Moonbeam Capital Investments focuses on leasing to a diverse group of next-generation tenants
Moonbeam Capital Investments LLC (MCI), a private equity fund whose affiliates own and operate commercial real estate nation- wide, is actively exploring adaptive reuse of the enclosed malls in its portfolio and finding ways to make empty big box space profitable again.Traditional downtown office users and government agencies are now leasing space in Moonbeam-affiliated malls, and movie production companies and sports and entertainment groups are eyeing MCI properties with a view toward operating within a tighter footprint and enjoying the additional amenities and ample parking they offer.
For mall owners dealing with empty anchor stores, this is a win-win scenario; darkened spaces spring back to life and bring more foot traffic to the existing retailers and restaurants. National companies such as Conduent(formally known as Xerox) and Bed,Bath&Beyond have setup customer service call centers informerly vacant anchor store buildings a ta Moonbeam-affiliated mall, while governmental agencies such as the Orange County(Florida) Tax Collector are planning to provide tax, motor vehicle and other governmental services there, according to Steven Maksin, MCI’s Chief Executive Officer. Other non-traditional mall tenants looking to lease space include medical offices, and sports and entertainment companies, just to name a few.
“There are challenges to attracting alternative uses to mall sites,” Maksin says. “You need to be in control of the REA (reciprocal easement agreements among the mall owner and department stores) or need to know how to lift the REA restrictions on non-retail uses of mall space. We’ve mastered the trade, and that’s why I think we’ve been very successful with redeployment of second-generation former anchor boxes into a creative office environment.”
NEW LIFE FOR OLDER MALLS
In the first phase of a redevelopment at the 1.1million-square-foot Moonbeam-affiliated West Oaks Mall in Ocoee, Florida, the mall signed a seven-year lease with Conduent to operate The Sun Pass Centralized Customer Service Center. The center takes up 70,000 square feet, or approximately half, of the former Sears store building that closed in 2013.
The center processes state toll transactions for the Florida Department of Transportation. New operations have created approximately 500 jobs. According to the Orlando Business Journal, West Oaks Mall will eventually feature 350,000 square feet of office space. MCI is currently evaluating the conversion of the 220,000 square-foot former Belk building into four office spaces. Bed Bath & Beyond already occupies a substantial portion of that building for its customer service call center.
GameTime Entertainment Center (located in a building once occupied by Borders Books), Bates New England Seafood & Steakhouse (located in a building once occupied by Toys“R”Us),and a national cheerleading center have opened for business on the mall’s outparcels. These openings are part of phase one of the mall’s redevelopment. Plans for the second phase include an evaluation of the potential addition of multi-family housing and continued reconfiguration of vacant retail space to office space.
At another Moonbeam-affiliated property, Columbia Place Mall in Columbia, South Carolina, Richland County has taken possession of three former anchor store buildings. The county will relocate its administrative services as well as the county courthouse to space previously occupied by Sears, Dillard’s and Burlington Coat Factory.
In a project known as Richland Renaissance, the County is moving forward with its $144 million redevelopment plan, which includes moving services out of downtown Columbia to areas that are more accessible by residents.
Richland County is acquiring a total of 600,000 square feet of space at Columbia Place Mall. With such a captive audience, Maksin says that law offices are expressing great interest in leasing space there.
“It’s a clear example of a symbiotic relationship between the alternative use of the malls and the potential new tenant base that might not have considered being in the mall but now would,” Maksin says. Other overall uses MCI is exploring include urgent care centers, community colleges, trampoline centers or even conversions to warehouse facilities.
Cushman&Wakefieldestimatesthat upto1,000departmentstoreswillclose thisyear. “Youhavetobeflexibleinto- day’senvironment,”saysMaksin.“And you’vegottobeabletochangetheREAs,” addingthattheMoonbeamcompaniesdo notcarrydebt,whichgivesthemflexibilityaslandlordstoreusemallspace.
