Tag Archives: vacant property

Dead shopping malls and empty sound stages

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Enough shopping malls are dead that other vacant properties can be compared to them. Take this question: “L.A. Sound Stages: The New Dead Mall?“

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So: When was the last time you were on a sound stage for a film or TV series? Even if you work in production, the answer is likely “not lately.” One well-known director recently told me that the last time they worked on the 15-stage Fox lot, their production was the only one active that day. And FilmLA’s recent sound stage report was bleak: Average stage occupancy plunged to 63 percent in 2024, down six points even from a strike-ridden 2023.

Compare that to 2016, when stages hummed along at 96 percent occupancy level, or the we-all-agree-it-was-a-bubble Peak TV year of 2022 when levels bounced back up to 90 percent during the post-pandemic recovery. Investors from Blackstone to TPG have stakes in sound stage properties, so it’s not just Hollywood worried about production. Just days ago, sound stage titan Hudson Pacific Properties — the Blackstone-backed owner of Sunset Bronson Studios, which is leased to Netflix — got hit with a credit rating cut. S&P Global called out the company’s “weakened studio business performance” and declining leased studio space, which dipped to 73.8 percent from 76.9 percent the year prior…

On a macro level, sound stages are in trouble — a reflection of the times. Production continues to be offshored to states and countries with more appealing tax incentives and cost structures, the correction from Peak TV means fewer series are being made, and the post-strike job market is still sluggish. While Gov. Gavin Newsom and others are pushing for a big new California tax credit plus other legislative moves to make filming here more accessible (#StayinLA), the industry is still reeling from a few years of blows, and some entertainment workers have left L.A. behind.

While the empty sound stages may be the result of specific issues in the TV and film industry, the comparison to shopping malls is particular interesting. Do we now just assume shopping malls are past their peak? That many of them are dead? That they are the exemplar of buildings that were once thriving but are empty now?

Vacant buildings are a problem for a number of industries and communities (see examples here and here). Empty buildings mean less work or activity is taking place. Empty buildings can lead to perception issues and ne’er-do-wells possibly causing problems. Empty buildings could lead to reduced tax revenues.

If shopping malls are the best comparison for these particular empty buildings, one lesson we might take: it will take years to figure out what to do with these properties. Will activity pick up in production again? Could there be temporary uses for these structures? If redevelopment is pursued by developers, do neighbors and communities want what might be there next?

Dead shopping malls could turn into zombie shopping malls: ones that slightly change form but stick around for years with limited activity and change. Whether sound stages follow a similar path remains to be seen.

What’s left of Sears

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A few stores and some valuable retail properties are most of what remains of Sears in the United States:

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The primary mission of Transformco is to monetize Sears’ real estate. This can occur through either selling or leasing it, according to John C. Melaniphy, president of the Chicago-based retail consulting firm Melaniphy & Associates…

“In my opinion, it will take years to unwind all of the properties that are encumbered through either Sears/Kmart leases or ownership,” he added. “Transformco leadership will determine their short-term and long-term success. However, the company has experienced talent losses with fairly significant employee turnover. The current mall redevelopment environment, with rising store closings and greater e-commerce market share, is a serious threat to their long-term success. Transformco leadership will be challenged in their effort to navigate the peaks and valleys in development cycles. In my opinion, they will sell off the remaining assets as quickly as possible.”

But Melaniphy sees Transformco’s recent sales of two former Sears stores in Texas for their redevelopment into Dick’s Sporting Goods House of Sports locations as signs of success in its mission…

As of early spring, the remaining Sears stores were in Burbank, Concord and Whittier in California; Orlando and Miami in Florida; Braintree, Massachusetts; El Paso, Texas; and San Juan, Puerto Rico…

A quarter of the way through the 21st century, other lingering evidence of Sears’ long and proud history in the Chicago area include the third-tallest building in North America and the call letters of radio station WLS, which stands for “World’s Largest Store” for the four years Sears owned the station in the 1920s.

From leading company to holding some potentially valuable real estate. This is quite a fall over decades. It also has the potential to turn into something else if the real estate becomes something important down the road. While it probably will not lead to the rise of the next great retail company (and can that even happen in brick and mortar settings?), the reused or redeveloped properties could still benefit communities.

This does lead to a bigger question about any mass market retailer or restaurant. Yes, they generate revenue – or hope to – at each location. But what if the real estate portfolio is ultimately the biggest asset? What happens to that asset long-term if the company is no longer there?

Imagine 50 years into the future. Will there be any physical locations that remind people of Sears? The former Sears Tower will presumably still be there. Will any of the former Sears retail stores or warehouses or offices have any markers that talk about the once-large company?

