,” Mr. Wolstein said.

But so far, Starwood Retail is doing neither redevelopment nor expansion, and it appears focused solely on expanding its mall property portfolio.

Since closing on its first seven malls in July, 2012, Starwood Retail has made only two changes of note to the 12 properties: the renaming of the Solano Mall in Fairfield, Calif., to Solano Town Center, and the rechristening of,Avenue Forsyth, in suburban Atlanta, to The Collection at Forsyth.

Nick Wagner, a former clerk at Cardboard Heroes sports memorabilia and clothing store in Franklin Park, now manages the Cardboard Heroes store in the SouthPark Mall in Strongsville, Ohio. He said if Starwood Retail has made any changes at that mall, they’re unnoticeable.

SouthPark was among Starwood Retail’s first acquisitions in 2012. “There’s just minimal difference in ownership that I’ve noticed,” Mr. Wagner said. “The upkeep may be a little better, but other than that — nothing.”

Josh Harmon, owner of Bumble Olive Oil Co. at Franklin Park, doesn’t expect to see any significant changes once Starwood Retail takes over.

If it is true that Starwood Retail is buying malls as an investment, large changes wouldn’t be prudent, he said.

“I really haven’t heard anything from them and I don’t expect anything to change, to tell you the truth. We’re going from one conglomerate to another and you usually don’t see any difference,” Mr. Harmon said. “I don’t expect to see any changes at all.”

Neil Stern, a retail consultant at McMillan Doolittle of Chicago, said it may yet be too soon for Starwood Retail to consider changes at any of its properties. After all, it has been a mall operator only for 14 months.

“I don’t know if they have an M.O. or strategy just yet other than acquiring assets to manage,” Mr. Stern said. “I don’t know if they can have a pattern this early.”

Contact Jon Chavez at: jchavez@theblade.com or 419-724-6128.