Brookfield Creates 'Blueprint' For Mall Overhaul With Transformation Of Former Tysons Macy's

Shopping mall owners across the D.C. region and the country have sought to adapt to the changing retail market by transforming old department store boxes, and the latest example in Tysons has quickly succeeded in backfilling the space. 

Brookfield Properties told Bisnow it renovated the 260K SF former Macy's space at Tysons Galleria and has already fully leased it to 10 new tenants, including a movie theater, bowling alley, three home furniture and decor stores, and a restaurant. 

The owner signed CMX CinéBistro, an upscale movie theater chain offering food and drinks, to occupy 44K SF on the top floor. A Brookfield official said the theater operator, which has its nearest locations in Leesburg and Richmond, plans to open the Tysons location in late Q1.

The mall owner, which was just taken private by its parent company, Brookfield Asset Management, signed Bowlero, a bowling alley concept that also has food and drink offerings, to occupy 42K SF on the lower level. Brookfield said it is slated to open this fall. 

On the main mall level, it signed RH, the home furnishing retailer formerly known as Restoration Hardware, for 18K SF. It signed home furnishing chain Arhaus to 15K SF and it signed Crate & Barrel. Brookfield also said it has multiple deals it can't yet disclose, including one with a "high-profile" restaurateur. 

Arhaus, which has its own exterior entrance, is scheduled to be the first new opening next week, with other retailers following in the coming months. Brookfield Executive Vice President of Anchors and Big Box Leasing Chris Pine said these deals were in the works before Covid, and he sees the opening schedule as being well-timed for each category. 

“Everything that we did seems to have hit the market perfectly," Pine said. "Furniture and home is one of strongest categories in retail right now, and we’re well-represented by some of the best operators in the category. And then entertainment and restaurants, there’s people with a lot of pent-up demand to go to restaurants and seek out entertainment and theaters as well."

Tysons Galleria, a three-level, 797K SF mall, is the more high-end of the two enormous malls that define the Tysons area, along with the Macerich-owned Tysons Corner Center across the street. Tysons Galleria's tenants include Saks Fifth Avenue, Neiman Marcus, Anthropologie, Louis Vuitton, Chanel, Prada, Gucci, Kate Spade, Lily Pulitzer, Armani, Tory Burch and a host of other luxury retailers. 

Brookfield took ownership of Tysons Galleria in 2018 when it acquired GGP, a merger that made it one of the world's largest mall owners. GGP had previously bought the 2.6-acre Macy's property from the retail company for $38M in 2016, with redevelopment plans in mind. 

"Brookfield Properties has been a thought leader in the repurposing of department store boxes, and we’ve done well over 100," Pine said. "I will say Tysons is probably as well-executed as you can do that."

Brookfield declined to share the cost of its renovation effort, but said it was "significant." Brookfield Senior Vice President of Planning and Design Mark DeCapri said it prioritized environmental sustainability by installing a green wall, energy-efficient HVAC systems and by preserving as much of the existing Macy's building as it could. 

"We salvaged the original structure as much as possible," DeCapri said. "Originally, it was thought we would need to tear the building down, but after close examination, while we realized that demolishing the building would be easier, it was a priority in our mind as part of a global picture to rescue and recycle as much as possible."

Brookfield Executive Vice President of Construction, Design and Development Administration John Cournoyer said he sees the Tysons Galleria project as a model that can be replicated worldwide.

"This is a blueprint of some great retail designs to come by Brookfield," Cournoyer said. "This is not an extension of the mall. This is its own unique space. It allows for intimate seating and for people to be comfortable and to spend time there. We’re pretty excited. We think this is the next stage in looking at department stores and reusing them to make something great."

No shopping mall was immune to the devastation that the coronavirus pandemic created for the industry last year, but retail experts say Tysons Galleria is one of the better-positioned assets in the country, and they think Brookfield's transformation of the Macy's space fits well with where the retail is heading. 

The mall did run into some financing challenges last year when its $282M CMBS loan was transferred to a special servicer after Brookfield indicated it wouldn't pay off the debt ahead of its September maturity, but the borrower later negotiated a one-year extension.

DBRS Morningstar Head of CMBS Research Steve Jellinek said the loan's servicer reported in June that the borrower, Brookfield, said it intends to refinance the loan ahead of the new maturity date this September. A Brookfield spokesperson confirmed it is working to refinance the loan.

Jellinek said Tysons Galleria is considered a Class-A mall, a segment that has been able to secure refinancing deals in today's market without taking hits on valuation. He said a comparable deal would be the refinancing this year of Kenwood Town Center, a Class-A super-regional mall in Cincinnati that was appraised at $550M, up from $410M a decade ago. 

When the Tysons Galleria CMBS loan was underwritten eight years ago, it valued the collateral at $617M, according to DBRS Morningstar, but that collateral only consisted of a 300K SF portion of the mall, excluding the Saks, Neiman Marcus and Macy's spaces. 

"The A-plus properties, your best properties in your best markets, are going to get refinanced," he said. "With Tysons Galleria, the surrounding retail properties don’t offer the same depth of luxury tenants and they don’t draw the same affluent shoppers, so there’s really little retail overlap with Tysons Galleria."

The properties that have struggled with refinancing deals and faced sharp valuation cuts, Jellinek said, are the Class-B and Class-C malls that offer similar products to big-box stores like Target or Walmart. The White Marsh Mall in Baltimore, for example, had its valuation slashed from $300M to $124M this month, according to CMBS tracking firm Trepp. 

Gautham Vadakkepatt, head of the Center for Retail Transformation at George Mason University's School of Business, said he sees Tysons Galleria as one of the best-positioned malls in the U.S. 

"Tysons has a lot of advantages with regard to the location, the density, and the type of consumers they attract are higher-end," Vadakkepatt said. "And the fact that they’re in a big city really does help that Tysons mall do much better in contrast to some of the other malls around the country."

The transformation of the retail industry has led even Class-A malls like Tysons Galleria to rethink former department store boxes, and it isn't alone in the D.C. region. Bethesda's Westfield Montgomery mall is undergoing a mixed-use redevelopment after losing Sears, but owner Unibail-Rodamco-Westfield told Bisnow in December it remains one of the best-performing malls in its 124-property portfolio. 

Other D.C.-area malls undergoing redevelopment projects include the Dulles Town Center mall, the Lakeforest Mall in Gaithersburg, the Landmark Mall in Alexandria and Bowie Town Center mall in Prince George's County. 

While some of those mall redevelopments have ambitious mixed-use plans that would add multifamily, healthcare and other property types, Brookfield opted to stick with retail for Tysons Galleria. It did bring in a new type of retail — experiential — that it expects will help draw new customers to the mall. 

Jellinek said he thinks the plan to add experiential retail to Tysons Galleria makes sense, as long as it doesn't change the upscale experience that its customers are seeking. 

"There’s only so much high-end jewelry and clothing that is going to draw traffic, so I think broadening the tenant base to experiential is a good move," Jellinek said. "I think with regards to Tysons Galleria and other A malls, they have to be careful they’re not diluting their tenant base, so the experiential tenants they do bring in are going to be higher end."

Vadakkepatt said the strategy of adding tenants that provide experiences like movie theaters, fitness centers and restaurants is becoming more common for mall owners and speaks to the evolution of retail in the internet age. 

"I think it's a good idea, because you're giving multiple reasons for people to walk into the mall. It's not just about the shopping," he said. "You’re diversifying your risk to the extent that you have different kinds of activities going on and you’re providing a unique portfolio of experiences that you’re not able to get in an online setting."