2023 Cues Mean Leasing Momentum, Feasible Financing and Mixed-Use for Simon and Macerich Malls in 2024
Based on strong performances in 2023, landlords Macerich and Simon, which own some of the top malls in the country, expect increased liquidity and continued leasing success in 2024.
Leasing Momentum
At Simon’s U.S. properties, net operating income increased 7.3% year over year in the fourth quarter and 4.9% for the full year. That’s higher than pre-pandemic levels, and Simon has renegotiated many of the percentage rent deals it cut with tenants during those uncertain days. “We continue to see variable rent as a lower percent of revenues,” president and CEO David Simon said on an earnings call. “We’re still working that down.” New uses and new retailers continue to seek space in the country’s top malls, Simon added. About 30% of leases Simon signed in 2023 were new tenants. “There are more and more entrepreneurs and exciting retailers that are coming up with great concepts,” he said.
Macerich’s NOI increased 3% year over year in the fourth quarter and 4.5% for the full year. The company signed 4 million square feet of leases in 2023, the second consecutive record. That included 80 tenants new to the portfolio, including upscale restaurants like Catch and Elephante at Scottsdale Fashion Square, social gaming concept Level99 in Northern Virginia’s Tysons Corner Center and supermarket ShopRite at Green Acres mall on Long Island outside New York City.
Among the new tenants in a wing Macerich is renovating at Arizona’s Scottsdale Fashion Square will be upscale restaurants Catch and Elephante.
And the pace continues. “We have a large and healthy leasing pipeline with 2 million square feet of leases signed but not open,” said Macerich senior executive vice president of leasing Doug Healey. “Once they open, it will fuel NOI growth through 2025.” Like Simon, Macerich largely has moved away from the percentage rents that helped keep tenants afloat during the pandemic. Percentage rents were down 16% in 2023 versus 2022 as the landlord converted most existing percentage rent leases to fixed rates, Healey added. “In 2024, we’re estimating a mid-single-digit decline in percentage rents.”
Affordable Financing Available
Both companies expressed optimism about capital markets. “Liquidity is back. We’re now finding significant opportunities to finance our assets,” said Macerich senior executive vice president and CFO Scott Kingsmore. “The markets are open and functional,” he added, pointing out that Macerich is getting interest rates averaging mid-6% and expects that to continue this year as it refinances more debt. “We are benefiting from rotation of finance and capital away from the office sector and into the Class A retail sector,” he said. “Our recent transaction activity supports that thesis.” In the past year, the landlord has refinanced or extended eight loans totaling $2 billion across seven transactions. The REIT has $657 million of liquidity heading into 2024.
For its part, Simon completed 16 nonrecourse mortgage loans totaling $954 million. The weighted average interest rate on the mortgage loans was 6.53%. The company also closed on a new, upsized $5 billion multicurrency unsecured revolving credit facility. Simon entered 2024 with $10.9 billion of liquidity.
Mixed-Use Ahead
Both companies are determined to diversify existing properties. Simon is spending some $800 million on five to six mixed-use developments launching in 2024. Outgoing Macerich CEO Tom O’Hern said the company’s main growth opportunity will be densifying top assets.
Why JPMorgan Is Going Contrarian and Banking on Branches
Only 17 banks have more than 500 branches today, while JPMorgan Chase & Co. has almost 5,000, according to The Wall Street Journal. The publication also reports that Chase is keeping its existing brick-and-mortar locations open and plans to open 500 more in the next three years after having opened more than 650 since 2018.
Why? The bank already is the largest total U.S. deposit holder with $2 trillion, but it wants to grow its share from 12% to 20%, according to WSJ’s citation of S&P Global Market Intelligence. And while bank branches have less traffic than in decades past, more than half of banking customers globally still do not transact via digital channels, according to Financial Services: 5 Trends to Expect in 2024, for which JLL surveyed 207 financial institutions in March.
