New mall owner’s record troubling
ROTTERDAM Rotterdam Square is the type of mall that catches Mike Kohan’s attention.
The aging retail center on West Campbell Road has struggled with occupancy in recent years, with roughly 21 percent of its square footage vacant. These empty spots helped drive down the mall’s annual sales per square foot, which made it a less attractive asset for its publicly traded owner, Macerich Co.
And with Macerich looking to quickly divest the property, Rotterdam Square practically called out to Kohan, president of Kohan Retail Investment Group. Once Macerich, based in California, agreed to sell a mall valued at $30 million for $8.5 million, Kohan was ready to close the deal.
“It’s a beautiful mall,” he said Thursday, two weeks after he purchased the property. Kohan’s company is based in Great Neck, on Long Island.
Emerald Creek Capital, a New York City-based direct portfolio lender, provided Kohan with a $5 million commercial bridge loan for the deal. Kohan was also not required to put forward the $2.9 million construction bond the state Department of Environmental Conservation previously held over Macerich and Wilmorite, the company that built the mall in 1988.
Kohan — who also goes by the name Mehran Kohansieh — said he sees the mall as an investment, a property he can revitalize. He envisions breathing life into its corridors, whether through new tenants attracted with affordable rents or by bringing exhibits into its common areas to generate foot traffic.
“It’s part of the community,” he said “If you’ve done something for the mall, you’ve done something for the community.”
Kohan has aggressively sought and purchased malls similar to Rotterdam Square over the past five years. His company, which owns more than a dozen malls from Florida to Washington state, boasts an ability to reinvent and redefine the traditional mall so it’s a no longer a place just for retail shopping.
“Malls are evolving, and as time goes on, they are no longer just a tent to house box stores and chains but more local, small- and medium-sized businesses of all stripes,” reads a plug on the company’s website. “Large spaces offer opportunity for fundraising events, festivals, farmers markets, miniature golf, dancing, concerts, banquets, theatre and virtually any social gathering all under one roof with protection from the elements.”
Lack of upkeep
But Kohan’s record managing large retail properties nationally is pockmarked with malls that continue to languish or even failed after he took title.
Many of the malls fit the same pattern as Rotterdam Square: aging properties that are either distressed or in dire need of capital investment. Typically, these malls have occupancy rates that are low or have lost an anchor store.
Several Kohan properties have faced municipal action and even faced the wrecking ball as a result of poor upkeep. Woodville Mall in Northwood, Ohio, for instance, is roughly four months away from a court-ordered demolition due to its deplorable condition.
Built in 1969, the property was acquired by Kohan in 2009, when it was already facing serious occupancy problems. Kohan, operating the mall under a limited liability company, brought in some new tenants but failed to maintain the structure.
Less than three years after the sale, city officials toured the mall and found a host of serious code violations: parts of the roof that were open to the elements, a faulty sprinkler system, a movie theater that lacked heat and retail spaces where black mold was rapidly spreading. Last summer, a Wood County judge ordered the mall demolished by May and ordered Kohan’s company to pay the city a $2.44 million judgment.
Kohan was facing a similar legal battle in Matteson, Ill., where he owned the struggling Lincoln Mall. The 1970s-era indoor shopping center was subject to a failed redevelopment plan that left two of the four anchors partially demolished and allowed Kohan to buy the property in 2012 for $850,000 — a fraction of the $10 million paid by the former owner in 2003.
Kohan’s lack of upkeep of the property raised concerns from village officials as the mall’s occupancy continued to languish, court documents show. Inspections of the structure revealed a number of safety hazards, ranging from sections of the building lacking sprinklers to blocked-off fire exits.
“I want the mall to re-open as the thriving retail center we all remember it once was. But I cannot in good conscience allow Mr. Kohan to continue ignoring his responsibilities as a business owner,” Village Mayor Andre Ashmore wrote to the mall’s remaining businesses in August. “Though you, as tenants, dutifully pay him rent, he is not investing those funds into making the mall safe or secure for those inside.”
Village leaders successfully petitioned a circuit court judge to place the mall into receivership so necessary repairs could be made to preserve the structure. The court also ordered Kohan to forward $200,000 to a village escrow account to start immediate remediation of the mall’s most egregious safety violations.
