From Where I Sit S3E5 Transcript: Stephen Lebovitz, CEO, CBL Properties

Stephen Lebovitz:

We've seen a tremendous resurgence from Gen Z, from Gen Alpha, just their, you know, their craving for nostalgia, their craving for a social experience, for getting out. And you can't blame them. You know, if you were going through high school or college and cooped up in your house and remote, I mean, after a while you get cabin fever. You want to get out.

Tom McGee:

Welcome to From Where I Sit, the award-winning podcast where we explore the forces shaping America's built economy. I'm Tom McGee, President and CEO of ICSC. This season, I sit down on camera with the leaders shaping the future of the built world, commerce and technology. From emerging trends to groundbreaking innovations, we'll explore what's driving change across our communities and the broader economy. Let's get started.  

Today I'm pleased to welcome someone I know very well, Stephen Lebovitz, CEO of CBL Properties. Stephen has spent nearly four decades with CBL, serving as CEO since 2010. During that time, he's had a front row seat to extraordinary change across retail and real estate. From the evolution of the department store and the rise of e-commerce to the pandemic, changing consumer expectations, and now a renewed appreciation of physical retail.

Today, CBL owns and manages a national portfolio of enclosed malls, open air centers and other retail properties. They have a particular strength in markets where its properties serve as important centers of commerce and community.

Stephen has also been a longtime leader in our industry and a great friend to ICSC and to me. He served as ICSC Chairman from 2015 to 2016 and has been part of many industry and civic organizations over the course of his career. Stephen is uniquely positioned to talk about the evolution of the American mall, not simply where it's been, but where it's going. Stephen and CBL have navigated disruption, transformed properties, rethought the traditional anchor model, and returned to acquiring malls as investor sentiment toward the sector is changing considerably.

Stephen also led the committee that resulted in my selection as ICSC CEO in 2015. Stephen, welcome to the show.

Stephen:

Tom, thank you so much for inviting me and it's great to be here. Congratulations on eleven years with ICSC. I can look back and say with a lot of pride that you've succeeded so amazingly in that position.

Tom:

Well thank you for obviously, thanks for chairing the committee and for my selection. This is a job of a lifetime. I love my job, I love the industry, I love our membership and you and I have been tied together since the day I started, actually even before I started, as you conducted the search. So it's great to have this opportunity to talk about CBL and about the industry and thank you for your friendship.

Stephen:

Yeah, well you too, and who would have known then what we would have gone through in the past eleven years?

Tom:

Well, we have gone through a lot. I mean, you know, I referenced, you've been at the helm through a lot of different change in the industry. And of course I was part of those changes. I was here as ICSC CEO. So we're going to talk about a lot of those things over the course of the podcast.

First, let's talk about you a little bit and just your, you know, your entry into the industry. You come from a family that has been, you know, engaged in retail real estate. I know your grandfather, Moses, I believe, was engaged in in retail with your dad, Charles, who I also have the privilege of knowing. And then your father started CBL Properties, I think in 1978, and then you joined in 1988. And so you've seen a lot in the industry and have really been part of the industry since your childhood.

First, how did you make a decision to go into the industry or did it just kind of naturally happen as part of being in an industry family?

Stephen:

So actually growing up, I wanted to do almost anything other than go into the business. And I, at one point, was pre-med, I was a human biology major in college, but I kept coming back to it. I just couldn't get away. I had it in my blood, and that's not so surprising since I have a picture of myself when I was one year old at the grand opening of Eastgate, which was the first large, it wasn't even enclosed, but it was an open air mall that opened in Chattanooga. So I eventually stopped fighting it and joined forces with my dad and opened a regional office for CBL in Boston, which is where I focused my efforts in the initial part of my career. But I grew up in the business. I was a swimmer competitively and I'd go to swim meets all over the south and during the breaks between the morning and the afternoon session, my dad would drive and look at sites for potential shopping centers. And so I had it deep in my blood from very early in my life.