Physical bank locations continue to act as advertisements by drawing in new customers and small business clients. Smart banks are choosing new markets to serve underbanked communities while upgrading existing branches to showcase their brands and be sustainable, according to JLL. Larger waiting areas, dedicated office spaces for client meetings and less-prominent teller windows will distinguish the next crop of branches, the firm reported. In 2024, banks across the globe are preparing for a Great Wealth Transfer, in which families will pass an estimated $84 trillion to subsequent generations over the next two decades, according to JLL.
Prepared banks will prioritize accessibility and visibility of their wealth management offices to attract new high-end clients.
Realty Income Expands European Footprint with Decathlon Deal
Realty Income announced a 527 million-euro sale-leaseback with French sporting goods chain Decathlon for 82 retail properties in Germany, France, Spain, Italy and Portugal. The stores have operated for an average of 18 years, and Decathlon has operated in those countries for more than 20 years.
In 2022, Decathlon recorded 15.4 euros of sales across 1,751 stores.
U.S.-based Realty Income already has a healthy footprint in international markets, including 289 in the U.K., 54 properties in Spain and seven in Italy. Realty Income International president Neil Abraham said Decathlon’s commitment to cutting carbon emissions 20% by 2026 aligns with Realty Income’s desire to invest in sustainable properties.
More on Realty Income and Crossborder Investment
Realty Income Acquires Spirit Realty
A Spike in Cross-Regional Investment in Retail Properties
High Streets: Most Instagrammable, Plus Owning Versus Renting
#RodeoDrive
High-end haven Rodeo Drive has snagged the crown as the world’s most Instagrammable shopping destination, according to a recent study by online coupon site Bountii. In the ranking of 10 renowned shopping streets’ hashtag mentions use on the social media platform, Rodeo Drive significantly outpaced its nearest competitor by 69%. It’s not clear over what time period the hashtags were counted.
|
1 |
Rodeo Drive |
850,620 |
| 2 |
Orchard Road |
315,896 |
| 3 |
Bond Street |
286,488 |
| 4 |
Magnificent Mile |
132,771 |
| 5 |
Via del Corso |
95,930 |
| 6 |
Bahnhofstrasse |
88,553 |
| 7 |
Avenue Montaigne |
83,252 |
| 8 |
Friedrichstrasse |
82,625 |
| 9 |
Via Monte Napoloeone |
67,382 |
| 10 |
Via Condotti |
61,784 |
Source: Bountii
Home to iconic luxury brands like Gucci and Versace, Rodeo Drive offers a potent combination of high-end fashion, celebrity sightings and undeniable glamour, proving irresistible to style-conscious social media users. The study suggests that individuals are leveraging social media to document and share their luxury experiences more frequently. In a self-fulfilling cycle, that will solidify Rodeo Drive’s global position as a symbol of aspirational shopping.
Luxury Brands Are Buying Their Stores
Luxury conglomerate LVMH Moët Hennessy Louis Vuitton, flush with cash after a record quarter, is the latest high-end retailer to gain more control of its store portfolio by buying properties. The Parisian company is in discussions to purchase the Fifth Avenue retail space occupied by a Bergdorf Goodman men’s store, according to The Wall Street Journal. C+CT reported on the trend two weeks ago after Fifth Avenue flagship property acquisitions by luxury brands Kering and Prada.
High street flagships are more susceptible to rent hikes that could seriously dig into profits, making ownership an economical strategy in some cases.
What City Dwellers Want in Their Marketplaces
A study by Ingka Centres, operator of 34 Ikea-anchored malls, found that urban dwellers increasingly crave vibrant spaces that offer playful experiences, nature access and strong community connections. The report — based on responses from 5,000 people in the U.S., Europe and China — highlighted a growing desire for joy and exploration, as 80%, including those without children, seek “playful” spaces.
More Gen Zers than their elder cohorts are interested in meeting friends in person. Among all respondents, 38% said the ideal meeting place is welcoming and safe, 32% said it provides a great food experience, 30% said it feels cozy and 29% said it provides indoor and outdoor relaxing experiences.
