Simon Invests $1.5B to Add Apartments, Hotels to Malls

Simon Property Group, the largest mall REIT, is investing $1.5B to redevelop several of its mall properties across the US, adding hotels and apartment buildings.

Simon said the redevelopment effort, which doubles down on the company’s strategy of converting mall properties into mixed-use urban villages, will involve construction spread over the next five years.

In a Q1 earnings call, CEO David Simon said the company was initiating redevelopment projects across the US, aiming to create as many as 2,000 residential units.

“These go from Austin, Texas to Orange County, California to Seattle, some hotels in Florida, some residential in Florida, multifamily. It’s kind of where you’d expect it to be where supply and demand is in our favor,” Simon said, in the earnings call. “But we’re considering building a hotel in Cape Cod, because we think there’s a good supply demand imbalance there.”

Simon also said the REIT exploring “selective” joint ventures and on certain residential developments. “We also may bring in third-party equity,” he said, according to a transcript provided by Motley Fool.

The REIT’s strategy is centered on adding value to properties through redevelopments that focus on mixed-use.

“As we get back real estate through our redevelopment efforts, the big focus is on where we can add some mixed uses, because we do think [it has] a tremendous impact on the overall value of that real estate,” Simon said.

“Not only is it accretive from a value point of view just on the cost to the return on the build versus—what’s the value of that is after it’s built—but also the residual benefits that we see from them all,” he said.

Simon already has begun several redevelopments adding residential elements to retail properties, including at the Brea Mall in SoCal, where Simon is converting a former Sears building and parking lot into a five-story, 380-unit apartment complex.

On the earnings call, Simon pointed to the redeveloped Phipps Plaza in Atlanta’s Buckhead neighborhood as an example of a project that has added significant value to the property. The REIT added a 13-story office building, a 152-room Nobu hotel and a Life Time Fitness outlet.

Simon, which is the largest US mall owner with 162 malls and premium outlets, reported during the earnings call that it signed more than 1,200 leases encompassing more than 5.9M SF in Q1.

The REIT said it has an additional 1,500 deals in its pipeline, including renewals for about $570M in gross occupancy cost. More than 25% of its leasing activity in Q1 was new deal volume, the company said.

By the end of the second quarter, Simon expects to be 75% complete with its 2023 expiration. The company reported that retail sales per square foot reached another record in Q1 at $759 per SF for malls and premium outlets combined, an increase of 3.3%. Simon said tourist-oriented centers outperformed the portfolio average in terms of sales.