Sears, Roebuck and Co. said Monday it is negotiating with General Growth Properties, a Des Moines-based retail real estate investment trust, for the sale of the retail properties in Sears’ Homart Development unit, including 27 shopping malls around the country.
Sears put no price tag on the possible deal, but it could go as high as $1.8 billion.
The announcement means that Sears has picked General Growth, already one of the country’s top shopping mall owners, as its first choice to buy the Homart retail portfolio. Other mall giants, such as Indianapolis-based Simon Property Group, had been in the bidding.
Besides the 27 existing regional malls, Homart is planning or has under construction 12 more. It also owns 11 smaller commmunity shopping centers and has seven more in the works. In addition, the company has management contracts for eight regional malls that it doesn’t own, including Northbrook Court.
Reportedly included in the deal are two Homart-owned community centers in the Chicago area, Woodfield Village Green in Schaumburg and The Quarry in Hodgkins. The sale may also include the management contract for Northbrook Court.
Sears officially put its entire $2.2 billion Homart portfolio, which includes about $400 million in office buildings, on the block last November. The General Growth deal would not include the office properties.
The sale of the development subsidiary has been considered almost inevitable since the retailer decided to concentrate on its core business a couple of years ago. Homart originally was an outgrowth of Sears’ need for malls to put its stores in.
A Sears spokesman said preliminary talks with General Growth have been going on for several months. “There’s been a lot of interest,” the spokesman said. “It came down to a handful of prospective buyers, and we notified them that there was a finalist with whom we are in exclusive negotiations.”
The spokesmen said Sears hopes to complete a deal this summer. “We feel the negotiation process is on track and when completed should be beneficial to Sears and its shareholders.”
Whatever Sears gets for Homart might be considered a windfall. Chairman Edward Brennan said recently that Sears is essentially debt-free.
Sears’ 1993 corporate repositioning transferred or eliminated more than $30 billion of funding, according to the latest annual report. The recent Sears Tower financial restructuring eliminated another $845 million of debt, though Sears has continuing obligations under that deal that may run to hundreds of millions of dollars.
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A likely possibility: A $1.8 billion gain could go toward the Merchandise Group’s current $4 billion renovation/building program, initiated by the group’s chairman, Arthur Martinez, about two years ago. A Sears spokesman said that some of the money also would go to retire some Homart debt.
General Growth officials were unavailable for comment, but the trust has shown a large appetite for expansion. It owns 40 shopping malls in 17 states, and less than 18 months ago it joined with two other investors to buy Centermark Properties Inc. for $1 billion from Prudential Insurance Co. of America.
As recently as April, General Growth Chairman Martin Bucksbaum described Homart properties as a mixed bag. In a roundtable discussion led by Jonathan Litt, real estate investment trust analyst for Salomon Brothers, Bucksbaum said Homart had “superb properties . . . questionable properties . . . and some that are just bad.
“It becomes a matter of how you can improve the bad ones. How long is it going to take you? How much money is it going to take?”
Litt called General Growth one of the premier regional mall owners and operators in the country. Bucksbaum “has always made investors and operators a lot of money,” he added. “I can’t believe he’s going to do this deal unless he’s going to make money.”
Despite Sears’ intention to sell Homart, the unit has remained one of the most active shopping mall developers.