REAL ESTATE

Stephen Lebovitz on redevelopment

BY Stephen Lebovitz

The recent wave of anchor store closures has everyone buzzing about what mall landlords will do with all that empty space. Many are fearful of the challenges that a dark anchor store may present. The truth is, landlords have been preparing for these store closures long before they made headlines.

In late 2013, we proactively purchased the Sears locations at two of our premier properties for redevelopment. We wanted to do something truly transformative — bring in a mix of dining, entertainment and new-to-market retail that would underscore each property’s dominant position in its market and set it apart from the competition.

At CoolSprings Galleria, a 1.1-million-sq.-ft. super-regional center located in a booming and affluent area of Nashville, we welcomed Music-City firsts like American Girl and King’s Bowling and Entertainment — a unique restaurant, bar and entertainment operator — as well as dining experiences such as The Cheesecake Factory, Connors Steak and Seafood, and Kona Grill. Following the opening, the additional traffic drawn by the new attractions resulted in an 18% increase in sales per sq. ft. at the entire center, and that growth has only continued.

In 2012, prior to the redevelopment, sales per sq. ft. at the property were $459. At the end of 2017, they were $526 and have continued to increase in 2018. All of this is proof positive that the benefits of investing in redevelopments reach far beyond the four walls of a former anchor space.

In 2017 we purchased five Sears, two Sears Auto Centers, and three Macy’s stores for redevelopment. This proactive approach gives us control of the space while we evaluate plans to convert the underperforming stores into new retail, dining, entertainment, or other uses. To date, we have completed a redevelopment at one former Macy’s with construction underway at another former Macy’s, one of the former Sears and both Auto Centers. We expect to start construction on two additional former Sears in 2019.

CBL is not alone in its proactive approach to recapturing underperforming anchor locations for redevelopment. Since 2017, PREIT has replaced five Sears locations and has reached an agreement to recapture a sixth. Similarly, Washington Prime Group proactively gained control of eight Sears locations in 2018.

While recent bankruptcy activity has increased the pace of store closures and accelerated our redevelopment schedule, the real estate that is becoming available is well-located with excellent visibility, access and infrastructure. As a result, we have been able to attract high-quality replacement users and new concepts. We are working with a number of non-traditional uses through partnerships. Other developers, be it multi-family, storage or hotel, recognize the value of the real estate we have and are coming to us to take advantage of it.

What’s more, we’ve seen great cooperation and partnership by municipalities. Brookfield Square in Milwaukee is a fine example. We purchased the Sears store there as part of the 2017 sale-leaseback transaction. The City of Brookfield invested in the project by purchasing land for a conference center and hotel, which broke ground in October. This will be a significant draw to the area and will complement the broader redevelopment, which includes a luxury dine-in movie theater and WhirlyBall.

Similar to the success experienced at the project at CoolSprings Galleria, we’ve made tremendous progress with our anchor redevelopment program over the past three years. On average these projects take 18-36 months to complete and require an average investment of $8-10 million dollars. It’s a reasonable price to pay when you consider the average project return on cost is between 7-10 percent and this doesn’t even give any credit for the positive impact on the rest of the property.

It is understandable that the natural reaction is to worry when these stories break, and no landlord likes vacancies. Yet we see these vacancies as extraordinary opportunities to reinvest in, strengthen and transform our core assets.

Stephen Lebovitz is president and CEO of CBL Properties, based in Chattanooga, Tenn.

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