Strategic turnaround plan is key to successful second-tier mall investment
By Larry Feldman President & CEO
Feldman Equities
With financing still readily available at record low interest rates, Feldman Equities has been very successful recently with a strategy of investment in second-tier mall properties that require a unique, individual turnaround strategy.
With ample financing available at rates around 4 to 5 percent, Feldman has been achieving an average cash on cash in excess of 15% on these properties, which many others have avoided for a variety of reasons -- from fear of the potential of Internet retailing competition to worries over the slowing economy and declining consumer confidence. Another concern of investing in secondary mall properties includes the fact that power centers continue to increase market share at the expense of the mid size and smaller enclosed mall.
Typical candidates for this turn-around strategy are 500,000 square feet and above malls that require equity investments ranging from $2 million to $30 million. Frequently, the total costs of acquisition and renovation result in a total redevelopment cost well below replacement cost.
Because these properties can be acquired far below replacement cost, they hold tremendous upside potential through the implementation of a major renovation plan and an aggressive leasing campaign to attract new tenancy. The key to such campaigns is to seek out specialty retailers and merchandisers that don’t compete with power center merchants or traditional mall based department stores. For example, Feldman Equities has recently signed leases or pad deals with five new tenants at its Foothills Mall property in Tucson, none of which compete with the traditional mall or power center. These tenants are: Crescent Jewelers (a discount jeweler), As Seen on TV (a specialty retailer), Just Sports (sports memorabilia), Fox and Hound (a British pub and restaurant), and Wilson’s Leather (a factory outlet specialty retailer).
At Feldman Equities, we believe that each of these properties has their own solution, provided the demographics are right. More specifically, Feldman Equities looks for secondary and tertiary locations that are undergoing major population growth. For example, given the very high rate of growth that Tucson is experiencing, the Foothills acquisition gives Feldman the opportunity to own a mall in what may likely become a major market within the next five years. The strong population growth gives Feldman greater exiting liquidity for the property if it elects to sell the mall.
The Feldman strategy involves attracting the right tenant mix of premium factory outlets and specialty retailers which offer higher end designer label products at sharply discounted prices, combined with an entertainment anchor such as a multiplex theater and a series of upscale restaurants.
Feldman Equities also looks to fill its malls with a series of junior anchors such as Linens ‘N Things, Saks Off Fifth, Nike Factory Outlet, Ross Stores, etc. This strategy solves three problems at the same time. First, the mall is less dependent on the large department stores that have been steadily losing market share to the specialty discounters. Second, by filling the mall with a series of smaller junior anchors, the solvency of the mall is less threatened by the potential bankruptcy of a department store, or a decision by a department store to shut down a particular location. Third, by installing multiple junior anchors, the mall has a better chance of attracting a wider array of shoppers.
In addition, attracting brand name tenants, filling in "dead spots" in the mall with poor pedestrian circulation, and filling in missing tenant categories, are all parts of enacting a successful and comprehensive leasing plan.
In addition to renewing existing high-volume and profitable tenants at the best possible market rents, this re-leasing process also includes weeding out unhealthy, low volume or unprofitable stores in a proactive way that allows failing tenants to cut their losses by buying out of their leases and applying the resulting short-term income towards incoming tenant inducements.
But attracting the right tenant mix is just part of the turnaround strategy. Effective property management and capital investment are also key to a mall’s success. These investments vary from project to project, but include improving interior and exterior signage and injecting life into dead areas of a property, whether it is through special promotions, entertainment or filling vacancies with temporary users.
The successful mall turnaround may also include improving visibility of key tenants, constructing new entrances or implementing ways to improve shopper circulation throughout the property. It also involves management support of intensive marketing programs geared to the local trade area and promotional activities that assure a constant flow of events occurring at the mall, such as musical performances, sports promotions, radio station events and hosting other civic and charitable functions.
Feldman Equities is confident that discount retail malls will continue to be successful through a possible recession era, as tightened disposable personal income will migrate to these discount retailers vs. the high-end retailers. However, the time for investing in these malls as relatively affordable buying opportunities may be short, as prices of these assets are on the rise, marking down yields. At Feldman Equities, our hands-on approach to turning around distressed assets, combined with deep bricks-and-mortar capability, have earned us a national reputation with investors for being ahead of the market and for producing above average returns.
Feldman Equities now owns or manages nearly 1.4 million square feet of retail and office space in Arizona and Florida, and the company also owns land upon which it can develop up to an additional million square feet retail and office property. We are constantly evaluating a variety of acquisition options that capitalize on our near century of development, management and turnaround expertise, insuring consistently high returns for our investors.
Recommended Web Sites:
http://feldmanequitiesofaz.com
http://www.feldmanequitiesofny.com
http://www.shopfoothillsmall.com
http://feldmanequitieshistory.com
© 2003 Feldman Equities, Inc. All rights reserved.