Landlords found creative ways to fill empty space in the second quarter

Publish Date: August 09, 2014


Landlords found a host of creative ways to turn underperforming properties into tenant magnets in the second quarter. Rouse Properties is currently spending some $225 million to upgrade the 35 malls in its portfolio. At Lansing (Mich.) Mall the firm replaced a Mervyns anchor that had been vacant for seven years with a 50,000-square-foot Regal cinema and a Longhorn Steakhouse restaurant. Rouse spent $14.3 million to redevelop the space, earning a 9.8 percent direct return on investment. The replacement of Mervyns also helped drive an additional 50,000 square feet of new leases, said COO Benjamin Schall. At Three Rivers Mall, in Kelso, Wash., Rouse completed the first phase of a redevelopment that included replacing an anchor spot vacant for 11 years with a Sportsman Warehouse store. DDR’s Project Accelerate, an initiative to rotate out troubled tenant categories such as book and office-supply stores, is well under way, says Paul Freddo, senior executive vice president of leasing and development. “The concept of incentivizing our leasing team to create vacancy is highly unusual in our business,” Freddo said on an earnings call. “But it speaks to the opportunities presented by the current supply-demand dynamic and the dramatic transformation of our portfolio quality over the past several years.” At one 530,000-square-foot power center, DDR is backfilling a 24,000-square-foot Barnes & Noble with an Ulta and a Gap factory outlet at a blended comp of 100 percent, he said. “This will enhance the center’s overall merchandise mix with two best-in-class retailers, drive NAV and provide enhanced credit quality of cash flow.” At another power center, DDR is splitting a 28,000-square-foot Barnes & Noble box into several units with a Carter’s, a Five Below and a White House Black Market, resulting in a rent comp of over 130 percent, Freddo said. “The list of retailers we are dealing with to backfill the recaptured space includes Shoe Carnival; Cost Plus World Market; Total Wine; Bed Bath & Beyond; Academy Sports; Ross; Marshalls; HomeGoods and many more.”

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