Shopping Center Business

MAY 2015

Shopping Center Business is the leading monthly business magazine for the retail real estate industry.

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332 • SHOPPING CENTER BUSINESS • MAY 2015 Glenn Brill Creating new uses for non-functional centers is a challenge many are embracing. Turning Asphalt Into Gold A s e-commerce continues to grow its share of consumer expendi- tures and retailers adapt to omni- channel sales and marketing strategies, 90 percent of consumer sales still take place in a brick-and-mortar store environment. Still, as evidenced by ongoing retail leas- ing activity, upscale retailers are increas- ingly consolidating local market share into exclusively Class A retail properties and leaving other properties to suffer in obso- lescence, decline, and economic failure. The death of the shopping mall is widely discussed and perhaps greatly exaggerated as high-end malls continue to find success even as overall consumer spending re- mains in the doldrums. However, due in large part to stagnant wages and struggles for stalwart anchors of middle-class con- sumption such as JC Penney and Sears, Class B and C malls are left to compete with each other for a declining share of middle-market tenants in over-saturated retail markets. It is estimated that 3 percent of all malls have vacancy rates over 40 percent and 20 percent of all malls have vacancy rates above 10 percent. It is estimated that 15 percent of all malls could shutter in the next 10 years. There can be no doubt that this trend will continue and that owners and communities are faced with the enor- mous challenge of redeveloping what was once a core community asset into a vi- able investment opportunity. Dead malls or so-called "grey fields" often possess location attributes (access and visibility) and infrastructure (ring road, storm water management, etc.) that inherently make them potential redevelopment targets. Given their amount of built environ- ment, adaptive reuse is usually the first alternative considered as the shortest course to a solution, but there are only so many call centers, mega-churches and community colleges to go around. The redevelopment of substantial acreage is in practice the application of the core skill set for horizontal land development with the opportunity to potentially phase infrastructure improvements, subdivide parcels, and recapitalize and joint venture in accordance with the rollout of a verti- cal master plan. A vision and master plan for future development created in concert with the local community and municipal- ity provides a framework for understand- ing and maximizing a site's market and economic potential for investors, as well as community and fiscal benefits for tax- ing authorities. To this end, a strategic planning ap- proach is needed to understand fully how the asset can be put back into service as part of comprehensive community and economic development planning. Effec- tively the size and scope of a dead mall site presents a tableau for reinvention to support the future needs of a community. This approach to a creative solution, in- centivized, in part, by a substantial loss of fiscal revenue to the municipality result- ing from mall closure, can build investor, community and government relations that pave the way for rezoning and public ben- efit incentives for redevelopment. While community and gov- ernment relations can be a daunting exercise in denial, it is in the mall owner's interest to foresee a mall's in- evitable demise and the need for redevel- opment long before the day comes and build a base of support among investors and the local community for change. A first step is a community assessment and inventory of planning and develop- ment trends. What is now a sea of as- phalt needs to integrate into the urban/ suburban fabric as part of a community's overall master plan. Supportable market demand, land uses and density need to be identified in support of community and economic development trends and the opportunity to capitalize on existing infrastructure and improvements if possi- ble. Mixed-use land development includ- ing community services (i.e., hospitality, healthcare, and education), housing, and extended-day community retail mash-up formats provides a diversified approach to place making and town center develop- ment, capital planning and joint ventures, and mitigating market risk. It is reasonable to say that any sizable project along the lines of redeveloping a mall will receive some form of public ben- efit incentives in the form of zoning vari- ances, real estate and sales tax abatements, below market rate finance, tax incremen- tal finance, off-site infrastructure improve- ments, and other programs. These public investments help close the gap in invest- ment economics as needed to effectively increase the value of land over the course of the project, attract private equity and debt, and create attractive returns to inves- tors. Municipalities measure their return on investment based on public benefits Glenn Brill The death of the shopping mall is widely discussed and perhaps greatly exaggerated as high-end malls continue to fnd success even as overall consumer spending remains in the doldrums.

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