How Dead Malls Are Resurrecting As Something Else
Back in 1975, Red Bird Mall was the only enclosed regional mall in the southern half of Dallas, but like many malls across the nation, it eventually fell on hard times.
The 1.1M SF mall was renamed Southwest Center Mall and has struggled since the early 1990s with multiple owners, foreclosures, bankruptcies, vacant storefronts and empty parking lots.
Many regional malls across the nation have similar stories.
“The shopping mall is the quintessential American contribution to the world’s consumer culture, but the conditions that led to the creation of shopping malls and sustained them for decades are changing rapidly,” noted the Urban Land Institute — back in 2006.
By 2009, Red Bird/Southwest Center was officially declared dead. “From the perspective of the community and the city, the Southwest Center Mall has become a dead shopping mall,” noted a 2009 ULI report, which convened a panel to study redevelopment options. “Like many dead malls that exist nationally, over half the floor space is vacant, consumer traffic is low, and the configuration is dated or deteriorating,” the report said.
Investors haven’t given up on Red Bird or on other dead malls across the country, and some former malls are now rising from the ashes to be successful, although oftentimes as very different commercial real estate developments. Even Red Bird hopes to rise like a phoenix and earlier this year received some financial support from the city of Dallas to be reinvented.
AllianceBernstein, in a blog published this summer, estimates that one-third of malls that were operating at the start of 2017 will eventually close, with most of the casualties in less affluent areas where population growth is stagnant.
“Some malls are dead; I don’t think all malls are dead, but it’s challenging,” Simon Property Group Senior Vice President Greg Vlahos, who oversees the company’s Southwest portfolio, said at Bisnow's Retail South conference this month.
Simon Property, which owns malls across the country, reported occupancy of 94.7% for all of its U.S. mall properties as of June 30. Rent spreads were up as were funds from operations for the second quarter.
“We see a bright future for our portfolio but it’s not without challenges,” Vlahos said. Simon is working to reinvent its mall properties using trade area demographics to determine the best future fits for particular properties.
“Maybe it’s entertainment; maybe it’s food; maybe it’s experiential retail,” Vlahos said. “All of us are trying to get a handle on that.”
It has a number of redevelopment and revitalization projects underway, including upgrades at Town Center at Boca Raton, a luxury retail mall in Florida. It is also repositioning the nation’s oldest enclosed mall — Southdale Center in Edina, Minnesota, a redevelopment project being closely watched by the national commercial real estate market.
Like other malls, Southdale, which opened in 1956, has dealt with vacant department store anchors, empty storefronts and reduced foot traffic. Simon is replacing traditional anchor department stores at Southdale with experiential concepts.
Life Time Athletic, a luxury fitness center, will take about 120K SF of a 250K SF vacant JC Penney anchor property and is scheduled to open next year. Life Time also plans to open an indoor soccer facility and coworking space. To further activate the mall, the city of Edina has approved new condos and apartments, which are under construction within walking distance. The revitalization effort includes pedestrian- and bike-friendly connectivity between the new residences and the redeveloping mall.
In the Atlanta area, Simon Property is redeveloping a Belk department store at Phipps Plaza in Buckhead by putting in a dining hall, an office building and a hotel. Noticeably lacking: any soft-goods retail.
Back in Dallas, at least four operating malls are either slated for redevelopment or are in talks about it, Weitzman Vice President Ian Pierce said. Weitzman is a Texas retail specialist that manages, leases and provides research on retail centers.
In a tale of how difficult mall redevelopment can be, a nonoperating mall in Dallas — Valley View Center — was partially demolished years ago in a redevelopment plan that has stalled and created a massive eyesore.
Dallas developer Scott Beck announced his plans more than six years ago to demolish the dying mall along the busy Interstate 635 freeway and replace it with a 1.5M SF mixed-use development called Dallas Midtown, a project designed with apartments, condos, a hotel, retail, restaurants, entertainment and a park. The suit names Beck's entity, TX Dallas Midtown L.P., which owns the bulk of the property, and EF Properties, which owns the partially demolished Macy's store.
Further north, Weitzman has taken a revitalization approach rather than a demolition approach with Golden Triangle Mall as part of a joint venture in which it is leasing and managing the mall. The 785K SF mall, which opened in 1981, is in Denton. It has a redesigned entrance and some newer A-level tenants that include Corner Bakery and H&M, but has a recently vacated Sears store.
“Without redevelopment like this one in Denton, some major properties can’t halt their decline,” Pierce said.
Steven Levin, CEO of Dallas-based Centennial, an investor in enclosed regional shopping malls, said there is still significant demand for the redevelopment of malls, especially those in good locations with good assets. It has purchased properties in California, Colorado, Connecticut, Illinois, Texas and Washington state.
“It’s not a cookie-cutter business; each mall has to be looked at on its own as to what that market and those demographics will drive,” Levin said at Retail South. Centennial’s purchases have included seven department store boxes, including three Sears parcels that come with about 20 acres each.
“We are doing about $600M in development across our projects as a result of that,” Levin said. “You are really not backfilling a 250K SF Sears box. In our case, we are generally tearing them down and creating an open-air plaza, restaurants, entertainment and a transformation of the project to more of a mixed use.”
Centennial’s redevelopments of former enclosed mall properties have included apartments, entertainment concepts and restaurants.
“It’s not for the faint of heart, it’s about as heavy-lifting as you can create in this business,” he said. “But if you have a good project and you have time and you have capital I think the opportunities are unmatched.”
CORRECTION, SEPT. 29, 11:50 A.M.: An earlier version of this story misidentified Weitzman as a retail owner rather than manager. It has been updated.