Thursday, Feb. 1, 2001 | 11:19 a.m.
TrizecHahn Corp. of Toronto, the developer of the massive Desert Passage mall at the Aladdin, wants to sell its majority stake in the five-month-old Las Vegas Strip project.
In an interview with the Globe and Mail of Toronto, Christopher MacKenzie, the newly appointed chief executive of TrizecHahn Corp., indicated he's looking to sell off $1 billion in TrizecHahn assets over the next several years as part of a strategy to focus on the American office space market.
Those sales, MacKenzie said, will include the sale of the company's American portfolio of retail and entertainment ventures -- including its 65 percent ownership in the 450,000-square-foot Desert Passage, most likely in 2002. The minority owner of Desert Passage is the Sommer Trust, the majority owner of the Aladdin.
"The company has lost its way very badly and it needs to be refocused," MacKenzie told the Globe and Mail. "Our future is refocusing the company on a slimmed-down operation."
A TrizecHahn spokeswoman emphasized the sale was not occurring because TrizecHahn was disappointed with the property's performance.
"The aim will be to maximize the value of that premier asset on the Las Vegas Strip," said Laurie Ludwick. "It's a very, very successful asset which the company is proud of, but no longer fits within its core U.S. business.
"TrizecHahn is not planning to dispose of it because it's not creating value, it's (planning to sell it) because it's focused on its core office portfolio. (Desert Passage) doesn't fit in with that."
The sale process should have "no impact whatsoever" on tenants at the Desert Passage, Ludwick said.
Other assets headed for the sale block include TrizecHahn's real estate holdings in Europe and Canada -- including Toronto's CN Tower, the world's largest free-standing tower. TrizecHahn has a 40-year lease on the building. TrizecHahn will retain its American office buildings portfolio, including Chicago's Sears Tower.
"Trizec is a company that's been invested in all sorts of stuff, and that's served to confuse investors as to what this company is and what it wants to be," said Jim Sullivan, senior analyst with Green Street Advisors, a real estate securities research firm. "They decided it would be attractive to simplify their story."
Sullivan said the decision to sell Desert Passage isn't surprising, given the company's indications last year that it wouldn't develop additional retail projects.
"Two months ago, their simplification story was, 'We're in the office business, the international carrier hotel business, and no other business,"' Sullivan said. "They never came out and said specifically, 'We'll sell our retail and entertainment business.' But reading between the lines, it shouldn't surprise anybody to say that's what they're headed towards doing."
If TrizecHahn is selling, all of retail's large names must be considered as potential buyers -- particularly those companies with Strip experience, observers say. Names that pop up as potential bidders include Rouse Co., the Simon Group, Forest City Management and General Growth Properties.
All four already have big investments in the Las Vegas-area retail market. Rouse is the developer of the Fashion Show mall on the Strip and plans a mall in Summerlin; Simon operates the Forum Shops at Caesars; Forest City owns the Galleria mall in Henderson, co-developed the Showcase mall on the Strip and manages the Canal Shoppes at the Venetian; and General Growth, the owner of the Boulevard and Meadows malls, plans to develop a mall in partnership with Mandalay Resort Group. Few details have been released about that mall, to be located between Mandalay Bay and the Luxor.
"With your big shopping center companies, it's like a little fraternity of them, almost," said Strip hotel-casino broker David Atwell. "These major players are building, trading and selling packages of properties on a fairly regular basis, not just one property at a time. I'm sure they'll be shopping (Desert Passage) as part of a package to the hierarchy that does this."
"It's solid real estate, and a number of portfolios would find it very attractive," said George Connor, who follows the Strip retail market for Colliers International. "It would fit nicely into the Rouse portfolio, or into the Simon portfolio."
Connor also pointed to Forest City.
"They are part owners in Showcase mall (on the Strip), so they have experience," Connor said. "They've been active recently."
In addition to its $160 million Desert Passage investment, TrizecHahn is developing Hollywood & Highland, a $440 million, 640,000-square-foot retail and entertainment complex in Los Angeles. Scheduled to open later this year, the project will become the new home of the Academy Awards ceremonies.
Also under development is Paseo Colorado, a $115 million, 565,000-square-foot retail, office and residential development in Pasadena, Calif. After opening this fall, the project will be home of Pasadena's Rose Bowl Parade. Both Los Angeles-area projects will also be sold.
"The markets, the physical design, the tenants are so different that (TrizecHahn) is likely to split up the three and sell them individually," Sullivan said. "They're big assets. Rouse and Simon would be on that list (of interested buyers), I would think."
One thing that could make it difficult to command a premium price for the Desert Passage is the newness of the property. In December, Colliers estimated the property was recording about $700 in annual sales per square foot -- well above the national average, but trailing the $900 to $1,000 seen by the Canal Shoppes, and the national record pace of $1,200 at the Forum Shops.
And, in a series of lawsuits filed late last year, several tenants complained the property hadn't met traffic flow projections.
"It still hasn't fully gotten up on its legs," Connor said, noting that some of the mall's restaurants have yet to open. "The verdict is still out. You need another six months to see its full potential ... most new products take about a year to get their legs under them.
"It's a great asset. It's just going to take awhile for people to think about the Desert Passage when they come to Las Vegas."
Still, the lack of a track record could make a sale more challenging, Sullivan said.
"It always takes a retail project a couple of years to season," Sullivan said. "It's harder to sell a retail property before that kind of track record is established. That's not to say you can't do it, but buyers would like to see some kind of track record, as to sales per square foot and traffic volume."
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