NEW YORK —– Some see the glass as half empty, but the real estate investment trust industry views the lack of available land to develop new malls, retail consolidations and consumers’ changing shopping habits as one of those glass-half-full opportunities.
Developers are building smaller open-air projects, moving unconventional anchors to vacant department store spaces and building additions to existing properties, including open-air wings and residential towers.
The irony is that malls, which have been challenged by homeowners who don’t want them near their backyards, are turning to housing as a marketing element.
“The mall has always been a center of activity,” said John Sokolov, president of Simon Property Group. “We are now making the mall even stronger by broadening the price points within in the enclosed regional mall format.”
The level of luxury and price of housing is directly related to the level of retailers in the mall. At South Park Mall in Charlotte, N.C., Simon renovated and expanded the center, knocking down a Sears store and adding Dick’s Sporting Goods, Nordstrom, Tiffany, Burberry and Louis Vuitton. Next year will bring Neiman Marcus.
“The apartments appeal to a high-end shopper,” said Sokolov. “We want to have residential components in our properties that are reflective of the tenants in malls.”
St. John’s Town Center, which opened in Jacksonville, Fla., in March, features Dillard’s, Dick’s, Barnes & Noble, three restaurants, housing and a hotel. On the same road is a power center with Target, Staples and DSW Warehouse. But before saying “There goes the neighborhood,” Sokolov said, consider the convenience factor. “Our current thinking is that we should have a broader set of uses and wider range of retailers,” he explained.
While Simon has been busy building centers —“ironically this is the busiest we’ve been,” said Sokolov — most REITs aren’t breaking new ground.
“There is huge opportunity and a tremendous amount of redevelopment at existing centers,” said John Bucksbaum, chief executive officer of General Growth Properties. “We’re doing a lot of exterior-facing additions with open-air stores and adding a lot of restaurants to properties.”General Growth’s 2 million-square-foot Jordan Creek Town Center in West Des Moines, Iowa, is trying to be all things to all shoppers. Anchored by Younkers, Dillard’s and Scheel’s Sporting Goods, Jordan Creek has a village district populated by specialty and big-box retailers such as Costco and DSW Shoe Warehouse and a 3.5-acre lake surrounded by bike trails, a boardwalk with waterfront dining and an amphitheater and hotel.
“The more choices we can provide, the better,” said Bucksbaum. “People today play many different roles in their consumer habits. Jordan Creek incorporated the lifestyle component, big-box power center, upscale retail, food and entertainment into one project. That’s the ideal shopping experience.”
Another direction for General Growth and others is building residential units into certain mall properties.
Bucksbaum said the residences can take the form of attached apartment towers or detached houses.
At the Natick Mall, in Natick, Mass., outside Boston, two condominium towers have been proposed by General Growth, which is expanding the mall to include Nordstrom and Neiman Marcus. Bucksbaum said the housing is gaining acceptance.
“The demographics of the population is changing,” he said. “This gives people the ability to live near an environment where there’s entertainment and shopping. People are recognizing that the live-work-and-play concept has merit.”
A similar project is under way in Honolulu and the company is studying the Washington area.
In Great Britain and Australia, hypermarkets and mass merchants anchor shopping centers alongside department stores selling designer fashion. The bias of department stores and even some developers against supermarkets and discount chains doesn’t exist overseas, where mall developers are more mindful of what consumers want rather than concerned with the politics of prestige.
But things are starting to change in the U.S. It’s not a sense of altruism that will have Target locating near Neiman Marcus at the Westfield Shoppingtown Topanga in California, but the realization that Target attracts customers with a high taste level.
REITs are looking for ways to maximize the existing assets in their portfolios.
“Returns from redevelopment are brighter than returns from buying properties,” said Peter Lowy, president of Westfield. “The consolidation of the department store industry is entering another phase. We need strong department stores and other anchors so we can expand the mall and give consumers a range of goods and services. The malls have adapted to the change in circumstances.”Lowy noted that the contraction of department stores as a result of the planned $11 billion Federated-May merger will lead to opportunities for replacing underperforming stores with stronger ones, some of them unconventional. He noted that Best Buy and Costco are already in regional malls.
The 1 million-square-foot Westfield Shoppingtown in Topanga, anchored by Nordstrom, Sears, Robinsons-May and a defunct Montgomery Ward, is being remerchandised to the tune of $300 million. Nordstrom will move to a larger store, Neiman Marcus and Target will be added to the mix and 200,000 square feet of small shop space will be built.
“The other anchors are excited about Target,” said Lowy. “It’s the first time in the U.S. Target will be in the same center with Neiman’s. It does bring them more business. Neiman Marcus has a bridge customer that shops at Target. There’s a large amount of cross-shopping between Target and department stores.”
An expansion at Westfield Shoppingtown Parkway in El Cajon, Calif., brought Wal-Mart to the mall, where anchors include Sears, J.C. Penney, Robinsons-May and Mervyn’s.
Wal-Mart’s move to the mall wasn’t made without modifications to its store design. Westfield insisted that checkout aisles face the mall so customers wouldn’t shop and then drive away. Wal-Mart traditionally designs stores with checkout aisles facing the parking lot. The retailer and developer compromised so that cashier stations face the mall and an entrance to Wal-Mart was built near the mall entry.
“The design of Wal-Mart stores is better,” Lowy said. “The finishes are better. They keep upgrading their stores all the time.”
William Taubman, executive vice president of Taubman Centers Inc., said the firm is expanding several projects and creating growth through new leasing. As different types of malls add different tenants, they’re morphing to accommodate retailers that previously might have been considered unsuitable.
“What you see happening, which is a logical step, is the definitions of various types of uses [are] breaking down,” he said. “You see the regional mall adopting some attributes of the lifestyle center and you see lifestyle centers getting bigger and adding anchors.”When a lifestyle center is expanded, however, it runs the risk of losing some of the convenience consumers value, such as parking outside each individual store.
Target or Wal-Mart opening at Taubman’s Mall at Short Hills in Short Hills, N.J., seems unlikely. Anchors include Nordstrom, Bloomingdale’s, Saks Fifth Avenue and Neiman Marcus, and the mall just got an interior facelift with fresh flowers and “W Hotel-style seating,” Taubman said.
A new Taubman mall, Stony Point Fashion Park in Richmond, Va., mixes it up a bit more with Saks Fifth Avenue, Dillard’s and Dick’s Sporting Goods, along with Louis Vuitton and Hugo Boss.
“Alternative anchors are seeing the mall as a wonderful place to do business,” Taubman said. “The conventional department store is a little like network television. It’s still the broadest way to reach people, but it’s losing share.”
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