In this episode, Terry Montesi sits down with Sandeep Mathrani to unpack a career defined by bold bets, operational discipline, and contrarian thinking in retail real estate. Sandeep shares how he got his start with a single apartment purchase and quickly evolved into a capital markets leader, eventually leading major turnarounds across the industry. The conversation explores his philosophy on investing in physical retail during periods of skepticism, including navigating bankruptcy, the rise of e-commerce, and the evolution of malls into experiential destinations. Sandeep also reflects on his time leading WeWork, drawing parallels between retail and flexible office, and offers a clear framework for evaluating assets, trends, and long-term opportunities.
They discuss:
- How Sandeep’s early real estate wins shaped his long-term investment mindset
- Why investing heavily in top-tier malls during downturns created outsized returns
- The real impact of e-commerce on brick and mortar and why omnichannel has strengthened physical retail
- Lessons from turning around WeWork and applying the same operational playbook across industries
- What separates winning retail assets from those that decline over time
Listen or Watch Below:
Watch full screen on Youtube here.
Listen on Apple Podcasts here.
Transcript:
[Sandeep Mathrani] (0:00 – 0:55)
in Oakbrook Mall. In 2012, I decided to spend $150 billion. I had just come out of bankruptcy.
Why am I spending all this money in Oakbrook Mall? Like, why is Oakbrook such a good market? The density was great, location was great, and I chose to renovate the whole mall.
Everyone thought I was mad. There are very few malls with over $100 billion of rental high, okay? Okay.
Rents there today, I understand since I’m not there, you know, $150, $200 a foot in a mall, okay, in Chicago. Why? We invested in it.
We invested in it. We made it look good. We made our mind and said, we’ll make it super regional.
Once you make it super regional, it’s a great business, okay? But you have to have that courage, okay, and say, what am I going to do?
[Terry Montesi] (0:59 – 1:10)
Sandeep, you’ve had a remarkable career across several sectors of real estate. For those listening that don’t know your story, tell us how you got started and the path that led you to where you are today.
[Sandeep Mathrani] (1:11 – 4:20)
So, it’s a fascinating story. I graduated from university with my second master’s in 1986, and I moved to Washington, D.C. I bought a used car. I’m sure most of the young audience has no idea what a Nissan Sentra is, but it was a Nissan Sentra, blue colored.
I paid $3,500 for it, and I moved to Washington, D.C., and I saw this apartment, and I said, car, apartment, car, apartment, and I sold the car for $3,500. I bought a Volkswagen Rabbit diesel, orange color, and, you know, put the heat on, fumes came in, and I bought this apartment for $55,000 in Alexandria, Virginia, and it was a, you can get an FHA loan, so you can borrow 95%. So, I needed $2,750.
Like I said, I sold the car for $3,500, bought another car for $600. That was $2,900, and I bought this apartment. I had two master’s degrees.
I was an engineer working on public water treatment plants and the Big Big in Boston, and a year and a half or so later, okay, with two master’s degrees making $25,000, I sell the thing. I make a 20 grand profit. I said, wow, real estate’s pretty good.
I bought a house, sold a house, made 10 grand in Woodbridge, Virginia. I said, I really like this real estate stuff, okay? So, I applied for a job, and I didn’t, I didn’t know any better.
Some guy in Staten Island hires me as an engineer to design shopping centers and go to night meetings, okay? So, I moved to Staten Island for this company that had $400 million of assets, but by the way, in those days, it was the same size as Kimco, okay? Just with the perspective, okay?
Okay? So, there were these three or four guys, all about the same size, and of course, Milton made it big, and some didn’t, and some didn’t, and then that was 1989, and the funniest part of my story, I think, happened in 1991. So, I’m still like an engineer, and now we’re in a recession, and we built shopping centers in the boroughs of New York City, Staten Island, Northern New Jersey, and we had this piece of land called the Weiss Class Dairy Farm.
It was a dairy farm thing in Staten Island, and we were, we had a lease signed with A&P Supermarkets to build a 150,000 square feet, open a shopping center, and it was 1991, and I said, where are you going to get the money from? And I said, I put my hand up, he says, the guy says, the owner of Sandy Analysis to me, what do you know? You’re an engineer.
I said, my brother is a banker. He was a private wealth banker, but he didn’t have to know that, right? So, and I said, you know, he’ll introduce me to people.
I said, what are you going to lose? You haven’t raised the money anyway. Let me give it a shot, okay?
So, he says, okay, give it a shot, okay? I’m 49 years old, and I raised the money from Union Labor Life, ULICO, because, you know, there were no jobs, there was a recession, for $16.5 million, and I raised $16.5 million.
[Terry Montesi] (4:21 – 4:24)
How much did a 150,000 foot shopping center cost?
[Sandeep Mathrani] (4:24 – 6:27)
It was about $24 million in those days. It was New York, so it was expensive even then, you know? And so, we had a $16.5 million first mortgage from Union Labor Life, a $3.5 million participating second from Heller Financial, and we put up $4 million of equity. So, I financed this thing, and I became the capital market’s guru, right, all of a sudden, right? And then there was a great recession, and so I spent the next year reworking all his debts, you know, with banks that don’t even exist today, Chemical Bank, and Manny Hanny, and then in 1992, at the age of 30, he made me president of the company. And so, I, you know, I- And what was that company called?
