CBL's Grand Position
CBL & Associates Properties has transformed itself from a regional player to a national powerhouse.
Randall Shearin

In a time when many of the original mall developers have disappeared, it's nice to see one that's still growing and doing more than holding its own. Over the last 5 years, CBL & Associates Properties, Inc. has moved from being a regional developer to a national shopping center owner and developer. With its commitment to development just as strong as its commitment to acquisitions, CBL is showing no signs of slowing down. The Chattanooga, Tennessee-based company purchased eight malls and opened one new mall in 2004 — and has already opened a new regional mall in 2005. CBL has also continued its commitment to developing community centers, and the company has been an innovator in financial transactions as well.

Shopping Center Business recently visited with Stephen Lebovitz, president of CBL, at the company's headquarters in Chattanooga.

Moving Directions

Twin Peaks Mall, Longmont, Colorado.

While CBL still owns most of the malls it did in 1998, things changed in 2001. That's when CBL purchased the Richard E. Jacobs portfolio, which contained 21 malls and two associated centers. Like CBL, a number of Jacobs' centers were in the Southeast. The centers were, also like CBL's properties, in prime trade areas of secondary markets. The transaction took CBL to the Midwest, where it acquired interests in malls in new states like Wisconsin, Ohio, Kentucky and Michigan. The company also acquired one center in Texas, a market where it has since acquired more properties. Since the Jacobs acquisition, CBL has continued to acquire centers. In 2004, it acquired eight malls and two associated centers. In 2003, the company acquired six malls and two associated centers, including four malls formerly owned by affiliates of Faison. Over the last 10 years, the company has acquired 50 malls.

CBL looks for the right centers to match its existing portfolio. It looks for properties that are in secondary markets, but may be the only game in town. It also looks for centers that are in good shape, but still may need some leasing and renovation to accrete value. For instance, in 2004, the company purchased Monroeville Mall in Monroeville, Pennsylvania, and an affiliated center for $231.6 million from Turnberry Associates. The center had been losing market share and CBL saw a void in the market for new retail. It is adding a lifestyle component to the mall by way of a new open-air addition, which the company hopes will increase the center's value and retain shoppers. The company is adding a lifestyle expansion that will include Barnes & Noble, a few restaurants and about 40,000 square feet of small shop space.

“It is a prototype for what we'd like to replicate at a lot of our malls today,” says Lebovitz. “There is a group of lifestyle retailers, because of their customer and site preferences, make sense outside the mall in certain markets.”

New Developments

CBL and Burroughs & Chapin Co. opened Coastal Grand Mall in Myrtle Beach, South Carolina in 2004.

In 2004, the company opened a new mall in Myrtle Beach, South Carolina. Co-developed with Myrtle Beach-based Burroughs & Chapin Co., Coastal Grand was heralded by the community and in the industry as forward-thinking and futuristic. Its success has proven that true. Anchored by Belk, Dillard's and Sears, Coastal Grand also features three big box stores as anchors. The 1 million-square-foot center also contains more than 20 new retailers who weren't in the market before the center was built.

In March, CBL opened Imperial Valley Mall in El Centro, California. The 750,000-square-foot enclosed mall is anchored by Sears, JC Penney, Robinsons-May, Dillard's and a 14-screen UltraStar Cinemas. Joint ventured with Dallas-based The MGHerring Group, Imperial Valley Mall is one of only two regional shopping centers that will open in the U.S. in 2005.

“With our new developments, we are trying to create the next evolution of the regional mall,” says Lebovitz. “The regional mall has changed and will continue to change due to what's happened in the department store sector as well as with the in-line retailers. The customer today is looking for a combination of retail not previously found in a mall, and that's impacting what a regional mall looks like.”

CBL's malls that have recently opened, especially Coastal Grand and Imperial Valley, are very different from the malls that the company opened in the 1960s and ‘70s.

“Coastal Grand has a lot of characteristics to it that reflect the Myrtle Beach area,” says Lebovitz. “It really adds a lot to the mall and the local attraction to it.”

