The Macerich CompanyMAC created a joint venture with Hudson Pacific Properties, Inc. HPP early in 2018 to transform the iconic mall, The Westside Pavilion, in West Los Angeles into a 584,000-square-foot Class A urban creative office campus called One Westside.
The construction of One Westside, slated to begin later this year, will mark the first-of-its-kind transformation, from landmark shopping mall to premium office space. Following the completion of construction and build out of tenant improvements in 2022, the 14-year lease term of Google will commence.
Notably, Hudson Pacific enjoys a 75% stake in the joint venture that owns One Westside while Macerich owns the rest 25%. This joint venture also owns and will carry on operating 96,000 square feet of neighboring entertainment and retail space at 10850 Pico Boulevard.
The latest move comes at a time when e-commerce has been curbing market share of store-based retailers and retail REITs like Simon Property Group SPG , Kimco Realty Corp. KIM , Macerich, and others are facing shrinking footfall as well as alarmingly rising store closures and retailer bankruptcies. Amid these, transformation of suitably placed retail properties to office spaces seems a strategic fit as demand for office assets are likely to remain high amid economic improvement and job market gains.
Moreover, in the last year, Macerich announced a national partnership with premium workplace operator, Industrious. This first-of-a-kind partnership, targeted at multi-property rollout between a co-working company and a major mall owner, came as good news for the retail space.
Per the partnership, Industrious will set up co-working spaces at selective properties of Macerich. This complements top brands in the malls and is likely to drive traffic. Notably, Industrious is a preeminent leader in the budding co-working space and has an impressive track record of strong financial performance across its locations nationwide.
In addition, Macerich has been making concerted efforts to boost mall traffic and drive sales by trying to grab attention from new and productive tenants. Nevertheless, implementation of such measures requires a decent upfront cost and therefore, would limit growth of the profit margin in the near term. Further, rate hike adds to its woes.
Macerich currently carries a Zacks Rank #4 (Sell). The company's shares have decreased 20% in the past six months compared with the industry 's decline of 9.3%.
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