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Five Mile Capital Partners buys Lakeforest Mall in Gaithersburg, plans $20 million in improvements

By Jonathan O'Connell,September 02, 2012

Five Mile Capital Partners, an asset management firm based in Stamford, Conn., acquired the Lakeforest Mall in Gaithersburg for about $100 million last week after its previous owners defaulted on loan payments, according to a source involved in the deal.

The company plans to add $20 million in improvements to reposition the mall and possibly add big-box stores to the parking lot areas surrounding it, according to the source, who spoke on the condition of anonymity because the negotiations were subject to confidentiality agreements.

Lakeforest Mall opened off of Interstate 270 in 1978 and has four big-name anchors: Macy’s, J.C. Penney, Sears and Lord & Taylor. Among the mall’s tenants are more than 100 shops and restaurants, including Forever 21, Victoria’s Secret, the Children’s Place and American Eagle Outfitters.

But, like other regional enclosed malls, its fortunes have not met pre-recession expectations, and securities analysts said the mall’s owners, including Simon Property Group, defaulted on a loan with an outstanding balance of $138.7 million.

The loan was transferred to special servicer C-III Capital Group and was put up for sale earlier this year through the brokerage firm Eastdil Secured. Les Morris, a spokesman for Simon, which manages the property, declined to comment on the loan or the mall’s future. Executives at Eastdil also declined comment.

Founded in 2003, Five Mile Capital Partners targets commercial property — such as Lakeforest Mall — whose owners have run into difficult debt obligations.

In July, Five Mile announced a joint venture with an affiliate of Mitsubishi to underwrite and originate commercial mortgages. In a press release announcing the partnership, Konrad R. Kruger, a managing member of Five Mile Capital, talked about the opportunities created by ballooning commercial loans coming due. “The U.S. commercial real estate market is facing an impending wall of maturities at a time when traditional originators and underwriters are still stressed,” he said.

With the new ownership in place, Urban Retail Properties, headquartered in Chicago, is to take over management of the mall from Simon. Urban manages more than 80 regional and strip malls across the country, including Tanglewood Mall in Roanoke.

Tony Tomasello, acting city manager for Gaithersburg, said a major redevelopment of the mall or its adjoining land would likely require the approval of the four anchors, which own their own space in the mall as well as adjoining parking spaces, he said.

Once the mall falls under new management, he said he hoped its new owners would re-position it as a regional destination for shoppers.

“We’d like to see more activity. We’d like to see more of a regional draw. In Montgomery County, if you wanted to buy a shirt 30 years ago, Lakeforest Mall was the place to go. But now there are a lot of options,” Tomasello said.