Filling empty big box stores with pickleball

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I have tried to track the problems created by vacant big box stores in the suburbs, including having empty former grocery stores and putting COVID vaccine centers in those spaces. Some communities now find pickleball can make use of big box spaces and possibly generate revenue:

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When big-box stores like Toys R Us or Buy Buy Baby close, they leave behind tens of thousands of empty square feet — spaces that can be difficult to fill.

Finding new tenants for these massive spaces is no small task. But one unlikely contender, pickleball — among the nation’s fastest-growing sports — is breathing new life into these cavernous retail spaces.

From Vernon Hills to Batavia, commercial indoor courts are opening at a steady clip, bringing renewed energy, foot traffic, and consumer spending to shopping centers facing an uncertain future…

Retail market experts believe repurposing vacant big-box stores as indoor pickleball facilities is a smart business move. These spaces offer high ceilings, ample parking, and central locations. For pickleball chains seeking an affordable 40,000- to 50,000-square-foot space, these vacant stores provide an ideal solution…

One key concern is tax revenue. Unless the facility also sells equipment, apparel, or food and beverages, the host municipality won’t see much financial benefit from sales tax, leaving a gap that traditional retail stores typically fill.

Vacancies are bad for multiple reasons. They sit empty, suggesting there is no demand for space in the community. They may attract undesirable activities. They are not generating revenue. The buildings and parking lots may not be kept up to the same level of open stores.

Filling vacancies, therefore, is important. Anything using the space broadcasts activity and suggests a more vibrant community.

But also important is the need for revenue. Spaces in suburbs designated for commercial use are intended to help provide tax dollars to be spent on local priorities. If these spaces are not generating revenue, might they be better used for housing or community spaces or recreation use?

From the article, it is less clear about whether pickleball facilities can provide the tax revenues suburbs might hope for. Is there a point where suburbs might be unhappy with pickleball there, even if they do address the vacancy issues?

Office buildings empty, residential property taxes go up

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What happens when the office buildings in Chicago’s Loop have more vacancies? Residents end up paying more in property taxes:

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The pandemic left the heart of the Loop with vacant offices and stores as workers and customers stayed home, and more people began working remotely. Then, citing the impact of that lost business, the owners of those vacant offices won huge tax breaks from Cook County officials.

The amount of property taxes didn’t get smaller because those taxpayers were now paying less. The taxes were still needed to pay for government services and salaries. So others have had to pay more to make up for that shortfall.

On top of that shift, City Hall and other government agencies have been asking property owners to pay more taxes overall, with total property taxes in Chicago rising from $6.8 billion five years ago to $8.3 billion last year.

That’s a 22% increase in taxes citywide in those five years.

This is one reason municipal officials like thriving commercial and industrial sectors: they contribute to the property tax base of a community. When these properties are worth less, someone else has to pick up the slack. Homeowners do not like rapidly increasing property taxes, if they like property taxes at all.

For residential property owners, the issue is compounded for some because the value of residences has jumped in recent years. With limited new supply and consistent demand for good housing, property values have gone up. Homeowners like this – until property taxes also increase because their home values have increased.

Will residential property owners put up with this and, even if they do not like it, what recourse do they have? Does this mean cities and communities need to put on a full-court press to get office buildings filled or converted?

Record high office vacancies in Chicago suburbs

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More suburban Chicago office buildings were empty in 2024:

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Meanwhile, 2024 brought an increase in suburban office vacancies — an all-time high of 26.3%, up from 25.4% a year earlier.

The suburbs are job centers. For example, the article notes, “Schaumburg is Illinois’ largest hub of economic activity outside of Chicago.” So to have a lot of empty office space is not a good thing. Owners of these buildings would prefer to have full offices as would municipalities who gain tax revenues.

Will upgrades to the buildings make a big difference? That is what the rest of the article suggests as workers and companies seek certain amenities to enhance the workspace and compete well against work from home options.

Also interesting to note is the redevelopment options if there is too much office space. For example:

Schaumburg officials hope to assist the office market by reducing its obsolete properties. This includes buying a 204,000-square-foot building to demolish for the village’s next police station and nearing approval to convert a 45-year-old Class B office building across from Woodfield into a 98-unit high-end apartment complex.

How many suburban communities would be willing to pull the plug on decent office space and go through all the effort it takes to redevelop the same land? If there is not demand for high quality office space, will other land uses bring in similar revenues and have similar levels of prestige? I would guess edge cities are not interested in losing that status but finding the right balance of offices, residences, and other uses could take time.

Living in a deserted English church as a “guardian”

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Here is one way those needing lower rents and those wanting to protect empty buildings, such as churches, can find common ground:

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Three people have lived in the deserted cathedral in the past two years, with each occupant — an electrician, a sound engineer and a journalist — paying a monthly fee to live in the priest’s quarters.

