The De-Malling of America

Ten years ago, before the Great Recession, I was a consultant to one of America’s largest retail shopping center owners. The stated goal was to see if we could redesign, repurpose, and reprogram the concept of their existing shopping centers to include housing. We focused on two malls, one in Southern California and another in the San Francisco Bay Area. The idea was to include during the remodel of the mall, a significant number of residential units into the property’s footprint. There was all this delicious asphalt ready for housing; all we had to do was set goals and then a direction.

The effort failed, mostly because of the collapse of the financial markets, housing, and the bankruptcy of the client. However, I still believe that these sites are gold mines for the current and on-going realignment of retail and commercial space for two good reasons.

• 1.     The sites usually have excellent access and are at important and critical transportation nexus points.
• 2.     In most instances the underlying dirt is either free (paid for out of the old center’s previous life) or at a substantial discount to the nearby costs of land.

Additional bonuses are that many have modern infrastructure (more or less) and willing politics. Nothing gets a city’s attention faster than a decline in sales tax revenues. It is projected that a quarter of all malls will close during the next five years.

In some instances these old malls can be rebuilt as town centers, dense residential neighborhoods, or a mix of commercial, retail (service and restaurant), housing (rental and for sale), and even transportation hubs. The old concept of single use zoning is rapidly fading and new concepts are immerging.

The greatest difficulty I found with many of these development companies is a lack of expertise and imagination. They know housing, they know retail, they know office, but they refuse to understand each other’s land uses. This has to change.

It will also require cities to change zoning and land use models. Many communities built into their General Plans a long term program that is now inflexible and counterproductive. No matter how important, it can take years to modify and codify them – this while everything around them collapses and disappears. The market place is not a kind and benevolent beast. As Ludwig von Mises said in his great book, Human Action, “The market is supreme!” Believe it!

We are discovering that now, it is often a hard slap to the face. Amazon buying Whole Foods is just one example; the real examples are the high-end retailers such as Nordstrom, fighting loosing battles to just stay alive over 6% reductions in year to year sales. Shoppers? If you want loyalty, get a puppy.

I worked for an architectural design studio back in the 1970s that focused on the newest thing in retail shopping, the “enclosed” mall. Our clients were the big boys of the day (they are still around, but certainly not the big boys they were). These new malls destroyed the old town centers and main streets of America, especially in the Midwest and the East. And now, the Internet is doing the same thing; it is a revolution that is both cultural and financial. Sure you can point a finger at Amazon, that’s easy. But in reality, it is every brick and mortar retailer who is offering their products online and with a broader selection and home delivery.

The models are changing, the way we shop is changing, what we buy is changing, and most especially why we buy is changing. Even the way we live is changing.

During the last fifty years nothing has occupied architects, urban planners, and city officials more than what will become of our cities. We have had anti-suburbanists, neo-traditionalists, urban revivalists, edge city believers, survivalists, futurists, and even blow-the-hole-thing-up-ists, telling us how cities MUST be redesigned. Most without a clue or real plan.

I remember a science fiction story from my youth where everyone lived in their own little cell, it was a nice cell, comfortable, with entertainment and all the necessities of life, and everything arrived at the door—all you had to do was ask for it. Paranoia raged, we were defensive and protective of our cell—all because we didn’t go out anymore.

Are we there yet?

Stay tuned . . . . .

The Re-Malling of America

A couple of very interesting developments over the last few weeks may significantly shake up the retail mall industry in the United States. The first of these is the hostile bid by Simons Property Group of Indianapolis, Indiana to take over The Macerich Company of Santa Monica, California. Between them they own and operate over 425 malls and retail centers in the United States and foreign countries. (Macerich – 95 properties and Simons – 325+ properties, source Wikipedia). I would venture to guess that 90% of Americans are less than one hour away from one of their respective centers. The second and even more fascinating is that the Edmonton, Alberta based Triple Five Group that owns the Edmonton Mall and the Mall of America is proposing a 4 billion dollar super, humongous, enormous, colossal entertainment and retail “mall” near Miami.

I have been directly involved in one form or another in the mall design business since the days of Alfred Taubman in the 1970s. Then some of the most exciting changes to the retail industry were underway. And many of these changes wrought terrible things on towns, peripheral suburban communities, and even downtown traditional retail centers. This is not the place to get into the history of malls in America (and elsewhere), but it is the place to look at how the forces of the marketplace consumer seem to be one step ahead of the retailers and mall owners. We went from small town America, to mid-sized suburban shopping centers, to enclosed weatherproof malls and super-malls, to massive retail centers with a mix of enclosed and open pedestrian areas, to remodeling the traditional downtown, to massive failures due to high debt by some of the largest mall owners (example: General Growth Properties), and now to the restructuring of both the mall concept itself and the companies themselves.

The biggest change seems to be in the venues themselves. Most enclosed malls were isolated at their start, primarily due to location (freeways) and cheap land costs. These were the 70s and 80s, now these malls are surrounded by residential development as well as ancillary retail and office complexes. Some have even sparked “new towns” around them. These malls are redeveloping to now include housing and office uses.

Some are beginning to emulate the entertainment aspects of some of the larger malls. While questionable, if there are enough customers many things are possible.