“Thisgivesusacompetitiveedgeover traditionalmall ownerswhoarestuck withthequintessentialREAthatisonlyretail-related,”Maksinsays.“Ifyouarelev- eraged,bankersmaynotunderstandwhat youaredoing,andtheymaynotallowyou tochangetheuses.”
PREPARING FOR FUTURE USES
MCI’s work to bring in alternative users and non-traditional retailers to the malls in its portfolio is laying the groundwork for a new strategy for the company.
“The days of the old cookie-cutter ways of putting in apparel-based retailers are gone, ”Maksin says. “You need to come in and, for example, look at the ceiling height. Maybe you can do a trampoline center. ”MCI is adapting to the new normal in retail by exploring such diverse tenants.
“We recognize that American malls are struggling these days,” says Shawl Pryor, MCI’s senior vice president. “Converting retail centers to office spacei s gaining momentum, particularly for specialized uses. Landlords have been left with 50,000 to 200,000-square-foot vacant boxes on their properties. We have begun to think outside of the proverbial box by expanding relationships with office and industrial brokers and doing conversions from retail space to alternative uses. We have the amenities at ourp roperties for quick, convenient shopping, dining and entertainment. Also, you can look at the infrastructure already in place not only within the building but entire property—water, sewer and fiberoptics. So there are al ot of benefits for the traditional office user that would otherwise lease downtown to consider converting vacant anchorspace at the mall for office use.”
Pryor adds that most of the malls in tenant, the proximity to restaurants and the ability to have ample parking space are what really attracts the office tenants to the mall sites.”
Existing retailers and restaurants are unanimously enjoying the new big-box occupiers, Maksin says. “They welcome the conversion of a separate structure, which may have formerly been a Belk or Sears building that sat vacant for years,” Maksin says. “Usually tenants want to see more foot traffic to the malls. So they are very pleased when we bring in tenants such as, for example, the Florida Department of Motor Vehicles and the Orange County(Florida)Tax Collector, which recently signed a lease at the West Oaks Mall that will generate about 2,000 to 3,000 additional people a day in foot traffic.”
Each deal is different, but tenants typically pay for the physical modifications necessary toc onvert the box or anchor spaces to the appropriate use, Maksin says. MCI’s affiliates occasionally finance the tenant improvements, or the tenant foots the costs to redevelop thespace howeveritwantswiththeprofessional services oft he MCI affiliates’ leasing and management teams.
Maksin is exploring many uses for older boxes as new trends move into the forefront. He says some malls are converting part of their vacant space to urgentcare centers and other related medical uses, as well educational or community college space.He also says warehouses could become more prevalent as cities try to attract large users like Amazon to their markets.
“There could potentially be a demolition cost,” Maksin says. “Although sometimes a conversion into a warehouse facility may be worth it without demolishing the entire mall.”
MCI will be pushing further in the coming years in thinking outside the box to envision how to transform a former department store building into something new and completely different.
In closing, Maksin says, “As retail continues to battle the conflicts with traditional brick and mortar stores, the need for front office e-commerce space grows. Whether the sale is from eBay or Amazon, a website or a wholesale order, all orders still need front office systems focusing on sales, marketing and customer service. That’s where we come into lease them space.”
“Having done the deals that we have done so far and having delivered on our promises, we have tremendous confidence in Moonbeam’s future as an organization and as the pioneer in adaptive reuse of commercial properties and mall redevelopment.”
Moonbeam recently announced another addition to its portfolio. In April of this year, a Moonbeam affiliate acquired the ownership of Gateway Marina in Brooklyn, New York, from the National Park Service. Gateway Marina is a 500-boat slip marina with what Maksin says are the best views of the New York harbor in the area. The Marina will be redeveloped, beautified and expanded into a 750-boat slip facility. “That acquisition is our first marina and has given us an entree into the ownership and management of another exciting sub-class of real estate assets. And it is right here in our own backyard,” says Maksin.SCB
Peisner, L. (2018). Bringing Life Back To The Mall. Shopping Center Business,(May), 226-232.