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Feature Article, December 2005
Committed To The Mall
Feldman Mall Properties is a REIT that is committed to the mall. With the idea that there is too much real estate in existence, the company is setting a course to transform older malls into showplaces.
Randall Shearin
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At Harrisburg Mall, Bass Pro's store has a trout pond that continues into the common area of the center.
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These days, you don't find many companies that are exclusively committed to the redevelopment of enclosed malls. And to find one that is so committed that it has built its entire company around it is even more rare. Such is the case with Feldman Mall Properties, Inc. The company has acquired six underperforming regional malls across the country over the last several years and is transforming them into Class A retail properties.
Shopping Center Business recently visited with Chairman and CEO Larry Feldman at the company's headquarters in Great Neck, New York, to find out more about why the mall is a viable investment for the company.
Family Roots
The Feldman family has been in the retail business for many years. In the 1970s, the family developed Nassau Mall on Long Island. Larry Feldman started working with his father in 1977, continuing the family's interests in office and retail properties. The company took its office properties public in 1997 as Tower Realty Trust, and then sold that company to Reckson Realty in 1999. The Feldman family privately owned retail properties that it held separate from Tower Realty. When Tower was sold, several key executives remained with Larry Feldman and formed Feldman Mall Properties. Scott Jensen (executive vice president of leasing), Jim Bourg (chief operating officer) and Jeff Erhart (formerly outside counsel and now general counsel) remained with the company to handle its retail properties. Feldman previously owned a portfolio of eight neighborhood shopping centers in the Phoenix area. The company's first mall acquisition, in 2002, was Foothills Mall in Tucson, Arizona.
Creating A New Mall
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Foothills Mall in Tucson, Arizona, is Feldman Mall Properties' first success story.
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FMP saw an opportunity at Foothills Mall that no other potential buyer saw. Located in a strong market in a rapidly growing area, the mall had fallen on hard times. Foothills Mall was acquired as a Class B mall whose sales were about $250 per square foot at the time of acquisition. Feldman realized the potential for the property and set about to renovate and re-tenant the center. As a result, Foothills is on track to become a Class A mall with sales per square rising toward $300 per square foot (Feldman considers a Class A mall as having sales of $350 per square foot or more). In the early 1980s, the center was built as a typical mall, with a department store anchor on each end and specialty retail lining the corridor between the two anchors.
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Feldman Mall Properties has spent nearly $13 million to upgrade and retenant Foothills Mall in Tucson, Arizona. The company has added many features to the mall including outdoor seating areas, new signage,a new mall entrance, new flooring, and a new food court.
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At Foothills, both of the original anchor department stores had gone dark and the previous ownership began to transform the mall by replacing the department stores with smaller big box anchors. Feldman continued the transformation and has spent nearly $13 million to upgrade the mall and to re-tenant the mall. The company has added many features to the mall including outdoor seating areas, new signage, a new mall entrance, new flooring and a new food court.
In addition, FMP entered into a very innovative real estate deal with one of its major tenants at Foothills, which is a 15-screen Loews theater. Previously, during any given week, tens of thousands of patrons attended the Loews Cineplex at Foothills Mall. However, the bulk of these patrons entered and exited directly through the theater's parking lot entrance — never entering the mall.
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As part of the renovation at Foothills Mall, Feldman Mall Properties provided approximately $4 million to Loews in order to facilitate the conversion of all 15 screens at the center to stadium seating.
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To solve this problem, FMP provided approximately $4 million to Loews in order to facilitate the conversion of all 15 screens to stadium seating. In exchange, Loews agreed to pay more rent, and more importantly, Loews agreed to close off its parking lot entrance in October 2004, leaving the only entrance to the theater through the interior of the mall at the 50-yard line of the mall's main pedestrian corridor.
These changes resulted in a win-win situation for both Loews and FMP. The conversion to modern stadium seating has sharply boosted box office attendance and successfully redirected the 1 million annual theater patrons into the interior of the mall, causing a sharp increase in overall mall pedestrian traffic. The streetscape created at Foothills Mall has palm trees, restaurants, cafés, Barnes & Noble and the theater.
“All of these things changed the look and feel of the front of the mall such that we believe that we are now getting 10 percent to 20 percent more transient and tourist traffic because we've created more visibility for the center,” says Feldman.
Transformation Specialist
FMP develops a comprehensive renovation, re-tenanting and repositioning program for every mall it acquires.
“In the mall business, you can have a Class A-looking property that is performing at Class C sales figures,” says Feldman. “Every mall that we buy, whether it is a Class B or Class C, will undergo a radical transformation. We will acquire every property with the attitude that we're going to do whatever it takes to get it to Class A.”
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Harrisburg Mall, Harrisburg, Pennsylvania.
