Shopping Center Business

MAY 2015

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132 • SHOPPING CENTER BUSINESS • MAY 2015 company's acquisitions must be approved by the investment committee within Star- wood Capital. Starwood Retail is backed by promi- nent investment entities, and it continues to have access to capital to invest, albeit with a limit on the time that the funds can remain invested prior to a liquidity event. However, it is not, its leaders stressed, un- der any pressure to invest money or a cer- tain amount of capital within a timeframe. "We like always having one or two as- sets in the pipeline," says Wolstein. "It is like a kid at Christmas; you're looking forward to opening that package and play- ing with it. It keeps our organization fresh and stimulated." Starwood's choices for acquisitions have helped carved a niche for itself quickly in the industry. "We only pursue high quality assets. We have been very deliberate in our ac- quisition strategy." says Ball. "We're not a potential buyer for a C mall that shadows the trade area of two other malls. The bulk of our properties have come from great operators in the business, and we intend to dramatically improve these as- sets beyond the high bar that they set as a starting point." "As a former retailer, I always took deals into the committee with a presenta- tion on who the 'sponsor' of the center was — who the operator was," says Coury. "We want retailers to look at us and say, 'Starwood is a great owner. They invest in their properties and they are excellent operators.'" While the drawback to acquiring top malls is that there is a limited pool, there is not a limit to what a well-capitalized owner can do with them, says Wolstein. "There is a finite universe of regional malls that we would want to own," says Wolstein. "There are only about 300 A- minus or better malls in the United States, so there is a limit. However, in a short time we have developed a reputation among institutional investors as a company that they would partner with to operate assets that they already own. We wouldn't do so without making a co-investment, so I think we will have a lot of opportunity to invest down the road." Starwood Retail Partners has also purchased several lifestyle centers. The centers it has purchased are successful, productive and market dominant. They include Promenade at Bolingbrook in Chicago; Blue Back Square in West Hartford, Connecticut; The Collection at Forsyth in Cumming, Georgia; and Ham- burg Pavilions in Lexington, Kentucky. In those cases, Starwood was able to acquire the lifestyle centers at significant discounts to original cost basis because many were built in the period leading up to the fi- nancial crisis. It sees less of a limit in the lifestyle market. "We like that business because it is the same pool of tenants we deal with in our mall portfolio," says Ball. "We do not need a separate team to manage or lease lifestyle properties. It is also a sector that hasn't been embraced by the public mar- ket companies, so it is an open area of opportunity." Building investments Starwood Retail is able to offer many of its centers a new chance at adding to success. It takes a fresh eyes approach, in many cases throwing a previous game plan away and starting over with leasing and marketing. At Bolingbrook Promenade, Starwood has been able to lease 40,000 square feet since it purchased the center. The company relocated roadways and plazas that created difficulty for customers to get from place to place. It has seen sales for tenants rise 20 percent after making ease-of-access improvements. "When we invest in improvements at a center we are doing it not only because the shoppers are more likely to visit; we are doing it because we want our tenants to invest in their stores," says Wolstein. "We want them to see that we are willing to invest in the common areas. The most important investments that can be made in the mall aren't by the landlord, they are by the tenants. Malls that look tired are often the ones where retailers haven't done new storefronts or prototypes." With its mall portfolio, Starwood Re- tail Partners is making dramatic changes. Some of the centers it acquired had large truck loading bays in the fronts of the center. Since delivery requirements have evolved, Starwood began developing res- taurants and other retailers in the excess space to create areas that were attractive and rent producing. "These areas change the whole feel of the property," says Wolstein. "These were opportunities that were just sitting there that were just not in the mindset of the prior owners because the centers had always been that way." At Chicago Ridge, an outward facing Michael's location created a blank wall in the oversized center court, effectively leav- ing the space feeling large and uninspired. Starwood raised the roof of the center and was able to create a two-story store for H&M within the new vertical space at A 'digital tree' at Louis Joliet Mall near Chicago is one feature that Starwood Retail has installed to allow customers to interact with the center.

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