Tom:

Yeah, yeah. I mean you've seen the evolution of the industry from the point where it was really just bursting at the scenes with growth and development to, you know, then obviously some of the challenges that we made reference to, now a resurgence in the industry. As you look back on it, what do you think has changed the most in the industry from the point in time that you started your first memories to where it is today?

Stephen:

Well, there's so many changes, but I think the biggest change is that when I first joined the industry, there were malls and there were supermarkets, but we didn't have anywhere near the different formats or types of retailing that have evolved over the years. So Walmart was very small at the time. You know, Kmart was growing, Home Depot, Lowe's were just starting. So we didn't have the boxes. The boxes started growing and then the specialty retailers and the specialty boxes like Best Buy and Bed Bath & Beyond. And then over the years, there's been such a proliferation of retail formats, including outlet centers, and then online shopping. So, you know, that really started. So there's been, for a mall, you know, when it was first built, it had a huge market share in its trade area. But over the years, that was eroded and there was a lot more competition that the malls faced and that's really impacted the way the mall has succeeded and functioned in its communities and its markets.

Tom:

That actually leads to kind of the central point of the conversation, which is the mall. And you know the mall is kind of an iconic part of American culture, right? I mean we all have images of growing up in the mall and going shopping and going to the food court, etc. And it's also been a central part of the narrative of retail and the rise of e-commerce and so forth. I remember back even in the late ‘90s, there was a Time Magazine, you know, cover that said, you know, “the death of the American mall” or something of that nature. You know, first of all, you've never run away from the phrase “mall.” You know, knowing our conversations and so forth, even when some folks were challenging its viability, you know, what is it about the mall that you see as so central to American culture?

Stephen:

So we have always focused on more middle market malls, where the mall is really a core part of the community, one of the largest employers, one of the largest taxpayers. When our malls had the grand openings, which I remember well because I experienced so many of them, it was a huge deal. I mean, we'd have thousands of people. They'd get there early. We'd have the ribbon cutting. We'd have the mayor, the governor, the local beauty queen. I mean, it was fantastic and I think people really identify with their mall in their market. Everyone has a mall. Everyone wants to always tell me what storage we need at the malls, what's going on. They want the latest, you know, they want the inside scoop on what might be opening. So there's just, like you say, I think it is an iconic part of American culture, the mall. And, you know, the malls that we operate, that we own, retain that really important position in their markets because of their economic impact. And you know, yeah, there have been a lot of changes in malls over the years, and we'll talk about that. But I don't think the mall has lost that major position that it plays and that important position that it plays in the way it identifies and the community identifies with them all.

Tom:

Talk a little bit, Stephen, about your CBL strategy, because you mentioned, you know, you kind of gave reference to some of the geographies where your centers are located in versus perhaps some of the major metropolitan centers. So just talk about, you know, kind of where most of your properties are located and why you think that's, you know, unique.

Stephen:

So great example. We're headquartered in Chattanooga, Tennessee. Chattanooga has around a half million people in the trade area. Our mall, Hamilton Place, I look at all the time. It's right outside the window of my office. And it really is the dominant mall for a 60, 70 mile trade area. And our portfolio, we look to try to have that kind of property throughout, where it's either the only mall in the market or the dominant mall in the market and has that kind of market share. It's got strong access to freeways or other transportation. It's an easy location to access for people in the bigger trade area. So that dominant position has always been and is a really important part of our formula for the success of our properties.

Tom:

I've been to that property and been to CBL's headquarters. I actually need to make reference to behind you, obviously the folks that are watching are going to see the figurine of the man running with the briefcase, but also behind you is the old ICSC logo and brand and that's representative of your time as ICSC Chair, isn't it?

Stephen:

Keep it right behind me, Tom. It's behind me looking over me.

Tom:

Always behind your shoulders. Well, thank you for displaying that with pride.

Stephen:

That was a great year. I enjoyed my service as Chairman and we did a lot and like we said earlier, having you join as part of it was really great.

