SHIFTS FOCUS TO TRADITIONAL MALLS
Mills purchase: The Galleria at White Plains.
retail real estate developers have created as distinctive a brand
as The Mills Corp., with its value megamalls. Now the company says
its wants to do the same with conventional malls.
last year Mills announced that it was paying $621 million to buy
six malls with an option to purchase stakes in two more. Mills also
said that it would spend up to an additional $350 million to redevelop
the properties over the next two to three years. In August the company
even hired Jim Napoli, former head of leasing at Simon Property
Group, as president of its operating division.
the words of Mills Chairman and CEO Laurence C. Siegel, the company
will be putting the Mills touch on the centers by adding
movie theaters, skating facilities and childrens areas, and
even a bit of value retail in some cases.
wants to bring traditional malls into the 21st century, Siegel said.
just are terrific opportunities for us to buy a traditional portfolio
and make some changes and show everybody what we think these projects
should look like today, Siegel told SCT.
thinks it can take a traditional mall in a competitive market and
improve traffic and sales by adding entertainment and value components,
said Napoli. It has to be [a mall] where we think adding some
Mills elements will really boost the sales and the interest in the
center, he explained.
isnt just the traditional malls that Mills will be tweaking,
however. The company plans to make changes to its megamalls, too,
adding some full-price tenants to the lineup of off-price ones,
value megamalls a concept created by Siegel and Herbert Miller,
the companys former chairman feature off-price retailers,
manufacturers outlet stores, and large food and entertainment
areas, usually spanning more than 1.5 million square feet of space
on one level. They typically draw shoppers from a radius more like
that of an outlet center (25 to 75 miles) than that of a super-regional
mall (five to 25 miles).
Mills spends considerable resources on putting the properties on
the tourist route, boasting that Potomac Mills, for instance, rivals
many of Washington, D.C.s more traditional tourist destinations
for the number of visitors it attracts.
with the opening of Potomac Mills, Prince William, Va., in 1985,
the company has built a total of 13 such projects, including its
most recent, Colorado Mills, which opened in November outside Denver.
Today these megamalls achieve average sales per square foot of about
$330, according to the company.
Mills concepts of the future may be a hybrid between value megamall
and traditional mall, according to Craig Schmidt, a REIT analyst
at Merrill Lynch. Behind this change is the desire of traditional
tenants to get in on the high traffic at value megamalls at a time
when few new traditional malls are being developed, as well as Mills
need to scale down its megamalls in size as it enters smaller markets,
going to do the traditional Mills, but theyre adding another
layer to that, Schmidt said. I think its more
a matter of adding to the mix.
maintains that Mills will still not abandon its value megamall concept.
The company could have as many as 35 to 40 more of these projects
in the United States alone, he argues. The company has said that
the size and scope of the projects could change, however, depending
on the metropolitan area it enters. Mills has value megamalls under
development in St. Louis and Toronto.
Mills is investing in traditional centers, the company says
it is not abandoning its megamall concept. It opened Colorado
Mills in November.
there have been hints for some time that Mills was intent on branching
out. In April the company got the green light from San Francisco
city officials to proceed with development of The Piers 27-31, a
waterfront retail-entertainment project. It also has a retail-leisure
center under construction outside Madrid, Spain; is talking about
building another outside Rome; and has proposed a similar concept
for the New Jersey Meadowlands. In another deviation from the out-of-town
megamall format, the company has received approval from city officials
in Chicago to develop a downtown site in partnership with a spa
operator. The details of that project remain sketchy. But in 1998
Mills opened the nightlife-focused retail-entertainment center Block
at Orange in Orange County and had plans to open more. Thus far
no such plans have been disclosed for any others, however, because
the concept was not as successful as hoped, analysts suspect.
