Starwood loses control of US mall portfolio

Barry Sternlicht-led firm paid $1.6B for the 7 shopping centers in 2013

Barry Sternlicht (Getty, iStock)
Barry Sternlicht (Getty, iStock, Starwood)

It’s over for Starwood Capital Group’s U.S. mall portfolio.

The real estate investment firm lost control of seven shopping centers after defaulting on Israeli bonds earlier this year, according to the Wall Street Journal. A ratings downgrade on the debt triggered a clause that allows bondholders to take control of the properties.

Six parties — including Starwood — submitted bids for the portfolio back in May. A partnership between Pacific Retail Capital Partners and Golden East Investors beat out the five other parties. The partners did not disclose how much they paid for the malls.

The new owners plan to replace department store tenants or repurpose the malls into apartments or offices. The group also said they will restructure the mortgages, according to the Journal.

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Miami Beach-based Starwood bought the portfolio of malls in California, Indiana, Ohio and Washington state from Westfield Group for $1.6 billion in 2013. It then refinanced the portfolio by raising 910 million shekels (about $268 million USD) on the Israeli bond market.

The bonds struggled in 2019, facing a class action lawsuit from Israeli investors and trading around 30 cents on the dollar for most of the year. The bonds then fell to around 15 cents during the coronavirus pandemic before trading was suspended in June.

In an interview with The Real Deal, Starwood Capital Group CEO Barry Sternlicht said the pandemic was “a dagger to the chest” for the retail industry but that the firm’s retail outfits were “not really significant investments.”

[WSJ] — Keith Larsen