After years of focusing on investing in its A malls — those that attract higher traffic, sales and rents — Simon Property Group sees opportunity for growth at B malls.
Plans over the next two years include adding tenants, filling empty space and generally “updating the look, feel of the place,” CEO David Simon told analysts Tuesday. He did not describe the scale of the project in dollar terms or number of properties.
Smith Haven Mall on Long Island, New York, is on the list, and the investment into it over the next couple of years will probably bring about a 12% return, he said. The mall has already signed a major retailer that the company can’t yet reveal.
“It will be a renovated, rejuvenated asset that, because of all the progress we've made in the bigger ones, we're able to kind of reenergize our focus on an asset like that,” he said. “The list of those is long … but that's just one that kind of jumps to top of mind.”
Otherwise, the properties involved haven’t been specified, though Simon said they will include not just the company’s traditional malls, but also outlets and mills.
“When people talk ‘B,’ they always think ‘malls,’ but for us it's across our entire domestic portfolio,” Simon said, though he added that these investments will be made only where they add value to the asset.
Even so, the shift in strategy runs counter to the reality at such malls, where traffic and sales have been declining for years and spaces are increasingly left empty, according to Nick Egelanian, president of retail development firm SiteWorks.
“The mall form is obsolete. It's obsolete for for B malls, it's obsolete for C malls, it's obsolete for A malls,” he said by phone.
While Simon previously had been pruning B malls from its portfolio, it is now faced with what to do with underperforming properties with nowhere to go, Egelanian also said.
“What has Simon been doing the last 10 years? Dumping B malls. So the obvious question is, what do you know now that you didn't know then?” he said. “I’ve been saying for years that this is going catch up with him. This sounds to me like it's caught up with him and now he's trying to wriggle his way out of it.”
