Multifamily continues to drive mall expansions

Valuations of enclosed malls have generally declined over the past 10 years when lenders provided mortgage loans and packaged them through securitized debt investor offerings, some of which cannot be refinanced at those levels today, given the lower valuations and higher lending costs.

But, the darling of commercial real estate today is MULTIFAMILY, not retail. When malls add multifamily, the combined retail-residential valuations in those properties increase tremendously because there is considerable demand for rental residential properties in the U.S. driven by organic population growth and immigration.

Certainly, Rick J. Caruso understood that when he was building The Americana at Brand 20 years ago in Glendale, Calif. Simon Property Group and Brookfield Properties have also been adding residential to malls in recent years. Unibail-Rodamco-Westfield has been very focused on this trend with a strategy to add multifamily at Westfield Montgomery in Bethesda, Md., Westfield Garden State Plaza in Paramus, N.J. and Westfield Old Orchard in Chicagoland.

The first residential property to be developed on a Westfield retail property in the U.S. is the massive Palisade at Westfield’s University Towne Center (UTC) in San Diego, a 23-story luxury residential high rise that was built as part of a full-scale revitalization of the mall completed post-Covid.

URW will likely offload a few more U.S. malls in the foreseeable future just like it did with Westfield San Francisco Centre. Earlier this year, it defaulted on a $234.6 million loan on Westfield Shoppingtown Wheaton Plaza in Wheaton, Maryland.

While URW continues to whittle down the number of American malls it owns, the company is likely to keep the most valuable A++ properties with redevelopment potential. When it comes to owning malls, URW, the French owner of many of the world’s best malls has a strategy that can be characterized as "moins, mais mieux,” or “less, but better.”

Read more: Less, but better: Inside URW’s US mall strategy (CoStar News)