'Nothing More Embarrassing': Federal Realty's Proposed Redevelopment Of Miami Mall Falls Through
The Shops at Sunset Place in South Miami will not be redeveloped as planned, its lead developer said in Securities and Exchange Commission filings and on a conference call last week. The long-struggling mall had been slated for a partial teardown and the addition of three new 17-story towers that would house apartments and hotel rooms.
“There's nothing more embarrassing to me than the Sunset Place failure. There's a lot of good reasons for the failure, but still a failure,” Federal Realty Investment Trust CEO Don Wood said on an earnings conference call Nov.6.
Federal Realty is a publicly traded REIT that owns 90% of the partnership that owns Sunset Place. The other partners are Miami-based Comras Co. and Grass River Property. They had purchased the mall for $110M in 2015 from Simon Property Group and in 2019 won permission from the city to redevelop it.
Sunset Place, which was built in 1999, suffered from high vacancies in recent years and was hit hard by the coronavirus. A $60.6M nonrecourse mortgage loan on the property matured Sept. 1 but was not repaid, and the lender declared the loan in default.
“It is unlikely we will move forward with the planned redevelopment or repay the mortgage loan at the current balance, and thus, do not expect we will be long-term holders of this asset,” Federal Realty wrote in a quarterly SEC filing Nov. 5. “While we continue to engage in negotiations with the lender, we expect our exit from the property would either be achieved through a short term extension of the loan and an orderly sales process commencing in 2021, or potentially, the lender taking control of the asset.”
Addressing the matter on the call Nov. 6, Wood said, “First, the fits and starts with the entitlement process with the city resulted in precious time lost securing existing tenants and setting up new ones in a strong retail market of 2015, 2016 and 2017.”
Construction costs rose during that time, Wood said.
“But even with all that, we were hopeful that we had a viable project with some reconfiguration of the master plan. Then came COVID. The previous strength of the anchor system — a full-size gym and LA Fitness, a big AMC theater and two large entertainment tenants named Splitsville and Game Time, along with the required hotel component — as part of the intensified site became obvious weaknesses that are likely to continue to remain so for some time. … Given the other opportunities within our existing portfolio to invest capital, we've decided not to pursue redevelopment any longer there. Accordingly, we're evaluating all of our disposition options.”
While Sunset Place has been problematic, Federal Realty reported strengths among its other holdings around the country. Its portfolio was 92.2% leased as of Sept. 30, and Federal Realty signed 101 leases in Q3 for 481K SF of retail space, according to a Nov. 5 announcement of Q3 operating results.
The same team behind Sunset Place is redeveloping CocoWalk in Miami’s Coconut Grove neighborhood. They announced last week that the property is 90% leased, with recently recruited trendy tenants including clothing shops Free People Movement, Europann and Late Night Gypsy.
Wood described Federal Realty’s strategy of focusing on top centers in certain key locations and luring the most desirable tenants, in order to be well-positioned several years from now. Amid the pandemic, that also includes not supporting tenants that are less than top-notch.
“What we are trying to do is not to kind of get back to where we were. But to effectively, in an over-retailed environment, make sure that on the other side of this we have better shopping,” Wood said. “In order to do that, we're effectively cutting the deals that we need to cut with tenants that we think will be critically important on the other side. We are actively, frankly, not helping out the tenants that won't make it and will produce more vacancy.”
The partners did not immediately respond to a request for comment from Bisnow Tuesday.