Why do developers build housing in shopping malls?

Hello to shopping mall life.

Traditional American shopping malls are undergoing dramatic changes as real estate developers replace declining department stores with apartments, ushering in an era where mall living will soon become the new norm. .

Some U.S. developers are demolishing department stores such as: Macy’s Or J.C. Penney could use that space and its parking lot to build an apartment building next to the mall or connected to it via sidewalks and green space. Others are building apartments on the site of shuttered stores and other shopping centers, or demolishing them entirely to make way for a mix of housing, retail, restaurants, and outdoor spaces and experiences. .

“Malls are becoming cool again,” said Jacob Knudsen, Macerich’s vice president of development. Macerich is currently redeveloping Flatiron Crossing Mall in Broomfield, Colorado to add housing. “So being able to live by it, work by it, play by it, go to restaurants by it, we definitely see this as a trend.”

This new version of America’s mall comes as shopping centers across the country fight for survival and seek transformation to avoid extinction. While it’s clear that consumers still enjoy in-person shopping even after the coronavirus pandemic, traditional core department stores have been in decline since 2001 and no longer have the appeal they once did.

according to company preferences Macy’swhen J.C. Penney and Sears downsize or disappear entirely, real estate developers are forced to get creative to repurpose these spaces, which typically take up at least half of a mall’s footprint.

Amazon Distribution centers, pickleball courts, and even an NHL training facility have all replaced big-box stores in America’s shopping malls. But as the country faces a housing crisis, the fastest growing use of these spaces is in multifamily housing, real estate developers said. As of January 2022, at least 192 malls in the U.S. have plans to add housing to their retail footprint, and at least 33 have built apartments since the pandemic began, according to real estate consulting firm Realogic. It is said that he did. At least a dozen more apartment projects are underway in malls across the country, including in California, Florida, Arizona and Texas.

“There are too many retailers in the U.S.,” said Oscar Parra, a principal in the special situations group at Pacific Retail Capital Partners. ”[It’s] I don’t know of any market that would need a million square foot mall…four times more expensive than any other country. ”

Parra’s company is building homes on the site of the former Carson’s department store in a suburban Chicago shopping mall, and a similar project is underway at Westfield’s Garden State Plaza in Paramus, New Jersey. pointed out. us

“They have extra land, but instead of using it for retail, they are building apartments,” Parra said. “They don’t see the value in adding more retail to one of the most productive shopping malls on the planet, and that’s a sign of that.”

For mall owners, this number makes sense. Although demand for premier malls remains strong, nearly 34 million square feet of U.S. shopping mall space is vacant and off the market. Most Americans live within an hour of a shopping mall, which has high vacancy rates and fewer consumers. Or it’s completely abandoned.

Add in the nationwide housing shortage of 4.5 million units, and experts say this trend is likely to continue. For developers, adding more apartments not only fills a need but also brings people closer to remaining retail and restaurants.

“Shopping malls are an opportunity,” Knudsen said. “This is an opportunity to find land and build a customer base to bring people to the mall.”

Living in a mall is a unique opportunity, but it also comes with challenges and hurdles. Construction costs are high and shopping malls are typically not zoned for multifamily development, forcing developers to navigate a maze of zoning laws and outdated lease agreements to get their projects off the ground. Additionally, typical mall and department store geometries often require complete demolition to accommodate housing.

Converting an old Macy’s store into dozens of apartments may seem easy, but the shape of the building makes it difficult to ensure that every apartment gets natural light and air.

“What we’ve learned is that in all cases it’s better to separate from the mall, right? If you have a very dense retail business in an urban area, you might want to consider integrating with the mall. Recommended. [apartments] “We’ve seen some examples of that,” Parra said. “But the main idea is to break the boxes…scrape them away and then create a little bit of cushioning between the boxes.” [apartment building]. ”

Mall apartments in the U.S. aren’t yet ubiquitous. Many of the housing developments are still under construction and will begin renting within the next few years, while others are just opening now.

Lafayette Square Mall in Indianapolis is scheduled to open in early 2025 with 1,200 apartment units, including affordable housing in the former Sears building. Paradise Valley Mall in Phoenix just opened 400 luxury units on November 15th.

