David Lichtenstein - Deals

Deals

After a strong trend of industry growth through the 1990s, housing investments that delivered cash flow became increasingly difficult to find, and Lichtenstein began to expand his focus. In 2000, Lightstone began acquiring retail properties — first strip centers, then malls.

In 2002, Lichtenstein purchased a Puerto Rico-based outlet mall from Prime Retail, a Chicago-based REIT, for $36.5 million. This modest purchase of Prime Outlets opened the door to what is Lichtenstein's most talked about acquisition to date.

In 2003, Lichtenstein inked the deal that would later be one of his most acknowledged successes – the purchase of the entire Prime Retail portfolio for about $638 million, pulling in 37 properties from places such as Pleasant Prairie, Wis., Odessa, Mo., and Gaffney, S.C. The acquisition made Lightstone the second-largest owner of outlet malls in the country after Chelsea Premium Outlets, owned by Simon Property Group Inc., the nation's largest mall owner. With the purchase of Prime, Lightstone also took control of some famous Chicago commercial spaces, including such world-renowned buildings as the Mies van der Rohe-designed IBM Plaza, 208 S. LaSalle Street and the United Building.

Lichtenstein continued to add to this portfolio until 2010, when he sold it to Simon Property Group for a total of $2.3 billion – $700 million in cash and the assumption of $1.6 billion in debt. The price tag reflected a significant increase from what Lightstone paid for Prime in 2003: $115 million in cash and the assumption of $523 million in debt. After paying its 40% partner in Prime, fees and other expenses, Lightstone made about $450 million on the sale.

In 2006, Lichtenstein returned to his housing roots, making some high-profile deals in the affordable housing sector. In May 2006, he contracted to buy 19 Detroit-area multifamily rental complexes from REIT Home Properties for $200 million, and later that year he acquired a series of Birmingham, Ala., apartments for a total of $303 million.

In 2007, the real estate investor again broadened his strategy, entering the hospitality sector. In another newsworthy deal, with an $8.1 billion price tag, Lightstone acquired Extended Stay Hotels, the largest, mid-price extended-stay hotel company in the United States, with 683 hotels and approximately 76,000 rooms located in 44 states and Canada.

But by late 2007 and early 2008, Lichtenstein's Lightstone, like many real estate companies, began feeling the pinch of the Global Financial Crisis of the late-2000s. Considered by many economists to be the worst financial crisis since the Great Depression of the 1930s, the crisis resulted in the collapse of large financial institutions, the bailout of banks by national governments and downturns in stock markets around the world. In many areas, the housing market also suffered. The hospitality sector was not immune and room occupancy in the extended-stay hotel sector, which is aimed at construction workers and other employees on temporary assignments, was showing signs of decline by the end of 2007. On June 15, 2009, Extended Stay Hotels filed for bankruptcy protection. The timing of the Prime sale with the Extended Stay bankruptcy led a Wall Street Journal reporter to quip: "Buying Prime Outlets Inc. in 2003 was one of the best investments that New York investor David Lichtenstein ever made. Now selling the chain of outlet centers is giving him the cash to bail himself out of his worst deal ever." The $450 million profit on Prime more than offset the $80 million loss on Extended Stay.

In addition to the loss of Lichtenstein's initial investment, the bankruptcy filing possibly triggered a clause in Extended Stay's financing documents that would require a personal liability payment by Lichtenstein of $100 million. However, Lichtenstein was able to negotiate an indemnification for the $100 million liability from the companies lenders in exchange for giving up control of the company.

As part of a new marketing strategy in 2008, Lightstone Group rebranded its residential subsidiary, Beacon Management, as Cedarbridge Residential. The firm also tapped 20-year multifamily industry veteran Jack Cassidy to head up the operation as president. The change brought all of Lightstone's apartment business, which comprises roughly a third of the overall company, under one umbrella.

In October 2008, Lightstone turned over two malls to the lender; Macon, Ga., and Burlington Square, N.C. Shortly after defaulting on these two malls, four additional malls were turned over to the lender Martinsburg Mall in Martinsburg, W. Va.; Mount Berry Square Mall in Rome, Ga.; Shenango Valley Mall in Hermitage, Pa.; and Bradley Square Mall in Cleveland, Tenn.

Throughout 2008, 2009 and 2010, Lichtenstein continued to add value to properties through renovation, securing long-term leases with strong retailers and attracting senior staff.

By the end of 2010, with more than $350 million his non-traded REITs and private funds, and "a big war chest" from the Prime sale, Lichtenstein geared up for an active 2011:

• In February, Lightstone bought Festival Bay Mall in Orlando, Fla., for $25 million, partnering with Paragon Outlet Partners.
• In March, it was Crown Plaza Boston North Shore, for $10 million, considered "a big score in a tough market."
• In May, the firm broke ground on a new outlet center in Grand Prairie, Tx.
• In June, Lightstone purchased close to 24 acres in southwest Las Vegas Valley for $4.4 million – its prior owners had bought it just four years before for more than $30 million.
• In July, the firm purchased a senior position in Holiday Inn Express Hotel & Suites Tower Center, East Brunswick, N.J., for $5.6 million.
• In August, Lightstone acquired a residential development site in Long Island City, N.Y., for $19.3 million, with intentions to build out more than 200 apartment units.
• In October, Lightstone launched a New York City apartment development firm, called Phoenix Development Partners, with the mission of developing large-scale rental housing in all five boroughs.
• In November, Lightstone purchased the senior mortgage of Marriott Courtyard in Parsippany, N.J., for $9.2 million, as well as the Plaza at DuPaul retail center in St. Louis, Mo., for $19.8 million.