The future of malls looking up after a major acquisition

The Westfield World Trade Center shopping mall inside the Oculus transit center in in New York, Aug. 31, 2016. Unibail-Rodamco, a European property company, said on Dec. 12, 2017, that it had agreed to acquire the Westfield Corporation for $15.7 billion.
The Westfield World Trade Center shopping mall inside the Oculus transit center in in New York, Aug. 31, 2016. Unibail-Rodamco, a European property company, said on Dec. 12, 2017, that it had agreed to acquire the Westfield Corporation for $15.7 billion. The New York Times file

In recent years, the news has been nothing but bad for malls.

With the rise of Amazon and other online shopping options, consumers have skipped treks to the sprawling malls that dot the American landscape, preferring to click-and-shop from the comfort of home. Struggling to adapt, the stores that once lined the interiors of malls, from RadioShack to The Limited, filed for bankruptcy. Then, department store giants like Sears, J.C. Penney and others — long the reliable anchors of malls everywhere — began shuttering properties at a fast and furious pace.

But now, a megadeal is signaling that there may still be life after all in the American mall — especially the luxury version. On Tuesday, the European property company Unibail-Rodamco said it had agreed to acquire the Westfield Corp. for $15.7 billion.

For Unibail-Rodamco, which is based in France and has a bevy of glitzy shopping centers across Europe, including Le Forum Des Halles in Paris, the deal means a significant foothold in the United States — one defined by a number of trophy mall properties, including Westfield Century City on the west side of Los Angeles and the shopping center at the World Trade Center in lower Manhattan.

For Westfield, which was built by Frank Lowy, the Australian billionaire tycoon who started with one shopping center outside Sydney in 1959, the deal allows the family to exit at a hefty premium. Unibail-Rodamco’s cash-and-shares offer was 18 percent above Westfield’s closing price on Monday. The Lowy family said it intended to retain a stake in the company.

The acquisition came amid growing expectations that mall operators, many of which have seen their real-estate investments battered badly, are ripe for alliances. Just this week, GGP, the rebranded General Growth Properties, turned down a $14.8 billion bid from Brookfield Property Partners for the shares of GGP it didn’t already own. Activist hedge fund investors have taken stakes in Macerich and Taubman Centers.

European shopping center owners have fared relatively well this year, with many of the biggest owners reporting gains in rental income. Unibail-Rodamco, whose real estate portfolio also includes office and convention space, said that rental income from its shopping center arm was up 4.1 percent to 781 million euros, or about $920 million, in the first half of the year.

But their counterparts in the United States have struggled. That’s due, in part, to the fact that retail real estate expanded at a much more rapid clip in the United States than it did in Europe, so the pullback has been much sharper.

In the United States, there appears to be two bets emerging on the future of malls, analysts said.

Higher-end malls — those that are in wealthier suburbs and have attracted a blend of luxury retailers with gyms, organic grocery stores, and even urgent-care centers – will survive or even thrive. Lower-end malls located in less-prosperous locations will continue to see stores shutter and will most likely be snapped up by bargain-hunting investors, who may seek new tenants for the properties — or just raze them.

This summer, a group of Wall Street analysts predicted that nearly a quarter of the roughly 1,100 malls in America would close in the next five years.

“There are a fair amount of distressed malls out there where an experienced owner is going to get a distressed buy and figure out what type of tenants can support a particular area,” said David Kessler, a managing partner in the real-estate practice of CohnReznick.

Westfield, analysts said, has focused its efforts on marquee properties that can still draw shoppers, rather than regional malls that are more susceptible to online competition. The real-estate giant spent $1 billion giving the Westfield Century City mall a makeover in the hopes of driving foot traffic.

There, shoppers who sign up online for a reserved parking place have their license plates scanned before the gate is lifted and are directed to a space under a monitor. While the mall has its share of typical fashion retailers, it also has an Equinox gym, a medical clinic and, next year, a cryotherapy clinic.

Westfield also owns a number of premier shopping centers in Britain and is developing a new shopping center adjacent to Linate Airport in Milan that is expected to be completed in 2020.

Still, no matter how trophy the mall, they still face the same pressures.

The Westfield World Trade Center has been open for more than a year and in that short time it has dealt with delays, lawsuits and staunch competition from its next door neighbor, Brookfield Place, which is offering more luxe shopping options like Burberry, Gucci and Hermès.

Located near a PATH train hub and within the soaring Oculus structure designed by Spanish architect Santiago Calatrava, the Westfield World Trade Center mall was largely bereft of shoppers Tuesday afternoon.

While the two-floor Apple store buzzed with shoppers, the same could not be said of Dior, Hugo Boss and Breitling, where employees stood around looking at their phones or chatting with one another.

In the middle, near a set of pop-up stores, a woman read traditional holiday stories to children seated around her. One of her titles: “How the Grinch Stole Christmas.”