U.S. retail real estate company Simon Property Group could build five or six high-end outlet malls in major Canadian centres, according to its partner north of the border, Calloway REIT.
“We think there will be another three or four, it’s not a very deep market,” said Al Mawani, Calloway’s Chief Executive, following the announcement of a second Simon Group-Calloway outlet center in the Montreal area.
The two companies are hard at work building the first “Premium Outlet Center” north of Toronto in the town of Halton Hills which is scheduled for a summer 2013 opening.
We were here first
Calloway got involved with Simon Property in a straightforward way: “Calloway happened to own the land on which the Toronto one is built,” said Mawani. The U.S. real estate firm also “realized that perhaps having a Canadian partner who understood zoning and city permitting and municipal processes would be helpful.”
The Toronto and Montreal area malls follow the Simon Property formula which has been utilized previously to develop 70 Premium Outlet Centers, which includes 57 in the U.S. In the States, the malls are sited in or near big metropolitan markets such as New York, Los Angeles, Boston and Chicago or tourist meccas like Orlando, Las Vegas and Palm Springs.
Simon Group says its outlets Premium Outlets are distinguish by their mix of designer and luxury brands selling direct to shoppers at big savings, a list that includes the likes of Coach and Kenneth Cole, and a distinctly unmall-like setting with each outlet “being an architecturally distinct village setting with charm and ambiance.”
What distinguishes the Montreal super mall from the initial Toronto foray is the partnership structure. For the Quebec mall, Calloway`s development partner SmartCentres (better known as the real estate developer behind Walmart`s Canadian expansion) holds 25% ownership. Calloway also holds a 25% stake with Simon Group owning 50%. `Generally we have more income assets, we don’t have the same development expertise, so SmartCentres …became a partner,” explained Mawani. The first Toronto mall is a 50-50 Simon Group-Calloway partnership.
While the Canadian co-owners have plenty of experience, Simon Group is managing all aspects of the development, the Calloway CEO said. “SmartCentres or Calloway are not developing. The development, leasing, design has all been left to the Simon Group just because we think they have done so many of them and so well. They have the expertise and the knowledge base.”
Mawani estimates it will cost about $150 million to build phase one of the first two malls, which in the case of the Mirabel Montreal-area mall will be 350,000 square feet of gross leasable area and 80 stores. Both could grow to 450,000 to 500,000 sq. ft. with further development.
Given the fact that Canadians flock to U.S. outlet-style malls, developing them at home made a lot of sense, said the Calloway chief. “It is what we would call an underserved segment of the market. The Simon Group tell us it is a great tourist draw and we see them when you go to the premium outlets in the U.S., so many tourists.
“It is like the Eaton Centre for the fashion discount segment of the population.”
A U.S. Mall War Brewing in Canada?
The Simon Group-Calloway Toronto outlet mall, situated at 401 and Trafalgar Road, will face some stiff competition. Just months before the partners announced plans for the mall, RioCan REIT unveiled plans to develop a Tanger Factory Outlet Centre, a rival U.S. outlet shopping center chain similarly stocked with high-end retailers. It is to be sited very near the Simon Group-Calloway location and they will likely open next year within months of each other.
Since the first Halton Hills announcement, RioCan has made it clear it wants a big chunk of the same market that Calloway is targeting through its discount mall joint venture. Last fall, RioCan and Tanger announced the purchase of the Cookstown Outlet Mall north of Toronto and the purchase of 50 acres on land near Ottawa slated as the home of another Tanger outlet.
Last month, RioCan and Tanger announced that they had entered into an agreement with privately owned industrial real estate developer and owner Orlando Corp. to add a discount designer outlet element to the Heartland Town Centre.
Billed as Canada’s largest and most successful power centre with unparalleled access to Highway 401 by the partners, the plan is to add a new 312,000 sq. ft. factory outlet center to the existing 2 million sq. feet of retail space currently at the Heartland Town Centre.