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Simon Property Group to Spend $1.5B on Adding 2,000 Residential and Hotel Units Across US Portfolio

Simon Property Group, Orange County, Seattle

By Vladimir Bosanac

The largest shopping mall operator in the United States, Simon Property Group, which oversees a portfolio of over 200 malls across North America, Europe and Asia, is looking to make some changes at its properties. In a recent, first quarter of 2023 earnings call, the company announced plans to add as many as 2,000 residential and hotel units in an effort to boost profitability and diversify revenues at the company.

The COVID-19 pandemic has significantly impacted Simon Property Group, and many of its retail tenants have struggled with decreased foot traffic and reduced sales. The company has implemented various measures to support its tenants and promote the safe reopening of its properties.

For the first three months of 2023, the company reported total revenue of $1.35 billion, which is up just over 4 percent over the first three months in 2022 when it reported revenue of $1.295 billion. Overall, occupancy was 94.4 percent at March 31, 2023, compared to 93.3 percent at March 31, 2022, an increase of 1.1 percent, and base minimum rent per square foot was $55.84 at March 31, 2023, compared to $54.14 at March 31, 2022, an increase of 3.1 percent, Simon reported. On top of that, its tenants did better, as well. The company reported retailer sales per square foot was $759, an increase of 3.3 percent for the trailing 12 months ended March 31, 2023.

The big announcements for the group included the opening of the West Paris Designer Outlet in Normandy, France, and the restart of construction on an upscale outlet center in Tulsa, Okla., which is projected to open in the fall of 2024. 

However, perhaps the most interesting new announcement was that the company has also identified projects that include roughly 2,000 residential units and hotel rooms.

“We have a residential pipeline that looks really attractive in hotels that are generating really good accretive values of around 2,000 units,” said David Simon, chairman, chief executive officer and president for the company. “Now, that’s not going to happen overnight, but that’s going to happen over the next few years. So that for us is a real opportunity.”

The company is looking to deliver these units through selective joint ventures for certain residential developments, and it may also bring in third-party equity. Each deal will be assessed individually, Simon stated, and it’s likely to span a period of at least five years, with several expected to start as early as this year. 

According to Simon, the company is already pursuing permits across the West Coast in California and the Northwest; however, pending those outcomes, it will proceed as it sees opportunities arise.

The company is looking to spend as much as $1.5 billion on these projects, which is an estimate at this point, and the projects would span across the United States, from Austin, Texas, to Orange County, California, to Seattle, and include hotels in Florida, multifamily properties in Florida, and potentially a hotel in Cape Cod, Simon added. 

“The big focus is on where we can add some mixed uses, because we do think like what we did in Buckhead is having a tremendous impact on the overall value of that real estate,” Simon said. “So, not only does — is it accretive from a value point of view just on the cost to the return on the build versus what’s the value of that is after it’s built, but also the residual benefits that we see from them all.”