Tom:

Well, you know, when I joined, one of the things I didn't quite understand and appreciate was, you know, the intensity around the conversation of the so called retail apocalypse or armageddon or whatever terminology you want to use around that. And, of course, that's centered around just the rise of e-commerce and the impact that was having upon physical retail in general and the malls because of their iconic nature, you know, became somewhat symbolic of that. That's what people talked about because as you said, they're so central to to communities. Talk about that period of time. I mean, just the impact that e-commerce has had upon, you know, the mall industry and kind of explain to folks what that's done from a positive and perhaps, you know, cause some, you know, some rapid change in the industry as well.

Stephen:

Sure. Well, before I do that, I want to take a step back and talk about, you know, a career in the shopping center industry, in the mall industry. And I think you know this. I mean, it's full of challenges and opportunities and that's what that's what has made it fun for me is all the varied experiences that I've been able to participate in as a leader at CBL and even in our industry. And it's a kind of unique, it's a very unique industry because we have rivalry, but it's very collaborative. And I can't think of another industry where our competitors are our peers, we share information, we try to work through common challenges together and I think it's very unique to the shopping industry. Now it's hard for me to say because it's pretty much all I know. so maybe there are there are other-

Tom:

Well I, you know, I can attest to that. I mean, having come from Deloitte and serving clients in a lot of different industries, that was something that was surprising to me, how collaborative and communicative people were in the industry around just, you know, trends and best practices and so forth. You don't see that, at least in my experience, I've never seen that in other industries. That's very unique to our industry and speaks to the relationship orientation of it.

Stephen:

Yeah, and I think so when we face something like e commerce, it wasn't something that just CBL faced. It was retailers, it was landlords, it was all the service providers and trying to figure out how to navigate it. And you know, when it when it first rose up in the late ‘90s, and the stock market was just, you know, crazy inflated with valuations for all the e-commerce companies, you know, everyone was talking about how this was it for the malls. Like you referenced the Time Magazine cover, and you know, department stores were dinosaurs and dead, and that was it. And then it blew up, you know, in ‘01. And after that, it was really a heyday for CBL and the malls. At one point, we had 80 malls. We had a $10 billion valuation. We were buying aggressively. So there was, after the initial wave of e-commerce, there was really a strong resurgence in the malls.

And when I look back at kind of the history, the Great Financial Crisis was probably as big a determinant in the future of the malls than online commerce because it really drove the customer towards value. And everyone, all of a sudden, was very nervous about their, you know, their savings, their incomes, you know, their jobs. And coming out of the Great Financial Crisis, we had this rise in value retail, outlet centers, all of a sudden became very popular. TJX and companies like that picked up tremendous market share from the department stores. So that was, you know, that was the first challenge.

Yeah, then online shopping really started to get more market share and get their legs back under them. And I think the combination of the convenience, because when you think about the customer, they're focused on value and convenience. And you know, retailers are really trying to provide that to their shoppers, their customers. Those are their focus. And for a while there, the mall just wasn't doing it. We weren't offering anything different. In fact, we were offering a less compelling value proposition, a convenience proposition. And as a result, we had a lot of retailers that just weren't succeeding. And that contributed to store closings, to bankruptcies, to decreases in NOI. And that is, you know, really, you know, what I think is known as the retail apocalypse in the late 2010s, you know, the 2016 to 2020 period.

Tom:

Particularly that point around just the diversification of retail offerings, I think that a lot of times people just don't acknowledge that that's a big part of the changes that have happened in retail in general, both pros and cons in regards to different offerings. You just have a lot more different types of retail, particularly as it's impacted, you know, the department stores in particular.

Stephen:

Yeah, and one of the things that is challenging about our business is it doesn't change fast. You know, we have long lease terms, so it's hard to replace retailers. Malls are big, you know, it's expensive to invest and bring in different types of uses to tear down and rebuild involves a lot of capital. So when I look back, we started strategically saying we need to reduce our dependence on apparel retail. We need to add more restaurants and more different types of uses to the malls. We started that in the like ’25, ‘26 timeframe. So 20 years ago. And it's taken that 20 years really for us to reinvent the types of uses and to reinvent them all enough that the customer is excited to come back now.

