The District at Tustin Legacy has quietly changed its ownership structure, and the new controlling owners for Orange County’s sixth-largest shopping center by sales have just completed a significant new financing deal for the massive retail property.
The 1-million-square-foot center at the intersection of Jamboree Road and Barranca Parkway was built a decade ago by a partnership led by Phoenix-based Vestar Development Co., with financial backing from Kimco Realty Corp. in New Hyde Park, N.Y.
Vestar had taken the lead in terms of managing and promoting the 57-acre property, and in news reports as recently as this summer, had presented itself as the primary owner and operator of the center.
In fact, it was Kimco—a real estate investment trust with a few other OC holdings—that had taken over controlling ownership of a bulk of the center in April, recently filed regulatory filings show.
Kimco said it paid $98.7 million and assumed $206 million in debt, to take over a nearly 688,000-square-foot portion of The District, comprising all but the center’s Costco and Lowes stores, which are owned separately by those big-box users.
After amending its joint venture agreement with Vestar “relating to the company’s investment” in The District, Kimco “now controls” the property, according to public filings from the REIT.
Neither Kimco nor Vestar made an announcement about the change in ownership when the deal transpired.
Kimco has a market value of about $8 billion. It owns and operates more than 500 open-air shopping centers across the country.
Vestar officials said last week that they remain a part owner and operator of the center.
Last year Vestar sold off another local property that it had run and jointly owned, The Village at Orange, in a $84.5 million deal.
Tops for ’17 Sales
By total price, the $304.7 million deal is the largest reported transaction involving a retail property in OC since the reported $354 million sale of Santa Ana’s Main Place mall in late 2015.
The deal works out to about $443 per square foot for the portion of the sprawling Tustin center that Kimco acquired.
That’s slightly higher than the roughly $400 per square foot average sales price for a multitenant retail property in OC, according to the latest quarterly data from brokerage Marcus & Millichap.
The size and age of the center likely played a part in the higher-than-average price; it’s the largest shopping center built in OC in over a decade.
It also ranks as OC’s sixth-largest shopping center by sales, with nearly $364 million in taxable sales for the 12-month period ending in June, according to this week’s Business Journal list (see list, page 15).
The District also represents the largest commercial project built to date at Tustin Legacy, the former marine helicopter base, which is undergoing a heavy dose of construction work (see Special Report, starting on page 27).
CMBS
The debt taken on in the transaction with Vestar has since been refinanced at much more favorable terms than under the prior ownership structure, according to Kimco officials.
“We completed the $206 million refinancing of the mortgage at our Tustin property with a new 13-year mortgage at a reduced rate of 4.15% versus 6.9% previously,” Chief Financial Officer Glenn Cohen told analysts in late October.
The original loan was due to mature this month, and was tied to a troubled commercial mortgage-backed securities bond that was originated in 2007 by UBS Securities and Lehman Brothers.
The CMBS bond initially was secured by properties with $3 billion in debt tied to them; as of last year it still had a little more than $2 billion outstanding, according to credit reporting agencies.
The Tustin Legacy loan had been the largest portion of the CMBS loan pool at 9.8%, and the performance of the retail center since its opening had been below expectations, according to those credit reporting agencies, resulting in downgrades for several classes of the CMBS bonds.
“Despite the high occupancy since issuance, the property’s net operating income has performed lower than expected, as rental rates and reimbursements remain below underwritten levels,” said a report last year from Fitch Ratings.
An update on the CMBS bonds hasn’t been disclosed this year.
The District opened just prior to the last recession, and has been plagued by a few high-profile tenant departures over the years, as well as an often challenging traffic flow in its parking lots.
Recent additions to the center have been largely food-focused, along with a new Planet Fitness gym.
