Keeping ship steady, Cafaro continues to upgrade malls

By Don Shilling

The nation’s economic slowdown has not deterred the Youngstown developer’s growth plans.

YOUNGSTOWN — A collapsed credit market isn’t stopping the Cafaro Co. from spending millions of dollars to upgrade its malls.

One reason: The Youngstown-based developer is spending its own money.

Cafaro has been using its cash reserves to fund mall upgrades for the past 20 years, said Anthony Cafaro Jr., company vice president.

That hasn’t changed in recent years as the company has embarked on an ambitious campaign to upgrade its portfolio, which includes 12 malls and more than 30 shopping centers in 12 states.

Eastwood Mall in Niles received a multimillion upgrade in 2006, as have one or two malls every year since then. Costs have ranged from $5 million to $12 million per project.

That is in addition to a massive, four-year renovation and expansion of its mall in Fredericksburg, Va. The $100 million project includes adding a 200,000-square-foot streetscape with open-air shops.

“It’s big money. It’s high stakes, and we have a lot riding on it,” said Cafaro, who runs daily operations of the company with his brother, William. They are the third generation to run the company, after their father, Anthony Cafaro Sr., and grandfather, William M. Cafaro.

Commercial Property News, a trade publication, ranks the company as the 30th-largest real estate developer in the nation. Cafaro has 30 million square feet under management.

The family-owned developer has grown conservatively, so it has cash available, Anthony Cafaro Jr. said.

It has built every mall that it owns, while other developers have borrowed heavily in the recent era of easy credit, he said. Some expanded too quickly, spending too much to acquire malls and shopping centers or building them where they didn’t make sense, he said.

The collapse of the nation’s credit market and faltering retail sales have left some developers in a precarious position, he said.

“We don’t stay up at night worrying if we’ll be able to keep our properties,” he said.

In fact, the local company may be expanding with acquisitions.

Cafaro said the company attempted to acquire a regional mall this past summer but was unsuccessful. It will continue to look, however, because some malls may be offered at a discount price.

“We aren’t looking for distressed properties because those are difficult to turn around in this environment. But if a distressed developer has a good property that’s available, we’ll consider it,” he said.

He noted that the company can make a cash offer, which might be attractive to a developer who has too much debt.

No doubt these are difficult economic times, Cafaro said.

Vacancy rates at malls and plazas are rising nationwide, as are bankruptcy rates among retailers, he said. He pointed to Steve & Barry’s, a clothing retailer that filed for bankruptcy protection and now is closing more than 100 of its 276 stores. Cafaro has leases for nine Steve & Barry’s stores, and only four will remain open, including one in Niles.

Also, Linens-N-Things, a retailer of home goods, is operating under bankruptcy protection and the lead bidder in an upcoming auction has proposed liquidating all operations. That would mean the closing of four stores at Cafaro properties, in addition to two that already have shut down.

There isn’t much a developer can do in a down cycle when retailers begin to close, he said. The consolidation of retailers will continue, meaning there are fewer places to go to find new tenants, he said.

Rents will drop and vacant space will increase until the economy picks up, he said.

“We have to weather the storm,” he said.

The company employs 200 at its Belmont Avenue headquarters and 700 overall.

The difficult economic conditions aren’t stopping the company from upgrading its malls. Investment is necessary because mall stores are facing increased competition from large discounters such as Wal-Mart and online retailers, Cafaro said.

“Malls have evolved. They are not just shopping destinations. They are more of a social destination,” he said.

Part of Eastwood Mall renovation included amenities to provide a better connection with the community, he said. This included an aquarium that is used to draw in families and provide field trips for school systems. The mall also added satellite studios for WFMJ Channel 21 and Cumulus Broadcasting.

The mall complex also has Eastwood Field for minor league baseball and five shopping plazas that house various retailers, an expo center that holds 40 to 50 events a year, government offices and grocery stores.

“Eastwood Mall has become a city in itself. I like to refer to it as the downtown of Trumbull County,” Cafaro said.

Developing such connections with communities is a key part of all of the mall renovations the company is conducting, he said.

A renovation of a mall in Erie, Pa., is to be completed this month. Next year, renovations are to get under way at malls near Seattle and in Monroe, Mich.

Cafaro said the company was willing to commit so much money to the mall in Virginia because the area’s economy had been booming in recent years. Annual household income in the region has increased from $40,000 to nearly $90,000 in the past 15 years, he said. That project also is to be completed next year.

But Cafaro insists that all of the spending is being done prudently, so that the company doesn’t have to go to banks for financing.

“My goal, my mission and my brother’s mission — directed by my father, who was directed by my grandfather — is to steady the ship, keep heading in the right direction and not take any unnecessary risks,” Cafaro said.