A trip to the mall ain't what it used to be. After a tough period for retail, we lost more than a few malls around the country, the sector is now in a place of strength, redefined by new approaches to things like tenant selection, experience, and technology. On this episode, two interesting points of view on retail. One who spent more than four decades in the space, and the other who's relatively new to his position. The opportunity for us is how do we drive traffic to all time productivity in these centers? That's Jack Shea, the president and CEO for Mace Rich. Jack calls himself a recovering banker after spending more than 30 years on Wall Street, advising clients with real estate interests all over the world and in a range of asset classes, including malls, hotels and industrial. He joined Mace Rich in 2024 to lead a REIT with total assets of more than $8.5 billion. Whether you're on the property side and you own assets, or if you're a retailer, it's all about being agile and being able to ebb and flow with your customer. And that's Todd Caruso, CBRE America's retail services lead. Todd started at CBRE in 1983 and is now responsible for growth, management, and leasing of more than 500 million square feet of retail property. A portfolio that includes 17 Mace Rich assets across the United States. Coming up, Mace Rich and the state of brick and mortar retail in America. I'm Spencer Levy, and that's right now on The Weekly Take. Welcome to the Weekly Take. I'm delighted to be here in Santa Monica, California with Jack Shea of Mace Rich, one of the largest retail companies in the United States. Jack, thanks for coming out. Thank you, Spencer. Good to meet you. And my old friend, Todd Caruso, who's been with CBRE, is that 43 years, Todd? 43 years. That's it, Spencer. 43 years. You know, one day, you know, you'll have some job stability. Thanks for coming out today. It's great to be here. Thank you. Great to have you. And Todd's been at CBRE so long that we were owned by Sears Roebuck back in the day, 43 years ago. We used to be able to get discounts on washing machines. I did. Do you still have one of those machines? I wish I did have one of those because it wouldn't break. Oh, well, they had good stuff. Those are Kenmore washers. It wouldn't break. That's right. Jack, tell me how you describe MaceRidge. I would describe us as really creating vibrant retail centers that bring together our tenants, shoppers, create a lot of value for them as well as our shareholders in the form of driving NOI and overall appreciation of these properties. Trying to not use too many industry lingo terms, lifestyle-type centers, but that is something that Maestrich and other competitors of yours have done to take retail from just a standalone into a truly place that you can live, work, and play. Exactly. The enclosed, what I call regional mall business, obviously has changed. And when I took this job two years ago, didn't really know how to operate them all. I've obviously been a banker for many years. So one of the first books I read when I was starting this was a book by Alexandra Lange called Meet Me at the Fountain, which was more of an architectural history of the regional shopping mall, how it came to be. So if you look back in history, after the post-war era, and there was a suburbanization basically of America, regional mall literally proliferated. Mall developers were building these things off the back of Sears, Montgomery Ward, JCPenney's, and they proliferated, right? Fast forward to the global financial crisis, Amazon, COVID. You've had a contraction of anchor tenants, obviously. So today, there's very few compared to 15 years ago. And so it's created a lot of challenges for companies like ourselves having to deal with a million square foot campus. So how do you deal with that? And at the end of the day, look, we want to create the best shopping entertainment environment possible, whether it's indoor or outdoor. How do we do it? In my opinion, we've got to have tenants that provide great product, great service, and have great inventory. Those three things are really critical. And so go back to their use those three terms against service product product service Inventory inventory, okay, so so they can actually get what they want right then and there. It's a now thing and and to me like the Opportunity I would say you know when I started it was like a challenge but I think the opportunity for us is We can't rely on our department stores in the past the department store was really the curator of different brands The anchors. Yeah, the anchors. They're really important. They're still vital. But in a way, we're incubating the best ideas into full-scale stores on the inline. I will tell you that when I was starting out in this business, it was really a set-it-and-forget-it business. It was more of a bond-like business. You put together a great tenant and hope for the best. I'm not saying it was quite that hands-off, but it was a lot more hands-off. Would you