This evidence calls for retail-led destinations to transform into hyperlocal community hubs with green spaces, unique food experiences and opportunities for connection and relaxation. Ingka predicts that such an approach not only will boost customer engagement but also will contribute to well-being by providing oases for urbanites.
Localized Efforts in ORC, Green Power and Retaining Spend
L.A. County Cracks Down on Organized Retail Crime with 200 Cases Filed
The Los Angeles County District Attorney’s Office in California filed nearly 200 organized retail theft cases against adult and juvenile offenders in 2023. “Through my partnership with the Organized Retail Theft Task Force, we have been able to track down many of the offenders and bring them to justice,” said District Attorney George Gascón, referencing a collaboration with local law enforcement agencies.
Prosecutors are targeting not only thieves but also individuals involved in reselling stolen goods, aiming to disrupt the entire criminal chain, according to Gascón. The DA’s cases primarily focus on Penal Code 490.4, which criminalizes organized retail thefts for resale. Cases involve major retailers like Nordstrom, Macy’s and Target, along with numerous smaller businesses. Sentences can range from probation to prison and include charges like grand theft and robbery.
Retailers like WSS expressed support for the task force, acknowledging its positive impact on local security and businesses. “We remain committed to collaborating with law enforcement to deter and prosecute these crimes,” said Blanca Gonzalez, Foot Locker Inc. senior vice president and general manager of its WSS banner.
Beyond prosecution, the task force has recovered millions of dollars in stolen goods, including $188,000 in merchandise returned to Saks Fifth Avenue in Beverly Hills.
This concerted effort promotes safer communities and a flourishing business environment in Los Angeles County, according to Gascón, who said: “Organized retail theft harms our community and local businesses.”
Arturo Sneider, CEO of landlord Primestor, said his company collaborated with the task force to prioritize the safety of its employees, tenants and everyone’s jobs. “We’re passionate about the safety of the people that work there and the safety of their jobs,” said Sneider, an ICSC executive board member and trustee. “Our main focus is to have this strategic relationship with the community to deal with the people that are creating chaos. He also mentioned ICSC’s work educating lawmakers and law enforcement officials about organized retail crime. “This is happening across the U.S.,” he said, “so we are going to D.C. and going to all of these markets to talk about the bigger issue, which has a lot to do with the online resale business.”
More on ORC
ORC Task Forces Made a Difference in 2023
Organized Retail Crime Remains Top Issue for State Lawmakers in 2024
Taubman Enrolls Two Michigan Malls in Green Power Program
All the electricity for Taubman’s Twelve Oaks in Novi, Michigan, is derived from renewable sources.
Taubman’s 1.5 million-square-foot Twelve Oaks mall in Novi, Michigan, and the 1.35 million-square-foot Great Lakes Crossing Outlets in Auburn Hills, Michigan, became the first shopping centers enrolled in DTE Energy’s MIGreenPower green tariff program.
The deal reveals the potential for large-scale properties like enclosed malls to embrace renewable energy solutions. Taubman now can source all the electricity for the pair of properties from Michigan renewable sources, at a lower cost than installing solar panels at the properties. The move will offset the carbon footprint of more than 5,600 vehicles annually. To support the MIGreenPower program, DTE aims to add 1,000 megawatts of wind and solar energy by 2026.
Keeping Local Spend Local
Communities boosted small businesses by introducing their own gift card programs in 2023. Gift card tech provider Miconex said the number of cities with local gift card programs backed by its technology, in which the credits are redeemable only at approved businesses, topped 200 for the first time in 2023. Miconex said its clients have found that the cards drive footfall and spend in their high streets and downtowns.
Twenty-six towns, cities and downtown areas launched programs with the firm in 2023, including Moscow, Idaho; Bitterroot Valley in Montana; Rapid City, South Dakota; Deadwood, South Dakota; and Friendswood, Texas. Sales of Miconex-powered gift cards in the U.S. hit $1 million, and Canada sales reached $3 million. U.K. sales rose 46% year over year to $11 million.
By Brannon Boswell
Executive Editor, Commerce + Communities Today