September Mills bought the 1.5 million-square-foot Forest Fair Fashions
mall, Cincinnati, a seemingly cursed property that had never prospered
from the day maverick George Herscu and his L.J. Hooker Co. opened
it in 1989. Mills is renovating the center, introducing cut-price
tenants and plans to rename it Cincinnati Mills. The project marks
the companys first redevelopment of a mall into a Mills concept.
the purchase of the six malls is Mills most dramatic departure
yet from value megamall development, not least because the company
plans to keep them primarily as full-price malls.
are starting from scratch, said James Dausch, president of
Mills development division. We believed that if we could
find a portfolio of traditional centers that we could start with,
it would be worth doing.
company bought five of the centers from Torontos Cadillac
Fairview Corp. In December it closed on the sixth, the 637,000-square-foot
Riverside Square, Hackensack, N.J., which was owned by New York
City-based Shopco Group. The deal has added 5.3 million square feet
to Mills portfolio.
Riverside Square, Mills is acquiring the 999,000-square-foot Broward
Mall, Ft. Lauderdale, Fla.; the 757,000-square-foot Dover (Del.)
Mall and the 52,000-square-foot Dover Commons Mall next door; the
909,000-square-foot Esplanade, New Orleans, La.; the 885,000-square-foot
Galleria at White Plains (N.Y.); and the 961,000-square-foot Northpark
Mall, Jackson, Miss.
also has an option to become joint owner in two malls owned by Cadillac
Fairview and Simon: the 1.3 million-square-foot Town Center at Cobb,
Kennisaw, Ga.; and the 1.3 million-square-foot Gwinnett Place, Duluth,
Ga., both outside Atlanta.
with the malls, Mills has bought a total of about 110 acres around
them as part of its program of further development and expansion.
The company will add a 120,000-square-foot Bass Pro Shop and a 126,000-square-foot
Target to Esplanade, for example. Broward Mall will get two fashion
department stores and an AMC theater, among other additions. Mills
plans to expand Dover Mall by 500,000 square feet to make way for
an NHL rink, a NASCAR track and other improvements. The other centers
Mills purchased will receive similar additions.
long time German investment partner, Kan Am, is expected to be a
partner on these projects, though the percentage of funds it will
contribute has not been determined, Siegel said.
all the attention the new strategy is getting, however, this is
not the first time the company has sharply shifted direction. Though
value megamalls have been the Arlington, Va.-based companys
main focus since it went public and changed its name from Western
Development in 1994, up to then it had only built and owned traditional
community centers, something it continued to do until 1997. Even
as late as 2000, Mills still owned a portfolio of 11 community centers
from its Western Development days that it sold only that year.
the future the industry will see acquisitions similar to the ones
Mills recently announced, Dausch said.
have an acquisition program, and its one where were
looking for the right center at the right price, he said.
Smith Barney says Mills has a management team with a lot of experience
in the traditional mall sector that can handle the companys
new strategy. With regard to the strategys execution, Salomon
REIT analyst Ross Nussbaum points to the hiring of Napoli.
obviously has decades of experience leasing full-priced regional
malls, Nussbaum said.
some analysts say the Mills management team could be stretched thin
with all the companys different projects.
taken a wait-and-see approach, Nussbaum said. Mills
has so much going on right now, but its a feasible
Morgan Stanley report made similar observations. [Mills]
experience has been primarily with value-oriented centers, which
we believe involve a different type of operating model than that
for the acquired assets
its plate has never been fuller
we are concerned management is spread thin.
Stanley analysts say they are pleased that the properties were bought
at a cap rate of 9 percent, significantly higher than other recent
high-profile transactions. General Growth Properties bought the
Glendale (Calif.) Galleria at a rate of just under 7 percent, while
analysts estimate Simons proposed acquisition of Taubman Centers
at about 8 percent.
report adds that it considers the acquired malls to offer good opportunities
for redevelopment. We believe [Mills] entertainment-oriented
and creative plans represent an attempt to address the ongoing weakening
of traditional regional mall anchors.
dismisses any reservations about the managements ability to
juggle all its malls.
the little company that could, he said. Weve done
things that people didnt think we could. If we can get [the
malls] at a fair price, then [the deals are] worth doing.
is the right moment for the company to start out in a new direction,
Dausch said. For the past five or six years, we had followed
a strategy to essentially establish the Mills franchise, he
said. Our strategy has succeeded. Were developing it
from a base thats financially strong.
new strategy is a logical way for the company to grow, Siegel said.
Were a development company, and were going to
continue to be a development company.