Big US Mall Operators Look To Sports Entertainment For Growth

Malls are not exactly the hotspots of coolness and retail activity they once were. But operators of some of those shopping destinations continue to wield investment power as malls undergo remakes for the 21st century. Among the latest examples of that trend comes from Simon Property Group, the largest mall operator in the United States, which, according to Reuters, “will invest $5 million in Allied Esports.”

Allied Esports describes itself as “a premier esports entertainment company with a global network of dedicated esports properties and content production facilities.” How exactly the investment will be used was not immediately clear on Friday (June 28).

According to that Reuters report, “Simon Properties’ unit Simon Equity Development LLC will make the equity investment through Black Ridge Acquisition Corp – a company formed to take over Allied and its sister company, World Poker Tour.” As well, according to Reuters, “the investment announcement comes days after Mexican broadcaster TV Azteca agreed to form an alliance with Allied Esports and Black Ridge Acquisition Corp to create a digital channel broadcasting electronic sports.”

Vacancy Rates

Simon is doing its best to protect its interests. While mall vacancy rates rose during the first quarter to 9.3 percent from 9 percent in the fourth quarter of 2018, Simon has been adding new types of tenants to its malls. The company plans to open at least five Marriott International hotels at its properties in the coming years, and at its Phipps Plaza mall in Atlanta, there will be a Nobu Hotel and a 90,000-square-foot Lifetime Fitness complex.

Earlier this year, Simon Property Group CEO David Simon told analysts that while he thinks retail store closures will slow down this year, he “can’t guarantee it.” Those latest comments come after Simon admitted in February that he was “nervous” about additional retail bankruptcies happening during the first quarter. Later in that month, teen apparel retailer Charlotte Russe, personalized gift company Things Remembered and shoe retailer Payless filed for bankruptcy. In fact, there have been more store closures announced by U.S. retailers so far this year than in all of 2018.

The new investment from Simon Property Group comes as many malls are getting remakes for the 21st century. Digital technology and lifestyles are playing a part in those efforts.

New Life

Indeed, some malls are finding new life as offices for tech companies, as developers are repurposing spaces formerly held by retail tenants into workplaces with high-end amenities for firms like Google. In Los Angeles, part of the Westside Pavilion is set to be redeveloped into a 584,000-square-foot office for the tech company, in a project that is slated to finish in 2022.

The mall, which is owned by Hudson Pacific Properties Inc. and Macerich Co., is still operating, but renovations will start later this year. After the office is finished, it will include open spaces, a rooftop garden deck and large terraces. In order to make those amenities happen, the spaces will have to be reconfigured. “Walls will be taken down,” Hudson Pacific Properties Chairman and Chief Executive Victor Coleman told The Wall Street Journal.

And as this new Simon investment suggests, entertainment could also play a part in helping mall operators survive or perhaps even find growth. Immersive destinations that give consumers an experience they can’t get anywhere else could be just the thing to save those retail spaces. “Mall tenancy has changed,” said Alexander Goldfarb, a senior REIT analyst at the investment bank Sandler O’Neill + Partners. “What hasn’t changed is the human desire to socialize.”

And now some developers, retailers and entertainment producers believe that immersive destinations could potentially fill millions of square feet of empty retail space.

“There’s a ripe opportunity for this thing to go big and change the future of retail,” said John Feins, vice president of communications at Meow Wolf, a Santa Fe, New Mexico-based company that creates immersive art installations. It is leasing 50,000 square feet at AREA15, a 200,000-square-foot “immersive bazaar” of restaurants, shops and event space set to open in October 2019.

Malls might never regain their 20th century glory, but as all these developments show, they are not quite dead yet.