Overseas next target for outlets

Prime Retail venture plans to build malls on the Continent

Europe is `under-retailed'

Financing growth more difficult in U.S. because of retail glut

September 15, 1999|By Kevin L. McQuaid | Kevin L. McQuaid,SUN STAFF

Prime Retail Inc., stymied in its effort to build new projects in the United States, announced yesterday a joint venture to develop as many as 10 factory outlet center malls in Europe by 2004.

The Baltimore-based outlet center mall owner's joint venture with the Athena Group LLC -- a 6-year-old investment firm founded by Taubman Centers Inc. Chairman A. Alfred Taubman -- fulfills Prime Retail's desire to expand internationally.

"In the factory outlet center business, it's the power of the brand rather than the size of the store that makes a difference, and the brands we're targeting are going global," said David G. Phillips, president of Athena/Prime Retail Europe and the former executive vice president of operations and marketing for Prime Retail.

"With that globalization, brands are requiring a vehicle of distribution for their excess merchandise, and that's what we offer," he added.

But the joint venture, which hopes to build as much as $500 million worth of projects, also stems from the local real estate investment trust's inability to secure capital for new domestic development, in part because of markets glutted by retail projects.

Prime Retail had been adding roughly three centers a year to its portfolio, which contains 50 projects totaling 14.4 million square feet.

Athena/Prime Retail Europe hopes to develop between 2.5 million and 3.5 million square feet worth of factory outlet centers in Europe within the next five years, Phillips said.

The new joint venture hopes to capitalize both on tourist trade, the unification of Europe's economy and a lack of factory outlet centers.

Athena will invest 80 percent of the capital required to develop new projects, and receive 60 percent of the profits and cash flow, after returns on equity.

"Western Europe alone has a population 20 percent larger than that of the United States, yet contains just 10 percent of the factory outlet center space compared to the existing factory outlet center space in the United States," said Metin Negrin, an Athena founder and principal and its chief operating officer.

Since its inception in 1993, New York-based Athena has invested $400 million in residential and commercial projects throughout the United States, Europe and Asia, including projects in Moscow and Azerbaijan.

In addition to private investors, Athena invests money on behalf of Sun America and J. P. Morgan & Co.

But in expanding to Europe, Prime Retail will have to overcome numerous cultural and logistical obstacles that have hampered the Mills Corp., the Rouse Co., Federated Department Stores Inc. and others who have tried unsuccessfully to cross the Atlantic with American shopping concepts.

"I've seen many American retailers fail in Europe, but this is a long-term strategy for them, Europe is a hungry market and it's very under-retailed," said David M. Fick, a principal at Legg Mason Wood Walker Inc. who analyzes Prime Retail.

"Also, factory outlet centers have worked there better than some other types of retail, and they come in with American names that Europeans tend to favor," Fick said.

In addition to having different shopping venues, European governments are often reluctant to issue construction permits for new projects that require large amounts of land.

"It's still very difficult," Phillips said. "We'll need to find projects that governments will support."

Although the joint venture has yet to commit to a project and has no tenants lined up, it has opened an office in Nice, France.

Abraham Rosenthal, Prime Retail's chief executive officer, said the REIT hopes to develop a "reciprocal leasing program" that would bring European tenants to American retail projects.

Pub Date: 9/15/99

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