It was called Sanford Nallet, and I tried to buy it in 1994, and I raised the money to buy it, and this is another ironic story, and we raised the money, you know, to buy the center, to buy the property, and he got cancer, and he was about, you know, in dying bed. He calls the CFO, and he calls his wife and says, look, I’ve signed an LOI with Sandeep to sell the company. She’ll sell the company to him, otherwise Jackie and his wife would be, you know, a very poor lady.
And of course, unfortunately, he dies, and she says to him, she says to me, I’m not selling you the company. I thought my husband was worth more money, and I tried to explain to her all the tax planning that went to it, that it was the same, but, you know, you couldn’t get across to someone who made up their mind. She says, nope.
I said, look, if I can’t buy the company, I’m not going to work here. She said, okay, got one better. You made my husband sign a piece of land on Staten Island and put a deposit.
Give me that deposit and take the piece of land. Okay. I went looking for money.
I found partners. I built it to an 18 cap. I still own 20% of the shopping center, and I’ve taken out more money, okay, from the shopping center that that company was worth in 1992.
[Terry Montesi] (6:28 – 6:53)
That is quite a start. Well, that’s fun. So, Sandeep, you were at GGP, I believe, when all the retail apocalypse stuff was, all that talk was out there, and it was pretty disruptive to our industry.
Tell me about how you thought about it during that, how you came through that. Would you learn from that? What was that experience like?
[Sandeep Mathrani] (6:55 – 11:03)
Well, I mean, in our case, it was multiplied many fold, right? One, the company was in bankruptcy. We’re just coming out of bankruptcy.
I took it out of bankruptcy. So, leaving aside all the external drama, there was internal drama, which was created in a self-inflicted wound by the capital markets. And so, we’re taking out a bankruptcy.
Two, we were in the mall business, right? The mall business almost forever, okay, had this wind in your face, okay? It was mainly a media-driven wind, to be honest.
And then, of course, there was the onset of e-commerce at that time, okay? 2011, 2012 was the first year Amazon was profitable. And so, I realized a few things.
One is, great real estate will be great real estate, okay? Two is, you have to invest in these things, because you can milk them dry, like as we know, certain department stores have tried, and certain mall owners have tried, and the assets have just deteriorated. Or you can invest in them.
And I had this philosophy that you had to bring everything under one roof. So, I was probably the first person to bring Lifetime Fitness into a mall. I was the first one to bring a Whole Foods into a mall, okay?
Entertainment. So, anything that was cutting-edge, that was new, I would bring under the same roof. And it didn’t matter whether it belonged to a mall, it belonged to an open-air center.
To me, they were shopping destinations, and that was it, okay? And so, I early on decided that I have 240 malls. X number are good, Y are not so good.
I’m going to invest in the X. I’m going to spin out Y, and I’m going to go ahead and focus on creating experiences. And experiences, as people keep talking about, is, you know, are you bringing in entertainment?
No, it’s whatever gets the customer to come in. Like I said, it could be a fitness center, like we did Lifetime, you know, I think, early in the game, okay? I did my first Lifetime in Oklahoma City in 2012, okay?
It could be entertainment uses, like we did Level 99 early. We were the first two stores of Level 99. So, we were the first stores of a lot of guys, including bricks and mortar stores, okay?
And, you know, we, for example, you know, grew, Abercrombie was in trouble, and then Fran Horowitz became CEO, right? And she had this concept of, which was very unique, which was basically, I’m going to cater to the same customer as they age, versus just looking for new customers. We were early in the game to support her rollout of the new program.
And so, we tried many different things, okay, to basically make our shopping centers a shopping destination. And we did understand that, of course, there was fear of e-commerce, you know, taking our business. But we understood early in the game that, if you look at the book business, it sort of capped out at 30%.
So, albeit in fashion, it was growing, we knew it would reach a plateau. We also knew that the cost of distribution was very high. Even then, it’s even more now, okay?
So, the aspect to use our shopping centers as a point of distribution was early. You know, along with Simon and Maysridge and Taubman, we actually made an investment in a delivery company ahead of our time, okay? Because we knew last mile distribution was important.
So, I think it was just being able to provide, you know, the customer a third place.
[Terry Montesi] (11:05 – 11:36)
Got it. And we’ve ended up, you know, surviving, our industry survived a lot better than a lot of people thought it would. And you’ve had a, very much a front row seat to watching e-commerce grow rapidly on a smaller base, obviously, and brick and mortar sales survive and even grow also.
When you look at, you think about e-commerce, brick and mortar, omni-channel, and all the options the customer has, how do you see it shaking out and going forward?
[Sandeep Mathrani] (11:37 – 15:27)
Let me just provide one comment on what e-commerce did to bricks and mortar. A positive comment. Because there was this retail apocalypse that you, you know, talked about, and the thesis that it was killing bricks and mortar, and as we’ve done enough research now, it never did.
But what it did do, it stopped development in its tracks. Okay? Best thing ever.
