Mall to Mixed Use

Nur is an associate at Larisa Ortiz Associates

Over the last year we’ve heard story after story report on the closing of large anchor retailers such as Macy’s, Sears, and J.C. Penney and how the trend might result in another wave of regional mall closures. Analysts from across the board are predicting hundreds more shopping malls in the US to shut down as a result of being unable to find enough retailers to replace ones that have gone, leaving millions of square feet of developed but vacant commercial space.

At the same time, we have also seen story after story emerge of mall owners getting innovative and replacing traditional department stores with a slew of entertainment uses and non-conventional tenants such as offices and urgent healthcare clinics.

It is not surprising then that, now more than ever, shopping mall owners are also going to the extreme of complete overhaul of their properties to create mixed-use neighborhoods as another solution to save themselves. The mall-to-mixed use redevelopment movement started more than two decades ago with the conversion of the Boca Mall in Boca Raton, FL into a mixed-use neighborhood consisting of residential homes, office spaces, shops, and restaurants.  We first wrote about this transformative project in 2015, along with another early project Villa Italia in Lakewood, Colorado which was transformed into the neighborhood of Belmar in 2004. Since then, various other shopping mall owners have taken the same leap in redeveloping their properties into mixed-use communities. Today, we take a closer look at two more recent and still underway projects – City Centre, Houston, Texas and Promenade 2035, San Fernando Valley, California. We look at what it really takes to get a giant mall redevelopment to take off.

City Centre, a mixed use urban development with office buildings, multifamily residential homes, brownstones, hotels, restaurants and retail, and conference spaces, sits atop the former Town & Country mall on the edge of metropolitan Houston area. The regional shopping mall which opened in the early 1980s, closed following the departure of anchor department stores J.C.Penney (a story we’ve heard before).

Like any typical mixed-use development, City Centre is centered on a public square and features a grid-like street network and a pedestrian-friendly environment. Financing it, however, was not so typical. The project was developed by Midway, Cos. a real estate investment and development firm, in partnership with several other companies. Midway Cos had to finance the project by function, identifying separate partners for the various components of the project, seeing as capital partners were not comfortable with such a large and risky undertaking.

Financing and structuring such large mixed use developments continues to be difficult. Rules hindering financing such projects “had their genesis during the Great Depression or early post war era, and are based on the obsolete assumption that mixed-use developments are financially riskier than single-purpose residential developments.”, according to a 2016 Regional Planning Association report. However, with shifting demographics and market preferences leaning towards connectivity and walkability amongst both young Millennials and Baby Boomers, single-use projects may in fact become riskier than ones with higher shares of non-residential uses.

Although not yet expansive and popular yet, the Small Balance Loan program (SBL) by Freddie Mac, launched in 2014, may be a new and viable financing tool for mall owners hoping to transform their portfolio into mixed-use communities like CityCentre. The multifamily housing financial program is a “welcome liberalization in long-term financing” and is designed to provide fast approval of loans for projects with “40 percent of their income—or 40 percent of their space—related to commercial uses”. Thus far, the loans are easiest to get in densely populated metropolitan areas, however, the SBL program is growing fast and may, in the future, become an even more useful tool for forward-thinking mall owners.

With Promenade in San Fernando Valley, the challenges facing the redevelopment of a failed shopping mall were slightly different. Local community scrutiny has been a real impediment to the project still scheduled to be completed in 2035. Given that the 43-year old mall had become a huge “drag on the surrounding neighborhoods” over time, as it became a blighted site subject to “intense speculation over its future”, community support for such a radical transformation was not instantaneous and took a lot of grappling. Even retail tenants were blaming the owner for “allowing the mall to deteriorate to a mere shadow of its former self”.

In order to maintain the mixed use redevelopment project’s transparency, the developers, Westfield Corp, launched a website to seek local residents’ vision for and needs from the mixed use redevelopment, and also to better inform locals of site plans and the sustainability and economics of the project.

Next, to ensure that the mixed-use development remains viable thru 2035, the developers have also ensured that the design of commercial spaces are on trend with what’s occurring across the industry. With the market understanding that the way employees and businesses work will continue to evolve, approximately 150,000 SF of office space will be designed as creative workspaces that include a mix of indoor/outdoor office spaces, co-working spaces, traditional office suites, gallery spaces, and about 60,000SF will consist of work/live studios.