say that is the single biggest material change since you've come here? It's operations. To me, operations means creating a clean, safe environment. Everyone has to have that. To me, where we can add value and differentiation, merchandising mix. Understanding our trade area, understanding our competition, understanding where the puck is going, basically, as it relates to merchandise mix. Because at the end of the day, going back to the Alexandra Lang book, I remember going to malls. What did you do in a mall? You went to the food court. You got some food. You got Orange Julius. There were electronic games at the time. There was a movie theater. Yeah, that's what you did. You kind of walked around. That's where people went when I was younger. Well, fast forward, like the opportunity for us is how do we drive traffic to all-time productivity in these centers? I was reading Green Street Advisors, who really is a great analytical company. They said there's a thousand enclosed regional malls in the United States today 250 or in a class a segment so that's a minus to a plus plus and that used to be by sales per square foot When I got into this business years ago was like if you got the 500 bucks of what you were class huge now It's like 800 or a thousand. Yeah, I think they look at sales per square foot. They have a tap score that looks at at trade-ary demographics, income, household population, and they come up with an aggregate score. Obviously, closer to 100 is best. But I think for us, the interesting part is, if there truly are 250 enclosed Class A shopping centers, you really can't afford to replicate them anymore. You know, I just want to play on the comment that you guys were making on operations, right? So operational agility equals profitability today. Whether you're on the property side and you own assets or if you're a retailer, really, it's all about being agile and being able to ebb and flow with your customer. We've got the opportunity to get involved in consumer marketing initiatives on behalf of our owners. We've put together campaigns to increase dwell time in open areas within the mall or outside in the parking lots of open air centers, as an example. There corporate sponsorship opportunities to bring in sponsors who may want to sponsor a valet stand outside one of the high restaurants that exists on the exterior of the mall So a lot of different ways And this term dwell time is a fancy way of saying what we saying in office What we say in office is the number one amenity in office is other people. And other people doesn't just mean your employees, it means everybody. It means what does get people there. You agree with that, Jack? No, I agree. You're trying to create day and night campuses for our real estate. Whether it's office, residential, gyms, lifetime fitness, restaurants, they can just be the center of gravity, basically. Now, one of the things that I've noticed when I hang out with my office landlord friends is they're getting into retail a little bit. And the reason why they're getting into it is because they know retail is so important to get the people in the office. And so my question is, Jack, is that you have so much real estate. Most of it's retail, but you have this office. You have this multifamily. How do you try to make them work together? When I joined the company two years ago, the prior leadership team had gone through quite an extensive exercise of entitling a lot of the adjacent square footage that we had outside of the mall. So former department stores, particular parcels around the centers. And before I joined the company, and actually while the board was recruiting me, the whole thesis was densification. They kept talking about, this is an opportunity of densification. and I said okay that's kind of an interesting strategy but kind of looking at Mace Rich's balance sheet guys you're like over nine times levered debt debita like that's not congruent really to me and shareholders want earnings they want earnings growth so if you guys want to hire me are you open to possibly a different strategy and they're kind of nodding their head the answer is yes okay great so when I started two years ago one of the first things we decided is what is our true North Star at this company. And the true North Star is we want to create thriving retail centers. And I say retail centers. They can be open air, super enclosed obviously, because we own both. What does thriving mean? Thriving means dwell time, increased traffic, increased productivity, elevation, quality of merchant. Brand. So here would be a couple of them. I'm not trying to disparage We have a lot of great brands. Aritzia, Aloe, Lulu, Fiore, you know, Elevation. Elevation product type. New brands like Addicted. That's a Gen Z brand, which I'm sure we'll talk about a little bit later. But our opportunity was how do I elevate? Elevate the opportunity because if I'm elevating with better brands, I'm going to be able to drive more sales per square foot, more traffic, and