Right? So, all of a sudden, with all the supply, dwindling demand, and over time, for different factors, simple factors like increase of demographics, right? You just have more population.
Okay? So, now you all of a sudden, you need more stores. And now all of a sudden, you haven’t built a new store, so you’re going to occupy vacant stores.
And so, the best thing for our business, in a funny way, was that fear. Because it put development, you know, at a standstill. And as you know, development is coming back a little bit, but still, there’s a mismatch between the rents you need versus the cost of construction.
So, there’s still not an acceleration of development, even though there is this demand coming out. So, to answer your question on bricks and mortar and e-commerce, I think as time has gone on, people look at it as retail. Okay?
They try to separate, you know, e-commerce from bricks and mortar. But essentially, we know that the tenants that do it well, 70% of the distribution for e-commerce goes out the front of the, as we like to say, the front of the store, or the back of the store. Front of the store is in buy online, pick up and store.
Back of the store being, you know, buy online, ship from store. Right? So, and only 30% is coming from an independent distribution warehouse.
Right? So, all of a sudden, the network of stores has multifunction. It basically serves as a showroom, serves as a point of distribution, serves as a point of retail.
So, effectively, they are truly becoming the word omni-channel. When e-commerce started off in 2012, e-commerce was a separate business within a company, and bricks and mortar was a separate business. And the irony was, you would actually duplicate the inventory.
The inventory did talk to each other. Right? And it’s only 10, 15 years ago.
Right? And today, it’s become truly omni-channel. So, I do think at some stage, if you look at, I don’t know that, you know, this is going to be valid 10 years from today, but we’ve had e-commerce since 1994 now.
Right? Since the onset of Amazon. And essentially, it seems to be that 70% or so is done in bricks and mortar and 30%.
And now, in some categories, it’s been constant for a decade. Right? So, for a long time, so it’s true and tried.
Okay? So, and if you read everything you read today, the Gen Zs are going back into the malls because social media is your friend for bricks and mortar. Ironic, because they try on glasses, or they try on shirts, or they try on outfits, and they Instagram, they get instant satisfaction by their friends, and they buy it right there and there.
Right? You can’t do that in e-commerce. You can’t, you know, have many outfits come in, and what are you going to do?
Keep trying them out here? You’re, you know, in a store, and you’re doing it. And so, it’s become more of a point of entertainment.
And so, I could actually see it going a little bit the other way, to be honest.
[Terry Montesi] (15:27 – 17:18)
Well, you’ve seen the growth of e-commerce has really plateaued and slowed a great deal. And you know, it’s interesting, you’ve mentioned, so we had the GFC, which just prior to the GFC, we were overbuilding retail, you know, certifiably, without question. And then, 10, 11, 12, you know, the system was shot.
And then, the e-commerce onslaught. And what happened was, like you said, there’s been no building of brick and mortar. And I would argue with you that there’s been no building of brick and mortar retail, but there was building of a lot of brick and mortar warehouses.
And that’s where that retail, so the retail demand kept growing. It just wasn’t getting satisfied in the stores. It was partially getting satisfied in warehouses.
And then, they finally figured out, the retailers, how to use all of them more efficiently. So, you know, it’s crazy, because who would have thought our industry, what, you know, 15 years after that, the e-commerce, the start of e-commerce, that our industry would be stronger than it’s ever been, because we’ve now figured out how to integrate technology in with what used to be a very low-tech business. That’s super interesting.
Sandy, let’s zoom out and talk about broader retail environment. I think it’s so interesting that you sit on the boards of Dick’s and Lucky Strike and Tanger. What a really great front-row seat you have to the retail and retail real estate business.
What are you learning from all of that? And what are they telling you? What is being on the board of those telling you about where and how consumers are spending their time and money right now?
[Sandeep Mathrani] (17:20 – 22:46)
So, you know, I just pick each one for a minute, right? Dick’s has invested and continues to invest in bricks and mortar, right? The Dick’s House of Sports was built, okay, to kill dicks, if you think about it, right?
And now, they’ve got a smaller concept called Fieldhouse, which began to replace the old thing. So, what do they offer? They offer experiential, where you can go hit a golf club.
You have people who understand that. You can go hit a batting cage and go hit baseball. You’ve got a tremendous assortment of sneakers.
I mean, you think about the sneakers in our department within the Dick’s House of Sports, it outbeats any individual sneaker store. So, they create their own form of experiential, right? They have a field on the outside, makes it more community.
And so, effectively, they created, okay, and invested in bricks and mortar. That’s what they believe. They believe also early on that even if they’re in the e-commerce business, they can use the stores as a point of distribution, okay?
And they also believe that having the store will actually be a ability to market for future e-commerce and to be really the sporting goods store, okay, for youth sports in America, right? So, what did I learn? They invested in the store, okay?
I was just talking to the CEO of Downtown Locker Room. I happen to be in one of my malls in the mall management offices. I speak to you now in Annapolis, Maryland, and I was with the CEO of Downtown Locker Room.
And, you know, he said, look, you know, when sales goes down, there are two types of tenants. One, stops investing because they need to save capital. And two, doubles down and says, we’ve got to be even better, okay?
