◼ BUSINESS Bloomberg Businessweek May 18, 202015DATA:
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THEBOTTOMLINE Malloperatorswerefacingweaknessamong
retailtenantsevenbeforeCovid-19.Thevirusslowdowncould
quickentheirpushtowardnonretailusersofspace.thatcouldpermanentlyalterhowweshop,work,
commute,andgo aboutour dailylives.And
that’stosaynothingofthenear-termpain:With
moreretailbankruptciesonthehorizon,higher
vacanciesarealmosta given.Mallownersmay
neverseeabouta thirdoftherentthey’reowed
thisquarter,accordingtoresearchfirmGreen
StreetAdvisors.
EvenWarrenBuffett,who’smadebillionsbeing
greedywhenothersarefearful,iscircumspect
aboutthe stateofretail.“If youowna shop-
pingcenter,you’vegota bunchoftenantswho
don’twanttopayyourightnow,”hetoldinves-
torsthismonthduringtheannualmeetingfor
hisconglomerate,BerkshireHathawayInc.“The
supplyanddemandforretailspacemaychange
fairlysignificantly.”
CIMisn’taloneintryingtofindaprofitable
way through this morass. The billionaire Reuben
brothers from the U.K. recently agreed to pay
almost $170 million for a retail property on Fifth
Avenue in Manhattan. And Brookfield Asset
Management, a Canadian property and private
equity giant that owns dozens of malls, plans a
$5 billion “retail revitalization program” that will
take noncontrolling stakes in struggling retailers.
Most investors are running in the other direc-
tion. In March alone, shopping center deals fell
47% from a year earlier, according to Real Capital
Analytics. “Everyone is in a wait-and-see mode,”
says Green Street retail analyst Vince Tibone. The
pandemic is “pulling forward years of disruption.”
While half of mall department stores might have
failed in the next five years, in part because of the
shift to online shopping, he says, “now we think
it’s going to happen over two years.”
CIM’s interest in Baldwin Hills Crenshaw Plaza
started before the virus upended life in the U.S.
The real estate developer was one of a half-dozen
companies that bid on the property when it was
put up for sale several months ago, Kuba says. Its
offer wasn’t picked initially. But the first-choice
buyer fell out of contract, and CIM got a second
opportunity in February. The developer kept
working on the deal through March as the econ-
omy shut down, Kuba says, and ultimately signed
a contract in late April.
He won’t say how much more than $100 mil-
lion CIM is paying, but it’s probably less than the
$136 million Capri Investment Group spent to buy
the mall in 2006. Over the years, Capri plunged
millions more into the property as part of an effort
to make it more upscale. It brought in a dance
academy and overhauled the movie theater, which
pro basketball star Magic Johnson had started inthe mid-1990s. Capri also won approval to add res-
idential units and a hotel to the site. The company
didn’t respond to requests for comment.
ThechangeofcoursethatCIMenvisionshasn’t
satwellwithsomelocals.Peoplehavebeentrying
tousethemallfordecadesasa waytorevitalize
the area and overcome chronic disinvestment in
South L.A.’s black community, which has been
struggling more recently with displacement and
gentrification. City Councilman Marqueece Harris-
Dawson, who represents the area, was upset
that CIM announced the deal without talking to
hisofficefirst.Alsotroubling,hesays,washow
thedeveloperseemedtodisregardeverything
residents had talked about for years: “I hope that
decisions about the mall’s future will again include
all stakeholders, residents, and elected represen-
tatives.” Kuba says CIM always tries to do projects
that “add to the fabric of the community.”
What exactly the mall becomes—including how
much of it will still be a mall—is an open question.
But there’s some precedent for an aging retail
space being converted successfully into offices.
The Westside Pavilion in Los Angeles, which also
sits near a light rail stop, is undergoing a major
renovation so Google can move in. But even office
demand is hard to gauge when so many compa-
nies are having employees work from home. Kuba
saysCIMisn’tplanninga glasstowerforthesite,
butit’sconsideringa “creative”officespacethat
mightdrawtenantsfromthetech,entertainment,
or medical industries.
He’s less certain about the retail. “Do I think
that the movie theater is going to reopen? I have
no idea,” Kuba says. “I can’t tell you what’s going
to happen and who’s going to open or not. It’s
not clear to me. But right now my plan is, if you
can open and operate a retail store, I want you do
that. I would like you to do that. I just don’t know
how many of those tenants are going to be able
to do that.”
That outlook suggests CIM is a lot more focused
on the redevelopment potential than on saving
retailers.Becausethemallsitsinan“opportu-
nityzone,”doingsomethingnewcouldmakethe
projecteligibleforgenerousfederalinvestmenttax
breaks.CIMdeclinedtocommentonwhetherit
willclaimtheincentives.“Youcanalmostconsider
it a land play,” says Jeff Langbaum, an analyst at
Bloomberg Intelligence. “I don’t think anybody
would be buying a mall now because they want to
own a mall.” �Noah Buhayar and Natalie Wong“We try to
figure out
difficult
situations
and how to
make them
better”