Simon Plans To Invest $1.5B In Mixed-Use Projects On Its Mall Properties

Simon Property Group's Del Amo Fashion Center In Torrance, Los Angeles.

Shopping mall giant Simon Property Group plans to redevelop a series of its properties from California to Florida with hotels and apartment buildings totaling around 2,000 units.

On its first-quarter earnings call Tuesday, CEO David Simon projected the company would spend $1.5B on the redevelopments, with construction expected to take place over the next five years, CoStar first reported.

Simon said a few projects are expected to start this year. One of the malls earmarked for redevelopment is Southern California's Brea Mall, where Simon plans to turn a former Sears building and parking lot into a five-story, 380-unit apartment complex.

“These go from Austin, Texas, to Orange County, California, to Seattle … [to] Florida,” Simon said on the earnings call, according to The Motley Fool’s transcript. “So it's kind of where you'd expect it to be where supply and demand is in our favor.”

Simon said his company will look to capitalize on the benefits of mixed-use development as the projects take form. The strategy of adding residential and other uses to suburban mall properties has become a growing trend throughout the country in recent years, with several other mall owners pursuing similar redevelopments.

In Atlanta's Buckhead neighborhood, Simon redeveloped the Phipps Plaza mall with the addition of a 13-story office building, a 152-room Nobu hotel and a Life Time Fitness. Simon cited this example on the call and said the project is "having a tremendous impact on the overall value of that real estate."

“Not only is it accretive from a value point of view just on the cost to the return on the build versus what’s the value of that after it’s built, but also the residual benefits that we see from them all,” Simon said of mixed-use redevelopments.

Simon Property Group owns 162 malls and premium outlets in the U.S., accounting for 72% of its real estate portfolio. It also owns 14 Mills malls, a portfolio it acquired in 2007 and keeps separate in its earnings report, and those account for 11% of its holdings.

It has two fewer mall properties than it had this time last year, scaling back 2.3M SF. The occupancy of its mall and premium outlet portfolio increased from 93.3% to 94.4%, and rents went up 3.1%.

Some of its largest properties include the 2.34M SF Roosevelt Field in Garden City, New York; the 2.12M SF Aventura Mall in Miami Beach; and the 2.5M SF Del Amo Fashion Center in Torrance, California.

Simon's top in-line store tenants are The Gap Inc., Tapestry and Victoria’s Secret, while its top anchors include Macy’s, JCPenney and Dillard’s.

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