He said, I’m from the second group. I want to make my stores even better. The tougher it gets, traffic can go down.
That means each customer coming into my store, I have to get a higher volume. And the only way I know how to do that is to make my store the best store there is. So, Dix, Downtown Locker Room, Abercrombie, Halston, they’re all doing that.
They’re investing in the stores, okay? The ones that don’t invest are deteriorating, okay? So, you look at Lucky Strike, okay?
Lucky Strike is, again, entertainment focused, right? You know, bowling is, you know, the scheme of things, you know, low cost entertainment. They have a league program.
You know, they also evolved. So, you know, they went from bowling to having games, video games, to having a restaurant. Again, things that make your dwell time longer, right?
When you go to the new Lucky Strike and you eat the food, it’s very high quality. You could just go there instead of going to a traditional QSR restaurant, okay? The food is that good, okay?
And actually, I was surprised because we did a food testing and said, you can’t be serious that we’re eating in a bowling alley, right? And the food was good. So, you could just as well go there to eat, bowl a game or two versus go there to bowl and then order some chicken, right?
So, they’ve made their restaurant. So, again, it’s all about creating that constant sense of experience, right? And Tanger is now the landlord side, right?
So, you know, and their whole stick, if you will, is you always need a bargain in good times and bad, right? So, as long as the retailers, okay, are able to produce enough goods, okay, for the outlet sector, the outlet sector will continue to do well because it’s value-driven, right? So, they’re focused on value-driven, they’re focused on lifestyle.
So, they bought some lifestyle centers, right? So, which is a diversification, but it’s the same tenant base, right? And just to put this in perspective and how important value is, right?
Okay, you can see the growth of TJX companies, right? It’s unbelievable, okay? They continue to compound growth and it’s hard to imagine if someone told you that they were going to be, you know, this many stores, okay?
You would say that’s impossible. You can’t have that many stores, right? So, you know, so it’s about, in Dix’s case, focus on real estate, invest in real estate, create the best mouse trap for teen sport, okay?
Create the right experiences and have the right product, right? In Lucky Strike, it’s all about creating experiences, whether you want to go eat at a restaurant, it shouldn’t be like, I’m going to bowl and I’m going to have terrible food, that doesn’t work, okay? And then, of course, you open a shop.
So, it’s actually, it’s fascinating for me, you know, that I see it on both sides.
[Terry Montesi] (22:46 – 23:09)
Yeah, I think that’s great. And what I hear is fairly consistent with how we think about owning and operating properties is you have to invest and innovate. And that’s what Dix has been doing.
That’s what Tanger’s doing. And, yeah, that is those that do and do it well thrive and those that avoid it die a slow death.
[Sandeep Mathrani] (23:10 – 23:11)
Yep, that’s exactly correct.
[Terry Montesi] (23:12 – 23:19)
So, what’s an emerging trend in retail mixed-use development that you’re seeing right now?
[Sandeep Mathrani] (23:20 – 27:32)
I’m a little old-fashioned, right? So, and I say this in a good way. I, you know, when I, I was in 2011, 2012, I bought 12 Sears boxes and I spent $250 million buying them.
And Sears stock went to $60. Eddie Lambershire sold every share of that because everyone thought that every store was worth $250 billion. But we did that, you know, why?
Because we, at the time, felt that you could put mixed-use into the shopping centers and you could take those paths by bringing some new entertainment uses, some new retail uses, but add some apartments. So, even in Ala Moana, we built these beautiful apartments that sold for millions of dollars on top of a parking garage. Because we bought the Sears, we were able to add 300,000 square feet.
We added two new anchor department stores and we added apartment units, right? The thesis was that to bring, live, work, play together. And this was early in the game.
Okay, this is, you know, in 2011, we did that in Alderwood and, you know, outside Seattle. And so, there was this whole movement of bringing apartments in, right? And so, that was a trend.
The trend was to create Santana Road, to create Bethesda Road, to add, you know, the residential to, you know, even the malls, right? To create that live-work environment, bring the supermarkets into it. But what’s fascinating to me, and as I sit in Annapolis Mall, when we bought Annapolis Mall, we said, oh my God, it’s a lot of GLA.
Our original underwriting was to mothball 150,000 square feet. Mothball, forget it, okay? You can’t lease it.
Not only did we lease it, we bought the Sears box. We bought the Sears box with the intent of doing residential. And we have competing offers now for multiple department stores for that space.
So, the irony of what was a trend, okay, may be reversing itself back to all retail, purely because the demand is so high, okay? So, you know, necessity makes you do different things, right? There’s a necessity and a vacant anchor.
What do I do? Let me bring residential. Oh, wow, this works.
Now, necessity says, okay, okay, you know, the traditional anchors have been taken by alternate users, and now some traditional anchors want to come back and say, this is a good business, we need to come back, or newer anchors are moving to different markets. So, I actually see a little bit of reversal back to the mean versus this whole aspect of being creative. So, it’s a little contrarian thinking, but I’m witnessing it now, you know, in a couple of assets that I bought.
