Retail Remains in Almost All Mall Conversions, Walmart’s Urban Prospects and More

Even as more malls go mixed-use, retail remains key to driving traffic and creating a sense of place and experience, according to a JLL survey of 153 U.S. mall redevelopments. Eighty-six percent of these projects retain some retail space, underscoring retail’s compatibility with and necessity to other uses. Only in a few instances are owners dropping retail from their mall redevelopment plans. In these cases, the properties are becoming college campuses, corporate headquarters or industrial distribution facilities, according to JLL.

Forty-six percent of the projects surveyed incorporate at least three uses, and retail usually takes the most space or is among the uses that do. Residential and office are the most popular redevelopment uses for malls, JLL reported. Nearly 54% of the projects incorporate residential, and almost 35% include office.

Markets grappling with housing shortages are finding desirable, well-located sites in empty former stores. Wisconsin’s Mayfair mall, for example, will add residential. The city of Wauwatosa, which partly owns the property, is trying to reverse the trend in which 92% of those who work within the city live outside city limits.

Malls are adding housing across California, too. In Orange County, officials plan to add much-needed residential space to Westminster Mall. The redeveloped mall would contain at least 600,000 square feet of retail, as many as 3,000 residential units, as many as 425 hotel rooms, and 17 acres of green space. Meanwhile, in Santa Ana, a 309-unit apartment complex is under construction on the parking lot of MainPlace Mall.

Other uses like hospitality, green space and health and wellness are gaining traction. In the redevelopment of Skokie, Illinois’ Westfield Old Orchard, pictured at top in June 2019, Unibail-Rodamco-Westfield plans to include as much as 200,000 square feet of medical space, in addition to 350 residential apartments. Plans are underway to convert the 1970s-era, enclosed Lakeside mall in Sterling Heights, Michigan, into an open-air town center with retail, health and wellness, hospitality, office and residential amid a network of walkable streets. And McWhinney and Prism plan to redevelop Fort Collins, Colorado’s Foothills mall into an urban neighborhood and lifestyle district with homes and rental apartments. And Eastland Mall in Charlotte, North Carolina, is undergoing a five-year redevelopment into Eastland Yards. Phase 1 will include residential, office, retail and green space. A deal for Major League Soccer’s Charlotte FC to open a headquarters at the property fell through, and the development team is considering three proposals for those 20 acres: an aquatic center, a racket sports district or a Target.

Dropped anchors are often a driver of mall redevelopment. Of the mall redevelopments JLL studied, 17% involve anchor spaces. Former Sears make up a big chunk of the empty anchors up for redevelopment. To revive these spaces, landlords most often turn to retail enhancement and residential, according to JLL. Retail enhancement adds luxury retail, food halls or entertainment. In Tampa, Florida, county commissioners recently made zoning changes so a former Sears at Gulf View Square can become a 288-unit residential apartment complex. The mall’s two other anchors, former JCPenney and Macy’s stores, already have transformed into apartments. And in Ann Arbor, Michigan, plans are underway to demolish the former Sears at Briarwood Mall to make way for a grocery store, a two-level retail building, a four-level multi-family building and an outlot building.

Other mall owners are experimenting with unique uses, including charter schools, casinos and even a cannabis supercenter.

5 Recent Transactions That Tell Us Something

Fremont, California: While some overleveraged buyers take to the sidelines, institutional funds like Sterling Organization’s $497 million Sterling Value Add Partners III are taking advantage of the opportunity. The Sterling vehicle recently made its 21st investment: the 117,068-square-foot Fremont Town Center. It includes a 53,912-square-foot Safeway and five outparcels occupied by Bank of America, Burger King, Cathay Bank, KFC and Taco Bell. "Particularly in this capital environment, we are pleased to acquire a defensive, grocery-anchored shopping center in a gateway market that features upside potential," said Sterling Organization principal Jordan Fried.

