Beleaguered shopping malls face more closing stores

Shopping malls face multiple challenges, including more and more store closings:

It’s only April, but already this year more store closures — nearly 6,000 — have been announced than in all of 2018…

U.S. retailers so far have announced they will shut 5,994 stores, while opening 2,641, according to real estate tracking done by Coresight Research. That’s more locations slated to go dark than during last year. In 2018, there were 5,864 closures announced and 3,239 openings, Coresight said.

The planned closures include more than 2,000 from Payless ShoeSource, which filed for bankruptcy, hundreds from clothing retailers like Gymboree, Charlotte Russe, Victoria’s Secret and Gap, and discount chain Fred’s. Meantime, chains like Aldi, Dollar Tree, Ollie’s Bargain Outlet, Five Below and Levi’s are planning to open more stores…

With more store closures likely on the horizon, consumers can expect to start seeing hotels, gyms, apartment complexes, more food halls and grocery stores at traditional malls, turning them into more like city centers. The new Hudson Yards mall, which opened in New York last month, is the perfect example of this mixed-use model.

Before long, shopping malls may morph more into entertainment and public spaces than shopping spaces. In today’s world, it is not enough to cluster a bunch of national retailers together in an indoor or outdoor setting surrounded by plenty of free parking. The era of teenagers hanging out at the mall (and efforts to counter those gatherings) may be over. And it may not be only shopping malls that are in trouble; this may not be an issue of too much suburban sprawl. Rather, shopping districts all over the place, even in Manhattan, may be threatened. Some of these shopping areas will continue, particularly those surrounded by wealth or those that offer unique “cosmopolitan canopies.” Others will be transformed to the point that it will be very difficult to discern they were once shopping malls.

Furthermore, it will be interesting to see how these retailer brands disappear into the night or return in new forms or with new emphases or new money. Will Payless come back? Is Gap in its death throes and will its lessons be absorbed by companies taking up that same business space? Can Sears hang on another decade or even make a comeback?

 

Scrambling to fill empty suburban HQs

Chicago looks at development efforts involving several large suburban corporate campuses that lost their famous tenants to the big city:

For many of these suburbs, the solution isn’t to replace one corporate behemoth with another. Instead, they’re dicing up the land for different uses and radically changing the face of suburbia for decades to come — just as the mammoth corporate enclaves and shopping malls once did. In Oak Brook, for example, an unexpected entity pursued the 34 undeveloped acres at McDonald’s. “As soon as we found out they were leaving, we asked if they wanted to donate it,” says Laure Kosey, executive director of the Oak Brook Park District. “They said, ‘Good idea, but we’re going to put it up for sale.’ ”

So the park district bought it. Residents of Oak Brook, a village that levies no property tax, took the unusual step of taxing themselves by voting for a bond referendum that covers the $15.8 million price tag, with $2 million left over for creating soccer fields and spaces for other recreational activities. The deal closed in December with the promise that the land won’t turn into anything other than a park.

A separate McDonald’s property a few miles from the main campus, next to the Oakbrook Center mall, was sold to Houston-based developer Hines last summer. It will likely become a mix of apartment buildings, office space, and shops — what the developer has called a “new village center.” It’s a similar tack to the one Schaumburg is taking after it was rattled in 2016 by the loss of Motorola Solutions’ headquarters, which moved to the West Loop. Chicago-based UrbanStreet Group bought 225 of the site’s 322 acres and intends to remake the parcel into a mini community with houses and apartments, a retirement home, a driving range, a park, and sidewalk cafés…

Nearby Hoffman Estates has already lost one giant — AT&T, which began vacating its 150-acre satellite campus in 2014 for several smaller sites in Chicago and other suburbs — and doesn’t exactly have a sure thing in another: the hobbled Sears Holdings Corporation, which is fighting to stave off liquidation. New Jersey–based Somerset Development is turning the AT&T site into what it calls an indoor downtown, essentially a 21st-century Bio-Dome that packs offices, restaurants, entertainment spots, conference centers, and hotels under a massive roof. It’s possible a Montessori school, public library, and other communal spaces will be weaved into the site, just as the developer did in New Jersey, where it revamped the huge Bell Labs property…

State representative Fred Crespo, a Democrat from the village, is floating a so-called Big Empties bill, which is being redrafted after it was introduced during the last session of the General Assembly. It would provide hefty incentives, including relief on up to half of the property taxes, for developers that make over old HQs larger than one million square feet.

The redevelopment plans sound like they have promise. The goal is to reduce the ways that headquarters are often set apart from the surrounding land by reincorporating the properties into the fabric of the suburb as well as introduce a variety of uses that will generate more around-the-clock activity. Big office campuses and/or buildings can be impressive displays but they may not contribute much to local community and social life.

On the other hand, I wonder how to weigh these changes against the loss of status that can come with the move of major companies out of the community. Particularly for edge cities, suburbs with millions of square feet of retail and office space and often located near major highways (like Oak Brook, Schaumburg, and Hoffman Estates), a Fortune 500 company helps establish the suburb’s reputation. New mixed-use neighborhoods may be attractive but they don’t have the same oomph as saying the suburb is home to Sears or McDonald’s or Mondelez.

