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Stonecrest Mall May Get Debt Reprieve As Suburban Retail Continues To Flounder

A debt-straddled regional mall nearly 20 miles east of Downtown Atlanta may be getting some financial relief.

The AMC theater anchor at the Mall at Stonecrest in Lithonia, Ga.

The $91M CMBS loan attached to portions of The Mall at Stonecrest has been purchased by an unidentified third party, according to Trepp. The mall's operating company — Urban Retail Properties — is negotiating for more time to pay that debt off.

“The mortgage was sold to the controlling class of bond holders to which ownership is working with to extend the existing loan,” Urban Retail Properties Senior Vice President Jim Roberts wrote to Bisnow in an email.

The loan is secured by 370K SF of the 1.2M SF mall. Those portions include the AMC movie theater as well as a former Borders Books & Music store. When asked whether the new bondholders were threatening to foreclose on the 370K SF indoor retail portion of the mall, Roberts said "not at this time."

This is the latest turn of events for the mall since Urban Retail's CMBS loan fell into special servicing in 2014. Over the years, the mall's value dropped from $144.5M to $67M as of last year, according to Trepp, after the mall's anchors, Kohl's and Sears, shuttered their locations.

Those anchor spaces, while part of the mall complex, were not subjected to the CMBS loan, according to Trepp. Retail around the mall, located in the city of Stonecrest, which was incorporated in 2016, has also suffered over the years, with Babies R Us, Walmart, Sam's Club and Kroger shuttering stores in the area.

Plans to transform part of the mall and neighboring properties into a sports complex may also have hit a snag last year when one of the primary developers of that project defaulted on a $2.25M loan for that property, according to local reports.

The mall's owners remain current on loan payments, even as the property value fell below its loan amount, according to Trepp. Roberts said there are parties eyeing opportunities to revive the mall, but nothing specific has been established.

The Mall at Stonecrest is just the latest suburban Atlanta mall attempting to survive during a tectonic shift in the retail landscape across America.

Rooker Co. Chairman Jack Rooker and CEO John Rooker during the Shannon Mall redevelopment in 2014

“The retail market is just vanishing because of the online business. It's really getting to the point where people are buying more online,” New York-based Kohan Retail Investment Group CEO Mike Kohan said. But if you buy a mall for the right price, "you have some opportunities other than retail."

Kohan owns a portfolio of regional malls across the country. The goal, Kohan said, is to create a community hub that drives traffic. Sometimes that means getting rid of the retail space.

One growing popular use for former malls and big-box retail stores is for industrial. In fact, the demand for e-commerce has seen nearly 8M SF of former retail space transform into more than 10M SF of industrial space since 2016, according to a recent CBRE report.

This kind of transformation is most common in markets that have a hard time supporting a thriving retail environment, but are located close to population centers. As long as consumers continue to shift buying habits toward their smartphones, this trend will put more value on former retail properties to become distribution hubs.

“Larger-scale vacant retail properties, such as regional malls and community centers, are more often purchased by industrial developers and then demolished for new industrial construction to meet the physical requirements of prospective space users,” CBRE officials wrote in the report.

That certainly was the case for the former Shannon Mall in Union City, a community 20 miles south of Downtown Atlanta. Atlanta-based Rooker Co. purchased the 750K SF mall in 2013, razing the abandoned structure and instead developing a film and television studio, Atlanta Metro Studios, alongside a big-box distribution warehouse.

“For us, it was really all about potential. It was a shuttered mall and had been fully closed, I think at that time, for three or four years,” Rooker CEO John Rooker said. “When I first went out there to look at it, I was very clear I had no intention of salvaging the mall.”

There are striking features of malls that are alluring to investors. They have an established infrastructure base that would be too expensive to replicate today: great access to major roads and highways, water, sewer, electricity and sprawling plots of land. What it comes down to for investors is price.

“If you buy it at the right price, you have the world open to you as to what you can do with it,” The Shopping Center Group partner Marc Weinberg said. “But it's the submarket it's in [that] is what's going to dictate what it can become.”

Not all malls — even those in Atlanta — may lend themselves to a revival that does not include retail in some way.

“This is a trend that is universal in theory, but not in practice. In markets where industrial availability is very tight and there's an abundance of vacant retail, the redevelopment option will be very attractive to industrial users,” CBRE senior research analyst Lisa Denight wrote in an email. “But industrial redevelopment is not a viable savior for every vacant or struggling mall or big-box retail store because of potential obstacles posed by each individual site.”

That has been true for Rooker. Shannon Mall has been the only major retail project that his company has purchased and redeveloped to date, even when his phones were ringing off the hook from other jurisdictions with dying malls, seeking their own saviors.

“It just doesn't make sense. Every mall is different,” he said. “Some of these other malls in and around Atlanta could potentially be good industrial locations. But sometimes it's hard to make the numbers work. I'm just not confident there's a big trend to move that way.”