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EARLIER: Analyst: Outlet malls are hot

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‘This is where all the retailers want to be’

By Todd Martin

Simpsonville apparently isn’t the only place that the outlet mall trade is growing.

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“It seems to be a pretty good, healthy market [across the nation] at this point,” said Carol Kemple, a vice president for Hilliard Lyons in Louisville who is a research analyst for Real Estate Investment Trusts, a category that includes mall builders. “It doesn’t seem to be overbuilt, and there is room for the market to grow.”

Some of that growth could emerge g this spring in Simpsonville, where Horizon Group Properties and Paragon Outlets are planning new retail centers just south of Interstate 64 at Exit 28, on Buck Creek Road.

Horizon was first on scene in 2011 when it was brought to residents attention that it was offering leasing for a planned site on the west side of Buck Creek Road.

The company since has put in place a plan for a 50-acre site that would house a 364,000-square-foot retail center. It has received approval from the Triple S Planning Commission and the city of Simpsonville. It also received a permit from the U.S. Army Corps of Engineers to fill a portion of a 6-acre pond and area wetlands on the site.

As Horizon worked for those permits, another group moved forward with an 80-acre site on the east side of Buck Creek Road. This site, which is now being led by Paragon Outlets, received approval late last year from Triple S and from Simpsonville for a 400,000-square-foot retail center.

Neither company has submitted a final plan for development, but Kemple said the area is attractive because of its location in comparison to Louisville and Lexington.

“It’s much like Edinburgh, Indiana, which is just outside Indianapolis, and the two just outside of Cincinnati,” she said. “It’s very close to Louisville and Lexington, and I’m sure the I-64 traffic is a plus.”

Some critics of the concept of outlet malls in Simpsonville – mostly residents and property owners near the proposed sites – have questioned the financial viability of building even one mall and frequently have pointed to areas in which malls were built and ultimately died back, such as in Georgetown.

Companies have partners

Kemple said it’s difficult to speculate on the financial stability of both companies because Paragon is private and Horizon is traded at a very low value, but both companies deal with two other larger retail real estate holdings.

Horizon has sold ownership interest in its Gettysburg, Pa., and El Paso, Texas, outlet centers to CBL & Associates Properties, which is headquartered in Chattanooga, Tenn. It also worked with CBL on its last two projects – an Oklahoma City center that opened last year and a center near Atlanta that is scheduled to open in July.

Kemple said CBL, which owns almost 130 other centers, including the Fayette Mall in Lexington and the Jefferson Mall in Louisville, is a strong company.

“I like that company,” she said. “They have good management, their leverage is fine, and they’re smart with their capital. I think if they’re getting into an outlet center it’s because they’ve done their homework, been careful and think it will succeed. The Oklahoma City center was the first outlet mall that CBL was involved with from the ground up.”

However, she said there has been no announcement on CBL working with Horizon on the Simpsonville center.

Simon has size

Paragon opened two centers last year, one in Livermore, Calif., just outside the San Francisco/Oakland area, and another in Grand Prairie, Texas, between Dallas and Fort Worth. Not long after opening, Paragon sold both properties to Simon Property Group, the largest publicly traded real estate investment trust.

With headquarters in Indianapolis, Simon has ownership in more than 300 North American retail centers, including the popular Premium Outlets and Prime Outlets, which they purchased several years ago, and they have also worked with Tanger Outlets to build locations. But they own none in Kentucky.

“They own a combination of malls, outlet malls and community centers,” Kemple said. “They are the largest owner of outlet centers in the U.S. On a market cap basis, they are much bigger than CBL.”

However, again there has been no announcement yet of Simon working with or planning to purchase the Simpsonville center from Paragon.

To clear any question of conflict, Kemple pointed out that Hilliard Lyons leases office space from Simon, participates in sales of securities for CBL and has received investment banking compensation from CBL in the past 12 months.

2 companies, 1 location?

As far as Horizon and Paragon companies opening malls in one area, Kemple said it’s not unheard of, but it would be unusual with two companies like these.

 “You don’t often see two private companies open right next to each other,” she said. “You’ll see it with public companies sometimes, but not usually private. For example there are two publicly traded companies opening outlet centers planning to open this year in St. Louis.

“There is also rumor of four outlet centers being planned in Columbus [Ohio], and Horizon is one of the companies looking in that area. Glimcher [another mall developer] has not confirmed its interest in building there, though several articles have reported it. But it’s unlikely that all four would be built.

“It seems when one company has interest, several others will join in on an area.”

Leases are tops

Although it’s still too early to determine which or if both would be built in Simpsonville – officials of both groups have said they want to break ground this spring and open in late summer of 2014 – the final decision likely will come down to leases.

“Most companies have different rules, but Tanger, who we follow pretty closely, likes to have about 50 percent of its leases signed before it breaks ground,” she said.

So until one or both is confident that its center will be full, residents probably won’t see them taking advantage of warm winter days or submitting plans to the zoning commission, which will have to be approved before construction could start.

“It [outlet malls] is a really fun territory to be in right now,” Kemple said. “This is where all the retailers want to be right now.”