Indeed, mixed use mall transformations as described above may bring several advantages to the local community. From diversifying housing types for existing and future residents to built-in residential market demand for retailers and reduced car trips between work and amenities, the mixed use mall transformation could act as a catalyst for further reinvestment and development in the area. However, mall owners hoping to transform their properties with other partners need to ensure they’re not “dictating supply rather than responding to demand”. As demonstrated by Promenade 2035, market analysis is crucial early on in the planning process to determine what types and how much residential, office and retail space can be viably supported by the local market.

In addition, design experts in commercial spaces need to be engaged to ensure the mall transformations or new developments can accommodate the types of operators determined by a preceding market analysis.

Community engagement throughout the planning process is also key and although many mall developers today are not known for such outreach work, it is important they begin to take on this responsibility with the help of local non-profits because community needs are often nuanced. Conversations with local stakeholders may not only encourage public buy-in but also bring to light different kinds of needs that may not necessarily come up in strict market analyses, including social service, healthcare, public space needs, and architectural preferences. Sometimes, “communities may not be ready to embrace the densities and design standards required to accomplish successful mixed use neighborhoods”, according to Robert Gibbs a retail planning expert, so the open dialogue between mall owner/ developer and the local community can serve to build an understanding around such concerns and guide any concessions that need to be made.

Although the mall to mixed use trend is becoming popular amongst commercial real estate developers, it certainly is no mean feat. But it is one of the solutions that may help us transform the failed suburban landscape across the country and with stronger partnerships, such projects may be easier to accomplish in many more places. 

Retail Mistakes in Santiago Calatrava's Oculus

No one is saying the space is not beautiful. Ok, maybe SOME people are, but in my mind, architect Santiago Calatrava added something very special to downtown Manhattan in his stunning, and stunningly overbudget, Oculus. Shopping there, however, is another thing entirely.

The Oculus doubles as a transportation hub for New Jersey PATH trains and as a Westfield shopping center and while it serves it's purpose, I was shocked at how poorly thought out the retail components of the project are. Getting urban retail right - particularly vertical retail - can be a challenge as a new Citylab article on the historic trials and tribulations of urban shopping malls makes clear.  Yet the article speaks to solutions that were clearly not put in place at Westfield World Trade Center. The aesthetics may be beautiful (though the leaky roof and wet marble fall are likely keeping attorney's busy), my experience as a shopper left me confused and frustrated. A few things I noted...

Challenging Circulation Patterns. This picture was taken from the central "piazza". My first question was...how do you get from where I'm standing up to that overlook? The elevator doesn't go to the first floor and neither do the stairs. Hmm...

Yet another image, this time from the second floor. It's nice that the stairs float, but again, how do I get down to the first level of shopping? I couldn't find a single sign directing me to the escalators (which I did eventually find, but they were of course hidden from plain view in deference to the architecture, because really, it is hard to dress up a functional escalator). Finding ways to get from one floor to another was confusing and frustrating. Is this how a retailer wants their customers to remember the shopping experience?And what about those commuters who are in a rush? If the elevator doesn't go down to the PATH level, those customers have to double back to the middle of the piazza to find an escalator. When a few minutes may mean missing a commuter train, the answer for many will be "no way".






Poor Directional Signage. Here I am, finally, at the escalator and elevator on the second floor trying to get down to the first floor. It is nice that there is a sign directing me UP and OUT to a variety of things - the 9/11 Memorial, One World Trade Center, One World Observatory, and Greenwich Street - but not a single sign for where to go DOWN for more shopping.

Seemingly Non-Existent Store signage. Can you even tell what that store is selling? I had a very difficult time figuring out it out until I walked right up to the window (hint. Apple products. Ok, that was more than a hint). Perhaps the designers thought signage would distract from the design (they were probably right), but it also undermines retailers ability to raise awareness and drive foot traffic. 

It also strikes me that there is a mismatch between the most frequent potential customers (those going to PATH trains) and the retailers who occupy the stores, particularly on the piazza. While having an Apple store there makes sense, Hugo Boss and John Varvatos a little less so. To be fair, more accessible retailers can be found hidden, and I mean hidden (again, no signage directing you there) in the South Concourse.