Tom:

We have you have leases in place, you have obviously capital allocation and just changing, you know, the footprint and the layout of a mall. Before we leave the e-commerce conversation, just how do you see e-commerce today as it relates to the interplay with the malls and your offerings? Is it a symbiotic relationship? Is it still a competitive relationship? I mean, you know, we talk obviously around omnichannel retail, the halo impact of having a store in a geography and how that positively impacts e-commerce sales and vice versa. How are you seeing it as it relates to your properties?

Stephen:

I think the retailers have figured out how to offer an omnichannel experience to their shoppers. So you know, you can't tell a shopper what to do. They're going to do what works best for them. And if you can combine online shopping in stores, you know, buy online, pick up in a store, return at a store, you know, all the different variations are an important part of a retailer strategy. And I mean the good news is it took a while, but the retailers have figured out how to navigate it. And, you know, they're doing, depending on the category, you know, from zero to maybe 50% of their sales online. But the stores are really important and they play an important role. So I think the recognition of the importance of the store is really the most important factor from our point of view.

Tom:

Yeah, the store is kind of the central part of the shoppers' journey. And retailers, I mean to your point, have really kind of figured out how to use stores not just for traditional shopping, but really as mini-fulfillment centers to some extent, as well. And you know, you never want to say a pandemic's a good thing, but I mean it accelerated a lot of changes that were beginning to happen or were happening, but they just happened so much faster because of necessity and the pandemic and when you emerge from the pandemic, you really see the store, quite frankly, who would have thought when we were in the midst of the pandemic that we would be emerging and physical retail would be in a much stronger position than it was when we entered the pandemic.

Stephen:

No, we did not call that. We did not have that crystal ball. But I'm glad the way it worked out. And you know, leading up to the pandemic, we had a long watch list of retailers that we were worried about financially, that were kind of too much in the same category. The pandemic kind of cleared that list. and so it was ripping the band-aid off. But you're right, it's given us a good place to rebuild. And the retailers today, they're strong financially. A lot of our legacy retailers are putting up the best results that they have in years, such as Gap or Abercrombie or American Eagle, stores like that, that have been a core part of them all for a lot of years.

Tom:

One other element that's been a core part of the mall and quite frankly the central part of the mall has been the department store when people think of their mall. And obviously the department store sector has gone through, you know, a lot of changes, a lot of competition. In many cases, majordepartment store chains have reduced their footprint. How do you see the department store sector today and how's that impacting kind of the curation of the mix in you in in your mall?

Stephen:

The department stores have definitely been probably the most impacted by e-commerce over the years. And you know, the toughest challenge we had in the late 2010s was when Sears and Bon-Ton basically closed all their stores or a significant portion of their stores overnight. So we all of a sudden had an inventory of fifty department stores to figure out what to do with. And when you do three or four a year, it's fine and we proactively work with department stores that aren't doing as well to buy them out or terminate their leases and replace them or sublease space. That's always been a part of the business. But having that much concentration at one time was super challenging. And I think coming out of that, the department stores realized that they had to reinvent themselves, they had to attract a different customer or broaden their customer base beyond what they were doing. And just like the malls, I think today department stores are healthier than they've been in 20 years. Dillard's is one of our largest department stores across our portfolio. And they've had phenomenal results, but they, you know, they kept a strong balance sheet, they kept service as an important ingredient to their formula, they've refreshed and brought in new brands to try to offer different merchandise to the customers. They keep their stores up in good condition. So, you know, these are basic type things, almost fundamentals, but they're executing. You know, Macy's has had a great comeback because they got back to basics and you know, they're giving the customer what they want. So, you know, when malls were first built, there were, you know, four or five department stores. But today the formula is different. You don't really want that much of the same. You want to have one or two fashion department stores. And, you know, it to have Target or DICK’s House of Sport or SCHEELS Sporting Goods is a better complement from an anchor point of view to what it was originally when you just had pretty much duplicative types of apparel retailers.

