Why do developers build housing in shopping malls?

Say hello to mall life.

The classic American mall is undergoing a radical transformation as real estate developers replace dying department stores with apartments, ushering in an era in which mall living could soon become a new standard.

Some developers in the United States are demolishing department stores such as… Messi Or JCPenney and exploiting its spaces and parking lots to construct residential buildings next to the mall or connected to it through corridors and green spaces. In other cases, they have built apartments inside boarded-up storefronts and other mall properties or demolished them entirely to make way for a mix of housing, retail, restaurants, outdoor spaces and experiences.

“The mall is great again,” said Jacob Knudsen, vice president of development for Macerich, which is currently redeveloping FlatIron Crossing Mall in Broomfield, Colorado, to add housing. “So being able to live in it, work in it, play in it, go to restaurants with it, we definitely see this as a trend.”

This new version of the American mall comes as malls across the country struggle to survive and look to transform to avoid extinction. It's clear that consumers still enjoy shopping in person post-Covid, but the traditional high street store has been in decline since 2001 and is no longer the attraction it once was.

She also likes companies MessiWith JCPenney and Sears shrinking or ceasing to exist altogether, real estate developers have had to get creative to repurpose those spaces, which typically take up at least half of the mall's square footage.

Amazon Distribution centers, pickleball courts and even an NHL training facility have replaced big-box stores in America's malls. But as the country faces a housing crisis, the fastest use for these spaces is in apartment complexes, real estate developers said. As of January 2022, at least 192 U.S. malls planned to add housing to their footprint, and at least 33 have built apartments since the pandemic began, according to real estate consulting firm Reallogic. At least a dozen other residential projects are underway in malls across the country, including California, Florida, Arizona and Texas.

“There's a lot of retail in the U.S.,” said Oscar Parra, director of Pacific Retail Capital Partners' special situations group. “(It's) four times higher than any other state… I don't know of a market that needs a million-square-foot mall.”

Barra, whose company is building housing on the site of the former Carson's department store in a mall outside Chicago, pointed to a similar project underway at Westfield Garden State Plaza in Paramus, New Jersey — one of the largest and most profitable malls in the United States. we

“They have surplus land, and instead of using it for retail, they are building apartments,” Parra said. “They didn't see the value in adding more retail to one of the most productive malls on the planet and that's a sign.”

For mall owners, the numbers make sense. While top-tier malls remain in high demand, nearly 34 million square feet of mall space in the United States is vacant and off-market. Most Americans live within an hour of a mall that has a high vacancy rate or low consumer traffic — or is completely abandoned.

Add to that a nationwide housing deficit of 4.5 million homes, and it's a trend that experts say is poised to continue. For developers, adding apartments can not only fill a need, but also bring people closer to the remaining retail and restaurants they have.

“Malls are an opportunity,” Knudsen said. “This is an opportunity to find land and create a built-in customer base to attract people to the mall.”

While living in a mall is a unique opportunity, it comes with challenges and obstacles. Construction costs are high, and developers need to navigate a maze of zoning laws and archaic lease agreements to get projects started because malls aren't typically zoned for multifamily developments. In addition, the typical mall and store format almost always requires complete demolition to bring in housing.

It may seem easy to convert an old Macy's store into a few dozen apartments, but given the shape of the building, it's difficult to do so in a way that gives each apartment access to natural light and air.

“What we've learned is that it's better to separate it from the mall, not in every case, right? If you're a very dense urban retail, you might want to incorporate (apartments) into the same property and we've seen some examples of that,” Barra said. “But mostly the idea is to tear down the box…scrape it out and get rid of it and then create a little buffer zone between the mall and (the apartment building).”

Apartments in American shopping centers are not yet everywhere. Many residential projects are still under construction and will begin leasing within the next few years, while others are just opening their doors.

Lafayette Square Mall in Indianapolis is scheduled to open 1,200 housing units, including affordable housing in a former Sears building, starting in 2025. Paradise Valley Mall in Phoenix just opened 400 luxury units on November 15.