The court at Coastal Grand Mall, Myrtle Beach, South Carolina.

Even its existing centers, like Hanes Mall in Winston-Salem, North Carolina — an acquisition from Richard E. Jacobs — have changed substantially since they first opened. And a lot of that change was brought about since CBL took over the mall. Since there is no lifestyle center in the area, CBL has brought lifestyle tenants, such as Williams-Sonoma, and even some power tenants, such as Old Navy, to the center. Similarly, at its Hamilton Place Mall located directly opposite the company's headquarters, CBL took an associated center and, earlier this year, redeveloped it into a small lifestyle center with tenants like J.Jill, Coldwater Creek, Ann Taylor Loft and Chico's. It sees this trend continuing into smaller markets as lifestyle center tenants continue to look for growth.

CBL renovated Hamilton Corners, an affiliated center to its Hamilton Place Mall in Chattanooga, Tennessee, into an upscale lifestyle center with anchors like Chico's and Coldwater Creek.

On the community center side, CBL opened three new centers in 2004 and will open five new centers in 2005. The centers range from 15,000 square feet to 420,000 square feet and, like CBL's malls, are located in secondary and tertiary markets. CBL's community center portfolio is predominantly on the East Coast, from Florida to Massachusetts. Community center development is handled from both the company's Waltham, Massachusetts, office, as well as the community center group based in Chattanooga, which handles the company's community center development in Florida and the Southeast.

The company has a stable development program on the community center side that has resulted in three to six new centers per year for the last 10 years. Most fall between 100,000 square feet and 300,000 square feet. In the late 1990s, the company developed a number of large power centers around the 750,000-square-foot range.

In 2004, the company developed Wilkes-Barre Township Marketplace, a 306,500-square-foot power center anchored by a Wal-Mart Supercenter and A.C. Moore that opened last fall. The company also opened Charter Oak Marketplace in Hartford, Connecticut, a 334,000-square-foot center anchored by Wal-Mart and Marshalls.

“We are focused on the malls,” says Lebovitz. “But we are also focused on development of community centers and other open-air centers. I don't see that changing. That's what we've gotten really good at and we want to continue to take advantage of that expertise.”

Leasing Innovators

CBL's Arbor Place Mall near Atlanta was one of the first regional malls to incorporate big boxes as anchors.

In 1999, CBL opened Arbor Place Mall in Douglasville, Georgia, about 25 miles west of downtown Atlanta. It was one of about 10 malls that opened that year, but what made Arbor Place special were three of its anchor stores. It was one of the first malls ever to include big box stores in its original development. Bed Bath & Beyond, Borders Books and Old Navy were three of the center's original junior anchors. It was a feat in leasing that was heard around the industry. In 2002, the Dekor anchor store closed at the center, and CBL again put its leasing innovation to work, backfilling the space with a new JC Penney store that opened in 2003.

Inside Arbor Place Mall, Atlanta.

With the success of the big boxes at Arbor Place, CBL went about placing big boxes in a number of its malls. Today, many CBL malls have tenants like Linens ‘n Things, Barnes & Noble, Bed Bath & Beyond, Dick's Sporting Goods and Steve & Barry's anchoring the center. Target anchors two of the company's centers. Traditional anchors are also continually joining CBL's centers as well. At Arbor Place, where JC Penney also joined after the center's development, Rich's-Macy's built a new store at the center in 2004. At CherryVale Mall in Rockford, Illinois, JC Penney built a new store at the center.

Arbor Place Mall, Atlanta.

But big boxes aren't the only way that CBL gets creative with leasing. With most of its centers located in secondary markets, CBL must delicately balance its mix of local tenants with national retailers. CBL is often the only game in town for many national retailers and it sometimes must struggle to find space in its centers when a retailer tells the company it wants to be in a certain mall. Some CBL malls have a waiting list. Hamilton Place in Chattanooga, for example, ended 2004 at 100 percent leased.

