Does Blackstone's Latest Shopping Center Announcement Raise More Questions Than Answers?

It appears that The Blackstone Group L.P. BX is doubling down on its shopping center partners.

Blackstone has been involved with several JV's with leading U.S. power center REIT DDR Corp DDR.

Back in 2014, it became clear that long-time DDR Corp CEO Daniel Hurwitz was leaving the company. However, it was a bit of a mystery, or at least unclear as to why he was parting ways with DDR prior to a new CEO being chosen.

Latest Blackstone Announcement

On January 28, Blackstone announced that its "retail real estate advisory portfolio companies" in the U.S. had entered into partnership with Raider Hill Advisors. Raider Hill Advisors was formed by Hurwitz after he parted ways with DDR Corp.

According to Nadeem Meghji, a Senior Managing Director in Blackstone's Real Estate Group, "We are significant investors in shopping centers both in the U.S. and internationally, and will take advantage of Dan's extensive experience and track record as the CEO of DDR."

The DDR Journey

• Hurwitz started with DDR back in 1999 as President of Leasing and Development.
• The company got in troubled waters during the Great Recession, mainly as a result of allocating capital to questionable markets in Latin America, Puerto Rico, Canada and Russia, as well as many secondary markets in the U.S.
• When Hurwitz took the reins as CEO back in 2010 the company outlined a five year strategic plan to exit non-core markets and recycle capital into a portfolio of power-centers located in top tier U.S. markets. It has been implemented and appears to be succeeding quite well.

DDR Power Center Focus

DDR - Snapshot Today

Blackstone - Experienced U.S. Shopping Center Operator

• The Blackstone real estate mantra has been "Buy It, Fix It, Sell It."
• Blackstone fine-tuned the U.S. shopping center portfolio it acquired in 2011 from Australia's Centro Properties Ltd. It sold some centers and purchased others from Equity One, Inc. and Regency Centers Corp.
• Blackstone branded these centers under the Brixmor Property Group Inc BRX flag, which became the largest U.S. retail REIT IPO since Simon Property Group at the end of 2013.

Brixmor IPO

By the time Blackstone sponsored the Brixmor IPO, portfolio occupancy was at 92 percent, reflecting 10 consecutive quarters of improvement.

Related Link: Brixmor Property Group Secondary Offering -- Already Baked Into The Cake?

Blackstone typically retains a sizeable investment when it realizes gains on a portfolio company through a public offering and Brixmor was no exception.

However, after an announced secondary offering, Blackstone will no longer be the majority owner of Brixmor shares, and voluntarily is relinquishing control of the board.

Brixmor Hitting New Highs

Blackstone - Lather, Rinse, Repeat?

It remains to be seen how the Blackstone and Raider Hill partnership will proceed. The entire U.S. retail REIT sector -- from grocery anchored neighborhood centers, power and lifestyle centers to Class-A regional malls -- is clocking in at new 52-week highs almost daily.

One major exception to that would be struggling Class-B malls, and dying malls in secondary markets and locations. Perhaps there is an opportunity to selectively redevelop some of these sites -- which would be major "Fix It" magic.

Also, there has been relatively little new development in the retail sector the past few years, for multiple reasons, including a lack of interest by commercial banks to lend on speculative developments. Blackstone certainly has access to capital if there are opportunities to exploit.

Regardless, now that Hurwitz has teamed up with Blackstone, it does start to make more sense why he left DDR Corp. when things were going so well.