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The Honolulu Advertiser

Posted on: Tuesday, April 9, 2002

Ward purchase shuffles Hawai'i's retail industry

 •  Map: Victoria Ward properties

By Andrew Gomes
Advertiser Staff Writer

A $250 million deal by the owner of Hawai'i's largest shopping mall to buy O'ahu's third-largest retail complex from Victoria Ward Ltd. creates a behemoth expected to have a broad impact on the Island's retail industry and reshape potential development in Kaka'ako.

The future of Mitch D'Olier, Victoria Ward's president and chief executive officer, is up in the air.

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The deal announced yesterday by General Growth Properties Inc., owner of Ala Moana Center, is expected to close July 31, bringing the Chicago-based company's investments in the state to more than $1 billion in the past four years.

The purchase has been approved by Victoria Ward's board of directors, but still needs approval by the company's roughly 35 shareholders, who would receive $200 million in cash plus the assumption of $50 million in debt.

The deal would give General Growth, which bought Ala Moana in 1999 for more than $800 million, control of Ward's entire 65-acre estate — 29 buildings and 17 ground leases with about 600,000 square feet of retail space and 700,000 square feet of office and industrial space.

Analysts said yesterday that General Growth's aggressive last-minute bid, which topped an earlier offer by Honolulu's Alexander & Baldwin Inc., is a shrewd strategy that could alter the retail market and affect Victoria Ward redevelopment plans, including a proposed Nordstrom department store that would be part of an envisioned 550,000-square-foot mall addition almost one-third the size of Ala Moana.

John Bucksbaum, General Growth chief executive officer, said his company plans to study Ward's expansion plan, which includes residential high-rises, to determine whether to pursue them.

"I think a Nordstrom store in Hawai'i would be a good thing, and I'd certainly like to see it on our property, but whether it's at Victoria Ward or Ala Moana I can't say at this point," Bucksbaum said.

Retailers nervous

The potential changes also stand to affect Victoria Ward employees and tenants, some of whom expressed apprehension yesterday over General Growth's purchase agreement.

General Growth plans to evaluate all 72 Victoria Ward employees, including Mitch D'Olier, company president and chief executive officer, and determine their future, D'Olier said.

For retailers, there could be opportunities to move between centers, Bucksbaum said. But some analysts noted that many retailers would lose lease leverage if General Growth controls Victoria Ward and Ala Moana, with its 1.8 million square feet of retail space.

"They would have all the covered indoor retail spaces in Central Honolulu — and with that power comes not only control but maybe abuse of that power," said Audrey Fu, owner of Villa Roma, a women's apparel store in Ward Warehouse. "I would like to be optimistic, but my stomach was in a knot when I heard about this."

Added local real estate consultant Ron Gilligan: "It obviously gives (General Growth) somewhat of a monopoly position, and enhances their negotiating strength with tenants."

Some of Ward's 140 retailers and restaurants were more optimistic about possible benefits of the pending ownership change.

"I feel comforted by the fact that Mitch would not make a decision that would adversely affect the tenants of Victoria Ward," said Doug Sanders, a partner in Buca di Beppo, an Italian restaurant at Ward Entertainment Centre. "If Victoria Ward is going to be bought by a Mainland company with more access to capital, then it is probably a good move."

Some analysts noted that with General Growth's greater access to capital and development experience, it may be more likely that Victoria Ward's development master plan will be completed, though perhaps with changes.

"They're visionaries; they've been doing this for a long time," said Stephany Sofos, a Honolulu retail consultant. "They have the capital ... and it gives them the ability to redesign the urban core so that it can complement their existing property (Ala Moana)."

Bucksbaum noted that General Growth's history, although it has focused on buying shopping centers in recent years, is mostly in retail development and a bit of office and residential development.

He added that his company was attracted to Victoria Ward by its unique street-front style combining existing retail business with intriguing redevelopment opportunities.

Bucksbaum said he viewed Ala Moana Center and Victoria Ward as complementary developments rather than head-to-head competitors.

Protecting franchise

Analysts suggested, however, that General Growth is buying Victoria Ward in a defensive move to protect the company's single-largest asset.

"Ala Moana is the dominant mall in Hawai'i, and I think that General Growth thinks it has, at the moment, a monopoly on retail shopping in Hawai'i," said Matt Ostrower, an analyst with Morgan Stanley in New York. "Their goal is to make sure nothing competes in those islands with Ala Moana. They're sort of protecting their franchise."

Stuart Axelrod, a research analyst at Lehman Brothers in New York, said redevelopment opportunities are probably a key to the purchase. But he also noted that General Growth's philosophy has been to own retail assets in markets where it can control the retail flow.

"This asset is worth more to them, owning Ala Moana, than anyone else," he said.

The $250 million bid by General Growth came just hours before Victoria Ward had been expected to announce a deal Friday with Alexander & Baldwin.

Yesterday, A&B president and chief executive officer Allen Doane issued a brief statement saying, "We are disappointed by Victoria Ward's decision and the last-minute events that led to that decision."

Doane did not elaborate, but noted that his company would continue to pursue Hawai'i real estate acquisitions.

General Growth's purchase, if completed, would be the second time A&B has lost out to the company in acquiring a local shopping center.

In 1999, A&B tried to buy Ala Moana in partnership with Simon Property Group, the nation's largest shopping mall operator, but the roughly $800 million bid fell short of an $810 million offer by General Growth.

A $2.8 billion publicly traded real estate investment trust, General Growth owns or manages 142 malls in 39 states. The company also owns Hilo's 505,000-square-foot Prince Kuhio Plaza, the Big Island's biggest mall.

End of an era

General Growth would own and operate roughly 3 million square feet of retail space in Hawai'i.

For Victoria Ward, the sale will end more than 130 years of ownership by descendants of Victoria Robinson and Curtis Ward, who once lived on an estate, Old Plantation, where Blaisdell Center is today.

The estate, incorporated in 1930, was mostly industrial property converted gradually over the decades to a retail mix that crystallized in the early 1990s with additions such as Pier 1 Imports, Ross, Office Depot, Sports Authority and Nordstrom Rack.

The vision of an urban retail village was taken to another level last year when the Ward Entertainment Centre opened, with a 16-screen theater, Dave & Buster's and several new restaurants and shops.

Victoria Ward last year announced a plan to replace Ward Warehouse with a 550,000-square-foot center that would include a 150,000-square-foot Nordstrom department store to open in late 2005.

Ward's master plan also includes residential high-rises, a supermarket, more parking and street realignment.

Reach Andrew Gomes at agomes@honoluluadvertiser.com or 525-8065.

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