The cathedral is managed by Live-in Guardians, a company finding occupants for disused properties, including schools, libraries and pubs, across Britain. The residents — so-called property guardians — pay a fixed monthly “license fee,” which is usually much lower than the typical rent in the same area…

The practice of populating disused properties with guardians is unregulated in Britain and comes with fewer legal protections for the residents than renting. Guardians have also complained of inconveniences and outright hazards, such as no access to drinkable tap water and rickety ceilings…

The practice started in the Netherlands in the 1980s and has long attracted artists, musicians and other creatives in search of enough square footage to do their work, as well as those prepared to live more precariously. For example, in Britain, guardians can be asked to vacate the property with 28 days’ notice, compared with the two months afforded to most private renters…

The UK housing ministry states in its guidance on guardianships that it “does not endorse or encourage” the practice because people “can be asked to live in conditions that do not meet the standards of residential properties.”

This seems like a short-term solution to two big issues facing a number of cities. Where is the affordable housing? How might older but unused buildings be preserved or used again? Each issue is complex. Each would take a long time to address.

In the meantime, what truly happens to these buildings? It seems like they have some use but given the stories shared here, it sounds like they are slowly deteriorating.

And what are the experiences of residents? Based on what is shared here, it sounds like it might be a less than positive experience overall as people are able to get by and not much else.

Are there any cities in the United States that have similar programs and, if so, what are the outcomes?

The prime suburban real estate available when restaurants close

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Want a prime location in the suburbs? Red Lobster and TGI Fridays might have an answer:

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Vacant restaurant chains are creating prime real estate for a wide range of companies looking for spots to grow, especially fast-food chains that want to install drive-thru lanes on spots where diners once sat down for dinner.

Chains like Red Lobster and TGI Fridays filed for bankruptcy this year and closed more than 175 restaurants combined. Red Lobster was driven into bankruptcy by mismanagement under a previous owner, global shrimp supplier Thai Union, while TGI Fridays fell under private equity owner TriArtisan Capital Advisors. Denny’s is also closing 150 restaurants…

In the past, these restaurants would often be replaced by a different restaurant chain, with tables to sit at and servers to bring out the food. But now, fast-food and fast-casual chains are taking these spaces and building more drive-thru lanes. Chipotle is building 4,000 new locations, the majority with drive-thru lanes, while Chick-fil-A is building new spots with four-lane drive thrus…

Many of these restaurant locations are also attractive to prospective tenants, as they are freestanding buildings, not located in the back of decaying indoor malls. Indoor malls have struggled in recent years, and mall vacancies reached 6.5% last quarter, according to CBRE. Macy’s, JCPenney, Nordstrom and others have closed hundreds of their stores in malls as online shopping has grown to around 16% of retail sales. Real estate research firm Green Street estimates about 150 enclosed malls have closed since 2008, leaving about 900 today.

Most of the closed restaurants are also located on high-traffic streets with large parking lots or adjacent to a shopping center, making them attractive sites.

I have heard before that certain restaurants and retailers are less into the business of selling things and more into the business of real estate. Think just of the largest fast food chains in the world: how many prime locations do they occupy? If all that land went up for sale at once, how many other businesses would be interested in jumping in?

I have been thinking about locations like these in terms of religious congregations recently. They often occupy important locations within communities, sometimes at busy intersections or in important historic locations. If that location is no longer occupied by a congregation and/or a religious building, it could be a loss in the community (and a possibility for something else).

In the case of these restaurants, it appears there is plenty of demand for the land and plenty of interested parties want to make more money with these properties. Additionally, I would guess most municipalities love that another restaurant will take over. Those new restaurants and businesses can generate even more revenue. The worst possible outcome is that the land remains vacant with limited demand and the property becomes an empty eyesore.

How long before these new restaurants that take over are selling off their own properties? Ten years? Twenty years? At least in this moment, new restaurants want to snatch up these properties but that might not always be the case.

Banks and “extend and pretend” for office properties

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With some companies and organizations falling behind on their commercial mortgages, some banks are waiting and looking for ways to get out of the loans:

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Some Wall Street banks, worried that landlords of vacant and struggling office buildings won’t be able to pay off their mortgages, have begun offloading their portfolios of commercial real estate loans hoping to cut their losses…

But these steps indicate a grudging acceptance by some lenders that the banking industry’s strategy of “extend and pretend” is running out of steam, and that many property owners — especially owners of office buildings — are going to default on mortgages. That means big losses for lenders are inevitable and bank earnings will suffer.