While I don't know for sure, my sense is that high end brands were convinced to locate here for the vanity of it, but in the end, sales won't quite cover costs. The few times I've been there so far I have not seen many people shopping in any of the higher end clothing stores or boutiques. I'd be curious to see what happens at the end of some of the lease terms. I imagine turnover is likely. 

Macy's stores are closing. Now what?! Eight strategies for downtown practitioners facing new retail realities

Macy's recent announcement that it will close approximately 100 stores over the next few years came on the heels of announcements that Sears and K Mart will close 150 more stores (they closed 78 stores last year). Other stores like Kohl's posted disappointing holiday results. These general merchandise anchors have struggled in recent years to remain profitable, and the closures are intended to focus their resources on more profitable stores. So what do these trends mean for Main Street? We think the news offers challenges and opportunities for downtown business districts. Here are a few ways we think our downtown communities will be affected in the coming years...

More competitive leasing environment. With more and more SF on the market, malls in lackluster markets will struggle to lease space, and in some cases they will be competing for retailers who might also be considering a downtown retail space. This means that you have to be more aggressive in your leasing efforts, and get better at communicating the value add of a downtown location. You should ask yourself a few questions. Are your downtown vacancies easily found on on-line listing services? If not, are you working actively with your property owners to ensure their properties are listed and available for easy viewing? Do you maintain demographic and market data for retailers who are considering your market? There are a myriad of ways - some that require more investment than others - to ensure your district's vacancies are on a retailers radar. But either way, supporting retail leasing efforts will take some concerted effort and investment. On that note, don't forget to downtown our book, "Improving Tenant Mix: A Guide for Commercial District Practitioners" for free from ICSC's website for ways to take a more hands on approach to your district's leasing efforts. 

Omni-channel retailing will become more and more the norm as mainstream retailers invest in their on-line presence. Main Street retailers will need to find a way to follow suit. Yet asking small retailers to carve out resources for a robust on-line presence is a lot to ask many of them. As a result, communities and BIDs may have to step up their efforts to educate businesses on the strategies the tools they have available to them to ensure survival. Many businesses, particularly those that make their own products, may not be aware that they can sell on platforms like Amazon, Zappo's or Rue La La. We recently met a business owner who gave us the skinny on her on-line selling strategy, telling us she had abandoned Amazon because their requirements were "too much of a pain", but that she has had a great experience with Zappo's. This kind of intelligence will be useful to share with your local business community. And for those interested in selling directly to customers through an on-line platform, there are more and more options for them out there. (Read our recent post "On-Line Selling - An Option for Smaller Businesses" for more info.)

A retail website powered by Shopify, one of a number
of  on-line platforms that makes on-line selling
accessible to small businesses.

Programming and creative usage of public space (i.e "place based strategies") will increase. Commercial districts, like malls, are increasingly trying to offer distinctive experiences that cannot be found so easily on-line. Cooking demos, craft classes, exercise classes, etc. will all become more critical to engaging with customers. In downtown, that means activating and programming public space in a way that will drive downtown visitation. Consider the Meatpacking District's free outdoor yoga program. They teamed up with a local store to offer programs on the street during the summer. This is a great way to highlight a local business while also bringing activity to open spaces. These activities also reinforce a well thought out strategic position for this market based on the segment of the businesses that are there - a place where young, active people congregate. We love it.

The Meatpacking District BID in NYC
sponsors "Downward Dog Yoga Days" in the Summer
in partnership with a local business. 

Food will continue to drive leasing in many downtown environments. When food is in the mix, shoppers increase their dwell time, which increases the amount of money they are likely to spend in the district. A panel on Urban Retailing at last year's ICSC Recon emphasized this trend. Restoration Hardware Executive David Stanchak was on hand to discuss RH's recently opened new store in Downtown Chicago that includes a food operation - The RH Chicago Three Arts Club Cafe. According to Stanchak, "for every dollar we do on food-and-beverage sales, we're generating $2 on increased gallery sales."  The good news is that downtown environments already do food quite well, but will need to begin to find better synergies between food and shopping. In some communities, the hours that retailers are open do not necessarily overlap with the hours that restaurants are open, which diminishes opportunities for cross-patronage. Correcting this misalignment, perhaps through a well-promoted once a month late night effort could help address this issue. That said, care should be taken not to overtax small business owners who often have limited staff capacity to do this on a regular basis. Promoting the event sufficiently, and to the right customer audience, is key to ensuring the success of late night shopping strategies.

