Cortana Mall may be known as the half-empty mall at Florida Boulevard and Airline Highway, but its new owners and management team see it as half full.
That optimism is fueled by a belief that, despite an exodus of interior tenants over the last decade, Baton Rouge is still a two-mall city and Cortana has a future as a discount shopping and entertainment destination.
But in the short term, Las Vegas-based Moonbeam Capital Inc. is urging a little patience about a month after it bought the interior portion of the mall for $6 million.
“The first thing that we ask the community is to continue to be patient with us as we evaluate the property and that they understand that the process of bringing in national retailers takes time,” said Shawl Pryor Sr., Moonbeam’s senior vice president and director of leasing and management.
While the Mall of Louisiana on Bluebonnet Boulevard tops the national average in sales per square foot by 36 percent, Cortana has spent the last decade slowly replacing interior tenants with storefront window advertising for remaining retailers. It sits today just over half occupied — not including the anchors that are owned by their occupants.
Pryor said the first three months after any of Moonbeam’s acquisitions are generally quiet as the company works with the property manager to set up meetings with tenants and the community to get input about redeveloping the properties.
He said there won’t be any general renovations until that happens.
However, he said there could be some improvements and some smaller tenants by the end of 2013, with some more significant activity in the first quarter of next year.
Pryor said he and Moonbeam principal Steven Maksin are excited about the plan for the mall that’s been put together by The Woodmont Co. The Dallas-based firm began managing the mall for a bank that took over the property from New York-based Mall Properties Inc. in 2011.
Fred Meno, Woodmont’s president and chief executive officer of asset services, said there are several opportunities at Cortana, starting with a space Moonbeam doesn’t own: the former Mervyn’s department store.
“I’d love to bring a theater in there,” he said. “You could get close to 10 screens in there and I think that’s what that area of town really, really needs.”
Meno said Woodmont has a theater consulting company that did a study on the viability of a theater there.
“It does look like north of Cortana really has an absence of theater coverage,” he said.
He noted that even though Baton Rouge has a number of movie theaters, they are all heavily concentrated in other parts of the city.
“I’d go so far as to say it’s underscreened,” he said.
Meno said a theater could lead to other entertainment options and create more of a market for restaurants.
Meno cautioned that bringing in a theater “is not an easy deal to do.” He said many theater owners are still trying to keep up with expensive technical upgrades necessary to stay competitive in the last decade.
But he pointed out the building is two stories, eliminating a typical problem of existing buildings not being tall enough to accommodate a theater.
“I think that could be the catalyst for the rebirth of Cortana,” he said.
Meno also said a number of national fitness club chains could come in and fill a major void in the market. They could provide a spark that would attract other retailers. He said there are about a half-dozen operators who have only one or no health clubs in Baton Rouge.
The key will be understanding Cortana’s place in the market.
“Cortana is not going to be a high-end lifestyle center from a price-point perspective,” he said. “I think Cortana can offer shopping and entertainment opportunities to a different demo than what the Mall of Louisiana is catering to right now, with a lower price point, more of a discount venue.”
Jonathan Walker, a retail broker with Maestri-Murrell, said he agrees with the strategy of differentiating Cortana from the higher-end offerings along Bluebonnet and Siegen.
“North Baton Rouge really isn’t going to attract high-end retailers such as DSW or an Ulta or a Target, but anyone who’s interested in going to North Baton Rouge is going to look at Mall at Cortana first,” he said.
Walker said the development still has strong retailers that draw heavy traffic from the Florida Boulevard and Airline Highway corridors to retailers such as the Lowe’s, Sam’s Club, Wal-Mart and Big Lots that line the road around Cortana.
“You like to see those retailers out front doing well if you’re the Mall at Cortana,” he said.
Walker said that while Moonbeam’s purchase of Cortana may have had people scratching their heads, the price of less than $20 per square foot provides a rationale.
“Really, $6 million for 350,000 square feet ... that’s cheap, even for Cortana,” he said.
Meno estimates Cortana is roughly 60 percent occupied in the interior space, but a survey presented at the Real Estate Trends seminar last month put it at 54 percent.
Another thing that had people scratching there heads was simply: Who is Moonbeam?
Moonbeam is a private equity firm created by Maksin, a tax attorney and real estate investor who splits his time between Brooklyn and Las Vegas.
The company is about 10 years old, but most of its growth has been in the last two years. Seven million of Moonbeam’s 9 million square feet is in retail, though it does have hotel, office and industrial space as well. In addition to Cortana, it owns Greeley Mall in Greeley, Colo.; West Oaks Mall in Ocoee, Fla.; Five Point Mall in Marlon, Ind.; Marshall Town Center in Marshalltown, Iowa; Burlington Center Mall in Burlington, N.J.; and Century III in West Mifflin, Pa.
Those developments, however, don’t provide much insight into what might happen to Cortana. In addition to all of them being recent acquisitions, Pryor said Moonbeam’s community-based approach to redeveloping its malls makes comparisons difficult.
But he added that having them all available “gives us the opportunity, when we’re marketing the shopping centers to retailers, to market the entire portfolio as opposed to just one property.”
Woodmont’s relationship with Moonbeam began about 18 months ago. The companies have worked together on outlet malls in Georgia and Missouri.
Meno said that while he doesn’t “have any 180 (degree) turnaround stories to tell you right now,” that’s a function of Moonbeam’s youth. And while Moonbeam may not have a long track record, it’s got the next best thing: a clean balance sheet and a post-bubble market in which properties can be acquired at a discount.
Meno said that as a cash buyer of undervalued, distressed real estate, Moonbeam is a welcome antidote to the overleveraged, debt-saddled mall operators caught up in the vicious circle of being unable to invest in their properties and having them struggle to compete because of that.
“The good thing here is the project is in the hands of an organization that has a strong balance sheet and is able to do what’s necessary to compete for tenants,” he said. “It’s no longer at a competitive disadvantage because it was in the hands of a developer having difficulties, or a lender who doesn’t want to own real estate to begin with.”
Indeed, the big-box stores on the periphery of Cortana have thrived in recent years. Sears, Macy’s and J.C. Penney run regular department stores there, with Dillard’s converting its space several years ago into a discount outlet. Mervyn’s closed many of its stores around the country in the middle of the last decade and the rest of them in 2008. Virginia College took over a Cortana anchor spot, a former Steve & Barry’s, in 2010.
Virginia College had many retail and real estate observers thinking Cortana could evolve into primarily an office park with support retail.
But Moonbeam and Woodmont still view Cortana as a retail destination and Baton Rouge as a two-mall city.
Virginia College, Meno said, does very well at Cortana and brings in a daytime population that helps the mall, “but I wouldn’t want to structure the merchandising strategy around Virginia College.”
Walker said he likes what Cortana did bringing in Virginia College. He said non-retail users who are strong and creditworthy can be an asset and are certainly better than empty space.
However, he added, “I would agree that if you’re buying it to be retail, the more non-retail uses you put in there, the more non-retail users it attracts. … If you do want to keep that retail image you don’t want to go too far in that direction.”
Meno and Pryor are particularly excited about the International Council of Shopping Centers conference in Las Vegas later this month. It’s the largest national gathering of brokers, retailers and property owners in the country. Woodmont’s brokerage team is already setting up meetings to promote opportunities at Cortana.
“Cortana will be one of our showcase properties at that convention and we hope we’ll have some positive momentum that will lead to some deals coming out in a short period of time,” Meno said.