Moonbeam Capital Investments LLC, a private equity invest­ment fund based in Las Vegas, has been busy purchasing and stabilizing distressed mall assets in recent months. The company acquired nearly 8 million square feet in 2013 and another 2 to 3 million square feet in 2012, and its port­folio spans nearly 50 properties in 13 states totaling roughly 13 million square feet across four different property types.

In the last 12 months, Moonbeam Capital has purchased the Cortana Mall in Baton Rouge, La.; Century III Mall in Pittsburgh; the Gwinnett Place Mall in Duluth, Ga.; the ShoppingTown Mall in Syracuse, N.Y.; and a former Key Bank office building in Akron, Ohio, which will be repurposed into a mixed-use redevel­opment. The firm is also redeveloping the Burlington Center Mall in Burlington, N.J., for a total cost of $230 million.

To get a glimpse of Moonbeam Capi­tal’s investment strategy and opportunities the firm sees in distressed malls, Shopping Center Business conducted an interview with Steven Maksin, CEO, and Shawl Pryor, senior vice president of Moonbeam Capi­tal Investments.

SCB: The most recent news with Moon­beam Capital is the major renovation project planned for the Burlington Center Mall in New Jersey. What are some of the features of the redevelopment?

Pryor: The Burlington Center Mall is a very unique project for us. When we originally looked at the project after the acquisition, our original plan was to figure out a way that we could look at re-ten­anting the project. We acquired the mall and were trying to figure out how to fill the vacancy with traditional enclosed mall retailers. We had a tremendous amount of interest from retailers that were tradi­tionally strip center or big-box tenants. It caused us to go back and evaluate how to create a project that would attract the large big-box national retailers that want to be there yet keep the enclosed mall component. That’s when Ste­ven Maksin and I sat down to fig­ure out how to incorporate the two while giving the consumer the opportunity to shop in the enclosed mall portion and the traditional big-box strip center. From there we started with a few retailers that were interested and the project quickly started to grow in size, from just a few big-box apparel retailers to the now 1.5 million-square-foot hybrid mall development underway.

Maksin: The Burlington Center Mall has presented a unique opportunity. We bought the project’s debt first. We patiently bore out the leases portion and we realized that we can do so much better by making a more interesting and exciting project for ourselves, the local community and for the shopper-at-large.

Pryor: This project quickly grew from just re-tenanting an old enclosed shopping mall to creating a large-scale redevelop­ment that would include “de-malling” a portion of the enclosed mall and expand­ing the project onto an adjacent piece of property. We are now creating a shopping destination within the community, which will include indoor and outdoor retail and an entertainment component that will be complemented by national restaurant chains. It is our objective to create an experience for our shoppers, not just a place to shop.

SCB: What are the acquisition criteria for Moonbeam when considering a potential purchase?

Maksin: When we look at potential ac­quisitions, we see everything there is to see on the market. We could buy much more, but a strategic purchase is what we aim for — we are very price-sensitive. We look for opportunities where we can rede­velop with relative success and where cash flow is still present and can be leveraged. We’re looking for opportunities where we can complement our existing tenant base with a new tenancy. Specifically, we look at the location of the asset and how well it was run. We deploy equity and because of that we look to get good deals. With the bigger assets, such as shopping malls, there’s an expertise to knowing what the tenant can really pay. That expertise that we’ve developed is helping us in determin­ing what the next buy is and whether or not it makes sense. Because of the size of the portfolio and our asset and geographic diversity, we already know what works in today’s environment because we’ve seen the best and worst of it. Coming out of the recession, it becomes so much easier for us to look at our crystal ball and know what’s going to work and what’s not going to work in a particular center. We have a full range of services and we can deploy people across the board. That makes us a unique team to deal with these distressed assets.

SCB: For these transactions, how is the acquisition/redevelopment capital struc­tured? Is it 100 percent equity or are there some debt components usually?

Maksin: The deals are usually struc­tured with equity upfront. We deploy equity for a number of reasons. It gives us an opportunity to be flexible, because it’s easier for me to make a few phone calls to our partners and say, ‘Here’s an­other opportunity, this is the master plan, these are the numbers, let’s do it.’ It’s much more difficult to be flexible when you borrow debt for a distressed asset. There needs to be a certain density for a banker to be convinced that a particular asset will work. Another thing that gives us a preference for equity is there is no debt service. I don’t need to figure out how to pay off the debt every month. We’re not concerned about making more with less, we’re looking at the big picture: for us to stabilize a particular asset. Another reason why equity is good for the redevel­opment side is that when you have debt service, you’re obligated to go back to the bank and discuss every sizable deal you do. For every lease deal you have to pres­ent them the lease terms you’re dealing. By not borrowing, we don’t have anyone to report to. Being a managing member, I can make decisions myself rather fast. Our tenants love that about working with us. We don’t drag, we say what we do then do what we say.