I, for one, will be very interested to see how this all plays out within twenty years. These properties offer unique opportunities for established wealthier suburbs to do something unique. However, the redevelopment plans could go awry or the what is constructed may not be that interesting or the suburb’s status may never quite recover.

The declining value of shopping mall real estate

The declining shopping mall has led to a drop in value for these properties:

“It’s a tough environment. I don’t think anybody really anticipated the decline of the department store to happen as quickly as it did,” said Joe Coradino, chief executive officer of Pennsylvania Real Estate Investment Trust, which owns 21 malls in the Mid-Atlantic region. “The sellers are clearly on their knees.”

The Philadelphia-based REIT has sold 17 bottom-tier malls since 2013. The last deal, completed in September, was a $33.2 million transaction for the Logan Valley Mall in Altoona, Pennsylvania, anchored by Macy’s, JCPenney and Sears stores. If those same properties were on the market today, prices would be substantially lower, Coradino said…

Not long ago, some of the biggest names in private equity, such as KKR & Co. and Barry Sternlicht’s Starwood Capital Group, were laying out substantial sums to snap up retail properties. In 2012 and 2013, Starwood purchased a combined $2.6 billion of malls from Westfield, followed less than a year later by a $1.4 billion deal to buy seven malls from Taubman Centers Inc. From 2012 to 2014, KKR bought four regional malls for about $502 million, Real Capital data show. That demand has all but evaporated as timing a wager on American malls becomes increasingly treacherous…

It’s easy to understand their reluctance to sell now. Prices for malls fell 14 percent in the past 12 months, even as values for other types of commercial properties, such as warehouses and office buildings, rose or held steady, according to Green Street Advisors LLC. At least four properties have been pulled from the market in recent months because the bids were too low, Dobrowski said.

Even with efforts to save some shopping malls, from adding restaurants and entertainment options, housing, and community spaces, a good number will simply not survive. They will not be desirable enough for retail activity nor prime spots for redevelopment. They may sit empty for much longer than communities desire or can bear. I suspect we will see a lot of potential creative solutions to these dead shopping malls as land owners, developers, and communities try to turn them into sites that again contribute to the surrounding area.

Perhaps the most interesting question here is how low prices will get before they interest someone who will buy them. Are we headed for the equivalent of $1 homes for shopping malls? Perhaps they will become subject to blight and renewal programs? Will the price be low enough for neighbors or communities to buy them simply to raze them? Perhaps they will be the dystopian spaces featured in films like Gone Girl?

Turning a large suburban office campus into a “metroburb”

There are plans in the works to transform the former 150-acre campus of AT&T in Hoffman Estates into a “metroburb”:

Village officials announced in mid-April that they were in talks with representatives of Somerset, who had recognized an opportunity to apply the lessons learned on their conversion of the 2 million-square-foot former Bell Labs building in Holmdel, New Jersey, into the mixed-use Bell Works project to the 1.6 million-square-foot AT&T buildings.

The key similarity apart from their overall sizes is the large central atriums both properties have, Somerset Development President Ralph Zucker said.

“All of our retail is facing that center court,” he said of Bell Works. “It’s really a vibrant street scene … literally a small downtown.”

Somerset’s concept plan proposes using the existing AT&T buildings for 1.2 million square feet of offices, 60,000 square feet of retail shops and 80,000 square feet of conference space, while new construction would add 375 apartments, 175 townhouse units and possibly a 200-room hotel.

Zucker said the term he coined for this concept at Bell Works — “Metroburb” — is one he hopes will become generally used among other developers.

Successful redevelopment of sizable properties is crucial to both cities and suburbs. Once companies make decisions to move away from existing properties, communities have two goals in mind. First, they need to find ways to make that land attractive to other users. Even a nice facility may not meet the needs of many other users or it may be sized wrong. Second, they often hope to turn the property into something that can generate more for the local tax base. At the least, property taxes are helpful but if retail can be incorporated into the property, sales tax revenue can be generated. The redevelopment proposed above seems to tackle both of these issues: it splits up the space into multiple desirable uses (and there are not that many single firms that need 1.6 million square feet) and has multiple uses (business, retail, and residential). This might have the bonus holy grail of redevelopment: the potential for a mixed-use property that could become a vibrant community on its own.

Given the initial use of this campus, it would be fun to see the AT&T history incorporated into the redevelopment. Bell Labs has an important research and development legacy in the United States and featuring its accomplishments could help set this redevelopment apart from other suburban palces that have less character or history.

When a car repair shop is not high-status enough in Naperville

Naperville has “high hopes” for the Naperville Crossings commercial and entertainment development on the southwest side of the large suburb. These plans do not include a “high-end” auto repair shop:

But nearby homeowners associations weren’t in favor of it, and city council members didn’t go for it, either. By a 6-3 tally, they voted down the shop’s request for a conditional use, saying the business isn’t what they envisioned for the area and they’re willing to wait for something that is…

Jonathan Wakefield, development director for Houston-based Christian Brothers, said the shop would play well with its neighbors because people need somewhere to go or something to do while waiting on car repairs. The shop would have run shuttles to work, school or Metra stations, but he predicted some customers would stay and shop or grab a bite to eat.

