BRADENTON -- The buyer of DeSoto Square mall plans to renovate the facility into a discount oriented shopping center, according to a commercial retail broker familiar with the deal.
The final purchase price will be a small fraction of the $61.9 million Simon Property Group Inc. now owes on the mall, leaving enough capital for the purchaser to reposition the Bradenton property which has slipped into foreclosure, said Patrick Berman, senior director of the retail brokerage at Cushman & Wakefield of Florida Inc.
The buyer, who's yet to be identified, is a brand name most will easily recognize, said Berman. The deal is expected to close by the end of the month.
"Right now it's the typical regional mall with the usual suspects," Berman said. "It's the same formula used across the Southeast, and it's obviously not working. You have to reposition your strategy."
Simon's $61.9 million loan on the 492,997-square-foot portion of the mall it owns fell into danger of imminent default in 2010. Simon is the world's largest owner of shopping malls.
The company has been delinquent on its payment 10 times in the last 12 months, with the property reaching full foreclosure in March, according to records from Trepp LLC, a real estate analytics firm.
Simon has offered to hand the property back to the bank, but the lender wants its money. The company also has hired legal counsel and commercial brokers, who have found the mall a buyer.
DeSoto Square appraised at $80.2 million during the height of the real estate boom in 2004. It is worth an estimated $43.1 million today, falling $24 million on May 5, according to Trepp records.
The purchase price and debt agreement negotiated as part of the purchaser's letter of intent signed in May is still unclear.
Representatives from Simon and its commercial brokers declined to comment on the sale.
With construction soon to be underway at the 115-store University Town Center -- a proposed upscale shopping mall to line the Sarasota-Manatee border -- the aging DeSoto Square is no longer a viable shopping option, Berman said.
Simon collected $5.05 million in base rent at DeSoto Square last year, leading to $6.7 million in total revenue. That's down from $8.3 million in 2009 and $9.5 million in 2008, according to Trepp.
The mall's net operating income also has shrunk each year since 2008, sliding to $4.2 million in 2011. An estimated 75 percent of DeSoto Square's existing leases expire within 24 months.
The undisclosed buyer has intentions to raze several walls to give the facility an open feel, Berman said. The firm also will work to inject more discount stores like Costco, Big Lots, Tuesday Morning, and Sears Outlet Appliance Center.
DeSoto's anchor tenants now include Macy's, JC Penney and Sears.
"It's a real good property in terms of location," Berman said. "It's the only regional mall in Manatee. Part of the problem is its age. Right now it's like a fortress. It's big and bulky. It needs to be reopened."
The 639,094-square-foot mall was first built in 1973, with the latest expansion coming in 1997. Simon acquired the property in August 1996.
Many retail analysts agree the best option for the new owner would be seizing the discount market, which would better serve the demographics of the mall's surrounding areas.
The trend among new shopping centers across the U.S. is shifting to discount. Only two malls in the works across the country are planned for an upscale setting including the University Town Center. That's compared to 17 outlet malls now being built, real estate records show.
"When the University Town Center comes online, it will be a big problem for this property," said Barry Seidel, president and founder of American Property Group of Sarasota Inc. "If you put this more in a discount realm, it will do well. That area's all working people, and folks are still hurting, so that would be a good fit there."
Off-price retailers like T.J. Maxx or Bealls Outlet reported strong sales through the recession when other retail channels were down. But during the past 18 months, luxury spending has come on strong.
The market now has really become location based, with different areas seeking different qualities in their preferred retailer, said Rick McAllister, president and CEO of the Florida Retail Federation.
"What you will find is these folks who feel there's not enough bargain shopping opportunities in a market and they take on a whole new plaza or revamp an existing mall," he said. "I don't think there's anything afoot. It's just different retailers targeting different shopping habits."
Josh Salman, Herald business writer, can be reached at 941-745-7095. Follow him on Twitter @JoshSalman.