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Mall Properties Transition to the Untraditional

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With mall vacancy rate across the U.S. setting new records, it’s no surprise that malls are standing empty or being repurposed. Two new occupants of the Lakeview Mall in Battle Creek are doing just that. A climate-controlled self-storage developer bought the former Macy’s and plans to rent storage units, reachable by an indoor drive-through, and Horrocks Farm Market will move from downtown Battle Creek into the former JC Penney store. This represents the current trend for mall properties. Development experts look toward transitioning these large retail properties into housing, entertainment venues, medical facilities and other non-traditional mall tenants.

 

 

Midtown Development’s Tax Credits Expire

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The Mid development in Midtown is headed toward a financial loss. The developer is still trying to get the project off the ground. Almost $9 million in Michigan Business Tax brownfield tax credits expired on Thursday, June 10, 2021. The 10-year expiration looms because the development team has not built the promised seven stories of one of its proposed buildings by June 10, 2021. The Michigan Business Tax statute requires projects to be completed within 10 years of the pre-approval letter.

Meijer Eyes Abandoned Kmart Store

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Meijer is eyeing the site of an abandoned Kmart store in Orion Township. Located at 1025 S. Lapeer Rd. in the Lake Orion Plaza, the old Big K store would be demolished and replaced with a 90,000 square-foot Meijer store. The new Meijer store will not be a full-size supercenter, but it will carry more than just groceries. Although Meijer says it’s too early to release details like project start and completion dates, the owner of the shopping center believes that the company is aiming for a late 2022 opening.

Fairlane Town Center Value Takes a Nosedive

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Once valued at $101 million in 2014, the Dearborn mall is currently valued at $42.75 million. That’s a 57.7% decrease in value. The Florida-based Starwood Capital Partners purchased the property in 2014 as part of a $1.4 billion deal that included The Mall at Partridge Creek in Clinton Township and five other malls. Fairlane Town Center has been in receivership since May and faces liquidation.

Downtown Lansing Struggles With Fewer Customers

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All Michigan downtowns have been hit by the pandemic. With decreased foot traffic and former customers continuing to work from home, business is slow. But downtown Lansing has been hit especially hard as its businesses rely on the State of Michigan office hub. Struggling businesses have lost up to 90% of their sales while waiting for state employees to return to work. Unfortunately, even once the pandemic fades, far fewer state employees will return to work on a daily basis.

Dead Malls Repurposed In Surprising Ways

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Dead malls are the ghost of retail pasts, but they’re being repurposed in creative ways. Amazon is using old mall space as new fulfillment centers. One dead mall has become the new headquarters for Fortnite creator Epic Games. To survive, malls are bringing in non-traditional tenants like bowling alleys, gyms, and grocery stores. Turnover and vacancy are high in mall real estate right now.

Upward Retail Trend Predicted to be Short-Lived

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Even with retail businesses taking advantage of cheaper rents and ample space, UBS predicts the upward trend will be short-lived. They estimate that 80,000 retail stores across the country will be closed by 2026.  Online shopping had contributed to the downturn for retail storefronts pre-pandemic. Stimulus dollars and consumers’ focus shifting to goods over services has recently bolstered retail, with store openings outpacing store closings for the first time in years. UBS predicts that retailers that sell office supplies, sporting goods, clothing and accessories will be the hardest hit.

Mall Vacancies Set New Record

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The vacancy rate for regional malls in the United States hit a record 11.4% in the first quarter of 2021 from 10.5% in the fourth quarter of 2020, according to Moody’s Analytics’ commercial real estate division. Shopping traffic to enclosed malls has been steadily decreasing for years due to Americans spending more online. In it’s latest quarterly report, Moody’s finds that other commercial real estate sectors are showing better progress, retail is still in crisis.

J.C. Penney Updates Store Closure List

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J.C. Penney has updated its store closure list. The company was one of the largest retailers to apply for Chapter 11 bankruptcy protection during the pandemic. It announced that it was closing 242 of its stores in May 2020. Since then, the retailer has delayed the closing of 15 stores that were scheduled to be shuttered in March 2021, extending the closing date into May. In doing so, the company added 18 more stores to its closure list.

Weekly Brief – March 22

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For your consideration this week:
  1. The death of malls, which I have been discussing all year, has another casualty this week. A receiver will be taking over Partridge Creek Mall in Macomb County. A sale by its lender is likley. The Mall has no anchors and a rotating cast of dining tenants. As discussed previously (perhaps too much), malls are in a death spiral initially caused by online retail but accelerated by the COVID-19 pandemic.
  2. The pandemic claims a major hospitality casualty in Detroit. The Westin Book Cadillac, once the image of Detroit’s resurgence, is headed for foreclosure due to a lack of customers. I expect we may see more hotel failures as we continue the path to normalcy. We recently saw plans for a brand new hotel converting to senior living.
  3. The reinvigoration of Detroit’s neighborhoods continues with a plan for the East Warren/Cadieux area being unveiled. Like many plans in Detroit, investment from the public sector and quasi-public sector anchors the plan. We will know Detroit’s neighborhoods are truly back when private sector investment drives redevelopment.