Tom:

Well, retail's a fiercely competitive business. So I mean if you go back in history, right? I mean there's a lot of brands that were, you know, super successful in different generations that are no longer around, some of the ones that that you made reference to. E-commerce certainly played a role in the competition for some of those retailers, but there were other reasons prior to e-commerce. The shift from downtown to the suburbs and yeah, demographics. Yeah, there are a lot of reasons. I agree.

You know, Stephen, for some of our listeners that don't, you know, understand some of the complexities of the mall industry, you know, as it relates to anchors and REA agreements and land ownership, just give folks kind of a high level understanding of what's involved if you want to take over an anchor space and some of the things that you have to navigate as a as a landlord around that.

Stephen:

Sure. well, I'll try. I mean malls in general are complicated. The ownership of malls is not just one entity for the most part. When the malls were built, a lot of the anchors wanted to own their land. They wanted to control their real estate. So we could have a mall where we have four or five different ownership groups, each department store owns their property either they're building or their parking lot in their building. We own the center, we might own the ring road around. And we had these agreements, reciprocal easement agreements, that basically govern the rules of how we would all get along. So we'd share parking, we'd share expenses, we'd share maintenance. and they were also designed to give people, you know, approval rights. So department stores approve any changes to the building and we approve things. So, you know, there was a lot of collaboration, a lot of working together that the REAs forced on the mall business. And you know, when you're working today, a big part of the strategy has been to redevelop and to make changes and to add uses in parking lots. So, you know, we've worked together with the anchors to try to make all that work. But it's not for the faint hearted. Relationships are really important, credibility's really important, and just having the confidence and in the different partnerships.

Tom:

I asked that question because I think sometimes people don't understand or appreciate the complexity involved in some of the, you know, changes that that are happening in the mall industry. And you know, I'll have folks that maybe aren't even in the industry say, well, why don't they just do this? And why don't they just do that? Well, it's a lot more complicated. Of course you also have, you know, zoning restrictions and all types of things that come you know, from local ordinances and other stakeholders that also impact all of that.

Stephen:

And there's a lot of education that we have to do when we're working with the cities or the towns and making changes and helping them understand that we can do this, but we can't do that without getting the approvals. And, you know, everyone has different agendas. So trying to make all those work in concert is a challenge. I mean, it makes it fun. It makes it challenging, but you know, think about it, there are a lot of cases, 800 to a million, million two square feet. So they're big buildings. A lot of the leases are long term, or they have options that give the retailer control over it. But they have to change. So you know, what we're working with requires a very hands-on management approach and knowing our retailers and working with them closely.

Also, you know, you think about the malls today. We've had malls that are celebrating their 60th anniversary. I mean, you know, they've been built. So, you know, there's aging infrastructure, there's locations where service courts or utility rooms were built originally that don't make sense today. So they're definitely interesting creatures.

Tom:

Yeah, they're small cities, in some cases big cities. Yeah, exactly. The very complex ecosystems. You made reference to kind of some new uses for traditional anchor spaces. Talk a little bit about some of the things that you're doing in your portfolio, different anchors to replace, you know, spaces that used to be used by, you know, that used to be occupied by department stores.

Stephen:

Yeah, there's been such a change in the thinking about what is an anchor over the years. And I remember one of my early Trustees meetings, I think it was before your time, but Westfield said we're adding Target and Costco as anchors to our malls, and we think that's the best thing we can do. And the room went like in this big uproar, like, what do you mean? You can't do that. That's not, you know, that's not a department store or that's not an anchor. But they were on to something and you know, we've really done all types of different types of uses. We’ve added casinos in a couple of locations. We've redeveloped former Sears into a combination of entertainment with Dave & Busters and fitness uses and value boxes such as DICK’S Sporting Goods or Ross or TJ Maxx. And then restaurants, the whole restaurant business and the impact that it's had from a traffic generation point of view has been a really important part of our strategy and taking former parking lot area, for department stores and bringing in more restaurants and bringing in traffic and giving the customer a reason to come to the mall is an anchor in in today's world.

