Starwood’s U.S. Mall Deal a ‘One-Off’ Purchase, Sternlicht Says

Starwood Capital Group LLC’s planned purchase of a majority stake in seven U.S. malls is a “one- off” deal that represents a bet on low interest rates and inflation, said Chief Executive Officer Barry Sternlicht.

Starwood earlier this month agreed to buy majority interests in seven U.S. shopping centers from Australia’s Westfield Group (WDC) for $1 billion. The Greenwich, Connecticut-based company will manage and control the properties, located in California, Illinois, Nebraska, Ohio and Florida.

“We can add additional malls to the portfolio, but this is a one-off,” Sternlicht said in a Bloomberg Television interview from the Milken Institute Global Conference in Beverly Hills, California. “If we don’t buy another one, fine. If we find something good, that is fine too.”

Starwood plans to “repurpose” some of the properties by bringing in more entertainment and food options, Sternlicht said. Some of the malls are in smaller U.S. cities, such as Lincoln, Nebraska and Fairfield, California, and are dominant in their towns, he said.

The malls had total sales of $373 per square foot and were 93.8 percent leased at the end of 2011, according to the April 18 statement from Sydney-based Westfield. The figures exclude Metreon, a property that is being redeveloped in San Francisco.

Starwood is betting that interest rates stay low so it can rework the debt on the properties, and that inflation will increase nominal retail sales, Sternlicht said.

Simon Property Group Inc. (SPG) of Indianapolis, the biggest shopping mall owner, said April 27 that its U.S. malls and outlet centers had sales of $546 per square foot in the first quarter. Taubman Centers Inc. (TCO)’s 12-month trailing mall tenant sales were $659 per square foot, the Bloomfield Hills, Michigan- based company said April 26.

Sternlicht said Starwood doesn’t plan on competing with large U.S. mall operators.

“I can feast on what they do not want to pay attention to anymore,” he said.

To contact the reporters on this story: Brian Louis in Chicago at blouis1@bloomberg.net; Stephanie Ruhle in New York at sruhle2@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

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