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CBL Repositioning Former 'Fortress' Malls Through Mixed-Use Redevelopment

Retail REIT Shifts Gears to Focus on Redeveloping Existing Properties
June 14, 2018
Pictured: Stephen Lebovitz, chief executive of CBL & Associates Properties.

CBL & Associates Properties Chief Executive Stephen Lebovitz doesn't know whether he'll ever see another so-called 'fortress' mall development from the ground up, described as large enclosed malls in mostly suburban and secondary markets that tended to dominate their retail trade area.

And he's not waiting to find out. Instead, Lebovitz is steering the Chattanooga, TN-based REIT on a path to reposition its malls as mixed-use developments after getting stung by vacancies created by bankrupt retail tenants. CBL is spending $3 million to $50 million to redevelop several of its malls and adding new uses.

"We're developing a lot of 'new malls' by redeveloping our existing properties," said Lebovitz in an interview at the National Association of Real Estate Editors conference being held this week in Las Vegas.

"It's short-term pain, but a longer-term opportunity," he said, adding that repositioning the malls renders them relevant for another 20 years. It also pays off with returns on investment of 8 to 10 percent, Lebovitz said.

CBL, which made its name by developing what it calls "market-dominant" malls in mostly suburban and secondary markets, had to act. The REIT got hit particularly hard by bankruptcies and store closings by Bon Ton, which had locations in 16 CBL malls, and Sears, which last week said it would close scores of stores.

"Last year was the second-largest year for [retail] bankruptcies since 2009," Lebovitz said. More than 20 tenants in CBL malls filed for bankruptcy protection. Lebovitz said CBL's new model is to proactively prepare for future department store closings.

In 2017, CBL bought and leased back to Sears five of the struggling retailer's department stores and two Sears automotive centers. The new leases gave CBL the right to terminate Sears' leases with a six-month notice, except during the year-end holiday shopping season. CBL's plan is to redevelop the sites as the department stores and auto centers close.

"The common denominator [with department stores and auto centers] is that you have good real estate," Lebovitz said. "They have huge parking fields that are under-utilized. There's huge opportunity there."

CBL recently commenced the redevelopment of the first of the Sears locations, which is being convereted into a dine-in movie theater and restaurant and entertainment space. The REIT plans to develop - in joint ventures with partners - hotels, restaurants and office space at other Sears locations.

"We're looking hard at every type of mixed-use," he said. "It's a very creative process. We form joint ventures and partnerships [with developers experienced in different property types]. We're basically deconstructing that and turning things inside out."

Looking ahead, Lebovitz said CBL is monitoring its department store anchors and pre-planning changes at malls with exposure to many of them. In metro Atlanta, CBL owns Arbor Place Mall, which "has really thrived," Lebovitz said.

But, Arbor Place is home to Sears, JCPenney and Macy's. "Sears is prime real estate there," Lebovitz said. "I can't see 10 years from now all three of those still being open."

And that's ok with Lebovitz, because if one of the anchors closes, new opportunity arises. "On redevelopment projects, on the fresh capital we're putting in, we're getting a return."

Tony Wilbert, Atlanta Market Reporter  CoStar Group   

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