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  • Shopping malls in the U.S.

  • were once known for their massive department stores, endless fast-food courts, it as a Friday night hangout

  • for teens. But with the rise of online retailers and the demise of the department store, it is a challenging time

  • to be a mall owner.

  • In November 2020, two mall owners, CBL & Associates and Pennsylvania Real Estate Investment

  • Trust, filed for Chapter 11 bankruptcy protection after facing increased pressure due to Covid-19.

  • And according to a 2020 study, 25 percent of U.S.

  • malls are expected to close permanently within the next five years.

  • I think Covid really accelerated trends that were already at play prior to the pandemic.

  • It was retailers closing stores, retail bankruptcies.

  • Retailers were looking for ways to renegotiate leases or pay less in rent.

  • There are going to be malls that fail and they're going to be vacant spaces.

  • What happens to them into the future?

  • I just know in the Syracuse area we have one and the county just purchased it.

  • I don't know what the plans are, but it's a lot — a lot of empty space and a lot of parking spaces sitting

  • there doing nothing. Prior to Covid-19, with consumers craving experiences over traditional brick-and-mortar

  • retail shopping, malls were forced to pivot, offering everything from fine dining to indoor ski slopes.

  • But the pandemic has exacerbated the challenges at malls as social distancing has placed restrictions on

  • stores, movie theaters and restaurants.

  • You will see more malls closed.

  • You'll see more shopping centers closed.

  • But what you'll see is the winners continue to emerge.

  • Malls are also a huge tax driver for the communities they serve and employ a lot of people locally.

  • So what will become of malls in America after the pandemic ends?

  • Malls in the U.S. took root at the end of World War II, alongside the growth of the suburbs.

  • In the 1950s, a booming economy helped a large segment of the population increase their prosperity, allowing

  • many Americans to purchase a new home and car.

  • Aided by a series of government initiatives, like the Veterans Administration Home Loan Program and the Federal

  • Aid Highway Act of 1956, a significant slice of the country was turning their back on cities and

  • heading to the suburbs.

  • Austrian born architect Victor Gruen, the man who many credit with later helping to provide those newly minted

  • suburbanites with a place to mingle and shop, saw an opportunity.

  • Gruen emigrated to the U.S.

  • following Germany's 1938 annexation of Austria.

  • Once in the U.S., he established himself in the world of shop design by refurbishing retailers, including at least

  • one store on New York's Fifth Avenue.

  • In 1954, Greun's design of the Northland Center outside of Detroit, Michigan, debuted, making it

  • one of the largest open air shopping facilities in the U.S.

  • But Gruen, opposed to the country's growing reliance on the automobile, wanted to create an atmosphere similar to

  • his native Viennaone of streets sprinkled with cafes, restaurants and commerce.

  • In 1956, his design of a Southdale shopping center opened in Edina, Minnesota.

  • The fully enclosed mall had a two-level design featuring 72 stores and anchored by two major department

  • stores. The space also had 5,000 parking spaces and central air conditioning.

  • The modern mall was born.

  • You'd load up in a station wagon and you drive to the mall and everybody in the family would get

  • that one thing they needed while the family was there.

  • More than 40,000 people attended Southdale's opening day.

  • The venue was largely considered a success and was soon replicated across the country.

  • By 1960, there were 4,500 large shopping centers in the U.S.

  • By 1987, malls and shopping complexes accounted for over 50 percent of all U.S.

  • retail sales.

  • And they were becoming part of pop culture too, used as a backdrop for movies like Back to the Future, Mallrats

  • and Terminator 2.

  • And even as a springboard for musical acts.

  • And malls were getting bigger.

  • In 1992, the Mall of America, the largest mall in the U.S., opened adding attractions like roller

  • coasters and an aquarium.

  • But the explosion of new construction was beginning to weigh on some locations.

  • From about 1975 to 2016, retail space capacity in

  • many cases in malls multiplied by four times the rate of population growth in

  • the United States. So in 2016, every single person in the United States had

  • 24.6 or so square feet of retail space that could just be theirs.

  • The rise of big box stores like Walmart, discount retailers like HomeGoods, and the transition to

  • e-commerce weighed on malls too.

  • This has been the narrative for years now that we really got to a point where we're overbuilt.

  • We have too much retail space in the country.

  • Now that retailers are growing more of their business online, inevitably, that means, you know, they don't need

  • as many stores. So we've seen those store closures.

  • By 2017, there were roughly 1,200 indoor shopping malls in the U.S.

  • And yet if you look at retail pre and post the credit crisis, before the credit crisis, people used to walk

  • around in T-shirts that say "I way overpaid for this t shirt." Suddenly after the credit crisis, they

  • were all going for these things - phones -spending thousands of dollars on a phone that they used to get for

  • free. So the point is that people change their shopping habits.

  • And what needed to happen for the malls is that they needed to evolve as well.

  • According to a 2020 IBISWorld Industry report, the shopping mall management industry in the U.S.

  • is an $18.3 billion business and includes companies like Simon Property Group, Brookfield Property

  • Partners and Macerich.

  • In general, landlords like Simon make their money from rental income and property management fees.

  • Of the roughly 1,100 malls in the U.S., about 250 are considered class A malls, the top

  • performers that bring in the most sales per square foot.

  • About 380 are considered B malls.

  • A little more than 300 are categorized as C malls.

  • And the remainder are D quality or lower, that could be on their way out of existence.

  • Like a number of their retail tenants, the coronavirus pandemic has had a devastating impact on U.S.

  • malls. CBL & Associates has a portfolio of about 100 properties across 26 states,

  • including a number of B and C rated malls.

  • The company said with tenants not paying rent in others delaying payment, it was forced to file for Chapter 11

  • bankruptcy protection in November 2020.

