Old Malls Seek New Life

By Charles Gerena
Region Focus
Fall 2004

Not far from the shoppers strolling through the bright corridors of Cloverleaf Mall, there are three eerily empty buildings filled with the echoes of times past.

Every department store has abandoned this once-thriving regional mall in Chesterfield County, Va., along with a movie theater chain and most of the food court tenants. County officials want this underused, 78-acre property to be replaced with a mix of offices, storefronts, and housing within walking distance of each other. Other declining malls across the Fifth District known as “greyfields” also need some form of redevelopment.

The rise and fall of regional malls parallels the suburbanization of America during the 1950s and 60s. Department stores followed shoppers out of downtown districts as development spread beyond cities. Eventually, retailers realized that putting a few anchor stores like Sears or J. C. Penney and an assortment of specialty stores under one roof created a safe, climate-controlled environment that suburbanites liked. This clustering of retail gave regional malls an advantage.

“From an economic point of view, [it] reduced search and information costs,” notes Mark Eppli, who holds the Bell Chair in Real Estate at Marquette University. Because the mall offered a plethora of choices, shoppers could be confident of finding the quality or price they wanted. The result was that stores could generate more sales collectively than they could earn individually.

However, regional malls in aging, filled-out inner-ring suburbs have lost customers as development has continued its outward expansion. Outer-ring suburbs have space available for new residential and commercial development that meets the market’s needs.

Some of this development has supported new retail formats that have taken market share from regional malls. For example, Cloverleaf Mall competes with Regency Square and Chesterfield Towne Center, two “superregional” malls that provide greater variety in 800,000 square feet or more of retail space. Then there is Stony Point Fashion Park, a “lifestyle center” that is somewhat smaller, but has an open-air design and the kind of upscale food and fashion offerings that used to be confined to cities. Finally, big-box retailers like Dick’s Sporting Goods and Circuit City stores provide wider selections of specific product categories.

Some regional malls have renovated or replaced some of their tenants to keep pace with change. In 2002, Pennsylvania Real Estate Investment Trust (REIT) bought the Roses department store at Magnolia Mall in Florence, S.C., and reconfigured it for occupancy by Best Buy, a new food court, and additional specialty retailers. Other malls have been radically remade — in 1998, Talisman Companies tore down the walls of a failing regional mall in Towson, Md., and created a strip center of big-box stores.

In some cases, however, the whole mall may have to be scrapped. “There may not be demand, the neighborhood may not have stepped up over time, or the other retail is too close and they can’t compete,” says Eppli.

While it could be obsolete for retail use, a regional mall has other qualities that make it attractive for redevelopment. According to Douglas Grayson, executive vice president of development at Pennsylvania REIT, a mall sits on a large parcel within a well-populated suburb where land is scarce and expensive, plus it has existing infrastructure like roads and utilities. “There is a high intrinsic value to that piece of property.”

Realizing that value isn’t easy, though. “The developer or owner of the mall almost never has the unilateral right to do anything,” explains Grayson. “The number of stakeholders that have to be dealt with to reposition a property is huge [and each one] is looking for their opportunity to profit.” Also, some of those stakeholders, or even the mall’s primary owner, may resist any redevelopment that might eat into their existing returns, however meager they might be.

That’s why local governments often intervene. They have the money to assemble the necessary property rights, tear down mall buildings, and tie the project into the surrounding neighborhood. They also have the power of eminent domain to take care of holdouts, although a Michigan Supreme Court decision in July may limit future seizures of private property for economic development purposes. While local governments want to stimulate more taxable economic activity, redevelopment experts say that efforts to revitalize greyfields and other obsolete properties must be economically justified.