I mean, you remember, Terry, you talked about Fort Lauderdale Galleria, right? And the aspect of Fort Lauderdale Galleria was, okay, let’s put housing, right? That was the whole thing, right?
And I went into it- There were 3,000 housing units or something like that, right? Correct. But I went into it to restore 100% of them all, and then add housing as a add-on.
It wasn’t the driving force, releasing the retail. We’ve owned it since September of last year, we have leased 250,000 feet to traditional retail, okay? And so, it was storing the entire mall back to retail, full, 100%.
We’re not demoing any part of it, 100%, and then by adding 2,000 apartment units in the parking lots, but that’s an add-on, it’s not a replacement, okay? And so, that’s another one where, you know, the previous ownership spent a decade vacating half the mall so they could demolish half of it for residential. And I’m going to spend the next 18 months restoring it back to 100% retail.
[Terry Montesi] (27:33 – 28:09)
A little contrarian. Thanks for listening to Leaning In. If you want to keep the conversation going, you can listen on Spotify or Apple Podcasts, or watch on YouTube.
You can also learn more about what we’re doing at Trademark at trademarkproperty.com. If you enjoyed this episode, we’d appreciate your subscribing. It helps more people find us.
Retail fundamentals, you know, have been, since we haven’t had anything built in 15, 16 years, have been very strong. Low vacancy, high rents, big rent spreads, obviously limited supply. What do you see unfolding over the next five to seven years?
[Sandeep Mathrani] (28:11 – 29:40)
Look, I do think you’re going to start to see development, right? Because what is going to be on the margin in the scheme of things. And I do think that people view retail real estate as retail real estate.
They don’t view, this is a mall, this is an open-air shopping center, this is a lifestyle center, okay? That’s how we would trade. But now, because of scarcity, a lot of the open-air shopping center tenants, such as the Dicks, okay, is coming into malls.
They’re taking mall anchor space, right? And so are some of the other anchors, whether it be the fitness centers, One Life, Lifetime, okay? So, you know, furniture retailers, okay?
I mean, I did restoration hardwares, the galleries at Oakbrook Mall many years ago, okay? They were taking anchor spaces. So, effectively, it’s about location.
It’s not about asset type, okay? And I think that still people tread lightly, okay? I was having a conversation with someone today who said to me, oh, this asset is coming up for sale.
I said, yeah, it’s a mall. He said, no, it’s an open-air lifestyle center. I said, what are you talking about?
Got four department stores, two-level. It just doesn’t have a roof, okay? In Richmond, Virginia.
In Richmond, Virginia. Yeah. And I said, you gotta be kidding me.
I said, I built it at Forest City, short path, okay?
[Terry Montesi] (29:41 – 29:43)
It was a mall. I was a mall developer.
[Sandeep Mathrani] (29:43 – 30:24)
It’s a mall without a roof. Okay? So, the irony is people are trying to create differentiations, but the reality is, as we said earlier, the lack of development has created scarcity.
And that scarcity has spread into, you know, whatever asset class you have, right? Which is also benefiting. If you want to invest, it’s also benefiting the next tier of malls.
We always had a view that the A malls would be great, okay? But now even the B plus malls, if you’re willing to invest, okay? Like you have a place.
And the product.
[Terry Montesi] (30:25 – 31:02)
Yeah. We’re seeing the very same. Let’s talk about the entertainment.
And I know you’ve done deals with entertainment. I know you’ve done some at an Apple small. You’ve as a board member of Lucky Strike and industry participant.
What have you learned so far? There’s so many different entertainment, you know, ideas and concepts out there. What have you learned so far about that business?
What scares you when you hear about it? What do you see that’s working? Tell us what you’ve learned about the entertainment side of the business.
Everything scares me about the business.
[Sandeep Mathrani] (31:02 – 34:13)
And I’ll tell you why. High investment, right? And will the concepts work, okay, over long periods of time?
Okay. Or is it something that’s attractive today? You know, even a thing like pickleball, okay?
And says, is pickleball really going to be a hot sport? Okay. You know, or with Padel come and take it over, you know, or something else, you know, or will there be enough pickleball within traditional fitness centers and this whole, whatever, serving chicken with pickle or whatever it is, is that going to, you know, be something, you know, but, but, but, but Shaq, you know, who did not done well, okay.
It’s going to be something. So I’m very afraid of the investment only because of the time, you know, horizon of it being, you know, continuously successful, right? So, and if you think about entertainment, you know, I’ve seen a lot of them, like, you know, you know, that have, you know, come and I’ve had hard financial times.
Okay. And I put a lot of them into my malls, you know, and we were always afraid of the, of the longevity of it. That’s what, that’s what concerns me today that I don’t see, you know, I mean, I might do them.
Okay. But, but what’s the longevity of these, these concepts over time? And, you know, people are fighting about IP, people are fighting about, you know, how to create great mousetraps.
So I’m deadly afraid, you know, and people talk about entertainment to bring it in so that they can create some sort of environment. But, you know, how many of them, you know, will be here 10 years from today? I just don’t know the answer.
I really haven’t found any in that I walk in there and say, this is a wow, you know, like, and you go to Disney world. That’s a wow. Go to Universal Studios.
