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Brookfield’s Plan To Transform $10B Mall Portfolio Snagged By Market Realities

Brookfield Property Partners spent more than $9B in 2018 to become one of the largest mall owners in the U.S. with its acquisition of mall owner General Growth Properties, betting on its ability to transform those assets by adding residences, hotels and offices.

Six years later and after committing at least $2.5B to property upgrades, Brookfield’s pledges have gone largely unfulfilled.

Brookfield defaulted on the debt on Oglethorpe Mall in Savannah, Georgia, but intends to hold on to the property.

Brookfield has completed significant redevelopment at only two properties and has just two others in the immediate pipeline, The Wall Street Journal reports. Brookfield contends it is only now ramping up but acknowledged that economic realities had delayed some of the firm’s vision. 

“Some things that might have made sense five years ago, we have to go back to the drawing board. But that’s the business we’re in,” Brian Kingston, CEO of Brookfield’s real estate business, told the WSJ. “These are big, complicated projects that happen over long periods of time.”

Brookfield declined Bisnow’s request for comment. 

Brookfield Property Partners, a subsidiary of Brookfield Asset Management, first invested in GGP by acquiring around 34% of the company in 2010, while the landlord was undergoing a bankruptcy reorganization. It paid $9.25B in cash for the rest of the company eight years later in a deal that valued the mall operator at $15.3B. 

The asset manager said at the time that it would convert most of the company’s 125 malls into mini cities that included residences, offices or hotels to complement the retail offerings. 

Brookfield has finished significant upgrades in Atlanta and Seattle, and it has redeveloped more than 40 former department stores since the acquisition. But executives at the firm told the WSJ that it would only move ahead with large nonretail developments at its properties when it made financial sense.  

Some of the malls in the GGP portfolio were strong performers that didn’t need major upgrades or repositioning, like the Grand Canal Shoppes in Las Vegas, while others were struggling to adapt to changing consumer demands and shopping habits. 

Kingston, who was CEO of Brookfield Property Partners when it bought GGP, told investors that the portfolio would likely be trimmed down to around 100 properties. Six years later, Brookfield has sold or handed to lenders 24 properties while looking to shed 16 more from its balance sheet, the WSJ reported. 

Other malls in Brookfield’s portfolio have been watchlisted by credit analysts, including Natick Mall, New England’s largest, which is backed by a $505M CMBS loan that matures later this year.

Brookfield is focusing its efforts on its 20 top-performing malls, Kingston said. Investing in those properties “we think provides an opportunity to earn capital,” he told the WSJ. 

The highest-quality malls in its portfolio are nearly fully occupied. Their sales are 18% above pre-pandemic levels, a spokesperson told the WSJ. 

Still, high occupancy alone isn’t enough to make malls profitable. When the loan matured for the 94%-occupied Oglethorpe Mall in Savannah, Georgia, Brookfield opted to default rather than refinance, since the mall had lost around half its value, according to KBRA Analytics. 

The firm intends to hold on to the mall by eventually refinancing the debt, a Brookfield executive told the WSJ.

Brookfield’s strategy to convert challenged malls into mixed-use developments isn’t unique. Shopping mall giant Simon Property Group announced a plan last May to invest $1.5B to add residences and hotels to its properties.  

Simon kicked off the program with an Atlanta redevelopment, adding a 13-story office and a 152-room Nobu hotel to Phipps Plaza in the Buckhead neighborhood.

The repositioning of Phipps Plaza was “having a tremendous impact on the overall value of that real estate,” CEO David Simon said in a May statement.