The 3 Arts Club Cafe, a food concept within
Restoration Hardware's new downtown Chicago location.

Food kiosks, food trucks, and seasonal food offerings will also continue to grow. Some communities might not be able to support a full time bricks-and-mortar food retailer, but can instead focus on developing a temporary set of offerings that may be associated with an event. We are working in a community in Long Island right now that has a small municipal beach. Last year they started a very successful food truck and movie night. It probably shouldn't come as a surprise that they sold many, many more beach passes over previous years - adding to the town coffers while also building community. These investments clearly also pay dividends.

Downtown Raleigh BID puts on the Food Truck Rodeo
over a weekend in the early Spring with more than 50 food trucks. 

Leasing to specialty businesses will rise. The downtown environment has an element of authenticity and interest that makes is a great place for some of these more interesting retail concepts. In some cases, lower rents and a lower hurdle to entry make downtown storefronts an enticing alternative to malls. Consider Muse Paintbar in Providence, RI, a business that bills itself as "the premier art and wine experience". Located on Main Street in a historic building, Muse Paintbar offers a wide array of classes for adults and families too.

Property owners and merchants will request higher transparency around BID spending. In the mall world, payments by retailers to cover common area maintenance (CAM) are critical to ensuring shared spaces are well maintained. The International Council of Shopping Centers recently posited that 2017 will see a more "widespread effort by retail tenants...to rein in or set limits on CAM costs." We believe that the same economic forces driving retailers to second guess CAM charges are not limited to businesses that lease storefronts in malls. As many of you know, in a downtown environment, the equivalent of CAM charges are BID assessments, which in a similar manner to CAM charges are obligatory contributions by property owners and/or merchants that support the enhanced maintenance of shared public spaces and help to advance long term district improvements. While getting a BID off the ground may become more challenging as businesses and property owners double down on keeping costs down, we do believe that existing BIDs will have to make sure their members understand the value they are getting for their investment. This means getting much better at bench-marking impact with measurement tools like pedestrian counts. And while BID members may balk at increasing BID budgets, doing away with these additional charges is not an option either. As one analyst indicated, it "costs money to create experience". And given how important experience is going to be to shoppers in the future, downtown's with BIDs are going to be better positioned to weather competition from on-line retailers than those that don't have the resources to program and maintain the downtown environment. 

Retailers, especially at the high end, are open to thinking outside of the box and customizing their stores to unique urban spaces. According to Richard Johnson, a senior real estate specialist who spoke at Recon in May, urban locations are appealing despite the higher costs, "“There is always a lot more cost, and we do more work for urban locations,” he said. “You want to give your best face to your best clients, and urban does that. The goal is to create something unique that has our customers coming back time and time again.” 

Overall, we think downtown is well positioned to compete in the coming years. As people look for authentic experiences, the kind of things that simply cannot be done on-line, we are confident that many downtown's can and will rise to the challenge.

A Case Study in Suburban Retrofitting

A recent article by Dean Saitta in Planetizen about retrofitting dead suburban malls caught our eye. The article covers a dead mall in Belmar, CO, where the former Villa Italia Mall was redeveloped as the Public Plaza at Belmar, a mixed-use New Urbanist development that includes a network of public streets, public spaces, as well as shopping, dining and living options that are more reflective of a traditional downtown than a suburban mall. Lifestyle Centers, open-air shopping centers like these, are definitely not a new concept, but we especially like this project for a few reasons. Perhaps most significantly is that 10 years after its construction, it seems to have matured well. Today more than 2,000 residents live within the area, and the project generates $200 million a year in retail sales, or 2.5 percent of the town's total sales tax revenue. 

