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Real Estate—Burnham Pacific sells its Lake Arrowhead holdings

Real Estate: Sale Is Part of Liquidation Of Troubled REIT

LAKE ARROWHEAD , Burnham Pacific Properties Inc. has sold the Lake Arrowhead Village shopping center as part of a $355 million portfolio sale to help liquidate the troubled real estate investment trust.

Cleveland-based Developers Diversified Realty Corp., through a joint venture with Prudential Real Estate Investors and Coventry Real Estate Partners, will acquire the 229,114-square-foot lakefront shopping center as part of a 15-property deal totaling 3.5 million square feet.

San Diego-based Burnham had acquired the mountain resort shopping center at Highways 189 and 173 from local partnership HMS LLP for $31.5 million in one of the largest retail deals of 1998.

Lake Arrowhead has about 25,000 permanent residents. Vacationers swell the summertime population to 100,000. But of the 2.4 million people who visit the area every year, more than 1 million visit the shopping center. The center, anchored by a 33,580-square-foot Stater Bros., Rite Aid and dozens of smaller shops, had a vacancy rate at the time of the sale of 8.3 percent.

“This transaction affords Coventry the opportunity to expand its investment portfolio significantly by acquiring properties that are well-located in strong markets,” said Peter Henkel, Coventry’s managing partner. “We believe that under (Developers Diversified’s) management, we can enhance the value of the portfolio and generate strong returns for our investor partners.”

Bad Times For REITs

At the time Burnham purchased the Lake Arrowhead center, REITs were flush with Wall Street money and Burnham was in the middle of a West Coast retail-center shopping spree.

Its $302.4 million purchase of a 2.4-million-square-foot California portfolio from Golden State Properties made it the state’s largest retail REIT. In the Inland Empire, the 128,000-square-foot Menifee Town Center in Menifee, anchored by Ralphs and Target, was part of that deal.

But by late 1999, conditions had soured for publicly traded real estate companies. Burnham fared worse than most, watching the value of its shares plummet.

The company’s board came under fire for spurning a $13.50-a-share buyout offer in late 1999. At that time, the stock’s price was hovering at just under $12. Since then, the value of its shares has plunged to as low as $4.86.

In response, Ohio-based retailer Jay Schottenstein led a takeover attempt of the company earlier this year. As part of an ongoing battle to stave off the takeover, the board began negotiating with Coventry Partners, Developers Diversified Realty and Prudential, for a possible merger or sale.

Liquidation Plans

By mid-August, however, the embattled REIT’s officials had announced they had been unable for find a suitable buyer, the chief executive had resigned and the board made plans to liquidate the company.

On Sept. 1, Burnham announced it was closing three offices and laying off 46 employees. On Sept. 6, it announced the huge portfolio sale to its former suitors.

If the deal closes, Developers Diversified will own and operate 221 centers and 51.4 million square feet in 41 states , including 39 properties totaling 11.4 million square feet in the western United States , making it the second-largest shopping center REIT in the nation.

Burnham’s other Inland Empire retail properties were not part of the portfolio deal. It retains centers in San Bernardino and Ontario, among several smaller properties.

While distracted by its takeover woes, Burnham hired Vestar Property Management to manage a large portion of its Southern California retail portfolio, including the Menifee Town Center and the 97,149-square-foot Ontario Village at Holt Boulevard and San Antonio Avenue just west of downtown Ontario.

Drummer is a reporter with the Riverside County Business Press.


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