That's Mall Folks! (6 min read)
For the last half century, teens and shopping malls have gravitated to one another with a seemingly unbreakable mutual attraction. From the early 1970’s through the mid 2000’s the act of wandering aimlessly around a mall with friends to see and be seen represented a quintessential aspect of the teenage experience. Mall life permeated pop culture including movies, songs, and TV shows. Even electronic board such as Mall Madness were developed incorporating this blissful consumer union. For those fortunate enough to have experienced this paradigm, it’s all the more eerie watching it all slowly fade away. As is often the case in a soaring economy, for decades there appeared to be an insatiable appetite for large mall complexes. Investors poured seemingly endless capital into buying and building them anywhere they could find the space. It wasn’t until years later that many realized the music had stopped and they were left holding the bag on an empty shell of a building with a rapidly declining tenant base. The market had been oversaturated and then suddenly the winds changed for various reasons as outlined in this piece.
Today, we drive past vast and essentially carless asphalt deserts and see mostly empty monoliths at the center where so many previously gathered to shop and loiter. Was it Covid-19 that slew the mall beast or were societal changes already angling toward the downfall of these temples to consumerism?
Post War Boom Towns
It might help to briefly go back before we go forward. As you know, post WWII, many Americans became flush with cash due in part to a booming post war economy and population spread. President Eisenhower’s new interstate highway system resulted in quick, efficient travel and thus the proliferation of the suburban lifestyle. However, the suburbs lacked what sociologist Ray Oldenburg called "third places." The First place being our homes and the Second being our employment centers. Third places are where people meet up to trade ideas and enjoy mutual leisure time. City centers historically filled this need but as Americans spread out into the suburbs and the walk to the local commons, bar, or community center grew further and further and less frequent. The original idea for the mall was to recreate the urban downtown area with multiple types of shops and restaurants and it proved to be a popular strategy!
The first “mall” was built in 1956 in the town of Edina, Minnesota and by 1960, 4,500 similar or larger shopping complexes had been built across the nation. America’s mall mania had officially begun. By 1975, 33% of all retail sales in the country took place at malls or similar shopping complexes and mall culture fully permeated everyday life. By 1992 the mall concept evolved further into the “Mega mall” with the creation of The Mall of America in Bloomington, Minnesota. This new behemoth spanned 5.6 million Sq. Feet and had over 500 stores, featuring a theme park with 27 rides, an aquarium, a wedding chapel, and movie theater. And finally, completed in 2019, the American Dream mall in East Rutherford, NJ also features a theme park and even includes a water park, ice rink, and an indoor skiing complex representing, perhaps, the very nexus of mall culture. However, the American Dream mall came into being in a much different economic climate than The Mall of America.
By 2017, a Credit Suisse report estimated that one in four U.S. malls would shutter by 2022 due to oversaturation relative to consumer demand. Moreover, the rise of online shopping began early in the 2000’s and continues to grow today, rapidly eating into consumer market share of America’s remaining malls.
On top of online shopping, the mall as a preeminent social destination for America’s youth saw its popularity undermined by online social media applications like Facebook, Instagram, Twitter, Snapchat and TikTok. No longer did American teens need to pester their parents for a ride and $40 in cash to gain peer interaction. As the revenue per square foot shrank, stores gradually boarded up and malls across the country began to sit vacant. Then came the coup de grâce, the Covid-19 pandemic. Nationwide lockdowns brought on by the pandemic broke the backs of thousands of social based bars, restaurants, stores, and gathering places across the country. Malls had already been in a tenuous situation and for many locations, it proved to be the final straw. However, the cost of tearing down extraordinarily large buildings presents financial challenges, especially when decades of decline have already driven operators into the red. Thus, these relative ruins often sit significantly diminished or even empty as monuments to the past.
Think Happy Thoughts
And now to the bright side. Around a dark cloud often appears silver lining and many investors have begun creating opportunities with these upside-down complexes, citing their central locations complete with ample parking among benefits of a repurposing of sorts.
Famously, Amazon swooped in to buy up over 25 malls between 2016 and 2019, turning them into regional fulfillment centers. “A lot of these malls that are going to the block, in a lot of cases, the mortgage debt on the mall is worth more than the mall itself,” Alex Goldfarb, a said senior research analyst at Piper Sandler. “You could easily have a mall that’s $50 million to $100 million in mortgage debt that gets sold for $20 million because there really aren't any tenants left and you’re selling for land value.” Local communities grapple with Amazon moving in and transforming their malls into fulfillment centers. Some argue that it’s a down grade from their once thriving community retail centers deleting large numbers of jobs and significant tax revenue. The other side points out that these locations were sitting empty anyway and even though there will be fewer jobs and less tax money, it’s better than nothing.
