The value has been added at value-add retail properties in major markets, and now many investors and developers are turning to smaller cities and Class B and C properties. “There’s essentially zero value-add product left among Class A retail spaces, and the few deals we’ve seen are located in secondary and tertiary markets,” said Matthews Real Estate Investment senior vice president of shopping centers Pierce Mayson.

After years of improving A malls and selling off B assets, bellwether Simon is eyeing growth at its smaller malls, outlets and Mills properties, president and CEO David Simon said on an earnings call this month. Simon identified Long Island’s Smith Haven Mall in Lake Grove, New York, as a reinvestment target. Plans over the next two years include “updating the look, feel of the place,” he said. Simon will renovate and rejuvenate that property and several others. “Because of all the progress we’ve made in the bigger ones, we’re able to kind of reenergize our focus on an asset like that,” he added. As part of the plan, the approximately 120-store Smith Haven Mall has signed a major retailer that Simon can’t yet divulge, the executive said, informing analysts that the project should net an estimated 12% return. Simon will make such reinvestments only where they can add value to an asset, he noted.

While some investors are diving deeper for opportunities in their markets in the Sunbelt and in larger cities, many also are pivoting to smaller deals in the Midwest, Northeast and other areas “where there has been more available product and cap rates have been more accretive,” Mayson said.

Creative Reinvention

Tyler Cauble, founding principal and president of Nashville-based The Cauble Group, said plenty of midmarket, value-add, retail opportunities exist in Tennessee, Georgia, Alabama, Colorado and the Carolinas. “Those areas are amazing now,” said the investor and developer.

In 2021, he bought an East Nashville, Tennessee, shopping center for $18 million, and now he’s redeveloping it. More recently, he found a value-add opportunity in the same town: a former six-bay, self-service car wash in the same part of town. He has transformed the building into a ghost kitchen and dubbed it The Wash.

“We consistently have about 20 to 30 restaurants on the waitlist at any given time,” Cauble said of the six 400-square-foot spaces, whose tenants include East Side Pho, Soy Cubano and Sweeza Super Quesadilla. “We haven't had any spaces come available since 2021.” The Wash offers outside seating, but tenants don’t have “to maintain the building exterior or pay to maintain the chairs, tables and other things they’d typically spend money on in a scaled-up operation,” Cauble said. “It’s a very affordable place for new chef entrepreneurs.”

Similar opportunities abound across the country, he said. “They are only limited by a developer imagination.” Retail investors will need to think more creatively to find value and carefully scrutinize the latest consumer behaviors and wants, Cauble said. “Even though the low-hanging fruit is gone, there’s still an abundance of value-add opportunities out there.”

Improving Existing Properties and Rethinking Tenants

With recent national store closures, it remains to be seen which owners have the capital and wherewithal to retenant their centers and which have substantial debt coming due that will force their hands to sell, said Mayson. “There’s a lot of capital sitting on the sidelines waiting for these exact scenarios,” Mayson said of debt-forced sales.

For its part, Federal launched $30 million of improvements at Andorra Shopping Center north of Philadelphia this month. It expects to complete the repositioning by the end of the year and anticipates new store openings by spring 2026.

Lately, strip center buyers seeking value haven’t shied away from raising rents on tenants who’ve been paying below-market rates, Mayson said. “That risk is almost completely mitigated by the vast number of replacement tenants out there waiting for spaces,” he said. TownCentre Capital founder and president Don Tepman, known well on social media as StripMallGuy, stands among those buyers. His firm has purchased more than 40 small, primarily unanchored strip centers in the western U.S. with the intention to add value. His largest strip center value-add purchase came in November, a fully leased, 36,710-square foot property in Union City, California, near Fremont.

Tepman told podcaster Chris Powers of The Fort last year that he first looks at a center’s inefficiencies, aesthetics issues and “unnecessary” vacancies in his quest for value-add deals. “In the strip mall world, 95% of these smaller centers are owned by mom and pops, not funds,” he told Powers. Many tenants have convinced center owners that they’ll go out of business if rents were upped, “which creates a gap between actual rent and market rent,” Tepman said. Such tenants seldom close after he adjusts rents, said Tepman, who typically adds landscaping, reconfigures parking and repaints centers to create a more modern, welcoming feel, “all value you can add through your own work.”

Adding Value After Acquisitions

Needs-based centers are still the prime investment target. ShopOne joined joint-venture partners Pantheon and an undisclosed international institutional investor to purchase two Florida grocery-anchored centers for their value-add potential: the 218,000 square-foot Midway Plaza in Broward County’s Tamarac, and 69,007-square-foot Lithia Square in Brandon, east of Tampa. The REIT’s CEO, Chris Reed, said both assets present opportunities to “strengthen their underlying performance and merchandising mixes [and] generate significant value for the community and our investors alike.” Publix-anchored Midway Plaza was 84% occupied at the time of purchase, and Walmart-anchored Lithia Square was 79%. ShopOne plans to unlock upside via strategic leasing upgrades, exterior renovations and other improvements.

“We’re also seeing big opportunities for owners in selling off center outparcels for a new Whataburger, Dunkin or the like,” Cauble said. In January, for example, just over a year after it bought the Class A, 147,161-square-foot, Kroger-anchored Midlothian Towne Crossing power center, Younger Partners Investments sold off three pads where Chili’s, McDonald’s and Chick-fil-A all have long-term leases.

When exploring secondary and tertiary markets for value-add opportunities, larger investors typically target the best or second-best centers. They’ll spruce up properties, without wholly re-creating them, to gain income, Mayson said. “They’re buying big-box product at attractive yields in the 8% to 9% range in those markets and are able to target larger deals at price points where the competition notably thins out,” he said.

Are Value-Add Acquisitions Possible Right Now?

Owners of many fully occupied centers have become less willing to part with them, as their tenants become less likely to move due to the tight leasing market, said Mayson. It’s a scenario that further boosts rents and occupancy rates at a time when institutional investors are hunting for opportunities, he said.

Meanwhile, shopping center values continue to escalate, including for unanchored properties, and that infringes on the upside of any acquisition. In September, Site Centers picked up the well-located, 45,000-square-foot Brookhaven Station strip center in Atlanta’s Buckhead for $32 million, or $670 per square foot, according to JLL, which represented the seller. Hendon Properties sold the unanchored center for a nearly 68% profit after a three-year hold. And the month before, Site Centers sold the 420,000-square-foot Woodfield Village Green power center in Schaumburg, Illinois, to an affiliate of Bridge33 for $93.2 million. It was the Chicago area’s highest-priced retail deal since 2022, according to CoStar.

Growing retailers are hungry for existing space as is. There is effectively zero speculative retail development and few new projects coming out of the ground other than grocery-anchored centers, where “programmatic” in-line spaces “tend to lease very quickly,” Mayson said. Few improvements are needed to entice tenants in that scenario. A few opportunities do exist thanks to “extreme mismanagement” or local ownership that doesn’t have the capital to improve them, but these are becoming scarcer, he said. “Construction is still too expensive to justify without an anchor in place, and even these few anchored developments being built have gotten extremely thin on returns,” Mayson said. Hence, he believes, the investor search for value-adds is apt to continue for the next few years.