Q&A: Hotelier, Financier Sternlicht on Reviving Malls

Bloomberg News
Barry Sternlicht at conference last year.

Can the man who created the hip W hotel brand make shopping malls sexy?

It’s a tall order. But if anyone is game to give it a try, that’s hotelier Barry Sternlicht, who leads investment firm Starwood Capital Group. Last week, his Starwood Capital agreed to buy majority stakes in seven U.S. malls from Westfield Group for roughly $1 billion. Now, Mr. Sternlicht wants to transform the malls into something more “creative” and “energetic” than they are.

That will be a challenge, considering that the seven mostly are average at best. They include Chicago Ridge mall in Chicago Ridge, Ill.; Gateway mall in Lincoln, Neb.; Louis Joliet mall in Joliet, Ill.; Solano mall in Fairfield, Calif.; SouthPark mall in Cleveland, Ohio; Westfield mall in Hialeah, Fla.; and the Metreon retail-redevelopment site in San Francisco.

Together, six of the malls, excluding Metreon, average occupancy of 93.8% and annual sales per square foot of $373. That’s not much more than the industry averages: 88.5% and $353.

Regardless, Mr. Sternlicht has a grand vision for the properties, though he’s not sharing much of it. This is a man who assembled hotel giant Starwood Hotels & Resorts Worldwide Inc. by piecing together hotel brands such as ITT Sheraton and Westin, as well as creating the W brand from scratch. He now leads an investment firm with more than $18 billion in assets under management. So, the odds are that he’s not planning to embrace the mall industry’s status quo.

Mr. Sternlicht spoke with the Wall Street Journal this week about his plans for the former Westfield malls.

WSJ: Many investors and developers these days are trying to figure out how to revive average and struggling malls. So what’s your plan with these properties?

Mr. Sternlicht: Our feeling was that we could be a little micro-creative, what we could bring some design and energy into the mall space of these inner-city areas or slow-growth markets. Our bet is that these centers will be here (in several years). In fact, as the (big-box) centers lose their Best Buys, they become more like ghost towns. And some of those (retailers) want to go to a smaller format store, and they want to come into the mall.

What some people may see as challenges in a mall, for example an underperforming Sears store, we see as an opportunity. … We’re going to bring a little of W hotels to malls.

WSJ: Will you be searching for additional malls to buy? And if so, what criteria will you seek?

Mr. Sternlicht: We do expect to look to add other properties to the platform, and we do expect to build (our own) property and leasing companies. … (That includes malls) with potential. We’re looking for malls that we think will be around in 10 years.

WSJ: That’s a tall order, considering that so many average and weak malls are expected to suffer more as online shopping expands. What gives you confidence in the property type?

Mr. Sternlicht: When you look in a mall, a lot of the tenants are clothing, shoes, etc. The sheer variety of stores that a shopper can go to — I think it’s going to be around. It’s a little like the movie theater: They’re still around though you can get (movies) on your computer.

This interview has been edited for clarity and length.

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