Tampa, Florida: Residential-focused developer BTI Partners sold the 70,000-square-foot Marina Landings, a town center within the 52-acre Westshore Marina District in South Tampa. Transcentum LLC bought the property, whose tenant roster leans toward food-and-beverage, for $13 million. BTI will continue to own and operate luxury condominium properties in the Marina District. “With the retail portion of the master-planned community stabilized, it was the right time to divest the Marina Landings town center and continue to focus on our luxury condominium development in Westshore: Marina Pointe,” said BTI CEO Noah Breakstone.

Johns Creek, Georgia: Here’s a newly built retail property that sold. Willow Capital Partners sold the 6,200-square-foot Shops at Medlock Corners for $4.3 million. SRS Real Estate Partners’ National Net Lease Group represented the seller. The property opened in March fully leased for 10 years to Jersey Mike’s Subs, Ideal Dental and ATI Physical Therapy.

Bossier City, Louisiana: Entertainment and experience are driving redevelopments. The Cordish Cos., for one, continues to expand Live, its entertainment and casino concept. The developer will acquire and redevelop Diamond Jacks Casino & Hotel, which has been closed since March 2020, into a casino resort and entertainment destination modeled after Live resorts in cities like Arlington, Texas. Cordish will operate the property with Foundation Gaming & Entertainment.

Plymouth, Minnesota: 1031 exchanges continue to fuel retail property transactions. Mid-America represented both the 1031 exchange buyer and the sellers, IRC Retail Centers and DRA Advisors, in the trade of Plymouth Collection. Golf Galaxy anchors the 46,015-square-foot center. Other tenants include Dollar Tree, Toppers Pizza, Plymouth Tobacco & Cigar, Coldwell Banker and Haskell’s Wines and Spirit.

Walmart’s Urban Prospects

Walmart’s efforts to grow in dense urban markets are flustered in part by its policy to price products pretty much the same at every Walmart store, according to The Wall Street Journal’s citation of people familiar with the situation. Others that have been more successful in urban areas, including Target, raise prices on some products to compensate for higher costs of operating there. This week, Walmart announced plans to shutter four Chicago stores, after having closed other urban stores in Atlanta; Portland, Oregon; and Washington, D.C. Smaller-format layouts and hyperlocal merchandising strategies couldn’t reverse slow sales, according to Walmart. “The simplest explanation is that collectively our Chicago stores have not been profitable since we opened the first one nearly 17 years ago,” Walmart wrote. “These stores lose tens of millions of dollars a year, and their annual losses nearly doubled in just the last five years.

More on Urban Retail

Where Foot Traffic Stands in Urban Shopping Corridors
Cautious Optimism That the Return to Work Will Accelerate — to the Benefit of Urban Retail
The Case for Rezoning San Francisco’s Union Square and Other Spots Like It

Moody’s Analytics’ View of Regional Banks

Moody’s Analytics’ Kevin Fagan, Matt Reidy, Thomas LaSalvia, Blake Coules and Victor Calanog wrote that concerns about regional bank failures freezing up the commercial real estate market are somewhat overhyped. In the U.S., 135 banks have between $10 billion and $160 billion of assets each. Those 135 smaller regional banks hold just 13.8% of commercial property debt, according to the Moody’s authors. That’s far less than the 65% to 80% some have trumpeted in the past month.

If the regional banks that many growing development firms have come to rely on for financing were to fail, they wrote, those developers can borrow money from other sources like large banks, mortgage REITs, life insurance companies and private bridge lenders. Lending will continue from various sources but just at interest rates roughly 150 basis points higher than loans that originated between 2013 and 2018 and at debt service coverage ratios around 0.1 times larger, they forecast.

The news isn’t all rosy. The authors project that roughly 40% of commercial real estate borrowers with maturing loans will need additional equity capital to successfully refinance in the next two years. More are likely to default on their mortgages because of higher interest rates, and others will lose money as they adjust their balance sheets to reflect their properties’ reduced values.

Even so, the authors predict that the downturn will be more manageable than past debt crises because the loans coming to fruition originated between 2013 and 2018, after the Great Recession, they have less leverage and they have more price cushion. The borrowers also have a more diverse set of lenders.

First National Realty Partners Hires CEO

First National Realty Partners appointed Josh Champion as CEO. He previously served as president and chief investment officer of private equity real estate firm Carroll.