A Texas mall has sold in a deal to its anchor tenant Dillard’s, along with developer Trademark Property Co., as U.S. retailers buy shopping centers where they have stores to get more control over the places where they sell.
It’s a sign of optimism for brick-and-mortar retail, even as new construction of such space has slowed due to oversupply and rising costs.
Dillard’s, one of the nation’s largest department store chains, has teamed up with Fort Worth, Texas-based real estate firm Trademark to acquire Longview Mall, a regional center totaling about 646,000 square feet, for $34 million in a deal that closed early last week, the buyers and seller, WPG, told CoStar News.
Dillard’s and Trademark were each looking at potentially buying the Longview, Texas, mall, located about 130 miles east of downtown Dallas, before the two firms with a more than 25-year relationship decided to go in together on the acquisition, according to Terry Montesi, Trademark’s founder and CEO.
“I don’t know business life without knowing Dillard’s,” Montesi said, adding the department store has been very successful in the past decade — unlike other department store chains. “They have been the darling of the department store business. They are looking to invest in malls rather than divesting from the business, which is what a lot of their competitors and peers are doing.
“They are really good merchants and good people,” he said, adding that Longview Mall is a “solid, stable property,” in a “diversified trade area,” with its nearest competition being about 45 miles away. The deal, earlier reported by The Wall Street Journal, closed this month with the mall being more than 90% leased, Montesi said.
Trademark plans to oversee Longview Mall’s leasing and management on behalf of the new ownership group, according to Montesi. The CEO expects to spend millions in the coming years to introduce new-to-market retailers and invest in upgrades to modernize the enclosed property.
Longview Mall has more than 3.7 million visitors a year with tenants including Dick’s Sporting Goods, J.C. Penney, HomeGoods, Bath & Body Works, Foot Locker, H&M, Kay Jewelers, Auntie Anne’s, Chick-fil-A and Chuck E. Cheese.
Dillard’s CEO William Dillard II said, in a statement, “Longview is a strong market for Dillard’s,” and the retailer looks forward to “building on our successful, long-term relationship with the Trademark team.”
‘Good time to invest’
The new investment debunks the myth that malls are falling by the wayside, Montesi said, with tenants such as Dillard’s proving the profitability of a mall tenant. Since 2009, there’s been limited new retail construction outside of grocery-anchored retail centers, he added.
“It’s a good time to invest in retail,” Montesi said. “The fundamentals are so strong, and institutional capital is still limited. We are actively looking for new retail.”
Like retail landlord WPG’s other properties, Longview Mall was widely marketed in a move that generated more than a dozen offers along with the winning Dillard’s-Trademark bid, WPG CEO Chris Conlon told CoStar News. WPG, previously known as Washington Prime Group, is winding down its business and selling its real estate. Conlon expects WPG to sell “north of $2 billion” of open-air and closed shopping centers by the end of the year.
Last week, WPG sold Orange Park Mall in Jacksonville, Florida, to Second Horizon Capital for $65.5 million, according to local media reports.
“We’ve been very busy,” Conlon said. “It’s a great market to be a seller with the capital markets being wide open. Almost everything we are selling has been widely marketed and we are very pleased with the quantity and the quality of bidders showing up.”
Some older malls of late, like the one in Longview, are attracting attention and investment from various players. Early this year, Walmart revealed it had bought Monroeville Mall in Pennsylvania, near Pittsburgh, with plans to redevelop the 1.2 million-square-foot property. And mall giant Simon Property Group and a bevy of other retail landlords are refurbishing many of their B malls. With the development of new retail properties at a virtual halt, owners are looking to maximize revenue from their existing properties and retailers have fewer choices of places to open or relocate.
As of the second quarter, nationwide “construction starts fell to a new historic low, while under-construction volume dropped below 50 million square feet for just the fourth time on record,” according to CoStar’s most recent U.S. retail report.
The market for retail space is still tight in the Lone Star State despite some retail construction.
“The shortage of first-generation space is particularly acute in high-growth markets, where population gains are driving tenant expansion,” according to CoStar. “Texas alone accounts for nearly one-third of all first-generation space currently available for lease, with four of the top 10 markets for new supply located in the state. However, even in these markets, the volume of new space remains modest relative to demand.”
More control over destiny
Dillard’s and Walmart aren’t the first retailers to acquire a mall or shopping center lately, either. In September last year, grocer Publix Super Markets bought a portfolio of seven grocery-anchored shopping centers for $223.85 million. And in 2022, home improvement giant The Home Depot purchased Charlottesville Fashion Square in Charlottesville, Virginia, for $20 million.
When a retailer buys the real estate it occupies, it gives it more control over its destiny, a guarantee of a location — be it a Dillard’s or an upscale chain. That’s been the rationale for a number of luxury retailers going on a real estate buying spree last year and in 2023 in high-profile deals in Manhattan. Kering — the French parent of brands such as Gucci and Balenciaga — paid nearly $1 billion for a property with 115,000 square feet of multilevel luxury retail space on Fifth Avenue. And Italian Prada Group acquired a pair of adjacent office buildings, with one housing its Fifth Avenue flagship, for a total of $835 million.
“With this transaction, Kering acquires exceptional retail locations on one of the world’s most iconic avenues,” Kering said when it announced its New York acquisition. “This investment represents a further step in Kering’s selective real estate strategy, aimed at securing key highly desirable locations.”