Scott Wolstein reunites with Puerto Rico properties through RVI deal

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A $550 million real estate deal in Puerto Rico is a reunion of sorts for developer Scott Wolstein, who once again will oversee properties he first purchased more than 15 years ago.

Late Friday, Aug. 27, Beachwood-based Retail Value Inc. (NYSE: RVI) announced that it had exited the island by selling nine shopping centers to an unidentified buyer.

That buyer, it turns out, is an investor group managed by Wolstein — the co-founder of the company now known as SITE Centers Corp., which spun off Retail Value Inc. in 2018.

“I’m a big believer in the retail on the island. I always liked the properties, the portfolio, the platform and the employees,” Wolstein, who lives in Hunting Valley, said during a phone interview.

As the managing partner, Wolstein will be the hands-on owner, responsible for day-to-day operations of the portfolio. His major equity partner is Kildare Partners, a private-equity firm focused on real estate in Europe and the United States.

Beachwood-based SITE Centers, then called Developers Diversified Realty Corp., expanded into Puerto Rico in 2005. At the time, Wolstein was CEO of the shopping-center company that he and his father founded in 1992.

The company shook up its management team in the wake of the financial crisis of 2007 to 2009. Wolstein’s tenure as CEO ended in 2009, and he stepped down as executive chairman in early 2011. The company rebranded, becoming DDR Corp. later that year and SITE Centers in late 2018.

Three years ago, the real estate investment trust spun off 50 properties into a separate company, Retail Value Inc. or RVI.

From the outset, RVI was designed to liquidate that $3 billion portfolio. It spanned lower quality assets in the continental United States and a dozen malls and strip retail centers in Puerto Rico, which had been hammered by Hurricane Maria in September 2017.

Wolstein said he talked to SITE Centers executives, who also manage RVI, about buying the entire disposition-focused company. Ultimately, though, they agreed upon nine properties comprising more than 3.7 million square feet.

In response to an interview request, SITE Centers declined to comment.

“The crown jewel of the portfolio, for me, was always the Puerto Rico assets,” Wolstein said. “The corporate deal became more difficult, and the company and I just mutually decided on an asset deal.”

As of June 30, the portfolio was 92.2% leased, according to a regulatory filing. The key anchors include Walmart, Bed Bath & Beyond, Best Buy, movie theaters and a Marshalls Mega Store.

Wolstein sees occasions to boost occupancy and to remake vacant department stores.

One oceanside center, Plaza del Atlantico, could be razed for residential development. In April, the U.S. Department of Housing and Urban Development announced $8.2 billion in aid to help Puerto Rico recover from disasters and rebuild infrastructure including homes.

“I think the housing opportunity on the island, with government subsidy, is a unique opportunity that we will try to exploit,” Wolstein said. “And we’re very well-positioned to do that.”

A Puerto Rican bank provided a $350 million loan for the acquisition, he said.

Kildare did not respond to a phone call to its Los Angeles office.

Ben Snyder, a former DDR vice president who is now a national director of shopping centers for Matthews Real Estate Investment Services, was not surprised to see Wolstein pop up in connection with the Puerto Rico properties. Early discussions about a possible deal already were underway when Snyder left DDR in spring 2018.

“If it wasn’t going to be a group that already had a significant presence on the island, having Scott involved makes a lot of sense given his familiarity with the assets — and, frankly, his familiarity with the team,” said Snyder, who is based in Cleveland.

Since Retail Value Inc. is focused on selling real estate, the company hasn’t had cause to make significant investments in the shopping centers, much less tackle redevelopment projects, Snyder said. But Wolstein is in a good position, with a large footprint, to capture demand as leasing rebounds from the coronavirus pandemic.

“There’s a lot of tenant interest down there,” said Snyder, who sold another Puerto Rico shopping center for RVI early this year. “I think he should be pretty successful with this.”

Wolstein expects to open a small office in downtown Cleveland, at the EY Tower at his Flats East Bank project, to complement a staff of about 30 people in Puerto Rico.

He has no intention of building another publicly traded company. But as he reconnects with familiar properties and former employees, he is resurrecting one more piece of the past.

The new business venture, he said, will be called Developers Diversified Puerto Rico.

“I was very proud to be able to put this together,” he said. “It has been a long haul. I’ve been working on it for a long time. And I think it’s a good thing for Cleveland. We’re bringing back a company that could have gone away.”

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