It’s a wow. Okay. I mean, we give you one outlet that we thought was going to do incredibly well called KidZania.
Okay. KidZania was out of Mexico, a hundred thousand feet. And, you know, first time I saw it was in Dubai mall.
It was amazing. I mean, it was crowds. We put them, we put KidZania in our mall in, you know, in the Dallas area in Plano.
Okay. And I said, wow, this is just going to be rock and sock him. It’s going to be that great.
Prove it. Works in Mexico, works in Europe, works in Dubai. Okay.
All I was saying was about KidZania, we spent a lot of money and it didn’t work. So I’m very afraid when people talk about bring entertainment. Okay.
And make it unique. Will the investment a lot work? I’ll give you one that works.
Okay. Auto entertainment, true and tried, Cheesecake Factory. Does tremendous volume.
Okay. And brings people. So I’m a bigger believer of restaurants.
Okay. That only entertainment concepts.
[Terry Montesi] (34:14 – 35:37)
Well, I have an adage and it’s basically about our whole business and a philosophy that you should stay scared. You know, the minute you get, the minute you get overconfident is, is when you’re more vulnerable. And I think clearly you believe you should stay scared when talking to entertainment users, for sure.
I do have a fun positive story. You may know we did one of the two Netflix outlets in the gallery of Dallas. And so they have a Netflix house in our Galleria mall and it is first 90 days, Sandeep, where our traffic in the entire mall was at 15%.
You know, we, we hoped it would, it would increase traffic. We hope it would, you know, just be a, something new would broaden the trade area, would bring new people that hadn’t been in a while, but that I’m, we’re sort of shocked in a very, obviously very positive way that, that it’s, it’s impacted traffic that much. And there aren’t many of those, but boy, they, it can work because before that, you know, I’ll ask that you’ve put entertainment in a lot of malls.
Have you seen it be really positive for the mall traffic and the mall, the other retailers over time or not so much?
[Sandeep Mathrani] (35:37 – 35:53)
Yeah, yeah. You know, we put a level 99 in Natick, fantastic impact. You know, we put in a Dave and Buster’s in the malls.
It’s had fantastic impact. So, you know, but my only point is, will they be around for 10 years?
[Terry Montesi] (35:53 – 35:54)
Are they sustainable?
[Sandeep Mathrani] (35:54 – 36:03)
Nothing to do, nothing to, because they always have to create new games, new investments. Okay. And keep them fresh.
[Terry Montesi] (36:03 – 36:47)
Yeah. Sandy, because Netflix plans to change their content, the big experiences, they plan to change those out a couple of times a year and keep it fresh. So you’ll be coming back.
So we’ll see how that works. As you’ve mentioned, you’re involved in Fort Lauderdale Galleria and Annapolis Mall, and they were both in various degrees of distress when you got involved. What do you see in those assets?
And even more broadly, when you look at malls and many people think, you know, most of the malls won’t exist 10 years from now, when you look at malls, what do you see as the line between a mall worth saving and one that isn’t?
[Sandeep Mathrani] (36:48 – 41:04)
Well, I mean, again, go back to, you know, it’s very fundamental, right? Location, location, location, right? And where’s the demographics, right?
So when you look at assets, sometimes they’ll go deteriorate, they’re going to demographic shift. Okay. Alternatively, it’s competition in the marketplace.
That means something has happened to the location, or you haven’t invested to keep the competition after, okay, as the case may be. So when I look at Annapolis Mall, I had a crazy thought. And my crazy thought was forgetting the fact that it wasn’t invested in, forgetting the fact that they allowed, you know, two anchors to disappear and not lease it.
The location was fantastic. Demographics, fantastic. State capital, Naval Academy makes it more recession-proof.
But the icing on the cake that I think no one saw was the other assets in the market were deteriorating because of the demographics. So Baltimore, okay, has two malls. I won’t name them because they are from my past company, okay?
But not anyone’s fault. The demographics actually declined, and those assets were being impacted. And they have a third mall, okay, which actually does very well.
It’s a regional mall because of the traffic patterns can never become super regional. So now all of a sudden, I had this Baltimore County that had nowhere to go shop. Everyone was focused on Anne Arundel County or Annapolis.
I was focused on a bigger region, okay? So I said, maybe this can be a super regional asset. So you can have Annapolis and you can have Tyson.
And when I started this process, okay, it took a little bit of education. And when I was able to get a few tenants that only do stores every 60 miles, okay, people started to open up and say, you know what? Maybe he’s got a point.
And today, okay, we are 92% leased, okay? And like I said, we are talking to two department stores to fill the one vacant Sears box, right? That’s a pretty good place to be.
So it is really saying, if I want to be in this market, I want to be in Tyson’s and I want to be in Annapolis. That’s it. I don’t want to be anywhere else anymore, okay?
So you have to, and be brought on the right basis that we will invest real money. When you invest real money, then you have an idea and you can bring your idea to life. I remember this as an example in Oakbrook Mall in 2012, I decided to spend $150 billion.
I had just come out of bankruptcy. Why am I spending all this money in Oakbrook Mall? Why is Oakbrook such a good market?
The density was great. Location was great. And I chose to renovate the whole mall.
