Simon Property Group, the nation’s largest mall owner, expects to spend roughly $1.5 billion building 2,000 multifamily units and hotel rooms as it looks to add density and and evolve some of its retail properties.
The Indianapolis-based landlord estimated it will have construction of the projects completed over a five-year span, CEO David Simon said Tuesday on a first-quarter earnings call. He discussed the real estate investment trust’s pipeline of apartments and hospitality properties while pointing to what he described as the company’s successful redevelopment of Phipps Plaza in Atlanta, a mall that now has a Nobu hotel and restaurant and Life Time fitness center on its site.
Mall owners around the nation have been diversifying and densifying their centers, adding nontraditional retail uses to help drive foot traffic and to take the place of vacant anchor tenant space and unused surface parking lots. And now Simon Property is stepping up its efforts in that regard.
“We have several densification projects under construction and a pipeline of identified projects,” Simon, who is also the company’s chairman and president, told Wall Street analysts.
“Now that’s not going to happen overnight, but that’s going to happen over the next few years,” he said. “So that to us is a real opportunity.”
Simon Property expects to start work on several of these projects this year, but the CEO said the REIT is “frankly being a little bit cautious.”
Simon said, “We’re still permitting some things in California and the Northwest. So we’re going to just see how the world is.”
Asked about the cost of the multifamily units and hotel rooms, Simon said it is hard to isolate them from overall mall redevelopment efforts.
“But my instinct would be probably about a billion and a half dollars. … Somewhere in that range [for the construction],” he said.
The CEO didn’t offer too many details. But he said some of the residential units are planned for Austin, Texas; Orange County, California; and Seattle. In terms of hotels, they will be headed for Florida, as will some residential units, according to Simon.
“It’s kind of where you would expect it to be, where supply and demand is in our favor,” he said.
The REIT is also considering building a hotel on Cape Cod, Massachusetts, because there would be a demand for it there, according to Simon.
The CEO didn’t specify which malls, if any, the 2,000 units would be built and added to. But Simon did refer to the reimagining of Phipps Plaza in the Buckhead section of Atlanta.
“As we give back real estate through our redevelopment efforts, the big focus is on where we can add some mixed uses, because we do think that what we did in Buckhead is having a tremendous impact on the overall value of that real estate,” Simon said.
There are several ways that the company could finance the construction, according to the CEO.
“I think we will do selective [joint ventures] on certain of the residential development,” Simon said. “And it also may be that we could potentially bring in third-party equity, too. We’ll look at each deal individually. But that’s certainly a possibility.”
Last October, Simon Property acquired a 50% stake in developer Jamestown as it looks to expand and wring new revenue from its portfolio by diversifying its shopping centers. Jamestown has been involved in landmark projects such as Chelsea Market in New York City.
The CEO also said leasing demand is strong at Simon Property’s malls and that the properties are getting a boost because tourism is coming back.