Why would Simons want Macerich, I have my own ideas? Simons has been very aggressive in trying to increase its square footage. Five years ago during General Growth’s serious financial problems, Simons tried unsuccessfully to take over the company, eventually they walked away. Simon has properties in Europe and Canada and have aggressively expanded into the premium outlet market. Macerich, while having some outstanding properties (Santa Monica and Walnut Creek, California), is also a developer/owner of mid-sized sub-regional centers across the United States. These properties would complement Simon’s collection. Whether Macerich can fight off Simon as well as General Growth did remains to be seen. The concern is that the customer will suffer if these acquisitions go forward is of little concern. The customer is, and has, shown itself to be fickle and will go where there is the best value, venue, and variety to shop. Failure to provide this is not an option. My guess, it is the long-term leases of many of the high-end retailers located within the Macerich centers (Nordstrom, Niemen Marcus, etc.). GO HERE  

But, Triple Five’s direction is totally different. GO HERE  To used an over-worn phrase, the are trying to Disneyfy the retail experience. Their new Miami complex will include a ski slope, a water park, a sea-lion show (not in favor of these myself), miniature golf, bowling, as well as everything from the usual restaurants, hotels, and condominiums. There is even a rumor there will be retail stores and shops. Wow and double wow, the fun and games of the retail giants of Minnesota and Edmonton Central Plains of North America are coming to South Beach. Many of these enticements have been tried before, especially during the late seventies with circus type retail malls and themed venues (skating, park-like spaces, and roller coasters). Most failed or were junked.

I have also found that these centers can never create a new market. They can only steal customers from other markets; this is what caused many of the suburban problems in the 1980s when the enclosed mall did so much damage to the traditional downtowns of smaller communities. These things are very expensive, I will wait to see if they can find the funding.

And lastly the big can get bigger. It was announced that the “new” General Growth (after its literal resurrection for the dead three years ago), is expanding its flagship mall in Honolulu.  GO HERE  Its Ala Moana Center (the world’s largest open-air mall) is expanding by another 660,000 square feet. They also sold a significant interest in the mall to an Australian retirement fund, AustralianSuper. While Ala Moana is not performing to industry standards, GGP is obviously seeing a different future than what many analysts’ see. The world is flooded with money at the moment trying to find a home; many are betting that the American REIT industry is one of the best places to be. I wish them luck.

Stay Tuned . . . . . . . .

A Tale of One City

An interesting article crossed my desk the other day, primarily because I had, a few years ago, some limited involvement in the project (very limited). The article titled: 12 Things that Could Replace ElkGrove’s Unfinished Mall – Pick One. It is a poll of the residences to see what they think about how to fix a disaster.

Elk Grove Mall - Photo Linda Ford

The mall, in Elk Grove, California, was begun more than 10 years ago, went through a long and arduous approval process (in California they are ALL arduous), then law suits. A fairly classic and uninteresting design was begun by General Growth Properties, then when the economy turn south, taking General Growth into bankruptcy, it was stopped. Now it sits, south of Sacramento, fenced in and a derelict, in the west boomtowns became ghost towns – now we have ghost malls. In the grey fog of the Central Valley of California it looks forlorn and unwanted.

In spite of its abandonment (for all intents), the community sees an opportunity, or at least that was my take from the article. There are a couple of points to be made, the south side of Sacramento needs retail, it grew fast and the last thing of substance to arrive is usually quality retail. The residents have to go north to Sacramento and Roseville to really find quality, and south to a marginal center in Stockton (and that’s a whole other discussion itself).

The Patch (the news outlet that posted the story) is an interesting business in itself that’s worth looking into. Owned by AOL, it operates some 850 local and hyperlocal news websites across the country. Their goal is to provide local information, online. This is a direct result of the loss and collapse of the small town (and large) newspaper industry. Its future is uncertain – now back to the story.

The Patch suggested a poll of the Elk Groveiers. If you had a choice, what do you think of these?

• Casino
• Agriculture College
• Solar Energy Field
• Outlet Mall
• State Prison
• Soccer Arena
• Branch Campus of UC Davis/Sac State/Drexel
• Shopping Mall (Large department stores
• Air Soft Park
• Go Kart Track
• Scandia / Raging Waters / Family Fun
• Aquatics Center

What do you do with a derelict mall, even if the builder wanted to give it away? Development is not a zero sum game, costs have to be recovered, management and maintenance costs are very high, and the city needs revenue, not a drain. And it would be nice if there were jobs, permanent jobs.

I can easily nix the aquatics center, water park, go kart and air soft park, and soccer arena – their costs are high, they can only be open during the summer (mostly), and they produce few permanent jobs (ask Stockton how their venture into arenas went – it helped to bankrupt the town). Branch campuses take years and years to develop – even if the state had money, but it’s almost as derelict as the mall is itself. Solar energy field – warm and fuzzy but no jobs and in winter, weeks with no sun. The state prison does produce jobs and the money flows back through the community, but the state again has no money to take care of what they have now let alone another prison. That leaves the casino, outlet mall, and shopping mall – back where we started.

There are hundreds of villages and small cities faced with this same challenge: How do we move forward and entice (bribe) businesses back into our city, county, and state? What can be offered? Today land is relatively cheap, so free land is not an option that works. Customers and an educated work force are critical to the decision makers. They have a business to run, make sales, make profits – we seemed to have forgotten this.

Here are some off-the-cuff ideas: reduce impact fees to almost zero, reduce property taxes for a set period of time, wave mitigation fees, and eliminate social obligations in conditions of approval (extractions for community needs such as parks, roads, and public health). The goal is help support running a business that adds to the community with jobs, wages, and long term tax revenues. The idea of a new downtown (found here) is interesting – in the days of wine and roses maybe, today impossible.   

Cities will have to compete for businesses and encourage them to return, ask once complacent states like Michigan and California how they are doing.

Stay tuned . . . . . . . .