Council member Kevin Coyne still was hesitant, saying a car repair business doesn’t blend well next to a day care, a fire station and a frozen custard shop.

“What of any cachet will want to move in next door to an awkward mix of business uses,” Coyne said.

Mike Reilly, president of the nearby White Eagle homeowners association, predicted “the start of a downward trend for Naperville Crossings” if council members were to abandon the original goal and allow the repair shop.

This is a common issue in many suburbs: a retail development has long-standing vacancies. See earlier posts involving grocery stores (here and here) and shopping malls (here and here). But, how many of these suburbs turn down possible occupants in order to wait for better ones? I would guess Naperville is in a minority of suburbs that can afford to do this.

Additionally, I would be interested to dig more into what is so bad about a higher-end car repair place. More noise? Most of the activity would take place during business hours. A lower-class clientele? Maybe; everyone needs a car in Naperville and there are plenty of wealthy residents nearby who need their cars serviced? The lower status activity of car repair? Perhaps this is similar to homeowner’s associations restricting car repairs in driveways and limiting the parking of RVs and work trucks and vans. This seems like an issue of social class and Naperville as a wealthier suburb with a certain reputation will wait for a more appealing use.

Why are 62 acres so close to Chicago’s Loop even available?

There has been a lot of talk about a new project on 62 acres on the Chicago River just south of the Loop. Before we get to what will go there, why was such a big piece of property empty near one of the major centers of the world?

The South Loop property was used as a rail yard, but has sat unused for decades.

The scraggly land was later owned by Antoin “Tony” Rezko, a former fundraiser for imprisoned Gov. Rod Blagojevich who himself served a prison sentence after a fraud and money laundering conviction. The site was sold 10 years ago to Luxembourg-based General Mediterranean Holding, a firm led by Iraqi-born and British-based businessman Nadhmi Auchi. He was convicted in a French corruption scandal in 2003.

Last May, Related completed a city-approved deal to take over as lead developer, with Auchi’s firm remaining a joint venture partner.

From the city’s perspective, Related’s involvement brought credibility to the long-idle site. Related Midwest is an affiliate of New York-based Related Cos., which is building 18 million square feet in the Hudson Yards mixed-used development in Manhattan.

One thing that is striking about Chicago and some other Rust Belt cities is the amount of available or empty property. In particular, Chicago’s South Side has a number of large parcels including this site along the Chicago River, land southwest of McCormick Place with some small developments here and there, land on the Robert Taylor Homes site with a few buildings here and there, and the former US Steel site (and subject to a number of proposals in recent years – see the latest here) plus numerous empty or vacant properties scattered throughout neighborhoods. Even while development booms in certain neighborhoods (and the city trumpets the work taking place in the Loop), others have significant chunks of empty land.

The why: these properties are often available in poorer or more industrial neighborhoods and the properties are often located in or close to areas with higher concentrations of black residents. In other words, these properties are not desirable, even at cheap prices (such as $1 properties in Chicago), and the desirability is connected to the status of the location and the status of places in the United States is closely related to race and class. This particular 62 acres is a great example of how uneven development works; those who want to build (leaders and developers/those in the real estate industry) usually do so in order to profit as much as possible. Now, this 62 acre site is more desirable (meaning profitable) because the South Loop has done well in recent years and there are other new developments nearby.

Buying vacant Chicago lots for $1

Many Rust Belt cities have plenty of empty land and the city of Chicago is selling some of these lots for $1 a piece:

In an effort to combat urban blight and the illegal activity that often follows, the City of Chicago has announced a major expansion of its Large Lots program that offers empty city-owned parcels to nearby homeowners for just $1.

After debuting in Englewood and East Garfield Park in 2014, more than 550 homeowners have so far taken advantage of the program. Now, thanks to its recently expanded scope, Large Lots will extend to 33 Chicago communities on the West and South sides, offering 4,000 empty properties at the extremely discounted rate…

Not just anyone can swoop in and grab real estate for a buck, however. To purchase a lot, buyers must reside on the same block, be current on their property taxes, and be in good financial standing with the city in order to be eligible. Large Lots will be accepting applications on its website through the end of January.

The city tells the Chicago Tribune that all lots in the program are reserved for residential uses such as extended side or back yards, gardens, parking pads, or landscaped green space. In addition to improved neighborhood aesthetics, the Trib also cites a study that found the program yielded a notable drop in nearby littering, drug activity, and prostitution.

Eliminating empty properties is probably a good first step. But, what is the next step? What is the long-term solution to reviving both these properties and neighborhoods?

I will occasionally get questions from students as to why people or businesses don’t see vacant land like this as opportunities. On one hand, the Chicago metropolitan region is in desperate need of affordable housing. On the other hand, these properties are often located in poorer neighborhoods. But, a collection of residents or organizations could really make something interesting out of cheaper properties and the city would benefit from better uses.