Belmar, CO site,
formerly Villa Italia Mall

Belmar...the basics:

• the former mall, a 100-acre superblock was turned into 22 blocks of public streets in a classic grid complete with public infrastructure and amenities that support the case for public/private partnership 
• public plazas were completed that provide the community with a civic gathering spot, and that include large windows in adjacent stores - this in an effort to add visibility and transparency between the public and private space 
• features wide sidewalks and narrow roads that encourage walking and slower traffic 
• the project has one of the country’s largest solar panel systems (8,000 solar panels generating 20% of the site’s energy needs) and almost 88% of the site's materials were recycled or reused from the former mall site, 
• includes housing that was constructed in the American mercantile style that reflects Denver’s architectural history

Site Plan for the Plaza at Belmar

Mixed-use buildings and public plaza
make up the core of the Plaza at Belmar 

Malls were struggling and the development community responded
The issue is widespread. The NY Times reported in 2011 that of the 1,100 enclosed regional malls in the United States, a third have experienced reduced sales and increased vacancies and a third are in financial distress. All-in-all that is a lot of real estate, much of which is in first-ring suburbs. Fast forward four years and many of those malls are being retrofitted and given urban face lifts. 

Suburban retrofitters are beginning to understand the need to honor the human scale, making it less about the car and more about the person. Under performing parking lots are being reduced in size, given bioswells for runoff, additional landscaping and more sidewalks for increased pockets of walkability.  The idea is to bring the city to the suburbs. Many cities - San Antonio, Memphis, Portland, Miami to name a few - have adopted New Urbanist principles that are in line with suburban mall retrofitting. Commercial districts see opportunity as well to create main street centers in new or converted developments to continue position themselves with the market. As Nielsen reports, cities are ideally wanting to attract not just Millennials but Millennials with higher median incomes that are settling down but desire the urban feel and amenities. The trend towards suburban retrofitting fits nicely with the interests of Millennials. 

Financing is always a consideration when discussing a large-scale retrofit and a successful example was seen with the Mueller Development, home to former Robert Mueller Municipal Airport, in Austin, TX. Catellus Development Corp was responsible for building the infrastructure of streets and utilities upfront, while the city retains landownership until vertical development takes place, relieving Catellus of carried land costs and allowing development of individual parcels to proceed incrementally to meet market demand. This has allowed the development of Mueller’s downtown core to come after the residential and internal demand was created.

Further reading: 

Mueller Development, Austin, TX

• Belmar: "Urbanizing" a Suburban Colorado Mall
• Shifting Suburbs: Reinventing Infrastructure for Compact Development
• Belmar in Lakewood, Colorado, Provides Year-Round Activities
• Ten Principles for Reinventing America's Suburban Business Districts
• Why no one likes indoor malls any more

Co-authored by Scott Landfried and Larisa Ortiz

“Edge Cities” Grow Up

The new Tysons Corner skyline gets an update with a residential tower.

In 1991, journalist Joel Garreau published his seminal book, Edge Cities, which described places like Tysons Corner, a former country cross roads that grew into the quintessential automobile-oriented suburban shopping center and office park surrounded by traditional suburban single family homes. Today, Tysons is one of many former riding the wave back towards mixed-use downtown's, according to Shopping Centers Today (“Living Above the Store”, SCT April 2015). This trend is being led by millennials and baby boomers who want urban places to live, work and shop. According to a 2014 Nielson Report , “Millennials are fueling an urban revolution looking for the vibrant, creative energy cities offering a mix of housing, shopping and offices right outside their doorstep.” In fact, 62% of millennials “prefer to live in mixed-use communities found in urban centers.”

Shopping mall developers are increasingly responding to this growing demand by growing the commensurate supply of mixed-use projects that include a residential component. Both Macerich and Simon Properties, two of the largest mall developers in the nation, are adding housing to projects in their portfolios. Macerich recently added a 430-unit residential tower to Tysons Corner mall and Simon is adding a 319-unit mid-rise luxury building at its Phipps Plaza Property in Atlanta. Simon has also added 232-units to its Southdale Center mall in Edina, Minnesota. Downtown's and urban places are clearly the inspiration for these former Edge cities.

Skyview Center and Skyview Parc in downtown
Flushing, Queens, a combined mall/apartment building 

But if you think this is just a suburban trend, think again. Downtown Flushing, Queens, NY is home to the Shops at Skyview Center a $1 billion dollar project that is home to an 800k mixed-use, multi-level shopping center with stores like BJ’s, Nike Clearance Store, Forever 21, Target and Nordstrom Rack. Above Skyview Center is Skyview Parc – a luxury apartment building that is luring an international crowd of buyers (many Chinese) to some of the area’s most pricey apartments (the average apartment sells for over $700k). The project also offers a four acre landscaped park on the roof of the mall with walking trails, playgrounds, a dog run and picnic tables. Nice place to live if you can afford it…