SCB: Suburban malls are not tradition­ally high on investors’ wish list nowadays, generally speaking. Do you see that dy­namic changing given the opportunities in today’s market, or has that change already occurred?

Maksin: From our perspective, it’s grad­ually changing. For one, if you ever try to buy a distressed mall at the prices we pay, it’s very challenging. We’ve been relative­ly lucky and judicial in our approach in acquisitions. We move very fast and we’re not afraid of distressed malls, but we don’t buy everything there is to buy. We’re very selective in what we buy. What we discov­ered is that the asset class is a challenging class to deal with, but once you’ve learned how to fish an octopus, you can deal with it. I don’t recommend a novice to play this game, you need a team of professionals and a very solid capital structure to afford to play the game. These assets are strategi­cally located and they may not be popu­lated with tenants and shoppers today, but it all depends on your opportunity to reposition the asset. If you buy it right, you can understand what to bring into the mall or outside of the mall. It becomes a very interesting redevelopment opportu­nity which may not exist otherwise. If you are a bigger player — a REIT for example — you basically have well-tenanted proper­ties. If a REIT owns a mall, it’s 90 to 95 percent occupied. Imagine a new player, such as a national or international concept that wants to come in to the market with a 20,000-square-foot box. It’s harder to fit it into a mall that’s completely occupied. They come to us as an alternative. We may be Plan B but they come to the sec­ond-best because we’ve got the spaces and the flexibility. It gives us the opportunity to play a different game if you buy it right.

SCB: Can you describe the strategy for bringing struggling assets to stabilization?

Pryor: The first thing we look at as a company is evaluating the market to get a better understanding of the demograph­ics and real estate trends. After we’ve evaluated a market, we create our plans based upon the information that we’ve gathered. We’re very methodical in how we approach a redevelopment. We’re a long-term holder of these assets so what­ever plan we create is one that we look to embrace for the entire ownership of the property. Once we’ve executed that plan, we want to make sure it’s one that the community will embrace. Our objective is to create our shopping center as destina­tion points, so we look to bring people to Gwinnett Place Mall, for example. We want them to not only shop here, but we want to create that entertainment compo­nent as well as restaurants.

SCB: What’s the latest with Gwinnett Place Mall? Anything you can share about the future of that asset?

Pryor: Our four-pronged approach is evaluation, stabilization, developing the strategy and implementation. Gwinnett Place Mall is one of our more recent ac­quisitions. We are in between evaluation and developing the strategy, and at the same time we’re focusing on the stabili­zation of the property. One of the things that I feel confident saying is that Gwin­nett Place Mall is a viable retail shopping area. For whatever reason, the property did not receive the attention and the leas­ing it should have for a number of years. We feel that we’ll be able to pour back some of our energy, hard work and effort to stabilize the property by keeping some of the existing tenants and complementing them with other retailers. We are looking to enhance the attraction to the Gwinnett Place Mall with some other complimen­tary uses. Some are retail and some maybe outside of retail. Through our evaluation, one of the things we noticed is that there is a large, rapidly growing business com­munity in and around the Steve Reynolds Boulevard-Pleasant Hill corridor. We want to be able to capitalize on that. We may have some things that will be rap­idly coming on line and that will surprise everyone in a very good way. We’ve got some big plans for Gwinnett Place Mall; some of those are retail and some may be other commercial asset classes. There’s a tremendous need right now for office space in both office parks and high-rise office buildings. We’re hearing from our meetings with the community improve­ment district and the Gwinnett County government that they want to make this an international business corridor. We’re working very closely with the Gwinnett Economic Development Department, which is also reaching out to international retail concepts and businesses to recruit them to come to the Gwinnett Place cor­ridor. There are a number of national ten­ants that are here in the mall. Sometimes people come into the mall and they see a few vacancies, but they don’t notice that we still have Victoria’s Secret, Express and Footlocker. Here in Gwinnett Place Mall, we’ve seen the importance of this project. We actually located a large portion of our corporate staff to operate from the Gwin­nett Place Mall. Our entire leasing and corporate management team operates from the Atlanta office, which is located here in the Gwinnett Place Mall. So in ad­dition to the traditional mall management staff, we also have a corporate staff that is operating from that property.

SCB: What’s on the horizon for Moon­beam Capital?

Maksin: More deals. More strategic joint ventures and that’s what we’re doing. We’re looking at a number of opportu­nities. We don’t want to just gain value. We’d like to land opportunities that make sense economically and will most impor­tantly be in line with our mission and our vision to redevelop struggling assets and turn them around. It’s becoming more difficult to find those assets. We have a lot of work on our hands. 

This article originally appeared in

Shopping Center Business, May 2014.

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