Trizec said near sale of successful Pasadena project. (UP Front).

Pasadena's Paseo Colorado shopping complex, which has exceeded sales projections of developer Trizec Properties Inc., is close to being sold to a partnership led by Lehman Bros. for about $114 million, according to real estate sources.

Though it opened with far less ballyhoo than Trizec's centerpiece development in L.A., Hollywood & Highland, Paseo Colorado is generating more revenue on a per-foot basis than its larger cousin.

The sale to Lehman and a yet-to-be identified partner for the 410,000-square-foot project is set to close by the end of the month, according to real estate sources. Trizec announced last year that it would be selling its entire retail portfolio.

The package does not include the 155,000-square-foot Macy's, owned by its parent, Federated Department Stores Inc., or the adjoining 387-unit apartment complex, owned by Atlanta-based Post Properties Inc.

"We're working on finalizing a deal," said Rick Matthews, spokesman for Trizec, who would not discuss the details of the pending deal or confirm the identity of the buyer. "We don't have a sale yet." Lehman officials could not be reached for comment.

If Trizec is able to get $114 million for the project, it would mark a 33 percent increase in valuation since it opened its doors last September. In its quarterly report for the period ended June 30, Trizec valued Paseo Colorado at $85.4 million. The company spent about $80 million to develop the project and has invested $5 million since its opening. The city of Pasadena contributed $25 million for parking construction.

The pending sale highlights Paseo's relative success to Trizec's two other regional centers: the larger, more expensive Hollywood & Highland and Las Vegas' Desert Passage.

"Compared to the other two properties, it's wildly successful," said Jim Sullivan, senior analyst at Newport Beach-based Green Street Advisors. "It's the most saleable of the retail assets."

Success in downturn

Despite opening just two weeks after Sept. 11, Paseo, an outdoor retail project developed out of the ashes of the 20-year old indoor mall Plaza Pasadena, has drawn steady crowds.

Operating income for the first six months of 2002 was 5 percent ahead of expectations, or $10.48 per square foot. That compares to the disappointing performance at Hollywood & Highland, which had operating income for the first six months of $8.53 per foot.

Trizec has since reduced its 2002 operating income projections for Hollywood & Highland to $10.6 million from $15.2 million. More than half the shortfall will be due to the slower-than-expected lease-up of the property.

"Paseo wasn't really positioned as a tourist Mecca, so it's done much better," said Richard Giss, partner in the consumer business practice at Deloitte & Touche LLP. "It's a much easier center to shop."

The pending deal with Lehman Brothers, at a price of $278 per square foot, would mark not only a substantial premium over the $207 a foot the project cost to build, but recent comparable sales in the market.

"Relative to the other two (Trizec retail centers), that would be a home inn," Sullivan said of the Paseo deal. "They do expect to get their cost as well as a little profit.

Macerich Co., the Santa Monica real estate investment trust, paid $232 a foot and $226 a foot respectively for Santa Monica Place in 1999 and Westside Pavilion in 1998. Meanwhile, the Glendale Galleria has been put on the market by a partnership of Cigna Corp., Donahue Sclriber and the New York State Teachers' Retirement Fund, and real estate sources estimated it could sell for as much as $333 a foot.

The pending sale represents the first step Trizec is taking in divesting its retail properties. The New York-based REIT, which changed its name from TrizecHahn Corp. in May, first announced its intentions of selling off its retail projects last year, and had begun talks with potential suitors for Paseo in February.

"We anticipate selling the mall during the second half of the first year at a premium to book value," former Chief Executive Christopher Mackenzie said of Paseo during an August conference call with analysts.

"Lehman has access to inexpensive money," said retail broker Sam Alison, vice president at CB Richard Ellis, who estimated the capitalization rate of the purchase in the 9 percent range. "The play here is a leveraged spread between the cap rate and the interest rate."