The Real Deal New York

Mall landlords are snatching up retail property during slump

GGP spent $33M to save Aeropostale and $48M on 5 Macy's stores
November 08, 2016 04:30PM

Macy's entrance at Westfield Wheaton in Wheaton, Maryland

Macy’s entrance at Westfield Wheaton in Wheaton, Maryland

As struggling retailers close up shop, mall landlords across the U.S. are responding by buying up surplus retail property or the retailers themselves.

General Growth Properties, one of the most prolific real estate investment trusts, bought five Macy’s stores for $48 million in October after the retailer said it would close 100 of its 750 stores. And a month earlier, the REIT teamed up with Simon Property Group, the largest mall landlord in the U.S., and others, to acquire its tenant, the bankrupt teen apparel retailer Aeropostale.

These are just two examples of retail landlords investing in property in a down retail market, and investors are unsure whether the strategy is a growth opportunity or a defensive measure, the Wall Street Journal reported.

Retail property landlords are indeed facing a slump. Changing consumer shopping habits have lead to tepid sales growth among tenants, and smaller re-leasing spreads in recent quarters.

In the case of Aeropostale, which was facing liquidation, GGP TRData LogoTINY contributed $20.4 million and Simon $33 million to the consortium, which will keep 500 of its 800 stores open.

“The only reason why we decided to make this investment is because we believe we can make money,” David Simon, CEO of Simon Property, said during a recent earnings call.

But investors are uncertain. Luxury mall owner Taubman Centers is facing an investor push to sell its assets rather than continue expanding as its stock price lags.

“Investors are trying to figure out how much of this is reactionary or defensive and how much of it is to push the quality of the portfolio. We’re in the middle of the transition,” D.J. Busch, an analyst at Green Street Advisors, a real estate research firm, told the Wall Street Journal. [WSJ]Chava Gourarie