JV’s $116M Investment Buys 48 Percent Stake in $1.5B Macquarie DDR Trust

June 16, 2010
By Barbra Murray, Contributing Editor

An international partnership has just staked a huge claim to a $1.5 billion U.S. retail portfolio with the investment of $116 million in Sydney, Australia-headquartered Macquarie DDR Trust. EPN GP L.L.C., a joint venture involving New York City-based Eastgate Property L.L.C. and Elbit Plaza USA L.P.–a subsidiary of Tel Aviv, Israel’s Elbit Imaging Ltd. and the Netherlands-based Plaza Centers N.V.–will walk away with a 48 percent ownership interest in Macquarie DDR, which will be renamed EDT Retail Trust upon the transaction’s completion.

Macquarie DDR’s 13.2 million-square-foot group of properties spans 23 states and is divided into two portfolios. The Shopping Center Portfolio encompasses 48 retail properties–predominantly community shopping centers–with an aggregate 10.9 million square feet and an average occupancy level of 88 percent. The assets are valued at approximately $1.35 billion, with $1 billion of total secured debt. The 2.3 million-square-foot Single Box Portfolio consists of 30 mostly vacant former Mervyns retail stores valued at $170 million, with $190 million of non-recourse secured debt.

EPN’s investment, which will make it Macquarie DDR’s largest unitholder, will be utilized to pay down outstanding Macquarie DDR financial obligations, including unsecured debt and derivative liabilities, and bolster the balance sheet; the move is expected to decrease leverage from 73.2 percent to 64.4 percent. The transaction is on schedule to close on June 18, after which EPN will fork over approximately $3 million to acquire a 50 percent interest in property management concern Macquarie DDR Management L.L.C., leaving Developers Diversified Realty Corp. with the remaining 50 percent interest and the continued responsibility of overseeing property management and leasing activities for the portfolio.

Many an investor from abroad has an eye on the U.S. commercial real estate market. According to a survey by the Association of Foreign Investors, deep-pocketed players beyond the nation’s borders identify the U.S. as the country providing the best opportunity for real estate capital appreciation. For EPN, the Macquarie DDR deal marks the entity’s first foray into the U.S. market. “This large-scale complicated transaction,” EPN CEO Alex Berman said in a prepared statement, “is an important step forward to fulfilling EPN’s strategy of becoming a significant U.S. retail real estate investor.”