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Mall Landlords' Next Act: Apartments and Concerts

Property Markets / Planning, Zoning, Infrastructure

United States of America

Feb 21 2017

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Esther Fung, Wall Street Journal

Westfield Corp. recognized more than a decade ago that the long-term outlook for shopping centers was rough. So it changed course.

Since 2004 the Australia-based landlord has slashed its portfolio of shopping centers in half, to 33 from 66, including most of its malls in the Midwestern U.S. where sales growth has disappointed. Instead, it has focused on flagship assets such as the gleaming white mall it operates at New York's World Trade Center.

The culling also freed up Westfield to make strategic shifts. It is dipping its toes into apartment buildings, organizing concerts and other events, and developing mobile apps to engage with consumers.

"In the past, mall landlords could rely on their tenants to drive traffic to their centers," said Romney Jacob, president at consulting company Threadsight. Now, landlords have to provide more than just bland boxes containing stores and restaurants, she said.

Westfield declined to comment for this article because it is in a quiet period ahead of its Feb. 23 earnings report. But Co-Chief Executive Steven Lowy told investors in October that "We are evolving and are continuing to evolve from a company that was really in the business of building buildings and leasing shops to retailers, to creating a much broader strategy."

Westfield plans to build its first residential building in the U.S. in San Diego in the near future, and has developed Westfield Labs, a platform that tests new technologies including those including those that allow customer to shop online. Last August, the firm hired Scott Sanders, a Broadway producer, to oversee its global entertainment offerings, which recently included a holiday concert by the a cappella group Pentatonix.

At the Westfield UTC mall in San Diego, the firm is spending $585 million to spruce up the mall, adding dining spaces, an 18,000-square-foot event center, a public transit center, office space and 200,000 square feet of new shops.

It also has plans to build a 300-unit luxury rental apartment building nearby that has its own parking and curb access separate from the shopping area.

Building apartments near shopping centers in areas with strong demand for urban living boost density, a factor influencing traffic flows in malls.

Just outside Washington, D.C., Macerich Co., together with a multifamily developer, built a 30-story apartment building called Vita Apartments where residents would get additional discounts when they shop at its mall, the giant Tysons Corner Center. The mall is also linked to a 22-story office tower and a Hyatt Regency hotel.

Shopping-mall company Simon Property Group Inc. in 2014 spun off it s portfolio of 98 strip centers and smaller malls into another real-estate investment trust, Washington Prime Group Inc., so it could focus on its higher-end retail properties.

Simon also has ventured into hospitality and apartment buildings, including a luxury hotel and residential tower adjacent to The Galleria in Houston. The Indianapolis firm has a dedicated platform for investing in technology to draw traffic into its shopping centers, including mobile apps that inform shoppers about parking availability.

The company didn't respond to a request for comment, but Chief Executive David Simon said recently in an earnings call that it might continue to sell its noncore assets but remains focused on strengthening its business.

"We're not going to starve our malls," said Mr. Simon, who also pointed out that retailers have neglected their physical stores in their chase for online market share.

Investors in mall REITs take comfort that the building of offices, hotels and housing is typically outsourced to another developer with the expertise to do so.

"We're not concerned about mall owners building mixed-use projects. But we like companies to be specialized," said Amanda Black, regional portfolio manager of Northwood Securities LLC. "We don't want a company with six apartment towers that make up 1% of revenue to be distracted."

SOURCE: Wall Street Journal


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