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LAKEWOOD, NJ-Within three years, locally based Lightstone Group plans to double the nine million sf of retail it has in its 29-property outlet mall portfolio and add at least 15 more full-price malls to its five-property full-price retail portfolio. Lightstone acquired the Prime Outlet malls in late 2003 and bought the five B- and C-class full-price centers from Philadelphia-based Pennsylvania Real Estate Investment Trust last month. In all, it now owns about 14 million sf of retail space.

"This is not your father's old Prime," says Bob Brvenik, president of Baltimore-based Prime Retail, Lightstone's retail subsidiary. He says average occupancy in the outlet segment has risen from a mid-80%-level to above 90% since Lightstone acquired it.

When Lightstone acquired the PREIT "instant portfolio," says its CEO, David Lichtenstein, "there's a vacancy issue," which he put at about 15%. He anticipates reducing that to "between 5% to 10% within 18 months," he says and has passed that task along with the a very aggressive expansion plan for both the outlet and full-price segments to Brvenik.

The doubling of the outlet segment will come "through expansion, acquisition, and ground-up development," Brvenik tells GlobeSt.com, reiterating that the company plans to build one to two outlet centers a year. "We're looking at sites now," he says, declining to identify potential locations. The added full-price centers will come through acquisition. "It doesn't matter where they are," he says. "We have a national network in place, and Prime has product all over the country." The additions are also likely to be under-performing centers.

At the time Lightstone bought the portfolio, sales averaged $237 per sf, which is $75 per sf below the average in PREIT's other properties. Asked where Brvenik is heading, he says, "a heck of a lot better than that. We expect to add $100-per-sf or more to that average within the next two years. We like to apply sweat, focus and capital into making significant improvements in properties that haven't been marketed or operated well," he says, declining to put a dollar figure on Lightstone's planned investment in the full-price portfolio.

Another $100 million will be reinvested in the existing outlet mall portfolio over the next 18 months, according to Brvenik. This comes on top of several improvements that have already been accomplished. Among them is a $20-million renovation of Prime Outlets San Marcos in San Marcos, TX, which he says "amounts to about $500 per sf." Such high-end luxury brand retailers as Neiman Marcus Last Call recently inked a lease there.

Of outlet centers in general, Roger Lowenthal, SVP of Hewlett, NY-based Greenberg Group, a retail real estate advisory firm, says, "the rich are getting richer and the poor are getting poorer." He notes that the number of centers has declined over the past decade, "but the good ones are getting bigger and better and averaging higher sales per sf." He predicts a future with between 25 and 50 very strong outlet centers and a handful that make money. Success depends, he says, on a strong, large permanent population, plus a tourist destination and a mix of good, strong brands.

He cites Woodbury Commons in Central Valley, NY, which Simon acquired with its Chelsea merger, as "the benchmark. It has New York City and the surrounding area's permanent, high-income population; tour busses, and lots of brands that people want." Lowenthal also mentioned Prime's San Marcos and Williamsburg centers among those with the factors for success in place. Las Vegas, Myrtle Beach, Florida and Southern California are areas that also meet the criteria, he says. "Centers without those factors are unable to get premium-brand retailers, because they don't draw enough traffic to make them profitable, and, without those brands, they languish and disappear."

Instant Insights /

GlobeSt.com EXCLUSIVE: Lightstone Maps Major Growth

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