in the end, more rent for us as the landlord. How do the two work together? Because you might have the top tier tenants. You might have tenants that are food courts or tenants that do other things, but you got to treat them all in the optimal way. Tell us about that. Sure. It goes back to ensuring that you've got full integration within the asset in that enclosed mall. And perhaps you look at districting, right? So you've got your luxury tenants on a certain wing. I think that's the case. in Scottsdale fashion, as an example, and your asset out there. You've got some of the aspirational brands, which were the five or six that you just referenced a minute ago, and they tend to be together. Some of the food and beverage retailers tend to be together. So there's opportunities. Like neighborhoods. There's neighborhoods. And there's probably some areas where you want to intermix as well. But I think there's a strategy behind it from a merchandising perspective. One of the most exciting things also, I think, that's happening, particularly in a lot of the assets that you control, is that retailers to some degree have become agnostic. So open-air retailers that were traditionally expanding only in community and neighborhood shopping centers, they're now looking at regional malls from an expansion standpoint. You have groups like Target and Ulta and Trader Joe's is locating on the periphery of these malls. That wasn't the case five and 10 years ago. So that's an exciting thing. It's the infusion of some of these retailers that traditionally never were in malls that are there today. Right. I agree 100%. And going back to what elevation and all this sort of means. So when I started here, I came in with no preconceived idea as to what this company should or shouldn't be doing. And basically ask questions. I call it my six questions. If you want to get to truth, you ask six times, six different ways to kind of get to the bottom line. And, you know, my first 30 days, 90 days on the job, I tried to talk to as many people. And I probably saw, I probably walked 90% of our properties, like within the first 60 days. With leasing teams, asset management teams, general manager, kept walking around trying to understand what our assets are all about. what's the competition doing to try to understand, like, what should we do? Got to try to figure this thing out. And I'm looking at our stock price. We're about to celebrate our 30th year anniversary on the New York Stock Exchange, an elicit company. Our stock price is pretty much the same as 30 years ago. So that's not great. So using that as a backdrop, I'm all about creating shareholder value, growth, make the business better. So I think I quickly came to the conclusion that if I'm going to create thriving retail centers, the answer may not be densification. Why? If you go to Tyson's Corner, we own the Hyatt. It's a beautiful hotel. We built the Vita Complex, which is high-rise residential, some of the best in that area. We've got great office towers. We've got great retail. That takes a stinking long time to do. years, like years of build out, years of entitlement. And we don't have the balance sheet to be able to do that. So that's not really a viable strategy for me to create vibrant centers. And I also noticed that when I was walking this real estate, this portfolio, we had wings in centers that had dark anchors, like Sears, dark Lord and Taylor, dark Norsham stores. I'm like, hey, what's the strategy with this? Oh, well, we've got densification. We could do this, that, and the other thing. We could do office here. We could do resi here. And I'm like, there's no vibrancy until we get our inline fully leased from a physical permanent occupancy standpoint. So I'm asking the question like, what's our physical permanent occupancy right now? It's two years ago. 83%, not good enough. There's no vibrancy if you're 83%. There's no price tension. That means wings are filled with like vacant temporary tenants. So first order business, let's attack the anchors. So today we have 30 committed, some are open already. What is your occupancy today, if you don't want to be asking? Our physical permanent occupancy is still around 83%. And the strategy with our path forward, which I'll talk about in a second, will get us to about 89% to 90%, which is where you want to be in this kind of business. You don't want to be 100%, by the way, because actually you say, oh, 100% sounds perfect, But actually you need a little bit of vacancy to keep that tension. Well, and not just tension But you're constantly moving you this is all like a three-dimensional Rubik's Cube Aritzia wants to build a new flagship store or they want to move to X Y and Z then I've got a displace Maybe another tenant that's in place there put them in a different position to build them a new store So you're constantly moving Tenants on a floor plan that is a competitive advantage my opinion because when I have 400 to 600 square feet of fully occupied inline you