Upscale Cross Keys for sale

North Baltimore shops' owner acts to pare heavy debt

July 09, 2008|By Andrea K. Walker | Andrea K. Walker,Sun reporter

Facing financial pressure, the owner of the Village of Cross Keys shops is seeking a buyer for the upscale North Baltimore retail center at a challenging time.

Chicago-based General Growth Properties is looking to sell or find equity partners for several of its 200 properties throughout the nation as it faces looming debt and mortgages that need to be refinanced in the coming months, analysts said.

The company told The Wall Street Journal in April that it was trying to pay off $27 billion in debt and was approaching pension funds and life insurance firms as partners.

"They have a lot of debt coming in the next several months," said David Fick, a retail analyst for Stifel Nicolaus in Baltimore. "It's a very challenging time. Their entire focus right now is de-leveraging the company and reducing debt - selling off assets and pieces of the company."

David Keating, a spokesman for General Growth Properties Inc., declined to discuss any sale of Cross Keys. But merchants said they were told during a meeting in the spring that the four-decade-old retail center was on the market.

Analysts and real estate experts said Cross Keys is a good candidate for sale because it's so distinct from the rest of General Growth's portfolio of mostly large suburban malls, such as Towson Town Center and The Mall in Columbia.

Although the center is profitable thanks to a loyal shopping base, it also faces marketing challenges that some believe could be better met by a local owner who would be more vested in the property.

But the market for any real estate transaction is tough right now.

"There are still buyers out there," Fick said. "Financing is the key issue. There is not much mortgage money for any kind of financial real estate."

Banks have heightened their scrutiny and many are requiring upfront equity or cash toward a loan, something that wasn't required a couple of years ago, Fick and other real estate experts said.

Banks are gauging not only a company's present financial condition, but also its vulnerability in a weakening economy, such as, for instance, whether a mall is in danger of losing tenants from store closings.

"Loans are really hard to come by," said Pete Culliney, director of research for Real Capital Analytics, a New York firm that tracks commercial real estate trends.

"We were in a big up cycle that lasted several years. Financing became so cheap and easy. Now if you want to buy something and say you want bankers to put up 90 percent of the value, they'll laugh at you," Culliney said.

Phillips Edison & Co., a Baltimore firm that buys and refurbishes distressed shopping centers, said some sellers are trying to ask for the same premium prices they got a couple of years ago when the market was more robust.

"It's a little dysfunctional where people think they can get the same prices," said Steve Black, director for Phillips' Southeast business. "We have a number of properties we're buying right now. We're taking this time to buy better properties."

Culliney said mall property values have remained fairly stable. Malls that are empty and not making money may go for a lower price. But for malls doing well, many owners are willing to pull the property off the market rather than take a lower asking price, he said.

"They want to get the value," he said.

Fick said Cross Keys is profitable and is more stable than some General Growth properties, like Harborplace in downtown Baltimore, which turns over tenants frequently. But he said there's not necessarily any "upside" or growth potential for the property.

"I would expect a local buyer would be the best for this - somebody who really knows the asset," Fick said. "It's probably an asset best served by someone will be involved here physically on a regular basis."

Some people point to nearby Belvedere Square, which experienced a resurgence after it was bought by Struever Bros. Eccles & Rouse and three other developers and renovated.

Cross Keys was opened in 1965 by the Rouse Co. as a self-contained space for upscale living, working and shopping surrounded by a hotel and residential community. But it's barely visible from any main thoroughfare, and visitors have to enter through a gated complex to reach it. Many of the stores face inward so it's hard to tell what's there.

The original businesses were independent and exclusive, but over the years national chains, such as Williams-Sonoma, Chico's and J. Jill Group, have taken over several spaces. Some people said it lost some of its uniqueness.

The center has lost some key tenants over the years, leading to less foot traffic. In 1994, the upscale Nan Duskin apparel chain closed after it failed to emerge from Chapter 11 bankruptcy.

The Village Food Center, a popular grocery store, deli and cafe, also closed that year after the owners decided to retire. Many merchants said the grocer helped drive daily traffic.

The Bibelot bookstore closed in 2003 after the owners declared bankruptcy.

But the shopping center still has many viable merchants, some of which have been there since the mall opened.

Betty Cooke and William Steinmetz, who run The Store Ltd., were asked by Rouse to be a part of the center. Steinmetz said the business has many loyal customers but the center needs a plan to drive more traffic and open up more independent businesses. He's hoping a local owner will make a difference.

"I'd like an owner who is sincere in the desire to make it more like it was - a very special place to be," Steinmetz said.

But Carol Ripken, a co-manager at Barston's Child's Play toy store, said she's not convinced new owners will make a difference. She'd like to see a kid-friendly restaurant and other amenities to drive more foot traffic to the mall. But complaints made by merchants for years, including to General Growth, have received little response," she said.

"Nothing ever changes," Ripken said. "A new owner has done nothing for us."

andrea.walker@baltsun.com

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