Less, but better: Inside URW’s US mall strategy

Global mall owner Unibail-Rodamco-Westfield showed up in Las Vegas for the biggest conference of the U.S. retail real estate industry, but it didn't have a booth competing for attention on the crowded floor of the city's cavernous convention center.

Instead, Paris-based URW used a 10,300-square-foot ultra-luxury suite — the Nobu Villa at Caesar's Palace, featuring an outdoor terrace overlooking The Strip — to meet with and court potential partners, developers and retailers. The goal: To make a new pitch this year about what makes its shopping venues stand out. Even early on a windy Sunday morning last month, on the day the ICSC event kicked off, the chic and intimate space was bustling with activity as URW executives explained the company's commitment to and investment in a curated portfolio of U.S. malls that it says dominates their affluent markets.

There's been a dramatic reversal of the strategy that URW unveiled in 2022, when the French real estate giant said it was looking to divest its U.S. properties by the end of 2023. But by the summer of that year, the firm was telling analysts it was changing course. This February, URW CEO Jean-Marie Tritant officially reaffirmed that the company would hold onto a slimmed-down stable of its American malls that it considers its crown jewels for their strong performance in important regions. In French, the phrase for the strategy would be "moins, mais mieux" — less, but better.

In Las Vegas, URW got its chance to detail to current and prospective tenants as well as development partners its plans, including a curation of its retailer roster and redevelopments it's pursuing after the February announcement: "This is the first time we've really been able to tell that story," Geoffrey Mason, URW executive vice president, said in an interview at Nobu.

In the current retail landscape, URW stands apart from its peers — behemoths such as Simon Property Group and Brookfield Properties — after largely weeding out most of its older and poorly performing retail centers from its portfolio. It now owns "very, very dominant flagships" in the best markets that are gaining market share and have "tremendous momentum," Dominic Lowe, URW's chief operating officer in the United States, told CoStar News.

That could serve URW well because of a bifurcation in the domestic mall segment, according to retail brokers and analysts. Higher quality, updated and redeveloped malls with new types of tenants — buzzworthy chains like Alo Yoga, entertainment-and-sports venues like Pinstripes and Putt Shack, and upscale dining — are seeing foot traffic, revenue increases and are appealing to the younger Generation Z. Outdated second- and third-tier malls have an uphill battle that has already ended up with some of them demolished or totally repurposed.

URW is now operating 15 malls, with a corporate presentation identifying 10 as flagships — properties where sales, occupancy, foot traffic and rent increases are high — in eight affluent markets, with the others considered regional centers. That portfolio will probably get even smaller, down to just 10 to 12 properties, Lowe said.

A number of URW's malls, including Westfield UTC and Westfield Century City in California, have already undergone billion-dollar upgrades and redevelopment, according to Mason. URW is now focusing on three major redevelopments from retail to mixed-use, on the East Coast and outside Chicago. It's seeking a partner for one of those, the reimagining of Westfield Montgomery Mall in Bethesda, Maryland, Mason said.

Of course, like all U.S. retail landlords, URW faces factors beyond its control. The economy could slow, leading consumers, with even wealthier ones now shopping at Walmart and the dollar chains, to tighten their spending even more. Retailers, URW’s tenants, may continue to struggle with uncertainty from tariffs.

The plan to exit the United States "was a knee-jerk reaction" to the pandemic and fears that COVID-19 "would decimate physical shopping," according to Neil Saunders, a retail analyst and managing director at analytics firm GlobalData.

"Actually, many prime locations are performing way better now than they did before the pandemic hit," Saunders said in an email to CoStar News. "However, URW also seems to have recognized that there is a polarization in malls and that those in secondary and tertiary tiers will come under increasing pressure. That’s why it only wants to focus on flagships that have a longer life and a better ability to generate a return. This makes sense and fits in with the ongoing closure of chains like Macy’s which have, traditionally, played a big role in those lower-tier locations."

URW was obligated to take a close look at its holdings, and shed some, in the wake of the pandemic, according to Lowe. But he said URW never lost faith in brick-and-mortar retail, but rather saw and still views physical and digital, offering consumers omnichannel options, as the key to success.

URW now stands in contrast to U.S. mall-owning giants like Simon and Brookfield, with huge portfolios of hundreds of retail centers. Such owners can't in one fell swoop revamp all their properties at once, but they must select and prioritize which to "densify" — add residential and hospitality space, for example — first. And they've got a lot more malls to deal with than URW.

"Where I think we're really unique to the other developers is because we have this core flagship-only strategy," said Kristen Jackman, senior vice president of Westfield Rise, URW's in-house media division. "The core of what we're focused on is that we're a powerhouse in every market that we're in. ... We are the new town hall of every city, where culture and entertainment and everything converges."

URW "has been selling (or offloading like the former Westfield San Francisco Centre) more than a dozen of its worst malls in the United States over the past several years, leaving some of its very best A++ malls remaining," according to Rudy Milian, president and CEO of retail consultant Woodcliff Realty Advisors. Some of those properties "have redevelopment opportunities" or are "fully entitled for non-retail uses and some [are] even under construction," Milian said in an email to CoStar News.

