When “Opportunistic Investors” Grab a Chunk of Your Town

Is it just me, or is something slightly… off… about the sale of South Burlington’s University Mall to a global investment firm?

On the surface it seems like good news. Taconic Capital Advisors and Eastern Real Estate will buy the Mall for a tidy $60 million, which happens to be $26.2 million north of its assessed value.

Let’s stop there. A big investment fund buying a declining property in a dying industry for nearly double its assessed value?

Things that make you go hmmmm…

Taconic describes its traders as “opportunistic investors” looking for market inefficiencies. That’s usually Wall Street-speak for “we buy low on assets and squeeze every last dollar out of them.” See: Every time an investment firm buys newspapers.

The above chart, courtesy of the investor-information website “WhaleWisdom,” shows a damn high churn rate for Taconic. The different colors represent different market sectors. As you can see, Taconic specializes on diving into market sectors where they see potential profit and getting out just as quickly.

Given that history, it’s a little hard to credit Taconic’s stated intention to “reenergize” the mall and “build on its success.” First of all, long-term stewardship of an asset doesn’t seem to be Taconic’s game. And second, success?

“That does not compute,” said Mr. Spock when asked for comment.

The recent history of UMall would make it seem more likely that Taconic would invest in cigarette butts and gum wrappers than this place. Back in 2016, the then-owner defaulted on a big loan and lost the Mall. A court-appointed receiver has been running the Mall since then — and occasionally trying to unload the “asset.” For a while, there was talk of the University of Vermont building a new arena on the site. (Ironically, an arena with a price tag of… $60 million. Small world.)

In less than 15 years, as malls around the country were losing tenants by the bucketload, UMall’s assessed value plunged from $116.3 million to $33.8 million. Meanwhile, downtown Burlington’s City Center was going from plum shopping space to Church Street failure pile to a literal hole in the ground, as multiple investors tried and failed to redevelop it.

In a December 2017 article about the “Mallsoleum,” Seven Days reporter Molly Walsh wrote:

A thin stream of shoppers milled around Kohl’s and Express, and clustered at the Sephora cosmetics counter inside JCPenney. Many of the smaller stores, such as Asian Therapy, were customer-free. Outside, snow fell on rows of empty parking spaces.

This was, mind you, the height of Christmas shopping season. And the trend away from big retail to online shopping has only accelerated since then.

Taconic and Eastern claim that UMall is a healthy concern with a 95% occupancy rate. But is there a worm in that apple? Walsh reported that malls often give discounted rents to keep space full. And the then-manager of UMall “declined to discuss current leasing arrangements.”

So that 95% figure is probably the real estate equivalent of a helium balloon. I mean, when South Burlington was redoing its public library, it created a temporary library in a big vacant space in UMall. That wouldn’t happen unless there was a dearth of eager retailers at the door. Since then, the mall has lost three big anchor tenants. Okay, it’s also picked up Vermont’s first Target store, but still. There’s no sign, besides that $60 million purchase price, that UMall is on the doorstep of a bright future.

So what is Taconic really after? Well, this is a huge piece of incredibly valuable real estate just off I-89. The land beneath is almost certainly worth more, if redeveloped, than the mall itself. The entire Burlington area is begging for more housing. You could build a whole lot of apartments and condos on that property.

Indeed, if something like this were to happen, it would be a net benefit to South Burlington and the entire area. The owner who defaulted back in 2016 had plans to turn UMall into something like a “downtown” with a street grid instead of giant parking lots and a variety of mixed-use buildings that would include retail, apartments and office space.

That plan went a-glimmering with the owner’s declining fortunes, but a revival could turn a declining property into a community asset.

But that’s not Taconic’s game. It’s an “opportunistic” investor, not a real estate developer. It’s more likely to run a pump-and-dump than to follow the fraught path of a Don Sinex.

This is not to say that such a development is impossible, but I doubt that it’s in the plans under Taconic. UMall is a distressed property acquired in hopes of turning a quick profit. If things go according to plan, I think Taconic will sell the property rather than redevelop it.

And then we’ll be at the mercy of whoever owns the place next. Will they see profit in a plan that also benefits the broader area? If so, they’ll try to do something good. If not, they’ll do whatever the hell they think will fetch the highest ROI.

Or they.ll try and fail, and South Burlington will have a hole in the ground to match the former City Center.

4 thoughts on “When “Opportunistic Investors” Grab a Chunk of Your Town

  1. Frederick Weston

    The $60 million price tag is not ironic, merely coincidental. As for Taconic, it seems to me that your prognosis really means that nothing has changed. Before it bought the mall, we were at the mercy of whoever owned the place next and, now that it owns the mall, we still are. If you’re right about the value of the land and its prospects, one wonders why a savvy developer hadn’t already snapped it up. If the only way to make money on the property is to redevelop it, perhaps that’s indeed what Taconic has in mind, unlikely though its history suggests.

    Reply
  2. Dan Daniel

    How soon we forget- it was called Town Center, yes? And since it has never been replaced except by smoke and mirrors blown out of Sinex’s and Weinberger’s… mouth, Town Center it still is 🙂

    Wouldn’t it be sweet if Taconic sold it to Sinex, who hired ex-Mayor Weinberger to develop the ‘affordable housing (no one over 150% of AMI!!)’ section of the mini city?

    Reply
  3. Walter Carpenter

    “South Burlington will have a hole in the ground to match the former City Center”

    I haven’t been to the university mall in twenty-five years and hopefully will not go for another twenty-five if I live that long. Hopefully, these blights on the landscape, these monuments to crass American commercialism and cashing in on the American dream, will follow the passenger pigeon into extinction. I hope South Burlington can use that space for a nice downtown or something.

    Reply
  4. P.

    I believe the VTDigger article brought up conversion to housing twice.
    South Burlington City Councilor Matt Cota said. “It certainly is ripe for an investment that could bring more housing, more senior housing, more affordable housing in that area (and) could renew the retail businesses in that area.”
    Also near the end of the article.
    Having lived in a number of college towns, and since this only a mile from campus,, I predict if any housing goes in it will be a cheap student ghetto with overcharged rents for those wanting off campus living.

    Reply

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