know I have the ability to move tenants in different parts of our football field And I want people at that point to sink in there for a second because if you in other forms of real estate good luck moving your tenant But in retail, sometimes you have that right within your leases. Is that as of right in most of your leases? Like a renewal may come up or they want a different store, they have different needs. It may not be as of right, it may just be circumstantial. Let me dig in there because what Jack is saying is we want not just the best tenant mix. And, you know, we can talk about credit and all the fancy metrics that people use to value stuff. But we want the best tenant mix that creates dwell time. Tell me about that. Yeah, well, dwell time is something that location intelligence has educated a lot of us on, right? So cell phone data, mass mobile data is something that we've been a huge fan of and have invested in significantly over the last seven years within our organization. So when you think about being able to look at a cell phone ping and track that individual and track specific dwell time, you can actually analyze zones within an enclosed mall that need some assistance, right? Because not only is the traffic down there, but the dwell time in a specific part of the asset is less than what it might be in another area, another quadrant of the property. So that goes back to merchandising, right? Looking at that particular wing, and maybe you've got an under-producing department store, and you're thinking about alternate uses. Maybe that's an opportunity to break that space up, infuse some entertainment. We've seen a lot of entertainment uses now coming into the enclosed mall space. We've seen a lot of food-related groups. Those are the things that have increased dwell time. So right down the road here, we have an individual that does a lot of work for Dave & Buster's, right? Someone that goes to a mall and spends time at Dave & Buster's, they're going to be there for a while. And they're probably going to cross shop after they leave that experience at Dave & Buster's. Well, I'm a big Dave & Buster's fan because I think it's got something for everybody there, right? Like so you go to some of these places, it's just video games, just a restaurant bar. They got them both. That's right. Really solid concept. And so, Jack, I want to go back to two ends of the spectrum here. If something isn't working, how do you make the decision to demull it or open it up? Open up is probably a better way to put it. Well, I haven't opened one up yet in my tenure. But I would say like early in my tenure, I was able to luckily spend time with Ed Stack. Ed is the chairman of Dick's Sporting Goods. And I went to go visit Ed in his office in Pittsburgh, and he happened to take us on a tour of his new Dick's House of Sport at Ross Park Mall, which is owned by Simon. And I had the opportunity to walk with him, talk with him about this store, and then on a subsequent trip to Ross Park, actually walk through Nordstrom's, as he was pointing out from a merchant standpoint. sightlines, merchandise, product, technology, bringing in the local flavor into these stores, beta testing different retailers, showcasing different brand types within his template, batting cages, golf ranges, the field, the ability to have like inventory control on shoes. I never saw anything like that. It was unbelievable. And I left that saying, okay, that's what I want in our centers, more like him. really understanding merchandising, customers. And Ed would tell me like, hey, Jack, this is like a really simple business. I was like blown away. And he's a very good friend now. It's like, you know, I don't, you know, only two years into this thing. He said, Jack, it's a really simple business. You know, my business is all about buying stuff at one price and just being able to sell it at a higher price and just make sure I don't get stuck with the stuff. And so it's kind of simple, you're right. But the execution of that, He is super impressive. One of the best retailers I've met, certainly. The way you've described it is he is, he's not just detail-oriented, but the details are actually, when you boil them down, they're simple details. Sight lines, product mix. Service. Service. Inventory, yeah. And so, like, we built our path forward around that. So we have, like, nine committed Dick's stores in various, House of Sports in various different levels, which to me would be my first choice in a center that you're trying to reorganize or transform and those stores they're rolling out these dick's house of sports if you hadn't seen them they're really worth seeing we just opened our first at freehold freehold mall in freehold new jersey and it's gone gangbusters since it opened and it and we've been able to lease the leasing momentum in that wing has really started to gain momentum and will continue to elevate that center as we move forward and it attracts other tenants. So this is all about other retailers