Also following Amazon’s lead in finding creative applications for the malls of yesteryear are some other surprising industries. For example, America’s healthcare system continues preparing for baby boomers entering retirement which will greatly increase the stress on our already…stressed healthcare infrastructure. As hospitals and healthcare systems look to expand, they are finding some opportunities in boarded up malls. As outlined in a May 2022 article on Nurse.org “Inova Health System will turn the former Landmark Mall in Alexandria, Virginia, into a $2 billion hospital including an emergency room and trauma center. In Helena, Montana, Capital Hill Mall is currently being redeveloped by Benefis Health System with primary care and specialty clinics. Vanderbilt University Medical Center is planning to purchase the site of the former Global Mall, over 600,000 square feet, at the Crossings in Antioch, Tennessee.”
But wait, there’s more! Another industry vertical is shopping around and interested in existing and sizeable complexes with ample parking. You guessed it, America’s education and career advancement systems are also getting in the game. Slate.com highlighted several educational institutions that had converted defunct malls into something positive. First was a Burlington High School which relocated to an abandoned Macy’s department store in an outdoor pedestrian mall after toxic chemicals were found at their previous location. Another high school in Joplin, Missouri was forced to relocate after its campus was destroyed by a record-breaking tornado in May 2011. The Joplin school was able to move into an empty Venture department store inside of an abandoned mall. The location included a student-run coffee shop, a health club and a “genius bar” for technology issues. The school remained at their mall location for several years while their more permanent location was constructed. In an even more unique case, a Chubbuck, Idaho school moved into a mall alongside several operating stores and took over former anchor stores while operating between two of the remaining anchors, a JC Penney and a C-A-L Ranch outdoor department store.
Is the Mall Concept Still Relevant?
Despite the growth of the online shopping and the relative decline of many malls, certain prime locations referred to as the “A” malls, continue to thrive and generate ample revenue with high-end boutique stores and huge alternative attractions. According to commercial real estate services firm Green Street, a large majority of malls are classified as B, C, and D rated malls, meaning they bring in fewer sales per square foot than an “A” mall. An A mall could bring in as much as $1,000 in sales per square foot, for example, while a C mall generates about $320 with a similar footprint. Mall of America, a trophy A rated mall, faced some troubling times during the height of the pandemic and was widely reported to have missed several mortgage payments. However, the draw of such a premier level attraction was soon corrected and back on track as a top-of-the-line revenue generator. “This is a trophy asset, and trophy assets are more likely to muddle through the pandemic than B [or] C malls,” Manus Clancy, Trepp senior managing director, told CNBC. Further elaborating, “If you have an A mall, you see this as a vote of confidence,” Clancy said. “If you have B [or] C, there is no bearing. The lower-rated malls...are not going to make it.”
So maybe a lot of demand for an in-person shopping experience will be more concentrated around A malls. Speaking of A malls, one of Anderson|Biro’s Cleveland, Ohio offices happens to coexist near an A rated outdoor shopping complex known as Crocker Park and its ‘Shop. Dine. Play. Live. Work.’ experience concept. Spread over 12 city blocks in Westlake, Ohio, the “lifestyle” center appears to be a bustling center of activity on most days and looks like the exact oppositive image of the type of mall one might portray in dystopian novel. There are many other malls like it popping up and they too appear to be thriving in their own ways.
Frankly, like other areas in business, the world of commercial real estate can be wild at times and misfortune for one business can present an opportunity for another. Former Mall structures being converted into new concepts and the retail development that can happen around that process can be good for the Land Title Insurance and Settlement Services space and any business involved in the transaction. Change is not always easy though it is essentially inevitable. Thus, it is best to be adaptable and maybe keep an eye on this type of thing in your own community.
Should you have any questions, please feel free to visit our website www.andersonbiro.com or call (866)-688-7199 and one of our team members will be happy to hear your thoughts.
Anderson|Biro is a full-service, Executive Search firm dedicated to the Financial Services sector around the country. We source talent to service all aspects of the Land Title Insurance, Settlement, and Appraisal industries. We offer quality solutions for clients in these primary fields and beyond. Our candidates are screened for specific industry experience, outstanding track records, and values that complement your mission and culture. We have also built successful partnerships with leading Homebuilders, iBuyers, Fintech, Servicers, Law Firms, Real Estate Brokerages, and Lenders with direct or indirect stakes around the real estate closing table.