Kohan paid half of the money but withheld the full sum until the village sought to hold him in contempt of court, court documents show. He’s since paid $50,000 to the village and must come up with the remainder later this month.
Kohan also faces legal woes in Worthington, Minn, where his company owns Northland Mall. Purchased in June 2009 for $1.8 million, the mall has fallen into a state of disrepair serious enough that city officials are now seeking a court order to demolish parts of the structure.
Police called to a shuttered Kmart at the mall on an unrelated call found the store to be in serious disrepair and called in building inspectors. Among the many violations listed, city officials found parts of the roof that appeared to be collapsing, standing water, large amounts of mold and an inoperable fire suppression system.
In October, a district court judge signed an order allowing the city to assess the structural integrity of the building. Bradley Chapulis, the city’s director of community and economic development, said attempts to compel Kohan to repair or demolish the dilapidated parts of the mall have been futile.
“We’ve had little to no communication with the owner since ownership changed hands,” he said last week. “Any communication is based upon the legal proceedings that we’re going through.”
Kohan, who owes back taxes on the property, also has an outstanding bench warrant in the county, stemming from an unrelated monetary judgment against him by a former maintenance worker at the mall, court records show. But Chapulis said the real concern is improving the mall before its dilapidated condition starts to spread through the city’s business district.
“It’s the natural deterioration of the full corridor,” he said, “and that’s what we’re trying to prevent.”
Not all of the malls Kohan owns are deteriorating, but many others haven’t seen much improvement since he bought them.
Southshore Mall in Aberdeen, Wash., was struggling long before Kohan purchased it for $1 million in 2012. Mayor Bill Simpson said he met the new owner only once after he bought the property and was initially optimistic about the prospects of a mall resurgence.
“That was the general thing — they were going to come in and fix it up and get more stores back in it,” he recalled.
The opposite has happened. In March, J.C. Penney announced that it would close at Southshore. That’s one of 33 stores the troubled retailer plans close in 2014, but it leaves one of Southshore’s anchor sites vacant.
“As I understand it, a couple more [smaller stores] are leaving now, too,” Simpson said.
City leaders in Effingham, Ill., have likewise seen little progress with the Kohan-owned Village Square Mall. Purchased for $2 million out of foreclosure in 2008, the mall hasn’t yet seen a reversal of the downward spiral that started years ago.
“He hasn’t done anything to expedite the slide,” said James Arndt, the city administrator. “But he hasn’t done anything to turn it around, either.”
Arndt said Village Square frequently faces disconnection notices from public utilities for lack of payment. Though the mall has never lost power or water service, it’s frequently placed on a 10-day notice for service interruption — the most recent warning was issued last week.
“It’s kind of embarrassing when you walk up to the entrance and see that notice saying the power is going to be disconnected in 10 days,” Arndt said.
Cause for optimism
Not all communities are disappointed with the management Kohan offers. The Tulsa Promenade, an Oklahoma mall purchased last summer for $12.3 million, has undergone recent renovation that has pleased city leaders.
“It seems like they’re taking an effort to make it a more attractive mall,” said Tammy Fate, retail marketing coordinator for the city mayor’s office.
Others have faith in Kohan’s ability to revitalize malls because of the number of malls he owns around the country. Robert Sargent, a spokesman for the city of Leesburg, Fla., expressed optimism that Kohan will be able to turn around the fortunes of Lake Square Mall, a property he bought at auction from Macerich for $13.6 million in November.
The mall recently lost two anchors and has struggled with occupancy. Sargent said Kohan’s experience with distressed properties should come as an advantage.
“Good, bad or indifferent, he’s managing malls,” he said. “He’s not just taking on any malls; he’s taking on malls that have challenges ahead.”
Kohan readily acknowledges that his investments don’t always go as planned and that he sometimes buys into properties that are beyond saving. But he stands by his ability to revitalize distressed properties, even if a few don’t pan out.
“Nothing is 100 percent in this world,” he said. “When you invest on so many properties, obviously you’re going to have one or two that can’t be helped.”