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One of Feldman's most recent redevelopments is Harrisburg Mall in Harrisburg, Pennsylvania. The center, which was the premier regional mall in the market when it opened in 1969, suffered in the late 1990s as power centers and discounters opened in the market and the mall became the distant third mall in the market. A perfect storm hit the mall after 2000: JC Penney closed and the May Company (now Federated), parent of the center's other anchor, Lord & Taylor, announced it would close its store. Feldman purchased the property in 2003 for $17.5 million (about $20 per square foot). The company had heard that Bass Pro Shops was looking for space in the market. After months of negotiations, Bass Pro agreed to take the soon to be vacant Lord & Taylor store. Boscov's department store came into the empty JC Penney space.
The Bass Pro store is the second largest in the company's chain. It includes a 65,000-gallon aquarium stocked with trophy bass and local fish that sits at the center of the store. There is a massive stone fireplace that stands 60 feet high. Other features of the store include full-size NASCAR racing simulators, an archery range, rock climbing walls, waterfalls and a shooting range. Since opening late last year, the store has already drawn 2 million people. The total investment between Feldman Mall Properties and Bass Pro Shops in the center is over $30 million. A live trout stream that starts at Bass Pro runs through the center of the mall, creating a centerpiece for the shopping center. The trout stream also serves as a vehicle to draw people into the mall.
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Feldman acquired Stratford Square Mall, in Bloomingdale, Illinois, in January 2005.
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The rest of Harrisburg Mall was also transformed into a showplace for retail. Feldman brought new retailers and restaurants into the center and has created a new retail environment for a growing area of Harrisburg. Feldman is currently about 85 percent complete with the renovation, and has more plans for the center upcoming.
Even though Feldman will spend close to $75 million to acquire and renovate Harrisburg Mall and to transform it, its total project cost will be under $100 per square foot including the purchase price. The replacement cost for the mall when fully renovated would likely be $250 per square foot.
“The community loved the idea that we were saving the mall,” says Feldman. “We saved 1,100 jobs and created several hundred new jobs. Now, this mall is a huge economic engine for the area and there is a land gold rush occurring around the mall. There are two office buildings under construction — a regional headquarters for Commerce Bank and Trane Corporation nearby, and there are nearly a thousand houses slated to be built in the immediate vicinity of the center.”
Investing In The Mall
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Feldman Mall Properties acquired Northgate Mall in July 2005.
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Feldman's view is that there is too much retail real estate already in the United States, and that developers should reuse what is already in existence as a template. He heavily advocates the mall as a viable product. He also believes that a well located mall has the potential to be full of life if owners will make the investment to make their real estate come alive. Feldman believes that many of the lifestyle centers that are under development today or that have been developed could have been pre-empted by lifestyle redevelopment of existing malls.
“We are recognizing that every single mall that we acquire has to have a Wal-Mart-proof quality after we are completed with the redevelopment,” says Feldman. “We have to put in restaurants, movie theaters, bookstores, upgraded landscaping and upgraded facades and lighting — things that keep the mall viable — and [continue to] add tenants whose products cannot be found at Wal-Mart.”
Realizing that there would be growth from its portfolio for investors, Feldman Mall Properties went public as a real estate investment trust in 2004. Larry Feldman, with experience as chairman and CEO of the publicly-traded Tower Realty Trust, has experience in the REIT field and with operating a public company. He likes the accountability that being public creates, and the organizational structure that is enforced by the requirements of being public. The Feldman Mall Properties REIT currently owns six malls comprising 6.2 million square feet. The company plans to own eight to 10 malls by August 2006.
The company is not trying to grow quickly; it is trying to grow incrementally, acquiring and upgrading one mall at a time to create value for its investors and growth for the communities where its properties are located.
“As a company, it's nice to make a profit, but the civic benefits that come with our revitalizations give us a great sense of pride and accomplishment,” says Feldman.
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Colonie Center, Albany, New York.
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In addition to its centers in Tucson and Harrisburg, the company also owns properties in Florida, Illinois, Ohio and New York. One acquisition that the company made earlier this year is Tallahassee Mall in Tallahassee, Florida. This property has had a long history, including one makeover in the late 1990s by Compass Retail. Feldman plans to reinvigorate the property again, updating it and making it a competitive center (sales are currently around $325 per square foot). Another acquisition this year was Colonie Center in Albany, New York. Colonie Center is the hub for a lot of retail in Albany, but the mall itself needed help. FMP has a plan on the drawing boards, and plans to get it underway in 2006.
“If you buy centers that are in great locations or that are still in the path of growth — even though they may be old — they can be transformed into good real estate,” says Feldman. “If the market has 500,000 people or more, and we put a massive investment in and create the excitement and energy with tenants like high-end movie theaters and Bass Pro Shops, that investment will be worth it.”
©2005 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.
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