The mall became an American institution decades ago, anchored by huge stores like Macy’s and Nordstrom, populated by teenagers and accompanied by seas of parking. But then came online shopping, social media and new consumer preferences.
Bill Shopoff at Shopoff Realty Investments is among the developers converting struggling malls into housing, with smaller retail portions, walkable areas and restaurants.
“You’ve got about a million to 2 million square feet of retail — it’s just simply more than the market needs,” Shopoff said on the May 15, 2023, episode of TRD’s podcast Deconstruct.
“The market probably needs 300,000 or 400,000 square feet total, plus some hospitality.”
Source: The Real Deal
A changed landscape
The U.S. is in the midst of a mall downsizing.
A report issued last year by Coresight Research estimates that 25 percent of America’s roughly 1,000 malls will close by 2025.
Simon Property Group lost its first mall, the Town Center at Cobb, in suburban Atlanta, to foreclosure in February, followed by the Montgomery Mall in North Wales, Pennsylvania, in August.
In their wake, new buyers are picking up the pieces.
In Ohio, Hancock County agreed in June to purchase a portion of the Findlay Village Mall, which will be converted to government offices. In Dewitt, New York, Onondaga County purchased the shuttered Shoppingtown Mall last year for $3.5 million, then flipped it in July for $8 million to a joint venture planning a $300 million redevelopment that includes residential, retail and office space.
Alexandria Real Estate Equities — a REIT that specializes in office and lab space — paid $130 million in May for the Watertown Mall in a Boston suburb experiencing a life sciences-driven development boom.
After emptying Main Street storefronts in the late 20th century, malls now face their own struggle for relevance. But the land they sit on — accessible from highways and public transit and typically in suburban areas poised to benefit from population growth — is often valuable.
Urban Edge is in the process of reimagining three of its malls, adding residential space to the Bergen Town Center in New Jersey and to the Yonkers Gateway Center. The firm also plans to “de-mall” the interior of its Hudson Mall in Jersey City to make way for industrial and self-storage space.
Often, the biggest obstacles to redevelopment are the very tenants that anchored malls for decades.
Developer Lerner Enterprises kicked off a years-long legal battle when it announced plans to redevelop the White Flint Mall in Rockville, Maryland, into office and apartment buildings and a 300-key hotel.
The mall “closed” in 2015, except for a sole tenant, Lord & Taylor, which sued Lerner and co-owner Tower Companies, alleging that they had breached a 1975 agreement that required the mall to be maintained until 2042.
As Lerner and Tower pivoted to showcasing the site to Amazon officials as part of the county’s bid for the tech firm’s second headquarters, Lord & Taylor was awarded a $31 million verdict. The store finally closed at the end of last year in the aftermath of the retailer’s bankruptcy.
Similar actions brought by JCPenney and Macy’s have stalled redevelopments of otherwise abandoned malls in Western Pennsylvania and San Diego, respectively.
“Malls have to be sufficiently ruined in order for you to justify turning them into something else,” said Gar Herring, senior vice president of retail development at JLL. “That leaves a large chunk of what we call zombie malls that are kind of the walking dead. They’re not quite good enough to reinvest into and not quite bad enough to tear down.”