  • Pennsylvania Real Estate Investment Trust, which owns and operates over 22 million square feet of retail space

  • in the eastern half of the U.S., filed for bankruptcy protection that same day.

  • Simon Property Group, the biggest mall owner in the country and the largest operator of A rated malls,

  • including the King of Prussia in Pennsylvania and Roosevelt Field in New York, also saw a steep drop in

  • revenue after some retailers skipped out on rent payments.

  • In the fourth quarter of 2020, the company had total revenue of $1.1 billion, down 24

  • percent from the previous year.

  • But a healthy balance sheet and a portfolio of desirable locations helped Simon fight back.

  • Retailers deemed non-essentialtheir stores were forced to shut, and a lot of retailers thought,

  • "OK, well, I can't pay rent or I'm not going to pay rent if I'm not operating this store." And

  • so these mall owners like Simon, like Macerich, they still have obligations on their ends to meet.

  • They have bills to pay.

  • They have loans that, you know, are potentially maturing soon and debts to pay off.

  • And it really became a problem as retailers like The Gap said, you know, "we're not going to pay

  • rent or we can't pay rent right now."

  • In June 2020, Simon Property Group sued one of its biggest tenants, apparel retailer, Gap, for failing to

  • pay more than $65 million in rent and other charges.

  • The company also went on the offensive, buying distressed and struggling retailers.

  • In February, 2020 Simon apparel licensing firm, Authentic Brands, and fellow mall owner, Brookfield,

  • acquired Forever 21 out of bankruptcy for about $81 million.

  • In August 2020, Simon and Authentic Brands bought men's suit maker, Brooks Brothers, out of

  • bankruptcy for $325 million.

  • In that same month, the pair acquired denim maker, Lucky brand, for $140 million. And in December

  • 2020, the company partnered with Brookfield again to purchase J.C.

  • Penney out of bankruptcy for an estimated $800 million dollars.

  • And

  • some place a big bet on the future of luxury malls, too.

  • In December 2020, the company acquired an 80 percent interest in rival high-end mall owner, Taubman Center.

  • Taubman owns two dozen malls, including a handful in Asia that have stores like Tiffany, Gucci and Prada.

  • But unfortunately, there are a lot of centers that don't fit that high profile and that have lost their

  • competitive edge. The thing about Simon is they've been really focused on maintaining it, and that's both been

  • through a combination of culling the lower productive centers, as well as making sure that they

  • keep investing in their top centers to ensure that those centers remain dominant in their respective trade areas.

  • While malls in the U.S. were struggling and shutting down prior to Covid-19, according to an August 2020 report by

  • Coresight Research, the pandemic has accelerated that trend.

  • The research group said that an estimated 25 percent of U.S.

  • malls could close over the next three to five years.

  • Some experts think that number could go even higher.

  • I think everyone agrees that we will get to a point where there are fewer malls in America.

  • You know, some experts have pegged that we have roughly 1,100 malls today.

  • Maybe we only need 25 percent of those.

  • We're already seeing it's fascinating the, you know, the strong are getting stronger and their vacancy rate, as

  • you know, is very low, single digit.

  • And the reason for that is because the tenants are realizing where the traffic

  • is and they are leaving their traditional, let's just say, mall locations and moving into,

  • you know, stronger malls, whether it be A, A plus.

  • And according to analysts, the locations likely to survive are those well capitalized A rated malls that

  • offer more than your traditional shopping experience.

  • The Phipps Plaza Mall in Atlanta, run by Simon Property Group, houses brands like Saks Fifth Avenue and

  • Tiffany's. The mall is opening a Nobu Hotel and restaurantand a 90,000 square foot lifetime athletic

  • center. And a 13-story class A office building.

  • The Northgate Mall in Seattle, also run by the group, has shops like Nordstrom Rack and has plans to launch an

  • NHL Seattle corporate complex with three ice skating rinks, 1,200 luxury multifamily residences

  • and hotels. It's not just, hey we're a mall and all we do is offer mall product, right?

  • It's no, we're a retail center.

  • We're a dominant part of the community.

  • How can we make sure we get more than our fair share of the commerce that's in that market?

  • And that's why you see them branching into restaurants, adding things like hotels, self-storage,

  • apartments, office, other uses to the mall.

  • A lot of these malls, as they're finding new uses and a way to repurpose them, it's going to be case by

  • case. I think you have to go into the town.

  • And that's what a lot of these mall owners are doing right now and seeing what the town needs.

  • You know, is it a medical office building or a school potentially or a church,

  • more office space or maybe a new residential community?

  • According to analysts, other ways malls could remain relevant is by transitioning to essential services that

  • provide steady cash flow and stable occupancy in areas like health care and grocery stores.

  • Last-mile fulfillment centers could be an option for some, too.

  • According to an August 2020 news report, mall owner Simon Property Group was in talks with Amazon about

  • potentially turning some of its former Sears and J.C.

  • Penney locations into warehouses.

  • A potential obstacle is the locations may need to be re-zoned by local governments for industrial use.

  • And top performing malls have seen a glimmer of good news, too.

  • According to placer.ai, while mall visits in the best performing malls plummeted in the spring of 2020, they

  • climbed over the summer and into the early fall.

  • A December rebound to the mall was led by holiday shoppers.

  • The issues facing the malls and retail really are not tenant driven, they're capital driven.

  • Malls, like fashion, are very expensive.

  • You know, you got to spend a lot to look good.

  • And certainly when you look at malls, if you don't have the capital to make sure that your

  • facilities and your offering and just the building appeal isn't

  • top tier, you start to lag and then that affects your ability to lease.

  • And at some point it becomes sort of a downward spiral that's hard to get out of.

Shopping malls in the U.S.

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Why U.S. Malls Are Disappearing

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    joey joey posted on 2021/04/20
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