Tuesday, May 4, 1999

By Ken Ige, Star-Bulletin
Shoppers stroll through the mall
at Ala Moana Center last December.

Ala Moana Center
sale pact signed

General Growth Properties
has agreed to buy the
complex for $810 million

By Russ Lynch


Professional shopping center analysts today welcomed the decision of General Growth Properties Inc., the Chicago-based manager of the Ala Moana Center, to buy the state's largest mall for $810 million from financially troubled Daiei Inc.

"I think it's good for the center," said Don Graham, a partner in the Honolulu consulting firm Graham Murata Russell. "It's always bad to be a manager for an overseas owner. It takes a long time to make decisions. When you're an owner-manager you can decide to do something and do it quickly."

Graham knows the center's history as well as anyone. His firm got the zoning for the original owner, Dillingham Corp., in 1949 and developed the center over the next 10 years. When the center's first phase opened in 1959, Graham was its first manager.

He said he thinks Japan-based Daiei has done a good job with the center but General Growth can do better.

General Growth said late yesterday that it has signed a definitive agreement to buy the center and expects the deal to close by the end of July.

Daiei, which bought 60 percent of the ownership in 1983, with Equitable Life Assurance as a 40 percent owner and managing partner, has had sole ownership since buying Equitable out in 1995.

Equitable had its own management company running the center but General Growth bought that business in 1989 and took over management of the center.

General Growth said it will take out a new first mortgage of between $425 million and $525 million on the property if the deal closes, which is expected to happen before the end of July.

Meanwhile, it is talking to institutional investors, including the California Public Employees Retirement System, about sharing the ownership and expects to end up with about a 20-to-35 percent share in a new joint venture ownership.

"It's a good deal for everybody involved," said Robert Hastings, president of shopping center development consultants Hastings, Conboy, Braig & Associates.

He said Ala Moana is "probably the most profitable shopping center in the United States." Like the best centers elsewhere, it is the city's public transportation hub, bringing in thousands of people every day, Hastings said.

He said the center's recent development of upscale stores aimed at the Japanese market and other big-money visitors was well thought out, "and they've stayed tuned to the local market as well."

New York securities analyst James W. Sullivan of Prudential Securities, who wrote a positive report on General Growth last month, said the company knows what it is doing.

"General Growth has an excellent reputation as being a pretty crafty company" and it has had the advantage of managing Ala Moana for years, he said. "You can't say they don't know what they're getting into."

Sullivan said General Growth is expert at judging when an asset is at the bottom or the top, when to buy and when to sell.

"Ala Moana is one of the most productive assets in the country" and General Growth is confident it can increase occupancy from the current 87 percent to 95 percent or more in the next four or five years, Sullivan said.

John Bucksbaum, General Growth executive vice president, said his company buys only properties that will show competitive strength three, five and 10 years ahead and Ala Moana offers that and more.

"We have managed Ala Moana for 10 years and during this time the mall has proven itself to be among the most productive shopping centers in the world, having attained total sales of over $1 billion annually," he said.

Bucksbaum said today that the center continues to do well despite the fall in the Japanese tourist market. While it was affected to some extent, he said, "the encouraging part is that you're not seeing sales continuing to go down."

He said his company will continue the expansion and redevelopment work begun by Daiei.

In addition to the shopping center itself, with 1.8 million square feet of leasable area, General Growth will get two adjacent business buildings on Kapiolani Boulevard, the Ala Moana Building and the Ala Moana Pacific Center. That will bring its total leasable space up to 2.25 million square feet.

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