Valle Vista’s new owner explains vision

HARLINGEN — Bleeding from online retail sales, fickle and changing customer buying habits and tastes, and a series of big-box bankruptcies over the past decade, American malls are in survival mode.

For Mike Kohan, whose company Kohan Retail Investment Group just purchased Valle Vista mall for $12.5 million, it’s all about the traffic.

“It’s a competitive business, but thank God, our competition is not that many because obviously people do not have too much faith in the malls these days,” he said Friday in a telephone interview from his offices in Great Neck, New York.

“But we try to be creative. We try to with some of these places to bring in entertainment, for example, it brings a lot of traffic into the mall. We are trying to even double the size of the events they used to do in the mall and that adds to the traffic into a mall.”

Mike Kohan, Valle Vista owner

“We’re not putting them against the wall and have them sign leases for longterm and if they don’t do well, tough luck. That’s not in our agenda. We are here to help our merchants be successful. Their success is obviously our success.”

Kohan and his company are in the distressed mall business. They buy troubled properties like Valle Vista for dimes on the dollar, ready to swim upstream against retail trends.

“We operate about 22 malls all over the country,” he said. “Some are distressed, some are more stabilized, and we’ll take them, we’ll purchase them and we add value to it, and stabilize it somehow. We’ll do whatever we can do to make it a better place to be in a community.”

Troubles revealed

Valle Vista and its 651,000 square feet of retail space opened as a regional mall in 1983 and has served since as a key block in the city’s economic foundation, especially when it comes to retail.

But now, about 25 percent of that retail space in the enclosed mall is vacant.

The mall’s financial troubles became too big to hide in the past two years, as reports surfaced the mall’s owner, Washington Prime Group, was seeking to sell it and four other malls. They were all making money, just not fast enough.

Like other malls, Valle Vista’s financial viability is determined by what is called the debt-to-yield ratio. That is a formula for net operating income of a mall or other property divided by mortgage debt times 100.

In 2016, Valle Vista’s debt-yield ratio was 9.0 percent, which is profitable and generally regarded as acceptable in a primary market. But that was deemed to be an underperformer in a small market like Harlingen.

Unable to sell the Harlingen mall, Washington Prime Group decided to dump the property back on the lenders who had financed its sale. At that point, management of the mall was taken up by ProEquity Asset Management Corp.

The mall went up for auction for an undisclosed minimum price in May, but there were no takers.

Kohan and his company negotiated with the unnamed lenders who owned the mall, and the fast-paced $12.5 million deal was consummated within two weeks, he said.

Reinventing the mall

Kohan Retail Investment Group has been bullish on buying up malls since the company was founded in 2009.

His philosophy of resurrecting these troubled properties, he said, is to redefine malls to become more than just close-packed stores with good parking and easy access for shoppers.

“For some malls, professionals, doctors, accountants and others who can come in and get some small spaces or whatever, and that adds to the traffic,” Kohan said. “In some cases they took down some of these empty spaces and turned them into apartments, residential. And then you have a residential mix to the mall which adds value to the mall. Because you have shoppers living only 100 feet away from the mall.”

While Kohan did not reveal specific plans for Valle Vista, his work elsewhere provides some insight into his overall vision. It includes bowling alleys and entertainment space, and bringing in kids for events and activities which also bring in parents who shop while the kids play.

Other events put forward by his stable of malls have included fundraisers, local festivals and concerts, farmers markets, miniature golf, dancing, concerts, banquet facilities, theater and “virtually any social gathering all under one roof,” he told the Daily Gazette in Schenectady, New York, in an interview a few years ago.

“So these are all alternatives to combat the challenges that the retailers have these days,” he said Friday. “I can’t help it if the Bon-Ton goes bankrupt (Bon-Ton Stores Inc. did so this year), it’s very unfortunate but I can’t help it.

“I wish I could but I couldn’t,” he added. “So I have to find some alternative way to do it.”

No one’s turned away

Kohan says his company isn’t the biggest mall operator and he says that’s an advantage. He says it keeps him and his staff nimble, and more attuned to the needs of his malls’ tenants.

“Since we purchased (Valle Vista), we have had numerous vendors and prospective tenants that are interested to come in,” he said. “What’s good about us is we’re not a huge company, we’re obviously not rejecting any tenants. Or not responding to any smaller or mid-sized, or large-sized, it really doesn’t matter to us.

“We’re not putting them against the wall and have them sign leases for long-term and if they don’t do well, tough luck,” Kohan said. “That’s not in our agenda. We are here to help our merchants be successful. Their success is obviously our success.”

A sense of place

Not all malls are created equal, and not all cities are, either.

Kohan concedes he doesn’t know much about the Rio Grande Valley, but he says he and his executives and managers all are eager to learn.

“I’m familiar with malls, but every area is different,” he said. “Texas is different from Ohio, Ohio is different from Iowa, and on and on and on. We ask the community to give us some feedback or suggestions that could help the mall.”

Kohan is nothing if not optimistic. That’s something one might expect from a man who has staked his life bet on properties the former owners couldn’t get rid of fast enough.

“Every mall that I buy is a big part of the economy of that community. And that’s why I want to be positive, you know what I mean?” he said. “To be positive is part of my strategy, because I cannot be any other way.

“When you have so many challenges, the positivity, the being optimistic, is going to help you,” he added. “I just wanted to tell the community, I’m glad to be part of you guys and we are trying our best from day one to get that mall where it needs to be.”