Development Activities of Commercial REITs in 2Q17



Redevelopment and expansion are key to survival

Commercial retail is believed to be in the doldrums amid the ongoing retail crisis in which retailers are unable to fight the overwhelming online shopping craze. As retailers experience dwindling sales and traffic, they’re shutting down their stores in order to maintain profits.

As a result, there are many vacant spaces in malls, which is hampering the revenues of mall owners to a large extent. In order to survive, mall owners have redeveloped their properties for non-retail uses such as restaurants, office spaces, health clinics, and entertainment zones in order to attract traffic.

Commercial REITs have repositioned their properties by disposing of properties in non-performing areas and expanding into Class A cities with high job growth and high-income people.

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Investment activities of SPG, GGP, and VNO in 2Q17

Let’s look at some of the development activities that our three commercial REITs have undertaken.

Simon Property Group (SPG) had 25 redevelopment expansion projects under construction as of 2Q17. It completed the remodeling of The Galleria in Houston, Texas, into space for small-shop tenants and restaurants. SPG has started four new outlets; three of them are located in the international markets of France, South Korea, and Malaysia. SPG regularly carries out interior expansions of its existing properties, new starts, and the addition of eateries and cineplexes. SPG expects to invest $1.0 billion each in 2017 and 2018 for the development of projects.

GGP (GGP) took over 100% of the Neshaminy Mall in Bensalem, Pennsylvania, and the Younker’s anchor area in West Des Moines, Iowa. It enhanced its interest to 22.3% in the Miami Design District and acquired 10.0% in 522 Fifth Avenue in New York City. GGP took over a 50.0% interest in eight of the 12 assets of Seritage Growth Properties. In addition to expansion, GGP also disposed of its underperforming Red Cliffs Mall in St. George, Utah, and the Lakeside Mall.

As of 2Q17, Vornado Realty Trust (VNO) was constructing a residential condominium tower for an estimated cost of $1.3 billion. It’s also developing a premium office building at 512 West 22nd Street in the West Chelsea submarket of Manhattan. The estimated cost is $72.0 million. It’s also developing an office and retail building at 61 Ninth Avenue. Vornado is developing an office and retail building at 606 Broadway. It’s also remodeling the Farley Post Office building into the Moynihan Train Hall.

SPG, GGP, VNO, and Prologis (PLD) together make up 14.0% of the Vanguard REIT ETF (VNQ). VNQ has net assets worth $64.6 billion.

In the next part of this series, we’ll see how these REITs managed their debts in 2Q17.


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