Steven Plenge, chief executive officer of Pacific Retail Capital Partners, discusses his company's formula for redeveloping and reviving outmoded malls for multiuse.

At Pacific Retail Capital Partners, a real estate investment group managing 22 million square feet of regional, open-air lifestyle and mixed-use centers, there’s been a fundamental strategy shift.

“We were focused very much on renovating tired assets and trying to reposition them for a stronger growth position, but because the pandemic accelerated changes in the mall space, especially with the disappearance of a lot of department stores, we’ve become much more active in development,” Steven Plenge, chief executive officer of Pacific Retail, told WWD. “Densification has been really key to our business right now, and we see it being a continuation of our business for a number of years.”

By that he means transforming malls to mixed-use “lifestyle” environments where people live, work, workout, shop, dine, relax, spend time outdoors and maybe even get a medical checkup, all without going a great distance.

Central to the strategy is how the 15-year-old, privately held Pacific Retail has partnered up on projects with such “blue chip” developers and investors as the Cappelli Organization, the government of Singapore, Kohlberg Kravis Roberts (KKR), JPMorgan Chase and Goldman Sachs. Typically they become limited partners. In addition, there’s a focus on attracting tenants with ties to the community, to “localize” the appeal of the property.

The company has 23 properties in the U.S. valued at more than $3 billion, either owned or operated, under its management. Rather than constructing from the ground up, the company built up its portfolio through acquisitions.

Plenge believes that even if a mall isn’t highly productive, or “A” rated, it’s still viable provided there’s significant redevelopment. “They were built up in areas that were kind of central. They’re very well located with great arterial access,” Plenge explained. “They became town centers.”

They also became outmoded and unproductive in many cases, hampered by retail bankruptcies, and sapped of foot traffic and business by the internet. Often Pacific Retail finds itself negotiating with big retail anchors “to unlock the value of the underlying dirt”; in other words, working to get the big boxes relocated or closed.

With the average mall, “You’ve got roughly 100 acres of land, 20 to 30 percent lot coverage with a sea of parking space, then throw in the inefficiencies of a 200,000- to 300,000-square-foot department store. They’re not very efficient land-use plays,” Plenge said. “As we pivot into redevelopment, you have to be able to create a vision in-house and create a strategy around that vision. That’s where the real value creation is right now.”

The Galleria, a Pacific Retail property occupying two blocks in White Plains, New York, closed at the end of March, after years of retail attrition. One store after another shut down, including Macy’s and Sears, and by last month, the Galleria was down to a lone retailer, Westchester Toys, Trains and Hobbies.

But there’s hope for the site, seen as potentially one of the largest mall redevelopments in the U.S. The Galleria opened in 1980 and consists of about ten acres in the heart of downtown White Plains next to a mass transit hub of the Metro-North railroad.

“We are partnering with the Cappelli Organization and SL Green to create a masterplan vision to de-mall the Galleria. They have expertise in other areas like office and residential or education or medical,” said Plenge.

Cappelli is a White Plains-based real estate developer, involved with residential, office and retail development projects in Westchester County including White Plains. SL Green Realty Corp. is a real estate investment trust that primarily invests in office buildings and shopping centers in New York City and is also a large real estate player in Westchester.

“It takes quite a bit of work to close these things,” Plenge said, referring to malls. “When we first bought the Galleria, we didn’t own Macy’s, and Sears was encumbered by a long-term lease. We had to buy the Macy’s store, and then we worked diligently to acquire the Sears store. There were other restrictions via other large leases that had a lot of control over what you can do and couldn’t do with the property. So we had to work through that.” The process of clearing out to make room for redevelopment, “It’s kind of glacial, but that’s what we do,” Plenge said.

Inside Yorktown Center.

At Yorktown Center, a 1.4 million-square-foot mall in Lombard, Illinois, a suburb of Chicago, anchored by Von Maur and JCPenney department stores, Pacific Retail bought a Carson’s department store that had been vacant since 2018. It will be demolished.

“We just got it entitled for roughly 625 residential units, there’s about a half dozen new restaurants in the process of coming in, a really big entertainment group is coming, and so is a grocer. We are also creating a park with about two acres, which will help stitch together the retail and the residential. That’s all happened because of the redevelopment of the Carson’s box. So it’s really invigorating the property in a big way. You have this great community aspect, and that’s something we want to emulate over and over again” in other projects, Plenge said.

Years before the Carson’s deal, Pacific Capital sold off acres of the property, which was developed into housing.

In Salt Lake City, Utah, Pacific Retail owns the 1.4 million-square-foot The Shops at South Town, which previously housed a Macy’s and Dillard’s, and still has a JCPenney. “We’ve been very active with the city there, and we look to eventually develop over 1,500 residential units on the site, probably add a hotel, retail, restaurants and a park. We are in the process of creating a master plan there. Salt Lake City is such a booming market. There’s a lot of tech growth there.”

The Shops at South Town in Salt Lake City, Utah. DAVE KOCH PHOTO

Five years ago, Pacific Retail broke ground on the redevelopment of Northpark, a 958,000-square-foot enclosed mall in Ridgeland, a city 11 miles from Jackson, Mississippi. The project included new public entrances, corridors, amenities, public restrooms and common-area gathering spaces, indoor and outdoor landscaping, bringing in art by local artists, a children’s play area with private nursing and baby-changing stations, and a modernization of the food court into “The Eatery,” an open, café-style dining experience.

