US billionaire buys struggling shopping malls as others shy away

New York

IGAL Namdar has made a fortune buying shopping malls no one else wants. He scoops up struggling centres at bargain-basement prices after their landlords lose faith, betting that he can turn a profit before the last tenants even turn off the lights.

So far, that strategy has netted big gains - as well as lawsuits accusing the billionaire of allowing his real estate to slide into disrepair.

In building an empire of 268 properties in 35 US states - most prominently aging malls in small cities - Mr Namdar has accumulated a personal net worth of about US$2 billion, according to the Bloomberg Billionaires Index.

The pandemic accelerated Americans' years-long shift to e-commerce, forcing many already ailing department stores and apparel shops to go dark. Landlords that own lower-end malls - with high proportions of tenants that have fallen behind on rents or shuttered stores - have been hit especially hard.

For Mr Namdar, that smells like opportunity. He expects a flurry of deals in 2022 as more owners of troubled retail properties head for the exits.

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"Any seller of retail - malls or open air - any size of portfolio, we are there," the 51-year-old said in an interview from his headquarters in New York. "We can close immediately, as is, where it is, with no due diligence."

The formula for Namdar Realty Group and partner firm Mason Asset Management is to recruit down-market retailers to fill vacancies while holding down costs by limiting debt and capital improvement spending.

"They have been a bottom feeder, historically, buying on the cheap, for pennies on the dollar and making a go of it," said Jim Costello, senior vice-president at Real Capital Analytics. "It's not the high end of the market, but it's solid retail if you can set it up right."

Real Capital tracks 134 of the Namdar Realty Group's properties and estimates that portfolio is worth about US$2.7 billion.

Mr Namdar declined to comment on the value of the properties that his company owns, or his personal wealth, but said the figures that Bloomberg have reported are inaccurate.

US mall values have plunged 46 per cent from their 2017 peak, including an 18 per cent drop since the Covid-19 pandemic started, according to real estate information service Green Street.

Declines have been fastest among B and C-rated malls like Mr Namdar's, where sales per square foot average a few hundred dollars.

Mr Namdar's bet is that he can pay a small enough price to outrun the decline. He said he sees value in the properties as malls, where other investors in the market are more interested in redeveloping them for other uses.

"It's all about the cost basis," said Cedrik Lachance, director of research at Green Street. "If you are buying to harvest cash and not reinvest, it will work."

Some of the biggest landlords, including Simon Property Group and Brookfield Asset Management, have walked away from malls where values slumped below the property's debt.

Other companies - Washington Prime Group, CBL & Associates Properties and Pennsylvania Real Estate Investment Trust - filed for bankruptcy, raising the potential for massive portfolios to come up for sale.

Namdar and Mason have averaged 20 acquisitions annually over the past decade, but could swallow as many as 100 at a time if the right deal came along, Mr Namdar said, declining to provide details on how much money they plan to spend.

Mason president Elliot Nassim, 40, whose cousin married Mr Namdar, focuses on leasing and redevelopment while Namdar oversees property management.

Mr Namdar and Mr Nassim make no pretence of catering to luxury consumers. They say they charge affordable rents so stores such as Claire's, Lids and Piercing Pagoda can fill vacancies.

One centre, the Eastdale Mall in Alabama, is now fully leased, up from 70 per cent when it was purchased in January 2020 for US$24 million.

"Is it where my wife would shop?" Mr Nassim said about their properties. "It's a different market."

Their first purchase, in 2012, was the DeSoto Square Mall in Florida, after Simon defaulted on the debt.

They sold it in 2016 for US$25.5 million to ML Estate Holdings, which sued two years later, contending the property had lower revenue and higher costs than represented.

"Namdar's approach to its real estate business generally is to purchase marginally performing properties, drain them of cash and operating funds, and then sell them," the lawsuit in the New York Supreme Court in Brooklyn alleged.

DeSoto Square closed permanently in April, according to local news reports. Meyer Silber, an attorney for ML Estate, declined to comment.

Mr Namdar has also been sued by retailers, including International Decor Outlet, which in 2017 accused the landlord of contract breaches such as malfunctioning air-conditioning, substandard repairs and inadequate security at the Regency Square Mall in Florida.

"Landlord is an absentee landlord with a reputation as a 'slumlord'," the complaint in Duval County Circuit court alleged.

At the same property, Impact Church of Jacksonville accused managers of avoiding upkeep, making the "building look abandoned".

Impact paid US$7.4 million in 2016 to buy a former Belk department store on the site, where it now runs a school as well as a church. The price was more than half of the US$13 million that Mr Namdar paid for the entire mall, which names 46 other tenants on its website.

He declined to discuss individual cases but said such complaints are rare.

"There were factors that led to this, such as not having the rent to pay," he said. "Properties that are marked for redevelopment are few and far between, so we maintain our assets."

In addition to buying properties, the company has acquired potential tenants. Last year, Namdar and Mason paid US$12 million to buy cinema chain Goodrich Quality Theaters out of bankruptcy. They also invested in the furniture chain formerly known as Jennifer Convertibles.

Among recent mall deals was the US$10.3 million purchase in April of Marketplace of Brown Deer outside Milwaukee, valued at US$45 million in 2005, according to loan documents and an announcement by the seller, Retail Value.

"We would like to improve our quality but we are not going to pay a crazy premium for an A-mall," Mr Namdar said. "Our goal is to stick to those B and B-plus assets. Those A's get to be too crazy. The Ferraris of the world - that's not the kind of car we are looking for." BLOOMBERG