L.A. Buyers Circling as REIT Considers Liquidation.

With Burnham Pacific Properties Inc.'s shareholders expected to approve a total liquidation of the company's assets at an Oct. 18 meeting, local investors are preparing to bid on the properties, which include 13 shopping centers in Los Angeles County and 28 in Southern California.

Burnham Pacific officials did not return phone calls last week, but in an Aug. 15 statement, the San Diego-based real estate investment trust said that its two largest preferred stockholders, Blackacre Capital Group and Westbrook Real Estate Partners, support the liquidation plan.

Craig Silvers, an analyst with Sutro & Co. who has been following the matter, said the plan will likely be approved, barring a lawsuit or buyout, and all the properties will be put on the block within the year.

"It means there are a lot of retail properties coming onto the market very soon," he said.

The REIT has $900 million in real estate holdings nationwide, mostly shopping centers that are anchored by grocery stores, drug stores and theaters, such as Crenshaw Imperial Shopping Center in Inglewood and Ladera Center in Ladera Heights.

Developers in search of a good buy are expected to flock to the properties.

"I think everyone's going to look at it," said Rick Caruso of Caruso Affiliated Holdings in Santa Monica. "We've been watching it for a number of months."

Problems no secret

Burnham Pacific's plan to liquidate comes as no surprise to observers. The properties purchased by Burnham Pacific have not done as well as shopping centers owned by other retail-oriented REITs, most of which have better margins and higher occupancy rates, Silvers said.

Faced with higher interest rates and low earnings, a declining stock value and a battle with stockholders who attempted to buy out the company, Burnham Pacific has shopped its portfolio around for months without success, Silvers said.

Burnham Pacific, once among the larger REITs, has not grown as much as its peers. Its market cap, at $200 million, is relatively low for its sector. While REIT stocks have generally bounced back this year, Burnham Pacific's stock has not. The stock closed at $5.75 a share on Aug. 24, near its 52-week low and about half its value of a year ago.

While it' s not unusual for REITs to sell off assets, "usually they liquidate from a position of strength," Silvers said. Burnham Pacific's pending liquidation when the company is so vulnerable may give the upper hand to buyers.

A question of quality

"People are going to try to cherry-pick the better ones," Caruso said. "The question's going to be what they're going to sell for, and how strong the underlying real estate is. It's going to come down to the quality of the property."

Meanwhile, market conditions are favorable. There is strong pent-up demand for L.A. retail properties with upside potential, said retail tenant broker Steve Soboroff of Soboroff Partners. "It's a healthy market to liquidate property," he said.

Further, because Burnham Pacific is putting so many centers on the block at one time, prices are likely to be depressed -- not only for its properties, but for any other malls hitting the market, industry observers said.

Caruso expects the properties to go to various buyers. If there were any large buyers out there willing to buy the entire portfolio, they would have stepped forward when Burnham Pacific shopped the company around.

"I think these people (at Burnham Pacific) overpaid for these properties," Caruso said. "They just haven't had strong earnings."