CBL's CherryVale Mall, Rockford, Illinois, is 806,320 square feet. The center underwent a renovation during 2004.

“We are very comfortable with malls anchored by Sears, JC Penney, Saks, Inc., and Dillard's,” says Lebovitz. “Those are really our bread and butter retailers and we have very strong relationships with them.”

One of the company's top performing malls, for instance, is Cross Creek Mall in Fayetteville, North Carolina, which it purchased in 2003. The center performs near $500 per square foot. The remarkable note about Cross Creek, says Lebovitz, is that it is not a wealthy market or an upscale center, but it is just a strong performing center. As any shopping center owner knows, that doesn't happen without a lot of talent behind the center.

Renovation and Redevelopment

Along with development and acquisitions, CBL has a significant, ongoing redevelopment program for its malls. In 2003, the company renovated six of its malls. In 2004, CBL renovated three of its centers. And the word “renovation” doesn't do justice to what CBL does to its centers. The company performs extreme renovations — the centers are barely recognizable from their old shells when the renovations are complete.

CBL's Parkdale Mall in Beaumont, Texas, is 1.52 million square feet.

At Parkdale Mall in Beaumont, Texas, which CBL renovated in 2003, a new façade was added, as well as new entry ways, signage and lighting to the exterior. The interior is unrecognizable from the old center. Theming that ties into the mall's market, as well as new lighting, flooring and seating were installed. In some cases, CBL even changes out the malls' ceilings, getting rid of skylights from the 1980s and instead adding lighting that contributes to more ambiance. CBL creates a comfortable, cozy feeling when it renovates a center. Lighting looks more residential than commercial. Flooring looks up-to-date and stylish.

CBL's Parkdale Mall in Beaumont, Texas, uses elements from the area as a backdrop to its interior.

In Madison, Wisconsin, CBL renovated West Towne Mall and East Towne Mall simultaneously in 2003. East Towne has an arts-and-crafts feel with lots of stacked stone and wood, while West Towne has a more upscale feel with polished marble on the floor and panels in the wall and ceiling finishes.

When CBL acquired the Jacobs portfolio, it planned for more than $200 million in renovation and redevelopment to the malls. It began the renovations in 2002 and will have completely renovated those centers by the end of 2006. Whenever the company acquires a mall, it builds in a budget for renovation and includes that in the center's proforma.

CBL has always held that every mall should be renovated at least once every 10 years.

“Redevelopment is ongoing for us,” says Lebovitz. “We really push — throughout the organization — not to leave the malls as they are.”

While CBL is committed to the mall, Lebovitz admits that CBL does expect to take back some department store space over the next few years. The company sees this as an incredible opportunity, he says, to place better performing retailers that better fit the market. CBL likes the idea of placing big box retailers at the malls in the markets where its malls are located.

“You will see more mixed-use at the malls,” says Lebovitz. “You are already seeing this in the industry and it is an opportunity we are going to be taking advantage of in the future.”

Financial Plays

Since CBL went public as a REIT in 1993, it has been well capitalized. The company raised $300 million with its initial public offering, and it was a $770 million company. Today, CBL is an $8.25 billion company.

CBL's Westmoreland Mall in suburban Pittsburgh is 1.15 million square feet in size.

“That was the project that made us realize that acquisitions could be an attractive business opportunity for us,” says Lebovitz.

From 1997 to 2000, CBL mainly bought properties one by one, renovating and re-leasing them as it purchased them. The Jacobs portfolio — totaling 21 malls — put CBL on the map as a major player in the mall business. It came at a time when many big names were disappearing, and the acquisition cemented the fact that CBL was here to stay. It also strengthened CBL's acquisitions focus internally and made for a lot of expansion and redevelopment opportunities.

“We nearly doubled the size of our portfolio overnight,” says Lebovitz. “It also showed us what we we're really capable of, and the organization came out of that acquisition much stronger and much more confident in our acquisition expertise.”

