A fund managed by investment banking firm Lazard Freres & Co. said Monday that it agreed to buy up to 38% of Alexander Haagen Properties, one of Southern California's largest shopping center developers, for $235 million.
The deal symbolizes growing investor confidence in the region's retail real estate market and will allow Haagen to reduce its large amount of debt and expand its portfolio of 38 properties, which includes Baldwin Hills Crenshaw Plaza in Los Angeles and Media City Center in Burbank.
"They were really stuck and this equity infusion will allow them to start booking new property acquisitions," said Mark D. Benson, who follows real estate investment trusts for Credit Suisse First Boston.
However, the Haagen family will end up as the second-largest shareholder in the company behind Lazard Freres, which will also play a role in selecting a president for the firm. Company founder Alexander Haagen, 78, will remain chief executive and chairman, and his son Alexander Haagen III will remain vice chairman. The company is based in Manhattan Beach.
"We are confident that this is a very good fit," said Fred Bruning, Haagen's senior vice president. "It allows our company to grow dramatically and take advantage of the [expanding] California economy."
The agreement gave Haagen, which is organized as a real estate investment trust, a much needed boost on Wall Street. On Monday, the company's shares rose $1.06 to close at $15.06 on the American Stock Exchange.
Under the terms of the deal, a fund managed by Lazard Freres Real Estate Investors will buy $235 million worth of newly issued Haagen stock over the next two years at $15 a share. When completed, the purchases will give the fund a 38% stake in Haagen, fully diluted.
The New York-based fund will buy about $20 million worth of stock in the next 30 days. It will not make any further purchases until the deal wins final shareholder approval, expected in September.
Anthony E. Meyer, managing director and chief investment officer for Lazard Freres Real Estate Investors, said the company's decision to team up with Haagen reflects its growing confidence in the retail market and the revival of the state's economy.
"We saw that the California recovery was underway and that the retail cycle was beginning to change" for the better, Meyer said. "We did a pretty careful survey of Western [retail developers] and we contacted the company in February."
Haagen, which has developed or acquired more than 100 shopping centers since being founded in 1963, is a politically well-connected company that has been involved in major redevelopment projects. The firm also has been one of the few active developers of retail space in south Los Angeles.
Despite a reputation for strong management and development skills, Haagen was hampered by the slump in the California economy and the merger of supermarket chains, which closed outlets in several Haagen centers. Early last year, the company's stock plunged more than 10% after its 1995 earnings fell below expectations.
Since then, however, Haagen's operations have staged a comeback, and the firm was looking for ways to finance ambitious growth plans when Lazard Freres came calling. Now Haagen will be in a much better position to buy existing properties as well as pursue new development, Bruning said.