Despite Market Trends, Lower End Malls Contain a Fan Base

While groups such as Simon property Group thrive with “A“ list shopping centers and malls, some smaller-scale and more diverse investment groups see an open window in older shopping centers. Investment groups such as Simon Property Group have excelled in today's market while focusing on developments that are feature premium location with heavy foot traffic. So why would anyone want to invest in a second tier type of mall? Especially when these A list malls are thriving and the constant threat of e-commerce looms? Some investors believe that the value of these second tier malls have fallen too much. A greet example of this is Liberty University deciding to pay $33 million for a 75% stake in River Ridge mall near in Lynchburg, VA campus. They recognize that it most likely will never be an “A” list mall but it has the benefits of an expected upgrade by the university and it other investors, as well as being the only regional mall within 50 miles.

With that being said, second tier malls can be a risky business. Mall industry giants are moving in the opposite direction and stock investors favor this strategy heavily. Owning these malls is riskier for a couple of reasons; unlike office buildings that attract some tenants by lowering rents, dying malls may not find any tenants due to e-commerce and more upscale malls. Still, groups such as Farrallon Capital Management see great return potential with this risk. They believe that owning the only enclosed mall in a smaller market can be giant source of revenue. They recently have purchased malls in small towns such as Dothan, Alabama. The urban area second tier malls have a set of different problems; they may have a large populous around them but how do they attract people and tenants to this mall? Building apartments, hotels, and office space in excess parking spots are some solutions certain investors believe in. 

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Written by Front Street Intern Nick DeMasi.