So yeah, the whole definition of an anchor today is a lot different. And every market is also different. You know, we have to look at each mall. There's no cookie cutter. Each box, you know, the best use for one isn't going to necessarily be the best use for another.

Tom:

Yeah, you have to curate the mix to the specifics that are needed for that community. I mean that can't be a cookie cutter. And I think that's just beyond retail. People have become, because of technology and our ability to have very specified interests that we, you know, can follow, that extends to retail now and extends to the offering in the local community and what people expect.

Stephen:

But it's a great opportunity. I think, you know, in some cases we've been frustrated because we haven't been able to maybe get back a department store that we see a lot of demand for different kinds of uses. And so, you know, we'll look at a department store and say, “You're not doing, you know, that much business.” And they're like, “Well, we're making money, so you know, we're going to keep going.” And so, you know, you do get into a little bit of a stalemate in certain situations like that.

Tom:

That speaks to the complexity that you raised earlier. I mean to some of the redevelopment that you're talking about, obviously there's a lot of capital involved in that as well. And capital allocation decisions are, I'm sure, complicated and you have to go through a process. How do you, you know, evaluate whether and where to allocate capital, when it makes sense to redevelop this property versus that property or within a particular property, whether to, you know, pivot? How do you make those decisions, Stephen?

Stephen:

So a lot of it is driven by, I mean, we're a public company where we, you know, we have a cost of capital, you know, tied to our cost of equity and debt. So we're looking at our investment decisions relative to our cost of capital. So we have to make smart decisions in that way. We've had opportunities to co-invest in mixed use projects, which we've done. But it's not a long-term hold strategy. We might, you know, co-invest into development and then we sell on stabilization. So, you know, that's a more profitable path over maybe a four or five year period instead of taking the capital up front. We've looked at how to do project capital light where we leverage someone else's balance sheet depending on kind of what's the best thing for the property. And we also have to look at the value of the property because if a property is worth a 15% cap rate, then we don't want to do a project that only returns a 7% because it's dilutive to the value of the property. So, you know, all that comes into play. You know, in some cases, in the mall business, there's strategic decisions. We have an opportunity to add Apple or Lululemon or a store like that. It might not be the best capital decision, but the impact it's going to have on the overall property we take into account. And that's a consideration. So it's not, you know, it's a long answer. It's not, it's not a quick, quick analysis that we go through. We become a lot more sophisticated with you know financial forecasting, budgeting, just having a lot more information to understand about how well a retailer's going to do in a certain market or a different kind of use. So that helps with the decision making in terms of projecting how we're going to come out.

Tom:

Yeah, I mean those are complicated decisions and you mentioned some brands that maybe the economics aren't as good as other decisions you can make, but you're driving a better customer experience which will have the byproduct of driving more demand than the rest of the property.

Stephen:

Exactly. And other retailers will follow. So, you know, you have to take into account those intangibles as well.

Tom:

So let's go back now to the conversation we had. You've gone through a lot of different periods in this industry and certainly the last, you know, let's call it fifteen years or so have been, you know, some pretty really since the Great Financial Crisis, quite frankly, probably twenty years have been particularly full of challenges and opportunities, let's say. And your leadership throughout that, you know, what are some of the- Part of that was that you went through a bankruptcy proceeding through that as well. And so leadership through all those periods of disruption, challenges, opportunities, etc. What are some of the lessons that you learned during that period of time?