following retailers into a collection point, hopefully in your center. Retailers know that great physical stores support their omni-channel strategy. You know, they get a bump up 20, 25% in online sales with a good physical location. It's a really different environment, though, at least. They want the best centers. They want the best locations within the real estate. They're not carpet-bombing trade areas. You know, I guess 15 years ago, if X, Y, and Z tenant was coming into a market, they would put eight to 10 stores in, proliferate the trade area, and in some ways cannibalize the trade area as well. Today, like, physical stores are really important for Ritzia, really important for American Eagle, Gap, supports their omnichannel. They just want great real estate, good locations, and actually really good landlords that are partners with them. They get the joke, basically. Todd, you've heard the story, and we're privileged to have the leasing opportunity at 17 of these properties. But we're not just trying to put in the biggest-named tenant. We're not just trying to put the tenant that's going to pay the highest rent. How do we choose the tenants that fits the Mesa Ridge story? Again, I think it gets back to understanding from your asset management team what the overall merchandise strategy is. So they've been extremely articulate to our team, and we do everything possible to convey that to the individuals that are on the ground working on the assets themselves. And if it's a mix that needs to be enhanced with some of the aspirational brands that you've just referenced earlier, then we're out trying to identify either groups that we have relationships in those local markets or where we might be expanding those brands nationally, right? We may be on point from a tenant rep, a retailer, occupier representative perspective, assisting those groups and helping them with their strategies. That's an opportunity for us to plant a seed and say, hey, You know, Mace Rich has a highly productive stock of assets throughout the United States, right? There's no egos there. They understand what it means to have a relationship with their individual retailers. Would you consider this location? And maybe just for your listeners, we have an internal leasing team. We have an outstanding leasing team. Why bring CBRE in alongside to work in partnership with us? Well, this path forward, going back two years ago, one of the first things we did was withdraw our earnings guidance. Why? I got to do this really quickly I got to basically stabilize our vacancy basically our temporary vacancy our underperforming tenants our vacant department stores. So that means basically getting transactions done very quickly on the anchor side. So we've got 30 committed. But also 1,000 tenants may not seem like, What does that number mean? Well, for Mace Rich, it means almost 25% of our entire portfolio of spaces. 25%. So if you think about that, that's an unprecedented amount of leasing that had to be done basically in 18 months. So we're into it right now. And we can talk about it a little bit later on the speedometer. But we're effectively, right now, about 76% complete as we think about our completion rate. and we're striving to get to 85% by mid-year and substantially complete by year-end. When I talked to our leasing teams, and look, we modeled every single space out in our portfolio to go forward. What's the right tenant mix? What's the right rent per square foot? It's all built into Argus. And I said, like, I want to have insurance policy. That's why we called you guys. We're leasing unprecedented amount of space and we have to do it on time. and at market rents that we've assumed in our model. And thankfully, we've exceeded it. We just did our fourth quarter earnings call, and we signed 7.1 million square feet. That's an unprecedented amount of space. Yeah, it's an 86% increase over the prior year. So it's just a huge volume of deals. And so if you were at Maistra, it's just peeking around. It's all about leasing, and now it's all about getting those spaces built and open on time. Execution. Execution. Execution. And so it's been exciting. And the whole company has been on board with it. And if we get these 1,000 spaces done, what that generates is that $140 million of incremental revenue over our 2024 within those 1,000 spaces. So if you think about that, about 80% of that flows into NOI. So that's super productive incremental earnings NOI that we need as part of our deleveraging plan. Retail was a tough place to be because of the internet. We're done. Nobody's gonna shop again. I think we've just flipped the script here I think it's now technology is going to be the savior of retail It's gonna make it even better on the technology side We haven't talked about Gen Z, but we have to because it's really important So that's the age group that today is 14 to 29 years old Nielsen, you know, basically has projected That the global retail spending of that group in 2030 will be 12 