Exposure: Zero

Westfield America was a decade ago the leading mall owner and operator in Central and Southwest Florida.

In addition to both enclosed shopping malls in Sarasota, the company also controlled retail properties in Brandon, Clearwater and Tampa.

But through corporate neglect, changing consumer habits, the advent and growing popularity of online shopping, tenant bankruptcies and most recently the novel coronavirus pandemic, Westfield today finds itself controlling just a single mall property along the Gulf Coast.

Its prospects for nationwide turnaround look so dim, in fact, that the now French-controlled company says it will likely begin to exit the U.S. business by the end of next year.

“We are implementing a program to significantly reduce our U.S. footprint once the investment markets reopen, which should happen as soon as the economy rebounds,” says Jean-Marie Tritant, CEO of Unibail-Rodamco-Westfield (URW), which was formed in 2018 through a nearly $16 billion merger.

“We are assessing all potential options, at the end of the day, exposure to the U.S. will be minimal, if not zero,” Tritant told investors in a February conference call.

Already, though, Westfield’s parent has experienced a significant erosion in its portfolio and its business, which has been impacted more than other segments of the retail sector.

In 2020, the company’s net rental income in the U.S. fell by 29%, or $202.7 million, according to its financial statements released in February.

A lot of that impact has been felt along the Gulf Coast.

Last summer, URW lost control of its 1 million-square-foot Sarasota Square regional mall, after hemorrhaging tenants for the past several years despite the addition of a Costco Wholesale Club that supplanted a shuttered Dillard’s department store in 2012.

In 2017, shortly after anchors Sears and Macy’s left, Morningstar Credit Ratings released a report saying the estimated value of the mall had fallen by 70%, to $39 million. In 2013, it had been valued at $128.4 million.

At the time, Morningstar indicated Westfield might default on its commercial mortgage-backed securities debt on Sarasota Square before they matured in 2023.

The mall, which Westfield acquired in October 2003 for $77 million, according to Sarasota County property records, is now being operated by a receiver, LNR Partners LLC of Miami, court documents show.

In May, Westfield’s parent defaulted owing more than $43 million on the property to U.S. Bank N.A., court documents indicate.

“I think what they, or whoever comes to own it, will have to do is rebuild the Costco in another location and develop housing,” says Barry Seidel, president of American Property Group of Sarasota, a commercial real estate brokerage that specializes in retail.

“I can’t see anything else there,” Seidel adds. “It’s outlived its useful life. It’s hard to repurpose a property when the occupancy is nearly at zero.”

As URW continued to deal with Sarasota Square’s troubles, in December it announced that joint venture partner O’Connor Capital Partners, a New York-based private equity firm with $25 billion in transactional volume and assets, had taken over the Westfield Siesta Key mall.

Westfield had acquired the 435,000-square-foot property in early 2003 for $62 million. A decade later, it failed to take decisive action to retain anchor Saks Fifth Avenue from leaving and numerous inline tenants — from Pottery Barn to Williams-Sonoma — exercised kick-out clauses in their leases and left, as well.

Almost all of the former Southgate Mall tenants relocated to a new property, the Mall at University Town Center, which was developed by a joint venture between Taubman Centers and Benderson Development Co. That $315 million mall opened in 2014.

Westfield then spent $8 million to renovate the property at attract CineBistro to Saks’ former space, in 2016. A year later, Westfield announced plans to convert the mall into a “lifestyle center” with the introduction of a Lucky’s Market and four restaurants.

All but one of the restaurants has since closed, however, and Lucky’s left the center in early 2020 when it liquidated all of its Florida stores. Discount grocer Aldi recently opened in Lucky’s former space, which has been owned since 2014 by Benderson following a $10 million transaction.

For its part, O’Connor had entered into ventures with Westfield and Washington Prime Group on 22 malls — including Westfield Siesta Key, Sarasota Square, Citrus Park, Countryside and Brandon — beginning in 2013, according to its website.

It acquired the Siesta Key center by buying a 51% equity stake from Westfield for an undisclosed amount.

URW, in its year-end 2020 financial statements, referred to Siesta Key as a “non-core” asset.

“O’Connor is excited to remain part of the partnership that owns the shopping center. We believe it has a bright future due to its excellent location and loyal customer base,” Joel Bayer, O’Connor Capital’s president, says in a statement at the time of the acquisition.

“We look forward to working with the community to continue to add merchants and restaurants that will serve their needs and requests.” 

O’Connor Capital officials did not return multiple telephone calls for comment on the future of the Sarasota mall.

The company has widespread retail experience, however. It owns retail centers in Fort Lauderdale, Kissimmee, Palm Beach, Orlando, Tallahassee and West Palm Beach, according to its website.

In 2017, O’Connor Capital spent $121.1 million to buy the Shops at Stonefield, in downtown Charlottesville, Va., near the University of Virginia.

Even as O’Connor Capital was taking over Siesta Key, though, Westfield’s parent also was in the process of relinquishing ownership of two of its three Tampa Bay-area malls.

The transfers came after URW defaulted on more than $278 million in commercial mortgage-backed securities debt originated by Morgan Stanley Mortgage Capital Holdings in May, according to court documents.

Westfield Citrus Park owed more $128 million, while the company’s Countryside Mall was indebted to $150 million, according to foreclosure lawsuits. As was the case at Sarasota Square, a special servicer was retained to manage the malls’ operations.

URW financial documents indicate that it bought out O’Connor Capital’s stake in the malls, along with those in Brandon and Broward County. The company spent more than $10 million to acquire those stakes and sell off Westfield Siesta Key, documents show.

For now, Westfield’s parent is concentrating on its Brandon mall, which also is anchored by Macy’s, JC Penney, Dillard’s and Sears — though the latter has left the property.

Katie Woolridge, the mall’s general manager, says the Brandon center has thrived even as others have withered because of a loyal clientele.

“We have strong return traffic here and strong national brands,” says Woolridge, the mall’s manager for the past three years and a Westfield employee for seven. “A lot of our stores are our tenant’s number one performers.”

Westfield Brandon Mall also counts Apple, Lululemon, Dick’s Sporting Goods and others as tenants.

Woolridge adds the mall has been focusing on omnichannel merchandise delivery together with its tenants and, because of COVID-19 limitations, curbside pickup at its restaurants.

She also says the company will embark on a redevelopment of the Sears space and others in the near future, which could add a mix of uses to the mall.

“The future of this property is bright,” she says.

The same isn’t likely for the bulk of URW’s other U.S. malls, though. Today, the company owns just over two dozen properties in this country, and by its own admission they won’t begin to recover until the pandemic is brought under control.

“They have the same problem as so many retail owners,” Seidel says.