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Acquisitions Taking Place in Commercial Real Estate


Tuesday, February 16th, 2010

The past two years have been brutal for many commercial development and property owners. One area that has been hit particularly hard was the Real Estate Investment Trusts (REITS), which owned large portfolios of shopping mall properties. As consumer spending declined, many of these organizations struggled with the challenges of high debt service obligations and declining occupancy rates. However, after several key players have been severely damaged after such situations; is when you will see the strongest ones emerging to purchase the weakest. Such is the case with Simon Property Group, who has offered to buy General Growth Properties for $10 billion. What makes this deal so interesting is that Simon is the largest shopping mall REIT in the country, while General Growth Properties is the second largest. Along with the fact that General Growth Properties is: currently in chapter 11 bankruptcy. This has allowed Simon to pick up its largest competitor for a fraction of its actual value. Simon Property Group is currently the strongest player in the sector, with the company raising billions in additional capital, to take advantage of opportunities in the market. Then when you combine this with the fact that Simon is predicting that their occupancies are going to increase; signals that they are picking up a weaker competitor for pennies on the dollar.

What this shows, is that Simon Property Group is looking beyond the current recession; by planning for the recovery in real estate over the long term. The latest example of this; is the offer to pick up a weaker competitor and increase their overall market share, with the General Growth Properties deal.

 



Article by Chris Seabury

The views expressed are the subjective opinion of the article's author and not of FinancialAdvisory.com