CBL Properties, Nearly 4 Years Since Exiting Bankruptcy, Finding Buyers For Its Malls

It's been a tough decade for mall owners: First there was the so-called retail apocalypse, then the pandemic, then the tide of rising interest rates.

Stephen Lebovitz, the CEO of CBL & Associates Properties, led the Chattanooga, Tennessee-based mall REIT through it all, including a bankruptcy in 2020. He remembers taking calls from panicked CEOs who couldn’t open stores and paying his company's bills.

“They couldn’t generate revenue. We still had debt payments. We still had real estate taxes. We had utilities,” Lebovitz said in an interview at the National Association of Real Estate Editors conference in New Orleans last month. “So that was stressful.”

But now, the tides have turned for the once-beleaguered mall sector. Retailer demand is up, as are store revenues. And CBL went from bleeding to the black.

The REIT posted a loss of more than $93M in 2022 before turning a profit of more than $67M last year. Its revenues have increased, and it has sold three retail properties this year for a profit and used the proceeds to trim its nearly $1B in debt set to mature this year.

“There are new buyers that are interested in malls,” Lebovitz said. “I think they see the opportunity.”

One of those buyers is the world's largest retailer. Walmart purchased the Monroeville Mall in Pittsburgh from CBL for $34M in February. The 1.2M SF mall is most famous for being the setting of the 1978 seminal horror movie Dawn of the Dead.

Also in the first quarter, CBL sold the open-air shopping center Annex at Monroeville, also in Pittsburgh, and sold its Imperial Valley Mall in El Centro, California, for $38.1M to a venture made up of Tryperion Holdings, Peak Financial Partners and Duke Real Estate Group, the Calexico Chronicle reported.

Together, the malls sold for $72.1M, netting CBL a $21.5M gain, according to its first-quarter earnings report. Lebovitz said the proceeds were used to help pay down more than $917M in debt maturing this year. 

The REIT won't have to pay the full freight just yet. It met the benchmarks needed to secure a one-year extension, and Lebovitz said he expects CBL will meet the extension test again next year.

“So we have time still to work through that,” he said.

It isn't the first time CBL has had to work through potential debt troubles. It used the Chapter 11 restructuring process to wipe $1.7B of debt off its balance sheet, emerging from bankruptcy in late 2021.

Despite the dark times, Lebovitz said he never gave up on the belief that malls would remain a place consumers wanted to go.

“We're longtime believers. We've been in this business for 60 years,” he said. “Our issue with Covid and the bankruptcy was more a balance sheet issue and level of debt and corporate debt. It wasn't the properties.”

After years of bankruptcies driving up vacancies, many traditional mall tenants have been cleared out and replaced by new concepts. Among the retailers looking for locations in malls are Pickleball Kingdom, Crunch Fitness, Round1 Bowling, LoveSac and Sleep Number, according to JLL. 

Those tenants are being driven to malls like CBL's because of a lack of options. Over the past five years, developers have demolished 155M SF of shopping center space in the U.S., including 1.1M SF of mall space in the first three months of this year, according to JLL.

Retailers see malls as locations that have been tied to communities for 25 or more years, with all the necessary infrastructure and road network, Lebovitz said. And the demolition spree has been compounded by a lack of new development, leaving less competition for landlords that have hung on.

“The locations are proven. And there's virtually no new development happening,” he said. “So they're going to look at the existing as their most viable way to enter a market.”

The dearth of supply has come against the backdrop of resilient consumer spending. CBL's sales eclipsed its 2019 pace by 2022, Lebovitz said. 

“Gen Z and Gen Alpha are much more inclined to go to the stores, to shop in the mall, to get out and not just shop online. They'll do research online but then go to the store,” he said. “We're getting a younger shopper now than we have before.”