Shopping Centers Today International

MAR 2016

Shopping Centers Today is the news magazine of the International Council of Shopping Centers (ICSC)

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36 S C T / M a r c h 2 0 1 6 sion was probably driven at least in part by the abundance of already successful enclosed centers in the Miami area, ac- cording to Soozan Baxter, principal of New York City–based Soozan Baxter Consulting, a landlord-focused retail ad- visory firm. "It makes it hard to rational- ize other options in that market." Westfield's open-air extension of the enclosed Westfield Topanga Canyon mall, in Woodland Hills, Calif., called Village at Westfield Topanga, opened in September with Costco and REI as anchors. General Growth unveiled a major expansion at its open-air Ala Moana Center, Honolulu, in November. The new Ewa wing has nearly 40 stores and restaurants, including Ha- waii's first Bloomingdale's. In Lafayette, La., CBL's 60-acre outdoor Ambassador Town Center, slated to open later this month as a venture with Sterling Proper- ties, is another new outdoor build. The 438,000-square-foot Costco-anchored cen- ter is 95 percent leased or committed, ac- cording to Katie Reinsmidt, CBL's senior vice president of investor relations. Confident in the growing demand for qual- ity space, more landlords are pushing out underperforming tenants to make way for those that are more promising. Increas- ingly, landlords show that they are willing to sacrifice short-term cash flow and oc- cupancy for long-term gain. Federal Realty Investment Trust, for one, allowed supermarket chain A&P to reject four leases totaling 185,000 square feet, despite the high likelihood that the leases would be quickly purchased by other tenants at bankruptcy auction. Federal Realty is willing to let the stores sit empty while it hatches redevelopment plans that will make both the stores and the shopping centers more valuable, ac- cording to Donald C. Wood, the REIT's president and CEO. "We want to use these favorable economic conditions to re- lease," he said. "We see a good sampling of mediocre retailers that have been hold- ing on for years that are either giving up or who will soon. We're fine with that. We are anxious to get it to either re-lease or redevelop." Federal Realty is planning to let some 465,000 square feet of anchor space go empty this year as leases expire on tenants at 10 properties, representing roughly $6 million in rent losses. "The investment and downtime this year should pay significant dividends in the future," said CFO and Treasurer Jim Taylor. "We are very excited about the opportunity to unlock value at these cen- ters — to redevelopment, repositioning and re-leasing. Overall, we expect to sig- nificantly exceed the prior in-place rent of approximately $1,350 a foot on these larger spaces. We will deliver better re- tailers at better rents and significantly improve these assets." Malls are doing this too. "We are also proactively reducing exposure to traditional anchors where they are underperforming," said Stephen D. Lebovitz, president and CEO of CBL & Associates Properties, on a fourth-quarter earnings call. The firm is negotiating with such tenants as JCPenney, Sears and Shopko to end leases early at un- derperforming locations in favor of the likes of Dunham Sporting Goods, Ross Dress for Less and Ulta. Wood said in 2008 that Federal Realty would go to great lengths to keep an an- chor tenant such as Party City, which is now moving out of one of the firm's Chi- cago properties. "We would have lowered the rent, we would have done whatever we needed to do to keep the occupancy and to keep the income coming in the drawer," he said. "In 2016 we view that differently. We are certainly willing to play hardball on the lease terms effec- tively, and say, 'Yes, you've got to go.' If we simply re-leased it to the same anchor and extended those existing leases, we would be losing the shot to create signifi- cant value for a decade or more." S C T REITs recapture premium anchor space "We see a good sampling of mediocre retailers that have been holding out for years that are either giving up or will soon. We're fine with that." n e W m e r r i l l ' s j a n s s C e , i n t h o u s a n d C a l i f .

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