Apartments Can Be a Solution to Retail Woes
As shoppers spend more money online, malls continue to struggle. But in some places, apartments may help boost traffic.
With the rise of online shopping, brick-and-mortar retail faces major challenges. Writing for Forbes, Richard Kestenbaum of Triangle Capital, says that between 7,000 and 10,000 retail stores will close in 2017.
“If you walk in almost any shopping area now, you see vacancies,” Kestenbaum writes. “They're an eyesore, they make people less likely to shop, they ruin the adjacencies that spur shoppers to buy and they limit the incomes of store employees, retailers and landlords.”
If landlords are flexible, it is possible to find solutions. Pop-up stores, which are open for a short amount of time, are a temporary option. Some developers are reconfiguring malls to make restaurants the centerpiece, while others are experimenting with smaller, thematic shopping areas.
Then there is a more dramatic approach—tearing down the mall and replacing it with new uses, which usually include residential. Kestenbaum points to Belmar in Lakewood, Col., where Continuum Partners replaced an outdated mall with streets, stores and approximately 2,000 apartments.
But turning a mall into a town center is fraught with challenges, Continuum CEO and Founder Mark Falcone tells NAA. In Belmar, the city used its urban renewal authority for Continuum to clear the mall of its historic encumbrances and start from scratch. “That is a more challenging thing to do at a mall that is operating,” he says.
But there are solutions at malls that are operational. The Yorktown Mall in Lombard, Ill., had excess parking ripe for development. Continuum worked out an agreement with the owners of the mall, which had just invested in $40 million of upgrades; the city; and the retailers to develop a plan to develop apartments on the parking and connect them to the mall. It recently sold part of the parking lot to Greystar to develop 280 units of market rate units and 180-age-restricted apartments.
Going forward, Falcone thinks this model could be replicable in other areas of the country. “These malls tend to be located in very high-value, commercial corridors that can absorb density,” he says. “To the extent that residential is embedded in these, it actually adds to the sustainability and vitality of the retail. It is very symbiotic.”
But developers also face issues when adding residential to malls. “The challenge is these malls were built on a business model where the department stores have a lot of authority over the overall project through reciprocal easement agreements that give them a tremendous amount of control and approvals over any alterations that occur on the property,” he says. “It is actually more challenging to negotiate your way through those private agreements than any municipal agreements that are required.”
As the Yorktown example proves, it is possible to get the retailers to come together and agree on a solution that will add residential. It is just not easy.
Les Shaver, Senior Content Writer at NAA