Banks regularly “extend” the time that struggling property owners have to find rent-paying tenants for their half-empty office buildings, and “pretend” that the extensions will allow landlords to get their finances in order. Lenders also have avoided pushing property owners to renegotiate expiring loans, given today’s much higher interest rates.

But banks are acting in self-interest rather than out of pity for borrowers. Once a bank forecloses on a delinquent borrower, it faces the prospect of a theoretical loss turning into a real loss. A similar thing happens when a bank sells a delinquent loan at a substantial discount to the balance owed. In the bank’s calculus, though, taking a loss now is still better than risking a deeper hit should the situation deteriorate in the future.

Four questions come to mind:

  1. How long will banks wait before aggressively working to drop these loans? It sounds like this is happening a little bit. Is there a possible tipping point? In other words, how much “extend and pretend” is doable?
  2. How much does this behavior toward commercial tenants reflect how the same lenders or other banks treat residential loan holders? If a homeowner is not making their mortgage payments, do they get treated the same? Is the issue more of the size of these loans and not necessarily what kinds of properties are involved?
  3. Given the foreclosure crisis of the late 2000s and the COVID-19 pandemic, is it safe to assume there are plans in place if banks need to move a lot of these loans at once? Who would benefit the most from aid to get out from under a lot of commercial property losses in a short amount of time?
  4. What happens to these vacant properties in the short and long-term? How quickly can they be filled by other uses? How do these vacancies affect the communities in which they are situated?

Turning former shopping spaces into entertainment centers

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Imagine a shopping mall less about shopping and more about entertainment. This is what is happening to at least a few vacant big box and department stores:

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Oca’s client, real estate investment firm E8 Properties, has been buying empty Sears stores, dusting them off and converting them into “Elev8 Fun,” a massive indoor family entertainment park created in partnership with Primetime Amusements, a provider of video arcade machine.

The first one, designed by Oca and his team and housed in a 120,000-square-foot former Sears building attached to the Seminole Town Center Mall in Sanford, Florida, opened in January 2022…

To his point, increasingly, more malls are morphing into family entertainment destinations where shopping may not even be what draws shoppers in.

Industry analysts said research shows that adding entertainment experiences shifts more money to mall retailers and not away from them. Through the pandemic and coming out of it, the popularity of pickleball made its way into malls with courts popping up next to skating rinks. Indoor skydiving, Legoland theme parks, virtual golf and microbreweries are other concepts catching on.

Shopping can be its own kind of entertainment. It is not just about buying goods, whether they are necessary for life or not. It is about looking, considering, interacting with people you are with, seeing other people shopping, and participating in particular lifestyles.

But these entertainment centers are offering something else: games, competition, novelty, having fun with others.

Longer-term, does this mean hopping is less entertaining and more efficient when done online? Is shopping more often a private activity since it takes place online? Do people still want to have experiences around or near others, even if the forms of doing so have changed?

An abandoned large development in LA turns into graffiti canvas

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A large development in Los Angeles that has gone unfinished now goes by the name “Graffiti Towers” to nearby residents:

https://www.cnn.com/2024/04/10/style/graffiti-oceanwide-plaza-los-angeles-skyscrapers/index.html

Climbing up abandoned, unfinishedfloors and tightrope walking across balcony ledges, backpacks clanging with cans of alkyd and acrylic, a collective of Los Angeles graffiti artists have transformed their craft beyond urban aesthetics to champion community issues.

Their choice of canvas: Oceanwide Plaza in Downtown LA. Occupying over a full square city block, the plaza was imagined as a vast mixed-use building project, offering city residents over 500 lavish condominiums, a five-star hotel, retail spaces, restaurants and a private 2-acre park.

However, construction on the $1 billion project, which began in 2015, was shelved after the Chinese-backed contractor Oceanwide Holdingsran out of funding in 2019 — and it has lain unfinished ever since…

Transformed in part into an art installation, Oceanwide became an opportunity for the graffiti artists to leave a message to the city below, and a call-out to policy makers who leave buildings to rot…

“People forget that people live here. People own businesses here and they don’t want to have to spend the time and money to clean it up,” said Blair Besten, executive director of the Historic Core of Downtown Los Angeles, an organization which works to improve the quality of life in downtown neighborhoods. The Historic Core prioritizes street sweeping, trash collection — and graffiti removal.

This article showcases the multiple sides of an ongoing public debate about graffiti: is it a response to difficult social and economic conditions? Is it art? Is it criminal behavior that should be punished?

At the same time, how is there such a large abandoned project in Los Angeles? What can a municipality do to finish the development or pursue another use?

Put these two ideas together: are there cities willing to have large-scale platforms for graffiti in or near their downtowns? If graffiti and its place in society is multi-faceted, how might Los Angeles or other large cities incorporate it or work with graffiti artists?