CBL's acquisitions have picked up in the past 3 years, including a sizeable portfolio from Faison that it purchased in 2003. CBL has a number of requirements a mall must meet before it will consider acquiring it, according to Lebovitz. On a financial basis, the center must be accretive to earnings from the first day. There also must be future growth for the center. CBL has a goal to grow its funds from operations (FFO) by at least 10 percent per year. For the company to buy an asset that will lessen that rate does not make sense.

CBL isn't big on selling its malls. Until last year, as a matter of fact, it had only sold a few assets that didn't fit its existing portfolio.

The company had begun to sell off select centers in its community center portfolio in the early 2000s. In 2003, however, an opportunity presented itself that the company could not refuse. With cap rates so strong for community and neighborhood centers, the company formed a partnership with Australian-based Galileo America REIT to purchase community and power centers in the U.S. The partnership is 90 percent owned by Galileo. The first centers that the partnership bought? Most of what remained of CBL's community center portfolio. CBL raised $300 million by selling the centers to the joint venture, which is allowing CBL to reinvest in new malls and community centers and continue its growth. CBL sold another portfolio of community centers to Galileo in January 2005, raising further capital. CBL has retained the management and leasing contracts to all the centers it has sold to Galileo, providing further accretion to its bottom line.

“Since the centers were once ours, and we still have them under management, we treat them like they are ours, since we are ultimately responsible for them,” says Lebovitz.

CBL, it is important to note, has not sold any of its associated centers — those located on the periphery of its mall properties — to the partnership with Galileo. Those 26 centers continue to be managed and run simultaneously with the malls.

While the venture did turn a few heads, it has helped to streamline CBL for Wall Street. More than 90 percent of CBL's revenues come from its mall properties, so Wall Street has traditionally viewed the company as a mall REIT. Today, CBL has 170 properties total, including 70 malls. It has 100 community and associated centers still in its portfolio.

Wall Street has changed its attitude in recent years on development. It used to be considered too risky by the markets. Now, development is in favor because of the returns on new development are attractive compared to the low cap rates for acquisitions. As such, CBL's analysts like that the company is developing as well as acquiring.

“We have always looked at development as one of our core competencies, and it's one of our major strategies,” says Lebovitz. “We don't want to be overly dependent on any one aspect of our business for growth. We've never budgeted for any acquisitions and we've never included future acquisitions in our earnings forecasts for Wall Street because we didn't want to be forced to do one that didn't meet our criteria for long term growth.”

CBL's continued focus on secondary markets and suburban areas of larger markets also plays well with Wall Street. Many of the towns where CBL owns malls have very stable economies. Many, like College Station, Texas, Athens, Georgia, and Hattiesburg, Mississippi, are college towns where the university is the center of business. Some, like Madison, Wisconsin; Columbia, South Carolina; and Nashville, Tennessee, are both the state capital and the home of one of the largest universities in the state.

“A lot of our markets are not boom and they're not bust,” says Lebovitz. “We want to have a comfortable position in the market where if we are not the only game in town, we have our own space in it that we've established.”

Corporate Culture

Growth often causes a lot to change within a company. While that's true to some extent at CBL, most of the executives that SCB interviewed 7 years ago are still at the company.

“The company has changed in a lot of respects, but it has also stayed the same in a lot of ways,” says Lebovitz.

Even though CBL is a major public company, it retains the culture of the family business that it has had since the 1960s. Charles Lebovitz, chairman and CEO, is still incredibly active in every detail of the business. John Foy, who serves as vice chairman and chief financial officer, is still a major force in the organization. Many of CBL's employees have been with the company for more than 20 years. Foy, for example, who was the first officer without the name Lebovitz, has been with the company since 1968. There is, still, a very strong family influence. Three of Charles Lebovitz's sons, including Stephen, hold executive positions with the company and help guide it into the future.

Either Charles Lebovitz or Stephen Lebovitz — or both — visit every mall in the portfolio at least once per year. They still retain that entrepreneurial edge of looking at how a mall fits a particular market.

“It helps us to see, from the top, where the needs are and where the opportunities are,” says Lebovitz.