INVESTOR SHUFFLE
JP Morgan Takes Stake in Donahue Schriber After Alscott Sells Out
By MATHEW PADILLA
JP Morgan Chase & Co. has paid $150 million for a 40% stake in Costa Mesa-based Donahue Schriber Realty Group.
The New York-based investment bank acquired the stake through JP Morgan Fleming Asset Management’s $5 billion Strategic Property Fund, which replaces former Donahue investment partner Alscott Inc.
Boise, Idaho-based Alscott sold its stake to reduce its exposure to the real estate market at a time when its equity investments were taking a hit, according to Thomas Schriber, Donahue Schriber’s chief executive and chairman.
Alscott is a private foundation affiliated with the heirs of the Albertson’s Inc. chain of grocery stores.
Donahue Schriber doesn’t plan to change its business focus despite the shakeup in investment partners, according to Schriber.
“(The deal) provides stability in the ownership and operation of Donahue Schriber for the long term,” he said.
Schriber said the company would continue to develop, buy and manage shopping centers in California, Arizona and Nevada. Donahue Schriber owns or operates 67 shopping malls with more than 13 million square feet.
The company had revenue of $80 million last year.
The retail sector has been strong and faces few short-term risks, according to Gwen MacKenzie, senior advisor with Sperry Van Ness and former Donahue employee. She said many institutional investors have cash on hand and are looking to place it in retail.
The overall vacancy rate for OC retail space was 6.2% in the fourth quarter, down from 7.3% a year earlier, according to CB Richard Ellis Services Inc. Asking lease rates improved to $1.84 per square foot per month vs. $1.73 a year earlier.
MacKenzie said there is some uncertainty in retail’s longer term outlook, especially with possible effects of a prolonged war and occupation in Iraq.
But she said institutional investors look favorably on retail centers anchored by grocery stores, which make up a big part of Donahue Schriber’s holdings.
“Everybody needs groceries in good times or bad,” MacKenzie said.
Donahue Schriber does mostly ground-up development, as well as acquisitions and improvements of existing properties with an eye to increasing cash flow.
The company has worked with Newport Beach-based The Irvine Company on some of the county’s highest-profile projects, including Fashion Island in Newport Beach and the Market Place in Tustin, which Donahue Schriber still manages.
Market Place is one of four retail properties that the Irvine Co., which does its own development and leasing, has tapped Donahue Schriber to manage.
JP Morgan and Donahue Schriber have been partners in the past, most notably with the development and management of the Glendale Galleria in 1992. The Galleria was sold late last year for more than $400 million.
Beyond Donahue Schriber management, there are three outside investors in the company: JP Morgan, the New York State Teachers Retirement System and the Netherlands’ BPMT Dutch Metalworkers pension fund.
Donahue Schriber suffered a blow to its top management in December when Daniel Donahue, then chairman, died after complications from heart surgery. He cofounded the company with Schriber 33 years ago.
Schriber became chairman and chief executive after Donahue’s death, and Patrick Donahue, Daniel’s brother, stepped in to fill Schriber’s former role as president and chief operating officer.
The succession plan was in place before Donahue’s death, Schriber said.
Donahue Schriber still is looking to fill Patrick Donahue’s former position, executive vice president of asset management.