While apartment development has picked up in recent years, housing in the mall has been around for at least a decade. Take The Arcade in Providence, Rhode Island, the oldest indoor mall in the country. The shopping center, long a focal point of bustling downtown Providence, fell on hard times after the Great Recession. By the end of the 2000s, it was completely vacant.

However, instead of letting the historic building crumble, developers came in and built 48 small units on the second and third floors. Dozens of renters now live there, and real estate investors have purchased other units to rent through Airbnb.

“It's great to be part of such a historic building and know that each of these units was a store of some sort,” said Amy Hennion, a 33-year-old graphic designer who moved into The Arcade two years ago. . “You have access to amenities that you can't get if you live in a suburban house, like, if I want to get my hair cut, I can go downstairs and get my hair cut. If I want it to get lunch, I don't even have to leave building, even if the weather is bad outside.”

Scott Sheehan, a 31-year-old tax consultant and real estate investor, bought an apartment inside the mall for $250,000 in October so he could rent it out. Airbnb. He chose the location because of its proximity to the train station, airport, and nearby Brown University, along with major employers such as major financial companies.

He estimates he could earn between $25,000 and $45,000 in revenue annually by renting the unit to tourists.

“At the end of the day, it's a unique experience,” Sheehan said. “It's a great alternative to a hotel room.”

Grand Avenue Mall in Milwaukee, Wisconsin, underwent a similar renovation to add apartments that began in 2017. The once-bustling mall in downtown Milwaukee was half-empty by the end of the Great Recession and was later sold to developers, who began converting the space in late 2010. Dozens of apartments have opened for rent in the past few years, and tenants now have access to amenities like a pickleball court, a “dog health center,” and a gym.

“We're on the fourth floor. It used to be the YMCA. So, where our housing unit was located was like the weight room at the YMCA, and the hallway that went around the whole building was the track,” John Borchardt said. The 40-year-old moved into the former Grand Avenue Mall three years ago with his wife and dog Rodger. “It still looks like a mall on the second floor.”

On this level, apartments are built inside former shop fronts. The units are unique but also come with quirks. For example, they all have elaborate foyers with floor-to-ceiling windows, but these front rooms are also entirely exposed to the public, which may create privacy concerns. In addition, some units do not have windows because developers had to work with the original design of the storefront, Borchardt said.

He said his unit, which has windows, is in a different part of the complex and doesn't face the same architectural challenges.

In the basement, it has access to a TG Max and Foot locker — the only remaining storefronts from the original mall — which he said is “very convenient” when he wants to take his dog shopping for new toys at the discount store.

“It's like a celebrity in the building. Everyone knows our dog. So it's a very dog-friendly place,” he said. “If it's cold outside, or if it's snowing or raining, we can walk the dog, you know, like mall walkers in the '90s or something, we can walk like five city blocks and never come out. It's Very cool.”

A Cole It was recently moved and renovations are underway in different parts of the complex, Borchardt said. In addition, there is the new food court, which houses more than a dozen restaurants and is an attraction for tourists, locals and building residents alike. The “very busy” area features separate dining areas and a self-serve beer tap with rotating drinks, Borchardt said.

While the renovated dining hall is convenient, Bordchardt said accessibility is also “a little bit of an issue” because it's easy to avoid cooking.

“We can just order online and pick it up. There's ice cream there. So it's very easy to get takeout,” he said. “But it's really convenient to have, for example, if it ever snows, we can survive without leaving the building for a long time.”

Accessibility is kind of the important point, said Naglaa Kayem, executive vice president of marketing at Pacific Retail.

“It's really services and amenities based on providing convenience to our residents at every corner, so they don't have to leave, so they can get all their daily needs met through that shopping experience,” Kayem said.

Although it could take years to reach that goal, Kaim said living in the mall could one day be similar to vacationing at a resort, with everything charged to one account using a centralized system.

“It's tough when you have a mix of ownership groups, but ideally, you live somewhere and you have an account, and you can shop and eat and dine and buy things on your account,” Kaim said. “This will be a real, real, seamless integration to make someone's life there seamless.”

-Additional reporting by Dillon Thornton and Sean Baldwin