Will Malls survive this?

Analyst 2 in RE - Comm

They were in trouble prior to COVID. Is this the final straw? Stores closing down across the country and with many big box retailers closing shop to liquidate will likely not enter any new leases.

Do they survive?

Comments (18)

May 11, 2020

It would depend on the individual mall, are the generic malls with the big box brands where footfall could migrate online? (most of my friends are now even buying Apple products just online, where the retail experience was previously highly relevant)
Or is it a mall that is more specialized and less likely to offer products online?
Are the malls geared towards younger people or more mature markets? Male/female? (who will go back first and what for)

A mall like La Encantada in Tucson is very different than a run of the mill Simons in the Inland Empire.

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May 11, 2020

This pandemic is only accelerating the retail apocalypse. Malls are going to become more of a niche experience, catering more exclusively to designers and apparel shops that sport clothing that customers would be more apt to try on before purchasing.

The transitioning of department stores to e-commerce will render malls/shopping centers few and far between. Soon will come the day when our kids ask us what it was like to hangout at the mall as teens.

May 11, 2020

In their current forms? No, superregional malls will not survive. There simply aren't enough legitimate tenants to fill up a ~1M sf mall these days. The "middle" (the small shop space between the anchors) makes up about half of that number, and is equally oversized.

The question then becomes, what happens to the 300K - 500K sf of space that these malls owners are getting back? As @C8" alludes to above, probably not much to the run of the mill malls on so-so dirt. The mall landlords that will be valuable in 10 years are those that can take that excess GLA back, look in the mirror, develop a master plan, redevelop, and reintroduce themselves to the community.

Retail isn't going away, but there just isn't a need for the current levels. Mall owners will become mixed-use campus owners, and investing in them is betting on their ability to execute on that (or partner with people who can).

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  • Analyst 1 in RE - Comm
May 11, 2020

There's a mall in Houston near the neighborhood I'm from that's always super active but it had gone through major additions in the past several years. Outdoor restaurants and shops, movie theater, etc. I can't see that closing anytime soon. Not sure how common those types of malls are around the country though.

May 11, 2020

Galleria or Memorial City?

Array

  • Analyst 1 in RE - Comm
May 11, 2020

Baybrook

May 11, 2020

I agree with @C8" and @CREthoughts"

Underperforming or low-end malls are going to suffer irreparably, as they have been for some time now. This crisis will only accelerate this - not create a situation that didn't already exist. High end malls will also suffer as all retail will, but their location, store selection, and/or shopper demographics will bring them back post-crisis.

Dying malls across the country have already become centers for reinvention. Some reinvention is easy - repurposing what used to be retail space to C and B class office or even warehouse space. I know tons of churches who are now in what used to be retail too. Other reinvention is more incredible - either tearing down the mall entirely to take advantage of the massive acreage that is already graded and has utility access or doing wild things like taking the top off the building to create an open air market where a dated 80's and 90's era indoor mall once stood.

One of the things I have developed are "Town Centers" - the new urbanist equivalent of a mall for the 2010s and 2020s. 30-40 years from now, many Town Centers across the country will also be dying because some developers didn't put the effort in to make them lasting parts of the community. The well designed and developed Town Centers will remain, but the low effort cookie cutter Town Centers, or Town Centers located in areas with shifting demographics, will fail. That too will lead to opportunity.

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Most Helpful
May 11, 2020

I don't think that retail is "dead" but rather is much different than it was even 10 years ago. The most successful malls that I've seen as of late have shifted focus away from selling clothes and merchandise and have transitioned into "experience-centric" places. These places are filled with "Amazon-proof" tenants with a larger focus on "local" goods. Agglomerating a ton of local restaurant favorites, putting in a grocery store and shifting a portion of it into mixed-use whereby creating "Town Centers" (see @CRE's comment) have helped centers thrive. ("" are keywords to use in your future GGP interviews)

The reasoning? People still want a place to visit on a rainy day or have a good relaxing day in the sun during the summer. Teens still need a place to hang out. I don't remember the last time that I thought "need a blender, must go to Sears". However, there are times when I want to eat Mediterranean and my girlfriend wants to eat Pho and our regional mall food court has both (successful local chains). Also from a multifamily standpoint, how convenient would it be to live above a grocery store and 40 different restaurant options? Another way to think about it is to think about experience-driven retail is to think Las Vegas. In essence, Las Vegas is a large agglomeration of experiential retail which is conglomerated with the hospitality industry. People travel to Vegas to indulge in good food, drink, gambling and parties. If it wasn't for the retail component, Vegas would just be Palm Springs.

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  • Analyst 2 in RE - Comm
May 11, 2020

Just came across a Development Associate job posting on LinkedIn for Unibail Rodamco (Westfield).

Not sure wtf they are building at this point...

May 11, 2020

Westfield's development department took a big hit when the acquisition happened - a lot of redundancies were eliminated as well as people leaving voluntarily due to the culture change.

As for what you'd be doing - you'll be working on Anchor box conversions, redevelopmenting underperforming wings/portions of their better centers, master planning for some of their middle-of-the-road assets.

If you had to work for a mall REIT, development would be the best area to work in over the course of the next 5 or so years IMO.

May 11, 2020

The town center concept mentioned by @CRE" looks promising IMHO. At least as it relates to the A+ and A++ malls. Those are located in areas where there's high foot traffic independent of the mall, high income and pop density, lots of need for good spaces to eat and relax. Build multi family and office, add more dining, and all of this cuts out some store space which then leaves you with only the best stores. Seems at least plausible

May 11, 2020

Agreed, the rent premium you're able to command with the amenity base provided by a Class A mall is hard to ignore.

May 11, 2020

My firm has a mall asset and the play is 100% to bring the density to us through developing condos. So many of the tenants at malls, regardless of if they are AAA assets or random suburban ones, have been on percentage rent or even just paying CAM for years.

There is a reason pension funds and Brookfield Property Partners are snapping up the well-located malls. They can have declining traffic every year, it doesn't change the fact that it's built on land that has realizable value from development.

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May 12, 2020

brookfield asked for 12-months forbearance today, it's not working out for them

May 13, 2020

I would be surprised if they didn't as for a forbearance. Given how many commercial real estate firms are also doing the same thing from tenants WFH, this is less indicative of Brookfield's performance and more on real estate overall. Even for heavily indebted companies, loan payments are being postponed and covenants virtually ignored due to COVID.

We will see if my confidence is misplaced in a few years I suppose, and I guess this is what makes a market!

May 12, 2020

Very concerned amidst the Neiman Marcus bankruptcy situation... and the just the general direction of retail in most markets. Many smaller mall tenants have one way termination rights which could lead to a domino effect. If this continues we will run out of big box retailers to fill the large footprints.

May 12, 2020
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