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Miami Investor Exiting Valley?

The developer that entered the Santa Clarita Valley market amid the building boom by buying up much of Newhall Land & Farming’s commercial property appears to be exiting the valley. LNR Property Corp., a Miami real estate investor, sold its 50 percent share of the Westfield Valencia Town Center to New York pension fund TIAA-CREF on Dec. 31 for $195 million. Australian mall developer Westfield Group has retained its 50 percent equity in the sprawling property, and will maintain daily management of the center. LNR entered Santa Clarita in 2003 when it and affiliated home builder Lennar Corp. took Valencia’s Newhall Land private in a $1 billion deal. Among the commercial properties LNR acquired at the time were the Hyatt Valencia Hotel, the Hilton Garden Inn and the River Oaks Shopping Center. However, LNR no longer has any interest in those properties, and also appears to own no other Santa Clarita Valley commercial properties, according to data from CoStar Group Inc., a Washington D.C. commercial real estate data provider. The sale of the mall comes as LNR is about to be sold to business interests controlled by prominent Greenwich, Conn. investor Barry Sternlicht. LNR did not respond to requests for comment, but Westfield spokeswoman Katy Dickey said in an email that the sale will not bring much change for mall tenants or shoppers. “The joint venture relationship, with Westfield responsible for management, leasing, development, etc., remains the same with (Westfield’s) new partner,” Dickey wrote. Dickey noted that the company has worked with the buyer, formally known as the Teachers Insurance and Annuity Association – College Retirement Equities, in other locations. The two are currently joint owners of the Westfield Montgomery Mall in Bethesda, Md. During its ownership tenure, LNR had a big impact at the Valencia mall. The company partnered with Westfield on a $130 million expansion completed in 2010. City officials said they were aware of the LNR sale but they were satisfied the mall would continue to operate well under Westfield’s management. “I don’t really think that it matters to us who owns the mall,” said Andree Walper, an associate in the Santa Clarita Department of Economic Development. “It’s about the economic aspects for us.” LNR was spun off from Lennar, the second-largest U.S. homebuilder, in 1997 to manage its commercial and office properties. In 2003, the two firms entered the Valley as the building boom was about to take off and the area was seen as one of the most desirable places in the greater Los Angeles area for suburban home developments. New players It was a radical change for valley residents and business interests. Newhall Land & Farming, which developed the community of Valencia, had remained in local hands since its founding in 1883. Westfield entered the market in 2002 when it and two joint-venture partners acquired a 25 percent equity stake in the mall from Newhall Land. Westfield, which has its U.S. headquarters in Los Angeles, operates 48 malls nationwide. Then in 2006 Westfield expanded its interest to 50 percent and took over management of the property. That left LNR with the remaining 50 percent ownership of the mall. LNR’s own ownership changed in 2005 when it was acquired by New York investment firm Cerberus Capital Management LP. Since its founding in 1992, Cerberus’ business model has been to buy and sell distressed debt and equity. Under Cerberus, the business focus of LNR changed as commercial real estate foundered during the recession. LNR has now become the country’s largest manager of distressed commercial real estate debt. LNR’s ownership is about to change again after the company attracted the eye of Sternlicht. His real estate investment trust Starwood Property Trust Inc. and investment firm Starwood Capital Group are set to buy LNR in a more than $1 billion deal that will close in the second quarter. The Starwood affiliates see LNR as an attractive proposition as banks continue to sell off distressed commercial real estate portfolios at steep discounts, Sternlicht has said publicly. And Starwood executives have said publicly they are looking to get out of some of LNR’s current investments to focus on its special servicing division, which manages borrowers at or near default on their loans. Meanwhile, Lennar has retained its interest in what is now called simply Newhall Land after a convoluted bankruptcy proceeding involving the Valencia developer. In 2007, Lennar sold large portions of its Valencia interests to a new set of investors called LandSource Communities Development LLC. However, that deal quickly turned sour as the housing market busted. LandSource, along with Newhall and several other subsidiaries, filed for Chapter 11 bankruptcy protection in June 2008. A year later the holding company emerged from bankruptcy with a new owner, Aliso Viejo-based joint venture Five Point Communities Inc. Five Point is jointly owned by Lennar and developer Emile Haddad. Lennar Chief Operating Officer Jonathan Jaffe told investors last month in a conference call that Five Point remains interested in developing in Santa Clarita – and especially the proposed 25,000-home Newhall Ranch project. New tenants The sale is not expected to affect day-to-day operations of the mall, which is managed by Westfield. TIAA-CREF is primarily a pension fund with little interest in property management. A TIAA-CREF spokesman said the Town Center was an attractive investment option. “TIAA continually strives to improve the quality of its portfolio through carefully identified acquisitions and select sales,” he said. The mall is currently near 100 percent occupancy, and anchor tenant Macy’s Inc. recently expanded into 50,000 square feet of additional space. Other anchor tenants include J.C. Penney Company Inc. and Sears, Roebuck & Co. as well as restaurants including BJ’s Brewhouse and TGI Fridays. Westfield has been courting retailer Nordstrom Inc. as a possible replacement for Sears or JC Penney’s. Westfield also is seeking to have Bentonville, Ark. retailer Wal-Mart Inc. build a Neighborhood Market grocery at the mall, though those plans are on hold after city planners balked at the proposal. For now, Westfield says it is happy to move forward managing the property with its new partner. “We appreciated the joint venture with LNR and are very proud of the redevelopment we delivered together,” said Dickey, the Westfield spokeswoman. “While we were sorry to see LNR elect to sell its interest, we have a strong history with TIAA and welcome them as our partner at Valencia.”

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