Owners list Arborland mall for sale

Blockbuster deal likely for landmark site at U.S. 23, Washtenaw Ave.


Arborland Center, Ann Arbor's first mall and a pinnacle of retail redevelopment in southeast Michigan, is for sale.

Arborland Center's price has not been disclosed.

Joseph Freed and Associates LLC, the Illinois-based general partner in the redeveloped regional shopping center, would not disclose an asking price.

However, commercial brokers estimate that the mall should sell for $100 million or more.

That positions the open-air center - 100-percent leased since Freed redeveloped it in the late 1990s - for a blockbuster deal likely to bring in a buyer with a national or international portfolio.

The listing, according to a statement from Tom Fraerman, Freed's executive vice president, follows numerous, unsolicited offers for the 35-acre site that occupies a landmark position at the highly traveled intersection of U.S.23 and Washtenaw Avenue.

"We have a responsibility to the other owners to explore the possibility of a sale," Fraerman said in the written statement.

Interest in the property has been high for years, as its success returned Washtenaw to the top of the county's shopping hubs. That, in turn, spawned escalating retailer interest and leasing rates along the corridor.

"Arborland is probably the most stable, sought-after piece of property in Ann Arbor," said Jim Chaconas, managing director of McKinley Commercial Brokerage. Limited retail space in Ann Arbor and the center's design as a modern, open-air shopping destination with high-quality retailers keep demand for space in the 400,000-square-foot mall high.

The value of the property could exceed that of Briarwood Mall, Chaconas said, given shopping patterns that have seen traditional enclosed malls lose favor among shoppers.

There's also a strong national climate for retail properties among investors, who find that low interest rates and consumer demand keep the sector high-performing despite an overall lackluster commercial real estate market.

At $100 million, the mall's purchaser likely would yield a capitalization rate of 6 percent, brokers said. That number represents the annual return on investment based on a net operating income of $6 million.

The financial scope of any potential deal - and its relatively low but stable return - makes it likely that a buyer could come from the insurance or pension-fund sectors, Chaconas said.

Owner-operators also could seriously look at the property, said a spokesperson for the New York-based International Council of Shopping Centers.

"Mall companies like Simon (Property Group Inc.) are public companies and they're constantly looking to expand their portfolio," said Malachy Kavanagh of the ICSC.

A real estate investment trust also could find the property attractive for its investment stability.

While the mall has seen continuous upgrades and strong performance among its stores, any change in tenants could boost the income stream as the new lease reflects the high value of the center. More upside potential could come from expansion through acquisition of nearby property.

Illinois-based Freed purchased the property in 1997 when it was a traditional enclosed mall that suffered from years of vacancy problems dating from the 1970s when anchor tenant J.C. Penney vacated Arborland for the then-new Briarwood. Further challenges for the center occurred as Washtenaw County growth headed south and west of town, sparking new retail centers at Ann Arbor-Saline Road. Brokers agree that the Arborland purchase was a coup for Freed, which specializes in redevelopment.

The company's vision for Arborland played out from 1998-99 as most of the old mall was razed to make room for a series of high-profile anchor tenants. Among them: Hiller's and DSW, both new to the market; Border's Books, a homegrown national retailer who sought a key sales center outside of downtown; and Old Navy, which has the power to draw customers from across the region.

"Freed did an excellent job," Chaconas said. "All of the big boxes wanted to get into Ann Arbor, and they had nowhere to go."

New stores and new construction prompted higher rents, with the mall pushing local limits on many spaces. Starbucks, for example, has widely been said to pay $50 per square foot, a rate that rivals the city's highest rent districts of Briarwood and downtown.

"It's the highest rent in town," said Newcombe Clark of Bluestone Realty Advisors in Ann Arbor. "There's nothing that can compete with that corner." Coupled with the high rent are long-term leases, Clark said, which add value for an investor.

Demand for space in the center prompted Freed to add square footage in 2003, and a reconfiguration of Office Max yielded the opportunity to add two new tenants this spring.

Fraerman notes that the potential sale doesn't mean that the company is abandoning its efforts in the city.

Pending mixed-use developments for the company downtown include Glen Ann Place, on the western edge of the University of Michigan medical campus; and Ashley Terrace, a high-rise with retail and office space along with condos.

Both projects are urban redevelopments, similar to other Freed projects in the state: Daisy Square in Plymouth and condo towers in Royal Oak.

"We are not leaving the Ann Arbor marketplace," Fraerman said. "We will actively pursue other high-caliber opportunities like Arborland in the Ann Arbor area."

Freed has developed about 8 million square feet of retail/office property and 3,500 residential units in nine states, according to the company.

Paula Gardner covers real estate and development for Business Review.

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