"Simon and Brookfield are also investing in core assets that have long-term potential for redevelopment and value creation," he said. "However, unlike Simon and Brookfield ... the URW portfolio in the U.S. has been whittled down to 12 [flagship] malls."

Saunders cited the same challenges for a landlord like Simon.

"It has some good properties, but it is also difficult to see how they will reinvent some of their older centers where big tenants have dropped out and more will leave," Saunders said. "This puts them in a difficult long-term spot. That is something URW wants to avoid."

Simon didn't respond to an email from CoStar News seeking comment.

At the same time, URW spent the past 10 years taking steps to pave the way for redeveloping its malls, obtaining local approvals to make additions such as housing or office space, as well as buying vacant anchor stores owned by defunct retailers such as Lord & Taylor and Sears, according to Mason. Getting control of URW's land "is critical" in order to proceed with redevelopments, he said.

"Our competitors are sort of now where we were 10 years ago," Mason said. "It does take a lot of time. But once you get it done, you can start moving with real speed."

URW has big plans for Westfield Montgomery, a property Mason said is located within a ZIP code home to some of the nation's highest household incomes, situated at the junction of two major freeways just off the Washington, D.C., area's Capital Beltway. However, there's a way to go on that redevelopment. URW is seeking to add multifamily housing, and it's still in the process of talking to potential partners for the residential expansion, according to Mason. URW is working on a request for proposals for developers.

"One of our key models is we want to be really smart and sophisticated with our capital," Mason said. "We want also to be very smart in terms of the risk profile. So by bringing in a co-developer, they're leveraging the fact that we've gone through and got entitlements. We've got zoning. We've got the amenities for them."

In those situations, URW benefits from having partners who have expertise in residential and office development, according to Mason.

To pave the way for Westfield Montgomery's redevelopment, URW purchased a Sears and a Macy's store at the mall. The Sears will be torn down, as URW is looking to transform the mall property into a "street-facing outdoor destination," according to Mason. For example, some stores and restaurants that only had indoor entrances will now be given outside entrances, as well as patios and green space added at the site, he said.

The tenant roster at Montgomery has already been upgraded, with the addition of retailers such as Spanish fashion chain Mango, Tory Burch, Abercrombie & Fitch, Carter’s, Uniqlo and Below Zero Swiss Science, which is a skincare provider that uses cold therapy. Closing out the second quarter, apparel seller Garage is scheduled to open at the mall, followed by restaurants Shiki Fusion and Nan Xiang Soup Dumplings, a Michelin-recommended eatery from New York City. Back in February, AMC Theatres completed renovations to the 16 auditoriums within its multiplex at the mall.

URW's other redevelopment priorities are Westfield Garden State Plaza in Paramus, New Jersey, and Westfield Old Orchard in Skokie, Illinois. The retail landlord's partner in Paramus is Mill Creek Residential, with nearly 1,400 housing units slated for the mall. Garden State Plaza's phased redevelopment also includes a hotel, a one-acre town green, a main street outdoor district featuring restaurants, a medical office building and garages. It's expected to get rolling this year.

At Old Orchard in the Chicago suburbs, URW plans to demolish a Bloomingdale's in order to add about 360 apartments to the site and has found new tenants for a former Lord & Taylor store. The new occupants are home furnishings seller Arhaus, apparel chain Zara, Pottery Barn and mini-golf operator Puttshack that debuted this month. There have been other upgrades at the property, too.

Adding housing to a mall increases its value, according to Milian.

"Mall valuations have generally declined for all types of malls over the past 10 years when lenders provided mortgage loans and packaged them through [securitized debt investor offerings], some of which cannot be refinanced at those levels today, given the lower valuations and higher lending costs," he said.

But, he added, "the darling of commercial real estate is multifamily. When malls add multifamily, the combined retail-residential valuations in those properties increase tremendously because there is considerable demand for rental residential properties in the U.S. driven by organic population growth and immigration."

With a course now set for its U.S. portfolio, URW has expanded its retail media platform — Westfield Rise — to America, offering tenants and non-tenants exposure and consumer engagement at all or some of its malls, whatever the client wants, according to Jackman.

That can include hosting events tied to movie premieres or spotlighting clients in state-of-the-art media displays across the 10 company flagships.

URW will divest a few more malls, Lowe said. Earlier this year, the landlord reported it had defaulted on a $234.6 million loan on one of its few remaining regional malls, Westfield Wheaton in Wheaton, Maryland.

In a March report, the company said it was talking to lenders about "different options, including an eventual sale, foreclosure or refinancing." The loan was transferred to a special servicer who is working with URW "to evaluate a sale of the mall financed by buyer assumption of the modified and extended loan," according to CoStar data.

URW is still working with the special servicer on potential new owners or operators for that property, Lowe said.

"But we intend to exit Wheaton at some point this year," he said.

Updated June 25 to correct mall name to Westfield Century City and updates plans for Bloomingdale's in Skokie, Illinois.