Other People’s Money
Steven Maksin said he was reminded of a line from one of his favorite movies recently as he was unloading a 97-acre site of a dead mall to a new owner.
“I’m not your best friend. I’m your only friend.” The line goes from Other People’s Money, the 1991 romantic comedy starring Danny DeVito who plays a corporate raider known as Larry the Liquidator because he buys up businesses and sells their assets.
Maksin described that as his relationship with Burlington Township, the home of the former Burlington Center Mall. Maksin’s Moonbeam Capital sold the property this month to Clarion Partners for $22 million. He wrapped up a hefty $19 million profit in the deal. His company bought the mall in 2012, renamed it the Marketplace at Burlington and sought to turn around the titular, failing town center of this blue-collar township on the Route 130 corridor.
That was before the bottom of the retail mall business fell out and ushered in the rapid ascent of e-commerce that delivers goods to shoppers often without ever leaving their homes.
Maksin spoke recently with NJ Advance Media about what the sale of the former Burlington Center Mall may mean for an underperforming mall near you. Some of the answers have been edited for length.
Why do some malls in New Jersey work, like in Cherry Hill, Paramus and Bergen? Is it demographics and planning? Is it a bigger retail base in that general vicinity, luxury brands and lots of restaurant options?
Maksin: I think this is a global question, not specific to any particular market. Look at the Cherry Hill Mall, which is centrally located off of Route 38. It provides destination shopping as well as entertainment and an excellent dining experience with a wide variety of restaurants. Today it is all about the experience. Consumers are always looking to live, work, dine and play in close proximity to each other. That is one of the main reasons the Cherry Hill Mall draws traffic from both South Jersey and Philadelphia shoppers. Paramus and the Bergen Outlet Town Center offer the same amenities with a slightly difference twist.
Why do some malls fail or are on the verge of failing, like Burlington Center, Cumberland, and Voorhees Town Center, the former Echelon Mall?
Maksin: For a mall to remain a shopping destination, it needs a critical mass of core retail tenants, especially anchor tenants. The older, less renovated malls like Burlington Center Mall find it more difficult to attract and keep those tenants. To make matters worse, anchor tenants like Sears, Macy’s and J.C. Penney have been filing for bankruptcy, closing stores or both. (The other tenants’) leases contain co-tenancy clauses which condition the amount those tenant pay in rent to the presence of certain anchor tenants. Those clauses are “time-bombs” which have a domino effect of further weakening the mall owner’s ability to attract and retain a critical mass of core retail tenants when the owner can least afford it.
What was the mall retail Armageddon and when did it happen?
Maksin: The Mall Armageddon began its development in mid-2000, well before the 2008/2009 financial crisis. Mall owners would give their tenants a lot of money to renovate or expand their stores and in return the tenants would pay more rent. And the game began. With more rental income from tenants, mall owners “achieved” higher mall valuations and were able to refinance their malls with larger loans from financial institutions. And so on and so on. The music stopped in 2008 when additional refinancing was no longer available to mall owners. Stuck with larger loans they could not afford to service, the mall owners realized the game was over and began defaulting on their loans.
How did the Armageddon shape your company’s business outlook thereafter?
Maksin: We realized right away that if we buy a mall at foreclosure, we can realize a lot of value. If we were to buy the mall at the right price and control the site, the land value alone might be huge. The key was buying it at the right price.
You have lectured on repurposing old malls. Can you talk about that strategy and what it takes to make it work?
Maksin: The key factor is the ability to think outside of the proverbial box by embracing other uses that would complement the existing retail uses. For example, we have re-tenanted our properties with educational centers, creative office users, medical facilities, and governmental agencies such as a county tax collector, a state department of motor vehicles and even a state police academy. We are also working on utilizing certain portions of our properties for sport venues, including multi-purpose stadiums.
Why did you sell the former Burlington Center Mall and when did you decide to sell it?
Maksin: If the Township of Burlington had accepted our mixed-use redevelopment plans we would have been building a new project by now. Unfortunately, they rejected our plans, though they were very helpful in describing what they would have liked to be built at the site. At the same time, we received a great offer to sell the Mall. $22 million is a lot of money considering that our original investment was $3.4 million.
Should we be demolishing malls and putting up warehouses?
Maksin: In some cases, absolutely yes! We should be looking to repurpose mall properties for their best and highest uses. Distribution centers create jobs and stimulate local economies. They are the “new” malls for on-line shoppers and are coming to your town or the town next door. This is the time to act! Such major redevelopments are a saving grace for failed malls. Either your town will get the redevelopment or the neighboring town will.
Should we be doing the same with strip malls that are struggling?
Maksin: Strip centers are easier to re-tenant than malls. In strip centers where big box tenants have closed, repurposing the space for other uses is more critical. Owners have to look for more creative non-traditional retail ideas to generate traffic there.
Who is the demographic for a brick-and-mortar shopping experience?
Maksin: Certainly not the millennials. Even my wife does not shop at malls anymore. Almost everything she buys is online.
Are there certain retailers or types of retailers who are still thriving in the mall marketplace?
Maksin: Everyone has been affected, but some retail tenant categories seem to be doing better than most.
Is entertainment and night life recipes for success?
Maksin: They help, but they might not be enough to save the mall concept.
What do you think about the American Dream mega mall development? Is that a winning formula?
Maksin: It is a wonderful project. I admire the developer’s optimism and like the project’s focus on entertainment. However, I have my doubts whether New Jersey needs so much more new retail space.
Duhart, B., & Duhart, B. (2019, February 16). Is your N.J. mall dying a slow death? We talked to a guy who just flipped an empty one. Retrieved from https://www.nj.com/business/2019/02/why-some-malls-thrive-while-others-die-we-asked-an-expert-who-just-sold-an-empty-one.html