The Real Opportunity In The Redevelopment Of American Malls
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When you think of the American mall, how many songs and movies can you think of that this particular form of real estate has produced? Quite a few come to mind. It once was the case that when you had a major mall in your city, it said something about the area. You were in a winning city. Think about places like The Mall of America on its opening day in 1992, versus the culture and conversation surrounding these huge pieces of commercial real estate today.
As one writer puts it, “with the failure of so many national specialty retailers due to bankruptcies, mall of all sizes need to be creative in finding or even creating new ‘retail life.’” That massive endeavor is in somewhat of a questionable zone right now as far as usage.
These structures need a full-body makeover — and quickly, if they are to become more than giant eyesores. There have been proposals among the commercial real estate reuse crowd: These buildings could be turned into hospitals, housing for the homeless or schools. No one can know for sure what uses are sure-fire wins.
I like to think about why people go to the mall in the first place. Yes, it’s to shop, but it’s also for the human aspect they provide. It’s worth noting that some of the social-oriented reuse ideas coming off the cuff are not destinations most want to go to. Malls represent civic centers of sorts and are more than just storage barns. Real estate planners need to come to the table with the creatives and shape possible solutions around which to rally and plan future growth.
Let’s look, for example, at the major reuse project I participated in: a previously industrial property for an entirely new use. This property in particular benefitted by being close to a Los Angeles metro Gold Line stop. It started off as an old assortment of metal and stucco and was, by most people’s measures, junk. But one person’s junk is another person’s treasure. The original purchase price was $2 million, and there was a NNN tenant who wished to buy out the remaining 8.5 years of their $23,000-per-month lease. During negotiations, the tenant abandoned the property (while still required to pay) and it became subject to vandalism. Within a few months, we negotiated a $1.5 million lease buyout. A few months later, I brokered a deal to sell the same building for $2.8 million.
The reason the property was interesting for reuse for my client is that they had a vision for a true artist colony, one that was hip and sustainable. The rent prices for such a project were higher due to the focus on a paying audience that appreciates the product and environment. The buyer did well.
That’s not to say reuse is easy. Take, for instance, the Crenshaw Mall. This is in an urban setting in Los Angeles and has a very storied history of false starts and mediocre results when reuse schemes were completed. The reasons for the past results are many – and obvious to some, including myself. There have been meetings and protests and feelings about the issue of reuse. This property should be used as a schematic of what potentially lies ahead. We can’t forget about the “not in my backyard” (NIMBY) crowd. People have been proclaiming the death of the mall for quite some time. But at the same time as B- and C-class malls struggled in 2017, A-class malls were “thriving, due to a premier selection of retail and restaurant tenants that successfully target the affluent communities they serve.”
Considerations For Real Estate Professionals
Any reuse project will have to contend with the banks. The lender financed a mall, after all, not a social center or other security. These projects are going to require strong and thoughtful leaders who are not swayed by every new-fangled notion of commercial real estate. The tax bases must be maintained for the future that municipalities once planned for. Don’t forget that at one time, the mall was considered the future.
As professional property operators and brokers, we need to assemble and review our holdings to be sure of their flexibility in the light of change. Prepare where you can and pare where you need to. Again: one person’s junk is another’s treasure. The chosen reuse for the mall will determine the associated use and draws for any inline space, which is a must to support small businesses. Let’s find uses to make the mall and communities prosper and be healthy once more.
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