Simon to the rescue?
To save the malls, and the retailers in the malls, look to the mall owner.
News came this past week that the largest mall owner based in the United States may look to keep select retailers from going out of business — which of course would have the byproduct of leaving less space unclaimed, and unrented in, well, malls.
We liken it to, in a way, a sale/leaseback. But might there be unintended consequences?
As CNBC reported earlier in the week, Simon Property Group CEO David Simon said his real estate firm could “buy into” companies that he said have brands and volume, and told analysts on the Simon earnings call that “we are certainly as good as the private-equity guys when it comes to retail investment. And so, I wouldn’t rule it out.” He said the firm would eye distressed opportunities.
There is some precedent here, where Simon and General Growth, another mall real estate company, helped bring Aeropostale out of bankruptcy — and they had some skin in the game, as the duo owned properties featuring more than 230 Aeropostale locations.
This time around, the wave may be bigger, so investments seem a way to stave off shutterings. Consider the fact that more than 7,100 stores across a variety of retailers have been slated for closure this year. Simon has shareholder stakes in Allied Esports, which operates gaming locations, and the street appears to run both ways, as, for example, Forever 21 has been in talks with landlords, including Simon, to take stakes in the firm — and as noted by CNBC is among Simon’s biggest tenants.
Simon has the financial firepower to take stake, and has pointed to $6.8 billion in liquidity on its balance sheet.
But then again, might this be a case of sinking money into a firm to make sure it can give you back some money in rent while it tries to work out its brand positioning? Perhaps amid the transition from brick-and-mortar to digital (or omnichannel) efforts, buying time is guaranteeing that a tenant remains a tenant. If there is a cascade of store closings beyond even what is seen to date, malls will see higher vacancy rates, and Simon would see a double hit of lost rental revenues and investment losses — a decided fizzle. For Simon, past success does not guarantee future returns, and the challenges to physical retail in a mall setting remain real and immediate. To be fair, occupancy is strong at Simon, at more than 94 percent, which means it has room to take selective stakes in tenants in a story that may play out long term, less a sizzle than the avoidance of a fizzle.
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