Shopping malls and other retail centers might be on shaky ground these days, but the ground at some of those developments is becoming valuable territory for self-storage.
Chattanooga, TN-based mall owner CBL Properties Inc. (NYSE: CBL) is tapping into the potential of self-storage in a unique way. While developers across the country have purchased shuttered retail properties to convert them into self-storage facilities, CBL has taken the connection between retail real estate and self-storage a step further.
During CBL’s April 27 earnings call, Katie Reinsmidt, executive vice president and chief investment officer, cited a 50-50 joint venture that CBL has forged with a self-storage developer to build two CubeSmart-managed storage facilities at land on the outskirts of two of its more than 60 malls. The developer is Hickory Capital Group LLC, based in Brentwood, TN.
It takes two
CBL contributed the land as its share of equity in the two projects — at EastGate Mall in Union Township, OH, near Cincinnati, and Mid Rivers Mall in St. Peters, MO, near St. Louis — with the rest of the financing for the facilities coming from Hickory Capital Group and construction loans. Each of the facilities will comprise roughly 93,000 square feet.
Construction on the EastGate facility is well underway, and construction on the Mid Rivers facility recently started. Both facilities are set to open this summer.
Stacey Keating, a spokeswoman for CBL, said projects like the EastGate and Mid Rivers storage facilities enable the company to generate revenue from underused land on the periphery of its properties. Each facility is being built on about 2 acres.
Keating said these two projects are letting CBL test this emerging strategy for extracting value from unused land.
“We will continue to evaluate this use going forward and can foresee it being a part of other projects in the future,” Keating told the SpareFoot Storage Beat. “We will continue to evaluate on a case-by-case basis and make a decision that’s the best fit for the property.”
Adam Ellsworth, principal of Hickory Capital Group, couldn’t be reached for comment.
A ‘brilliant idea’
Ari Rastegar is founder and chief acquisition officer of Austin-based Rastegar Equity Partners, a private equity firm specializing in self-storage and other commercial real estate sectors. Rastegar said he thinks CBL is an executing on a “brilliant idea” by deriving revenue from unused land at its malls without having to contribute cash to the self-storage developments.
CBL’s self-storage strategy is helping “reinvent” the “antiqued business model” of the enclosed mall, he said.
“We’re watching that asset class shutter,” Rastegar said. “What you’ll find is the locations of a lot of these malls are in highly populated areas. They occupy very, very valuable pieces of land.”