Stephen:

The importance of company culture and your team, I think that is the top of the list. I mean we, in our credit, my dad, but you know, we've been a family. We were a family business originally. We went public in 1993, so we've been public for quite some time. And as a public company, we're not a family business, but the CBL culture is strongly rooted in family and it's very supportive of each other. We're very team oriented. We have tremendous loyalty and that's a huge strength. So when we went through restructuring bankruptcy, COVID, it pulled everyone closer together. It was amazing. And I think that didn't happen by accident. That happened because of all the roots and the culture that were laid over the, you know, 48 years of our company's history. So I mean, that to me is what it comes down to. I mean, if you have the right people, the right team, the right culture, you're going to get through it. And if you don't, you're, you're kind of screwed. You know, that's kind of the bottom line. And, you know, for me as a CEO, I can do a lot, but there's only so much I can do also. And so, you know, it depends significantly. And I've just been so lucky to have the people that have such, they care so much about the company and just about, you know, our legacy. So to me, you know, it comes down to that. A lot of things we don't control. You realize that over the years, even today, you know, we don't control interest rates, we don't control wars, we don't control all these factors. So we focus on what we can control. We try to think ahead and make the right decisions and work collaboratively. And for me, it's about listening and getting other people's thoughts and working as a team.

Tom:

I know firsthand how good the CBL culture is because I've, you know, been at your offices and have met so many of your people. That does come down to leadership though at the end of the day. And I mean you kind of live out that culture in the way you treat others. You know, you're you always walk around with you're a kind man, first and foremost, but you're also there's a sense of optimism that you always have. and even when there's challenges, I've always I've always been impressed by how you've kept, you know, a positive attitude in the face of, I know, some challenging circumstances.

Stephen:

We all have our tough periods and our doubts. But if you don't have an inherent sense of optimism in this business, you're not going to make it very long because, you think about it, and I learned this early in my career when I was doing development, but you know, you have to have a hundred things go right to make a project happen and one going wrong and you're done. So, you know, there's so many places along the way where you can get tripped up and you just have to kind of have that persistence, that optimism, you know, not blind optimism, you know, realism. but, you know, you just have to have that that kind of fortitude to work through in this business. And I think that's part of the CBL culture as well, is that determination to get through, you know, regardless of what gets thrown at us.

Tom:

Well in this industry, you're making big bets on the future. I mean, you know, and they're long-term bets. And let's talk a little bit about the future and we'll close looking towards the future and two aspects of it.

First, people. And one of the things that I think has been interesting, maybe surprising to some, but certainly factual is how many younger people really enjoy shopping in the physical environment. And the reemergence of the American mall and takes back to kind of our childhood. You see Gen Z and younger folks doing a lot of the things that, you know, we did in the American mall. That's become kind of the social center for American youth again. I assume you're seeing that in your properties as well.

Stephen:

Yeah, we've seen a tremendous resurgence from Gen Z, from Gen Alpha, just their you know, their craving for nostalgia, you know, their craving for a social experience, for getting out. And you can't blame them. You know, if you were going through high school or college and cooped up in your house and remote, I mean, after a while you get cabin fever. You want to get out. And I think that, you know, we're benefiting because of that generation.

But we're seeing it, you know- So our family roots are in the movie theater business. My grandfather owned a chain of movie theaters with his brother.

Tom:

Oh, is that right? Okay.

Stephen:

Yeah, in Chattanooga and across the Southeast. And they were, you know, some of the early enclosed, you know, in screen theaters and drive in theaters. But, you know, talk about a business that's been left for dead, you know, multiple times over the years. And now we're seeing a resurgence in movie theaters and Gen Z and Gen Z producers and you know and coming back for that. So, you know, and I think it does tie in with the same yearning from that for these younger generations to have social experiences, to be social, to connect. You know, it's not just about, you know, connecting on an app, but it's, you know, connecting physically and also just the fact that movie theaters have evolved and now they're offering IMAX and comfortable seating and food and it's a better experience. So that reinvention, that doesn't happen overnight, but when it happens, it's got staying power. And I feel like we've kind of reached that point where, you know, we've responded to the competition and we've now got ourselves in the position where we have a positive trajectory going forward with malls and also with the types of uses that we have as part of the malls.