trillion dollars It's a really formidable demographic for us. And what's really critical about that group is they love to go to physical stores. They're the most prolific of the demographic groups that like to actually go to the mall. So there was an article in Wall Street Journal about this group going back into the retail centers. It's all about TikTok. It's all about Instagram. It's all about basically the brands trying to acquire this cohort and engage with them. It's a remarkable phenomenon right now. We're opening hopefully a new store for Cider in one of our centers. Cider didn't have physical stores. The one they're opening now is at Rick Caruso's project at The Grove. and it's basically an online TikTok oriented fast fashion female brand company, right? So they originate this product from China, ship it over two to four weeks and now they're gonna have physical stores. But I was with one of their founders and she was showing me a map and I said, here's the center we're talking about. Well, let me look at our data. So she put it up on the screen. I was shocked. Like the amount of TikTok customers that they engage with around this particular center we were talking about. And they have that pretty much all over the country, and I'm sure all over the world for wherever their customers are. But it's such an important age group. And if you look at retailers like Tapestry, Coach and Kate Spade, what they've done to try to meet that customer base with the Tabby Bag or the Lou Lou Boo Boo's with PacSun, or look at what Ralph Lauren's doing, what Gap's trying to do in terms of meeting that customer base because if you ask me, like that's the big tailwind behind what we do if we get it right. I formed a Gen Z committee here recently. We've picked kind of a cross-section within Mace Rich to come together, talk to our tenants, work with some of the universities. I really want to understand what this customer wants from the physical environment, what they want from tenancy. and so we can kind of redefine what it is and meet them there, right? Because I think it's really important. I completely agree, though I do have to give a shout-out to Gen Xers too because I'm one of them and when I go to a store, the way I shop is actually a very efficient way of shopping. I know what I want. I go in, buy it, and leave. So I think what I'm saying here is I'm not disagreeing with you at all about Gen Zers being the driving force. What I'm saying is that different people shop differently and you've just got to find the optimal way to meet them. Is that a good way to put it, Todd? It is, and it's almost the reverse. I mean, being a baby boomer, I would have thought it was different. I would think that the Gen Z would be the ones that would be all about online, right? And now we recognize that they've, you know, too much time in front of the computer. They want to get out. They want to interact. Yeah, we opened the store at an addicted store. This is a very, very popular Gen Z brand right now. We opened them at Tyson's, and the lines that I saw, some of the videos of kids, you know, shoppers going in and basically video themselves going into the store. It was amazing. And so we were obviously trying to expand them in other centers, but you know, it's an important group and I think we've got to be smart about where to put them. Look at, look at the lease structures. Some of these, some of these brands don't even have stores yet. So how do we figure out how to get them into a location, pop up like in a good location where they could like come in for six months and, and see, you know, it's good for us. Good for them. dwell time, operational agility, productivity, thriving. I can throw all these words down, man. Product, service, inventory. That's what it's all about. Boom. Product, service, inventory. Well, that's how we started the show, and that's how we're ending it. On behalf of the Weekly Take, what a privilege. Jack Shea, the president and CEO of Mace Rich, one of the great retail companies in America. Jack, congratulations on all the things you've done in the 18 months on the job. Yeah, look, I can't do it by myself, so I got to thank all of our Mace Rich colleagues that are all over the country pushing on this strategy. And our head of retail investor leasing, Todd Caruso. Thank you, Spencer. If you enjoyed that trip to the mall, we've recently featured other shows to complement those retail insights with looks across the lifestyle and hospitality landscape. Specifically, I'm thinking about our recent conversation about food halls and another about retail development and the capital markets. just click over to our archive at cbre.com slash the weekly take or check out your preferred platform we'll be back next week to bring you more from across the commercial real estate spectrum including some special episodes coming up this spring so stay tuned and subscribe if you want to learn more thanks for joining us i'm spencer levy be smart be safe be well Thank you.