Okay. Everyone thought I was mad. Okay.
The NOI, you know, is got, there are very few malls with over a hundred billion dollars of NOI. Okay. Okay.
Rents there today, I understand since I’m not there, you know, $150, $200 a foot in a mall. Okay. In Chicago.
Okay. Why? We invested in it.
We invested in it. We made it look good. We made our mind and said, we’ll make it super regional.
Once you make it super regional, it’s a great business. Okay. But you have to have that courage, okay, and say, what am I going to do?
And, and, and, and that’s what we saw at Annapolis and Fort Lauderdale was just a whole idea of Aventura to the South and Boca to the North, the hole in the middle. So it just didn’t have any, everyone’s looking for a third store on that market and that run. So it was pretty straightforward.
Super interesting.
[Terry Montesi] (41:04 – 41:42)
I’m going to switch gears after your many years in the mall business, you went, you took over WeWork. And I remember hearing about that and I knew you at the time and it’s like, wow, that’s super interesting. So, and you took it over and it was at a pretty low point and it was a turnaround situation, much like you talked about GGP.
Yeah. Why’d you do that? Why was it interesting?
What did you learn about that business? And is there, is there a sustainable industry and business around flex work, coworking?
[Sandeep Mathrani] (41:44 – 46:55)
So I always, one fundamentally believed that coworking would work. I started Regus for a long time and I always believed flex would work. And what WeWork had done was taken, it wasn’t a new concept.
It was a concept that was true and tried called Regus. Okay. It just made it more appealable to the young millennials and Gen Zs, right?
I mean, they created an environment, they gave you a place that you are to go. So I liked the business. I liked, I liked what they had done.
I sort of joked, you know, with Liz, as you know, Liz. And I said to her, I said, honey, wouldn’t it be great if I became CEO of WeWork? It was November of 2019.
I’ll never forget it. And of course you never should throw out thoughts because sometimes those thoughts come true. The universe heard you Sandeep.
Exactly. So in January, you know, I was interviewing really for a board seat and I thought that would be fun actually being able to provide some real estate expertise. I had just finished with Brookfield and I figured I could, you know, provide them.
And then that sort of mushroomed into being, becoming the CEO of the company. So, you know, when I became CEO of the company, this was the math. Okay.
6 billion in expenses, 3.5 billion in revenue. You don’t even need a calculator. Okay.
You don’t even have to do much analysis paralysis. Okay. So I said, I looked at this thing and said, what do I do?
I have to cut $2.5 billion of costs. We cut 2.7 billion of costs. So it wasn’t the business was a bad business.
It was just run, for lack of a better word, inefficiently, right? When they had 15,000 employees and I at the end had only 3,000 employees, what were 12,000 employees doing? $1.7 billion of SG&A annually. Okay. So then of course, operating costs, real estate costs, you can, you can get to how we got to 2.7 and we made the company EBITDA positive. So what I learned between, you know, I’ve done three turnarounds and one startup is the sort of similarities.
The similarities are, for whatever reason, we build up SG&A. The similarities are, for whatever reason, we don’t operate efficiently. The similarities are, you have, this is my analysis.
You have a hundred assets, only 30 make money, real money. Okay. 20 lose money and 50 give you scale.
Okay. Just about. Okay.
Well, you need them for scale. Right. So people keep talking about 80, 20, it’s really 30, 20, 50.
Okay. And, and, and effectively what lands up happening is that you grow for growth sake at some stage in your life and you put a lot of investment of time, effort and money into it and you don’t get an ROI on it. Okay.
So you need to be able to have the courage to cut your losses. We did that at GTP by getting rid of low quality assets and spinning out a company. And of course we did that at WeWork.
It was very similar. Okay. So there was a lot of, I thought it’d be a new playbook.
It ended up being the same playbook. Okay. That wasn’t my intent to be the same playbook.
Okay. It became the same playbook. Flex today is again, very profitable, growing aspirationally.
You think about AI, you want a office, you want it now, you want it for two years. Where are you going to go? There’s nothing available.
So as people came back to work, okay. From COVID, that’s still happening now, by the way, because not many, there’s still companies not five days a week. Okay.
Flex is becoming very popular. And so you can see that in WeWorks, you know, occupancy numbers, they’re back to high nineties, you know, industrious, they’re growing again, but this time more logically. Okay.
Smartly. And it’s like anything else, every industry needs a little bit of, not to use the word flex, to grow a contract, grow a contract. Right.
And, and, and, and effectively you have that in the retail business, you may not appreciate it because when you buy too much merchandise, you sell it through different channels. And when you have the right amount of merchandise, you have the right store. So in a funny way, you have that flexibility and no one thinks about it like that, but that’s how I think about it.
So, so there is, you know, but 10, 12% of the office portfolio, I do believe can be flex.
[Terry Montesi] (46:56 – 46:58)
Interesting. So you believe it’s a sustainable business?
[Sandeep Mathrani] (46:59 – 47:11)
Yes, very much so. But, but, but it has to be based upon buying wholesale, selling retail. You can’t buy retail and sell luxury, which means you’ve got to have the right price points again for the leases you take.
