Fred Meno is unusual. Most big players in retail real estate tend to pick a sector and focus on it, such as grocery-anchored centers, upscale mixed-use communities, open-air and power centers or regional malls. At The Woodmont Company, management growth has resulted organically from their third-party management platform and Woodmont plays in just about every sector of retail.
Fred, Woodmont is primarily involved in third party management of properties. You don’t own much, right?
That is correct. Our total managed portfolio is over 22 million square and all but approximately 800,000 sq. ft. is third-party owned. There’s nothing too small or too large that we can’t or won’t operate. Our operational focus is on what I like to refer to as three food-groups of retail… regional malls, outlet centers and generic open-air centers which include, power centers, lifestyle, unanchored neighborhood and grocery-anchored centers. We currently manage, operate, and provide receivership services in 32 states. The receivership services side of our business has been an extremely fast-growing area over the past seven or so years.
Let us guess that you’ve found yourself pretty busy lately.
Yes. The retail industry and more specifically, the regional mall sector, has experienced a great deal of loan distress during the past 10-plus years resulting from a perfect storm combination of shrinking retailers and store sizes, online growth, and the decline of department stores. REITs have made strategic decisions over the years to focus their internal resources on their core A and B-plus malls. It has become the lesser of evils for a REIT to give the keys of a class C or D declining mall back to the lender at loan expiration.
On-site teams at malls that transition to the lender kind of gets tied up at the dock at those centers. True?
Absolutely true. The REIT’s corporate office takes over many functions we would expect be done at the center level. Budgeting, involvement in marketing and advertising, and rent collections, for instance. When we take over, we expect the on-site team to handle these blocking-and-tackling functions. Sometimes we’ll get a pushback response from them, such as “I don’t know how to do that.” But often we get, “We’re so glad you’re allowing us to do that.”
The biggest impediments in trying to revive big malls?
Having multiple owners, namely the anchors. Changes can’t be made without the consent of all parcel owners. If a CMBS lender takes control of a mall, redevelopment is difficult because it’s forbidden by law to alter the property’s GLA during lenders holding period. Lenders are also further challenged as a short-term owner of a distressed mall since it can be difficult for them to pencil out and justify doing a low rent/high capital cost deal necessary to back-fill large anchor vacancies.
The world has changed a lot since malls gained pre-eminence in the 70s and 80s. Are they still relevant?
Regional malls remain relevant, but certainly less so compared to the early days of the mall industry. A-class malls will continue to be major destinations if they provide shoppers with what I call the Five F’s—Fun, Fashion, Food, Fitness and Furniture. If not, they have to maximize long-term value through re-development.