Starwood bailing on the mall business

Barry Sternlicht has cut shopping center portfolio by 75% — and counting

Barry Sterlincht of Starwood Capital Group (Getty, iStock)
Barry Sterlincht of Starwood Capital Group (Getty, iStock)

Barry Sternlicht’s Starwood Capital Group is moving away from its mall portfolio as values on the properties continue to plunge.

The investment firm has been selling off shopping centers at a loss across the United States, Bloomberg News reported. While Starwood owned 30 malls before the pandemic, it is now down to eight — and those are being run by outside companies and may seek new owners.

Starwood had been the fifth-largest mall landlord in the United States, although retail properties only made up about 5 percent of the firm’s investments. Selling off the retail properties could clear more than $2 billion in commercial mortgage-backed securities debt. The loans are non-recourse, meaning Starwood could walk away from the malls without owing the unpaid balance.

Covid-19 lockdowns had a devastating effect on shopping centers, many of which were already struggling as consumer habits changed. The price index of U.S. malls has fallen 18% since the pandemic began and 46% from their peak in February 2017, according to Green Street.

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Starwood began building up its portfolio of retail properties in 2012, maxing out in 2017. At one point, it paid $3.2 billion for 19 properties over just 18 months.

Sternlicht is reportedly still willing to invest in retail properties, if the prices are right. But it says something that one of the largest asset managers — one with great financial wherewithal and access to capital — is dumping malls rather than trying to reposition them.

Starwood has $80 billion in assets and shows no signs of going away. The company recently made an unsolicited rival bid to acquire Monmouth Real Estate Investment, despite the latter already reaching a deal months earlier to be acquired by Sam Zell’s Equity Commonwealth.

[Bloomberg News] — Holden Walter-Warner