[Terry Montesi] (47:12 – 48:12)
Got it. And there was a while where they were paying big, big rents and there, there wasn’t a margin. Got it.
So you’re, as we talked about, you’re making big bets on physical retail malls when a lot of capital is still super cautious when, when they look at malls and, and even there’s still some capital that’s, you know, just now tiptoeing back in, into retail. So what do you say about retail investing, capital markets, and then, and, and weigh in on, you know, where do we go from here on malls? There’ve been really no liquidity for malls.
You hadn’t, you hadn’t seen a mall sale. How many mall sales a year have there been the last three years? I mean, of anything more than the junk mall that somebody buys a 15 cap for, but do you see mall liquidity coming back?
If so, from where, where do you, where do you see it going? And when you think of capital markets being tentative, going into retail, what, what say a few?
[Sandeep Mathrani] (48:14 – 51:31)
Well, let’s go back to just open-air shopping centers that open-air shopping centers are hot as a pistol. Cap rates are as low as they’ve been, right? Interest rates are not as low as they’ve been when cap rates have been this low, right?
So obviously there’s a whole thesis that they are under-rented, supply-demand imbalance, mark-to-market rent. So they’re trading very strongly as you know. In the mall space, okay, there are two sides.
In the open-air space, the public and the private markets are essentially in sync from a cap rate perspective, multiple perspective. In the mall space, we’re not in sync, right? So if you look at the mall public companies, they’re trading actually slightly better than the open-air shopping and trading companies.
When you look at the private market, they’re trading at 300, 400 basis points spread. It’s not synced. And the reason is that in the private market, the size and scale of the malls, okay, and the dollars are big, one.
And two, you need real expertise, okay? It’s not like you can have five, you know, have a supermarket, you’ve got five tenants, all big boxes or whatever, and it’s not very management-intensive. Here we have 150 tenants and all kinds of complexities, right?
So you really need seasoned professionals who know what they’re doing, and there are only a handful of companies in the country that can do it, right? So we haven’t built that muscle. So one is the muscle to operate them, it’s not one or two, and the size and scale.
I will say to you that we are starting to see money come back into it because people are seeing the public markets. Now I know we can say is an open-air shopping center, it’s a lifestyle center, and it traded at whatever, a six-gap, but it’s a mall, okay, without a roof. We talked about short pump a few minutes ago, okay?
We don’t know where it trades, but so, and even in closed malls, okay, you’re starting to see traction of companies. It’ll take time, okay, for the investor base to come back in. And the reason is they just spent the last decade selling out, right?
So if I had a 50% partner in a mall, they sold the interest, now you’re asking them to come back in. So now that’s on the sales side, capital markets, lending is open for the mall side, no issue whatsoever. And they’re competitive, and then they’ll give you the right amount, they value it correctly, because they understand, you know, if you’re a buyer, okay, you have to worry about what your exit is if you are, you know, call it private equity, you know, or, and private equity, anyone, like, you know, but it could be the Blackstones, the Brookfields, or smaller private equity shops, you know, if they’re buying it in the form to buy and sell, you know, what’s the exit? They’re buying it to buy and hold, different aspect whatsoever.
But I do think it’ll take time for the markets to come back. But we’re seeing, you know, we’re seeing green shoots, to be honest.
[Terry Montesi] (51:32 – 51:44)
I do want to ask, I’d like to close by giving some advice. If someone’s looking to get into our industry, give some advice to a young person looking to get into our industry, Sandeep. Oh, this is so easy for me.
[Sandeep Mathrani] (51:45 – 53:30)
You know, I say it’s easy for me because, because I talked to, you know, I say there are only two things to do. First, immediately, every kid that comes to me and asks me for advice, graduated MBA, what do you want to do? I want to be in capital markets.
I want to buy. I want to be with acquisition. I said, okay, you want to do that, great.
Now you want information. What’s the price of a lease? What’s the price of a developer?
What do you do? So I go talk to the leasing guy, go talk to the developing guy. I said, okay, so then what are you really doing?
So I’m putting this whole deck together. I said, you’re just an analyst. You’re just taking data.
You have no touch and feel. Okay. So I always sit and then I say, okay, what should I do?
I said, you’ve got to have a long view. Okay. You’ve got to be a leasing person.
It’s all about revenue coming in. Learn how to be a leasing person or learn how to be a developing person. Okay.
Or learn how to be a management person on the OpEx side. Really get into the operating side. Okay.
Then when you do have that chance to go into capital markets like I did, you know, I didn’t have to go ask or if I did ask, I had a smell test of what was coming to me. Okay. So I think people need to start focusing on learning the operations of the business, whether it’s leasing, developing, management, but operating side of the management side.
Okay. Because you really need to get your hands over it. I mean, if I have achieved anything, I would say it’s because I learned how to lease.
I came from development, but I learned how to lease. Capital markets was not difficult.
[Terry Montesi] (53:31 – 53:46)
Well, thank you, Sandeep, for your time. I know you’re super busy and you don’t do many of these and I’m really super grateful. Thanks, Terry.
Hopefully you’ll make your trip and tell Liz hi. Thank you so much. Cheers.