“We have probably a half dozen sites that are very, very active in the master planning phase,” Plenge said.

Pacific Retail recently created its own in-house architectural and design team in Los Angeles to master plan and accelerate projects, tapping several people from the renowned Gensler design firm, including Annemarie Plenge, who serves as executive vice president of design. She’s the wife of Steven Plenge.

“A distinguishing hallmark of our company is this design aspect,” Plenge said. “We’ve hired four people from Gensler. They’ve done a lot of work for us before. But as we pivot the business to redevelopment, you have to be able to create a vision in-house and create a strategy around that vision,” beyond just focusing on leasing. “You have to figure out what are you going to do with those vacant department stores? How are you going to deal with that inefficiency of the land? One thing we’ve seen through the pandemic is that people want outdoor space. So we focus a lot on the design” in redevelopments.

“One of the first things we do is go into the city and ask, ‘What do you see your growth prospects looking like? Where do you want to take this community?’ And then we [examine] what’s resonating with the locals. Is there a great local coffee shop or a bunch of great local restaurants, or a great apparel guy? It doesn’t take long with the leasing guys to go out there and figure out what’s resonating,” Plenge said.

He acknowledged that rising interest rates make projects more costly, though he noted, “We don’t have anything that’s in construction right now. We have a number of projects that are in the planning stages so the interest rates aren’t impacting us, but if these rates stay high over the next couple of years, say three years, it could be a real problem.”

Pacific Retail is pursuing the acquisition of additional shopping centers, and is expected to reveal a deal soon. “We’re very active in the space right now,” Plenge said. “We’re in the midst of a couple of transactions right now” involving large malls and outdoor lifestyle centers.

Asked what type of tenants are preferred for redevelopments and releasing space, Plenge said, “Grocery is a category that we really like. It drives a lot of traffic” on a daily basis and on days when a center might not otherwise draw much traffic. “Who are the top grocers within that area? Can you get Trader Joe’s? Can you get a Lidl? Can you get an Aldi? Whole Foods obviously is always popular, almost everywhere. When you add the residential component, you can broaden your scope of tenancy. So a grocery is great.

“Health and wellness is really a big thing,” Plenge added, citing Orange Theory Fitness and Dick’s House of Sport, a new concept from Dick’s Sporting Goods, as desired tenants.

On the apparel side, he cited Alo Yoga and Lululemon. “Those are great, great uses but can you find a good jeans guy? That changes by the market. Can you find the local apparel store that carries the brands that resonate with that community? That’s a big thing.”

The Eatery at Northpark in Ridgeland, Mississippi.

Elevating the food and beverage offering is also important. “It goes from the great coffee guy, to the juice guy, to the casual restaurant, to the sit-down restaurant. And there are a ton of concepts out there,” Plenge said.

For some local flavor and to generate “a leasing pipeline of local culinary professionals,” Pacific Retail has a culinary competition called “Taste for the Space” happening at several properties. Local chefs, food trucks and mom-and-pop restaurants compete to win six months free rent, a $50,000 investment and a turnkey dining space, jumpstarting their ability to take on a second location. “We have the community come in and vote on whose taste should win the space,” Plenge said.

“As we’re redeveloping the sites, groceries work with residential units, and from there we may add a dry cleaner, a nail salon, a bank branch and other services. Those are everyday uses. If you can have the right department store like a Macy’s, that works too. We’re big fans of Macy’s. If you have a JCPenney in the right market, Penney’s can thrive. And then we have a Von Maur in Chicago. It’s terrific, very traditional, but it works.

“It’s also about how you add amenities. Whether it’s a children’s play area, a medical component, a park that you create, where you want the trees to grow. Landscaping is super, super important. And then how do you stitch in the residential pieces? How does senior housing work?”

Pacific Retail’s properties range in size from the 71,000-square-foot Kings’ Shops on The Big Island in Hawaii, to the 1.5 million-square-foot Yorktown Center in Illinois. The average sized Pacific Retail mall is about 1 million square feet.

In addition to the 23 assets that Pacific Retail owns, the company serves as a development consultant/manager for a handful of properties and is involved in end-to-end sourcing, assessment, underwriting, valuing, development, marketing and asset management of retail properties. In Houston, Pacific Retail is a consultant to MetroNational and its Memorial City project, a huge upscale, mixed-use development. It’s like a city within a city, spanning a 10-mile radius.

“They’re looking at redeveloping this 2 million-square-foot mall over the next 10 to 15 years and opening large sections of it up. We’ve been hired to come in and help them unencumber it,” Plenge said.

He said the big project could involve closing, right-sizing or relocating stores, or tearing down a portion of the mall. Plans also call for residential and office units, and adding another hotel, Plenge said. “We’re thinking that becomes kind of a small village [tied] to the mall.”

Luxury is also part of the vision. “We’re going to have a very nice outdoor luxury wing. That is in the midst of the planning stages right now. It’s a very extensive redevelopment that’s going to be really amazing.”

Inside Northpark in Ridgeland, Mississippi.

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