Two yawning department-store vacancies. Two Pennsylvania malls. Two big casino leases. This equivalent of a full house was dealt twice to CBL, which has pinpointed one of the most fruitful foot-traffic generators in commercial real estate to fill former anchors: the gaming hall.

In May, Hollywood Casino took over a former Sears in CBL’s York Galleria Mall near Philadelphia. That was just nine months after Live Casino Pittsburgh debuted in the REIT’s old Bon-Ton department store at Westmoreland Mall, outside Pittsburgh. “It wasn’t something that had been done: a casino mall anchor,” said CBL CEO Stephen Lebovitz. “These are trailblazing tenants.”

While it’s too early to gauge the impact of the 80,000 square-foot York casino, Lebovitz said merchants neighboring the 100,000-square-foot gaming hall at Westmoreland Mall have enjoyed a robust 40% sales boost over 2019 since the facility opened in November 2020. Among the winners: food-and-beverage businesses and jewelry.

Both of the casinos at CBL’s malls have traditional table games, eateries and ample public parking. “The great thing about the department stores is: They already had generous parking ratios,” Lebovitz said.

Malls have the “house edge” in luring casinos for other reasons, too. They’re designed for significant volume and easy ingress and egress, and they offer a speed-to-market development timeline that’s shorter than purpose-built casinos, said global gaming expert Grant Govertsen, managing director of CBRE Capital Advisors. “These are attributes that generally overlap well with a casino developer’s wish list.”

They’re also attention getters. “Developers want to utilize these spaces very carefully to maintain critical mass and draw visitors from inside and outside their trade areas,” said JLL vice chairman of retail Steve Ferris. “You get a sportsbook and table games and all that action; suddenly you’ve got a celebrity status.”

Mall casinos won’t be an anomaly for long

More are in the works:

• A former Macy’s at Nittany Mall near Penn State will become a small-format Bally’s. The $120 million facility, the state’s first Bally’s casino, will feature 750 slots, 30 table games and a sportsbook. It’s slated to open in late 2022.
• In Matteson, southwest of Chicago, the former Lincoln Mall is a finalist for a new license. Its proposed 123,000-square-foot casino in a former Carson Pirie Scott department store would anchor a redevelopment called Market Square Crossing. Choctaw Nation of Oklahoma would be the casino partner. River Oaks Center in Calumet City was eliminated from contention in mid-October, leaving a non-mall site in Lynwood is the remaining competitor for the license. 
• Following a voter referendum that passed last fall, Hard Rock International is spending $400 million to transform a shuttered Belk department store at Virginia’s former Bristol Mall into a casino resort/hotel.
• At New York’s Newburgh Mall, plans for a hall with 1,300 slot-like electronic games have been approved. Resorts World Catskills, a casino resort 44 miles away, will do a $32 million overhaul of a 90,000-square-foot former Bon-Ton at the mall. Slated for a first-quarter 2022 debut, the hall will feature video lottery terminals, which operate using bingo odds — gamblers against other gamblers — versus playing against the house, as in Las Vegas. Resorts World spokesperson Meghan Taylor said the project will revitalize the mall, “serve as an economic engine in the Hudson Valley and begin generating revenue for public schools.”

And Live Casino & Hotel, formerly Maryland Live Casino, built next to Arundel Mills shopping center in 2012, apparently is doing well. A second phase expanded it to 4,000 slots, 200 table games, nine restaurants including The Cheesecake Factory, a hotel, a concert venue, a sportsbook and a $15 million sports bar. And for a few decades now, Las Vegas malls have been connected directly to casinos. Miracle Mile Shops, for example, added multiple entrances to Planet Hollywood Resort & Casino.

Can you get a permit?

While there’s growth in mall-related gaming leases, states and municipalities aren’t just doling out casino permits, Govertsen stressed.  Limited licenses, an existing density of casinos and regulatory hurdles can keep casinos “from being a major component in transforming malls,” he said, adding that when those barriers can be overcome, casinos are often compatible with such properties.

In the case of CBL’s York Galleria, Penn National Gaming was vying for an available license but needed a physical location to strengthen its bid, Lebovitz said. The mall vacancy fit the bill, as Penn National won the license and CBL gained the high-profile lease. The Cordish Cos., an experienced casino developer, came in as developer and owner of Live Casino Pittsburgh at Westmoreland Mall. The before-and-after transition of both CBL gaming spaces was dramatic. Neither are remotely recognizable as former department stores, Lebovitz said. The York casino “has dramatically transformed the entire mall with a whole lot of energy.”

Pennsylvania and Illinois each recently expanded its number of available full-line casino licenses. Others may follow. The negative fiscal impact of the pandemic “could result in gaming expansion being given a fresh look during upcoming legislative sessions,” Govertsen said.

Small gaming centers — Jacksonville, Florida, has 200 “adult arcades” with slot-like video terminals, for example — aren’t unusual strip center tenants in states where gambling is legal. In fact, gaming growth is occurring in retail properties from convenience stores to truck stops to bars/restaurants in such states as Georgia, Nevada, Montana, Oregon, Pennsylvania, Illinois and South Dakota, Govertsen said.

Will CBL see more mall casino tenants? It’s hard to tell, Lebovitz said, as casino development relies heavily on available licenses and local politics. “We don’t control [these factors], but people see what we’ve done, and that may encourage others. It’s a complimentary use, and I think we can do more.”

Also gaining leasing traction is a different sort of gaming tenant, nongambling esports facilities like Belong Gaming, which opened its inaugural U.S. arena in 4,000 square feet in CBL’s Pearland Town Center outside Houston. The facility is the first of hundreds coming to the U.S, including in Dallas, Nashville and Chicago, Belong announced. The U.S. locations, owned by esports holding company Vindex, join a network Belong centers across the U.K. “E-gaming has a lot of private equity surrounding them,” said JLL’s Ferris. “They’re huge in China, where some universities even offer esports majors.”

Meanwhile, malls will see far more nonretail leases, said Lebovitz, whose firm expects to exit Chapter 11 bankruptcy protection today on the one-year anniversary of its filing. CBL recently landed the HCA Healthcare Center for Clinical Advancement for Pearland Town Center and an Aloft hotel at Hamilton Place mall in Chattanooga. “It goes back to fundamentals,” Lebovitz said. “We have the benefits of the equity and infrastructure and feel this trend is going to continue to evolve; people want experiences, and malls are going to continue to morph in that direction.” This includes more gaming, of course. “The unconventional,” said Lebovitz, “has become the conventional.”