Mills Corp., the Arlington-based retail developer, said yesterday it plans to buy half of Lakeforest Mall in Gaithersburg and eight other malls around the country in a billion-dollar deal that gives it a new portfolio of shopping centers to redevelop in the years ahead.
The company, best known for building malls like Potomac Mills and Arundel Mills that combine big-box discount retailers and extensive entertainment options, expects to invest $200 million to $300 million on expanding and renovating the nine malls in the next several years. A company spokesman said it is "premature" to discuss specific expansion plans at Lakeforest or other individual properties.
An outside analyst said he thinks it likely the company will add more big-box discount stores to the newly acquired properties, and significantly more restaurants, helping make them entertainment destinations while keeping their basic regional mall character.
"Mills is terrific at creating these hybrids of different types of retail, and that's what it looks like they're going to do here," said John C. Melaniphy III, executive vice president of Melaniphy & Associates Inc., a retail real estate consulting firm in Chicago.
Mills plans to purchase a 50 percent interest in the properties, which have a combined 9.6 million square feet, from General Motors Asset Management. Mills plans to pay $1.03 billion for the stake before transaction costs, including assumed debt, and the deal is expected to close by Oct. 15. General Motors Asset Management will retain the other half ownership in the malls, but Mills will manage them. Mills said it anticipates a 6.4 percent return on the purchase.
Two local properties are included in the portfolio -- Lakeforest Mall and Marley Station in Anne Arundel County. The nine malls are mostly well-located properties in affluent areas but with generally middlebrow tenants. Many of them have anchor tenants like Sears and J.C. Penney, and the average occupancy is only 86 percent, a figure Mills said it expects will rise under its management.
In recent times, Mills has concentrated on building high-entertainment malls. Its mall in Madrid has an indoor ski resort and children's theme parks. Mills is also building a massive entertainment and retail complex in New Jersey called Meadowlands Xanadu.
The problem that most mall developers are bumping up against is that experts generally believe the United States has about all the conventional malls it needs for now. The acquisition, therefore, would allow Mills to redevelop and expand malls that are due for a fix-up without adding more aggregate mall space.
"We are first and foremost a developer," said David Douglass, a spokesman for Mills. "One of the things that gives us an advantage over some mall operators is we can look at a traditional regional mall from a developer standpoint and recognize ways of adding value to it through redevelopment."
Other malls in which Mills plans to buy a half interest are Stoneridge Mall in Pleasanton, Calif.; Columbus City Center and The Mall at Tuttle Crossing, both in Columbus, Ohio; Hilltop Mall in West Contra Costa County in California; Briarwood Mall in Ann Arbor, Mich.; Meadowood Mall in Reno, Nev.; and The Falls in Miami.