Apartment development has accelerated in recent years, but mall housing has been around for at least a decade. Visit The Arcade in Providence, Rhode Island, the nation’s oldest indoor shopping mall. The shopping center, once the heart of Providence’s bustling downtown, fell on hard times after the Great Recession. By the end of the 2000s, it was completely vacant.

But rather than leave the historic building in ruins, developers stepped in and built 48 micro-units on the second and third floors. Dozens of tenants currently live there, and real estate investors are buying other units to rent on Airbnb.

“It’s great to be a part of such a historic building and know that all these units were once some kind of store,” said Amy Hennion, a 33-year-old graphic designer who moved to the arcade two years ago. That’s wonderful,” he said. . “You have access to amenities that you don’t get just by living in a house in the suburbs. For example, if you want a haircut, you can go downstairs and get a haircut. If things go bad, you don’t even have to leave the building.”

Scott Sheehan, a 31-year-old tax advisor and real estate investor, bought an apartment in the mall in October for $250,000 and made it available for rent in 2019. airbnb. He chose this space because of its proximity to the train station, airport, and nearby Brown University, as well as major employers such as a major financial company.

He estimates he could make between $25,000 and $45,000 a year by renting out the units to tourists.

“At the end of the day, it’s a unique experience,” Sheehan said. “It’s a great alternative to a hotel room.”

Grand Avenue Mall in Milwaukee, Wisconsin, underwent a similar renovation to add apartments starting in 2017. By the end of the Great Recession, the once-bustling shopping center in downtown Milwaukee was half-empty and sold to a developer, who began renovating the building. Space in the late 2010s. Dozens of apartments have been rented out in recent years, and tenants now have access to amenities such as pickleball courts, a “canine wellness center” and a gym.

“We’re on the fourth floor. It used to be a YMCA, so where our apartment room is is like a YMCA weight room, and the hallway that goes around the whole building used to be a truck. ” said John Borchardt. The 40-year-old moved into the former Grand Avenue Mall three years ago with his wife and dog, Roger. The second floor still looks like a shopping mall.

On that floor, apartments were built on the site of a former store. The unit is unique, but it also has its quirks. For example, every room features an elaborate entrance hall with floor-to-ceiling windows, but those front rooms are also fully exposed, which can raise privacy concerns. In addition, some units don’t have windows because the developer had to work with the storefront’s original layout, Borchardt said.

He said his unit with the windows is in a different part of the complex and doesn’t have the same architectural challenges.

Downstairs, he TJ Maxx and foot locker It’s the only store left in the original mall, and he said it’s “very convenient” if you want to take your dog to an off-price store to buy new toys.

“He’s like a celebrity in the building. Everyone knows our dog. So it’s a very dog-friendly space,” he said. “Even if it’s cold, snowing, or raining outside, you can still walk your dog. Like mall walkers in the ’90s, you can walk five blocks around town without going outside. You can walk around. That’s pretty cool.” ”

a kohls Borchardt said he recently moved in and renovations are underway in various parts of the complex. In addition, there is a new food court with more than a dozen restaurants that will appeal to tourists, locals, and building residents alike. Borchardt said the “very busy” area will have a separate dining area and a self-serve beer tap with rotating beers.

While the renovated food court is convenient, Bordchard said easy access is also “a bit of an issue” because it saves the hassle of cooking.

“You just order online and pick it up. They have ice cream there, too, so it’s a little too easy to get takeout,” he says. “But if it snows, it’s really convenient to be able to survive without leaving the building for a while.”

Nazira Kayem, Pacific Retail’s executive vice president of marketing, said ease of access is the key.

“This is really service- and amenity-based, offering convenience around every corner so that residents don’t have to go out and can get all their daily needs done within a shopping experience. ”Kayem said.

It may take years to get there, but Kayyem says mall life will one day resemble a vacation at a resort, where everything is charged to one account using a centralized system. He said it might be possible.

“It’s difficult when you have mixed ownership groups, but ideally you live somewhere and have an account and can shop, eat and eat with your account,” Kayem said. Ta. “It’s going to be a real, real, seamless integration where there’s no friction for someone to live there.”

— Additional reporting by DeLon Thornton and Shawn Baldwin