Donahue Schriber Buys Diversified Shopping Centers

In a deal that makes it one of the West’s largest owners of retail centers, real estate investment firm Donahue Schriber said Thursday it has acquired a major Costa Mesa-based shopping center builder.

The purchase of Diversified Shopping Centers is part of an expansion plan that could lead to a public offering by Donahue Schriber’s privately held real estate investment trust in five years or so, chairman Daniel W. Donahue said.

Terms of the private deal were not disclosed. Donahue did say, though, that his Newport Beach company financed the acquisition with a combination of cash and assumption of Diversified’s debt.

Industry analysts said the deal is part of an ongoing consolidation of the commercial real estate industry, as large institutional investors seek to reduce risks by putting their money into the property pools owned by real estate investment trusts--the mutual funds of the real estate industry--rather than investing in individual developments.

“It is tough to be an independent shopping center developer anymore,” said real estate consultant Alfred Gobar.

Donahue Schriber, which is part owner of the Glendale Galleria, built the Tustin Marketplace and redeveloped both the Fashion Island shopping center and the Galleria at Tyler in Riverside. But it has been shedding its regional mall interests for years.

Instead, the company began developing smaller neighborhood retail centers--often anchored by a major supermarket.

The acquisition of Diversified added 38 such centers, most of them in California, to the eight that Donahue Schriber already owned and gives the company’s REIT about 6 million square feet of retail space. Donahue said the company also is buying neighborhood centers on its own and is in escrow on four properties.

“We believe there is a tremendous amount of capital available for expansion, and we want to continue to grow the company,” he said.

Donahue Schriber also contracts with other property owners to manage about 7 million square feet of retail space, including several regional malls and so-called power centers anchored by national chain stores like Home Depot, Wal-Mart and Toys R Us.

The company has switched its investment strategy to focus on neighborhood centers, “because we believe that we found a niche on the West Coast that no other REIT is doing,” Donahue said.

Thursday’s deal makes Donahue Schriber one of the West Coast’s largest commercial property REITS, in terms of square footage owned and managed, and in gross assets. Its 46 properties are worth about $500 million, the company said.

It is a mid-sized player on the national scene, however. “There are a number of REITS headquartered in the East with several hundred million square feet,” Donahue said.

Diversified Shopping Centers, which had 24 employees, was founded in 1966 by Ranney Draper and developed more than 70 neighborhood centers in California, Nevada and Arizona. Draper, who was chairman and owner of the company, intends to start a new investment firm.