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Florida firm buys 70 percent stake in Prime Outlets

January 18, 2002

Florida firm buys 70 percent stake in Prime Outlets



By JULIE E. GREENE

julieg@herald-mail.com

Prime Retail has sold a 70 percent stake in Prime Outlets at Hagerstown to a Florida real estate investment firm to which it had tried unsuccessfully to sell the outlets almost two years ago.

The $23.5 million sale of the 110-store outlet center was completed Jan. 11 to a partnership consisting of Prime Retail and Estein & Associates USA, Ltd. Prime Retail retains a 30 percent interest in the local outlet center.

Shoppers shouldn't notice any difference, Prime Retail spokesman Steve Sless said Thursday. Prime Retail will continue to manage and lease the center under the name Prime Outlets at Hagerstown.

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The move completes a three-part deal Prime Retail started with Estein in 1999 to sell three outlet centers to the partnership of Prime Retail and Estein. The partnership also owns Prime Outlets at Williamsburg in Virginia and Prime Outlets at Birch Run in Michigan.

As recently as 2000, Prime Retail officials believed it would sell the outlet center south of Hagerstown to the partnership, but the deal fell through when it couldn't be completed by the deadline, Sless said.

Selling the outlet center now to the partnership benefits Prime Retail because the interest rates are better than they were two years ago and the partnership agreed to assume $46.9 million in first mortgage debt on the local outlet center, Sless said.

The previous deal would have required Prime Retail to refinance the local center's mortgage at higher interest rates.

Under the Jan. 11 deal, Prime Retail will refinance the $46.9 million first mortgage debt on behalf of the partnership by June 1, 2004, according to a company release.

The partnership is responsible for the cost of that debt and any refinancing at an annual rate of 7.75 percent for 10 years, the release states.

If the interest rate exceeds 7.75 percent, Prime Retail assumes the cost above that threshold, Sless said. The venture will pay Prime Retail the difference if the cost is below the 7.75 percent threshold.

The good news for Prime Retail is the current rate is 3.37 percent, Sless said.

Prime Retail used $23.2 million in net cash proceeds from the sale to pay down the debt, Sless said. The remaining $300,000 was spent on closing costs and expenses from the sale.

Prime Retail used $11.1 million from the sale to pay down the mortgage on the center, Sless said.

The company used $12.1 million to further pay down what originally was a $90 million mezzanine loan, so now $49 million is outstanding, Sless said.

The three-year mezzanine loan with Fortress Investment Fund reached in December 2000, helped lift the threat of bankruptcy from Prime Retail.

Sless could not say whether defaulting on the mezzanine loan would affect the local outlets.

Orlando-based Estein referred calls to Prime Retail.

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