Tom:

We just recently did a report with McKinsey, “Shopping in the Age of AI,” and you know, one of the central findings of that was obviously the continued and quite frankly the elevated importance of the store and the physical environment in an environment where AI is clearly going to accelerate and the use of AI is going to accelerate. Now stores need to adapt and landlords need to adapt to that. But at the end of the day, we're such social beings and you know, as you as digital takes such a central figure in so many parts of our life. In some respects, going to the mall becomes an even more attractive, you know, thing because it gets you around other people. And I firmly believe that as you see AI, you know, continue to evolve and permeate our life, retail and retail centers are going to become even more important because they're a natural place for people to gather.

Stephen:

And we'll have so much time. You know, AI's going to be doing all our menial stuff, so we can just go hang out at the mall. It always amazed me, it frustrated me. We do investor meetings and we were in New York or Chicago, and you know, the investor analysts, they hadn't been to malls. And I mean, when you go to a mall on a, especially on a weekend, it's packed. You know, people are out, they're you know, they like that experience. And so I feel like we've got a lot of a lot of staying power because of that.

I think it's important, you know, America's such a big country and people have different habits in different parts of the country. And of course if you live in a place like New York, that's a particular experience versus living in suburban America or even more rural parts of America. And the mall may not be as central in midtown Manhattan as a part of every person's life because of the density of population and e-commerce is prominent there versus suburban America and other parts of America where, you know, malls represent a place for people to go do things. You can just walk out your apartment to your apartment building's door and there's, you know, a million different opportunities there. So I think it's important. CBL, the CBL empire, we cover a lot of the country. You know, we have them all in Missoula, Montana. We have them all in Grand Junction, Colorado, Cheyenne, Wyoming, you know, College Station, Texas. So, you know, each community's different. It's one of my favorite parts, is visiting the malls, visiting the markets. And I think there are huge differences across the country. But then you have that commonality that the mall brings to it.

Tom:

Yeah, a sense of community, but to your point earlier, it's important to curate the mix relative to what the needs of that community are. So let's close on this and now let's look to the future. And so we're in 2026. Let's just simplistically, let's say ten years from now, 2036. The American mall, what do you think what will have changed, will have stayed the same?

Stephen:

So I think what's made us survive is the quality of the real estate, the locations. And so that's really just gotten better as there's been more development and more densification around the malls. You look at the malls today and we've got these huge parking fields that just sit there and a lot of the times they aren't being used. And over the years we've started densifying them, but I feel like with autonomous driving, with drone delivery or other technologies that it's going to really unlock the potential of these parking lots and it's great real estate. I don't know if by 2036 we'll come close to the opportunity there, but you know, when you look ahead, I see that as a real transformation that'll occur with the malls over that time frame.

Tom:

Yeah, I mean that could help address some issues like housing shortage, you know, for example. I mean, you know, you have all this land that has amenities next to it and tends to be near major highways and so forth, right?

Stephen:

Yeah, we've just done this year in the last two months, we've closed three sales to residential developers to do 200 to 300 units in our parking lots. So, you know, there's a lot of demand. You know, it's kind of built in convenience and so I think that's just at the at the tip of starting and there's going to be a lot more of that.

Tom:

Well, thank you, Steven. I want to be respectful of your time and thank you for taking the time to have the conversation today.

Stephen:

Well, we could do this for a lot longer. I've enjoyed it tremendously, Tom, and thank you and look forward to seeing you sometime very soon.

Tom:

Yeah, we could have talked for a lot longer. So thank you again, Stephen, and thank you to all of our listeners.

Thanks for joining me on From Where I Sit. Follow the podcast on Apple, Spotify, YouTube, or wherever you get your podcasts, and share it with anyone interested in the future of the built world, commerce, and technology. I'm Tom McGee. Thanks for watching and listening, and I'll see you next time.