Article written by Kyle Massey of Arkansas Business.
Main Street businesses battered by the rise of 20th-century shopping malls may be poised to turn the tables, saving aging 21st-century malls from extinction.
That’s the view from Jonesboro commercial real estate man Joshua Brown, who foresees a reverse from a generation ago, when gleaming enclosed shopping meccas and retail giants like Sears and Walmart decimated mom-and-pop stores, scooping up market share.
Local businesses now look like a last hope for giant malls, seen by critics as monuments to a bygone age of shopping as a pastime, an anachronism in a new world of online commerce and COVID-19, Brown said.
“Before COVID, a report found that approximately 500 of about 1,500 malls in America were producing positive cash flow for their owners,” said Brown, principal of Haag Brown Commercial Real Estate & Development.
“Then there was nothing worse for enclosed malls than COVID, which might have been like the Death Star.”
Nevertheless, he sees a way forward if mall owners accept that their properties are worth less and revolutionize their tenant base.
“When the malls came in with these massive retailers, it really hurt small businesses. But now, as Sears exits, as J.C. Penney goes out, you see a shift to local businesses being able to move in and backfill some of those, operating in really good real estate but at less rent.”
‘Old Sears, New Owners’
Haag Brown revealed to Arkansas Business last week that it’s handling a deal to transform the cornerstone of Jonesboro’s fabled old Indian Mall — the Sears building at Highland Drive and Caraway Road — for two rising Jonesboro retailers. He said he couldn’t reveal the retailers’ names until the deal’s closing, set for this week.
The two retailers will set up shop in the 82,000-SF property, which Brown called “the single most important retail building in the history” of Jonesboro.
“It became the single retail hub of our entire trade area,” he said. “That’s where the first mall was built.”
Sears staked its claim there in the mid-1960s, and the rest of Indian Mall followed, opening in 1968. After years as a retail and cultural mecca, the mall began a slow decline and closed in February 2008; much of it was torn down in 2012. The Mall at Turtle Creek opened in 2006, notably the only enclosed mall to open in the nation that year. This year, Sears closed its last Arkansas store, in North Little Rock’s McCain Mall.
But Haag Brown saw great potential in the old mall site and has been involved in at least $35 million worth of recent redevelopment in the area, including a 125,000-SF Kroger Marketplace and a 90,000-SF former Kmart location now housing the discount retailer Ross Stores, Tuesday Morning and other newer shops.
“The Sears building has been vacant for years now, but we’ve renovated and redeveloped that whole property in this theme of businesses looking to come in and occupy vacant buildings,” Brown said.
“The story that’s happening in Jonesboro, with local companies stepping up, I feel like it’s going to happen in lots of other markets.”
Mervin Jebaraj, director of the Center for Business & Economic Research at the University of Arkansas, agreed, saying that malls doing well today “concentrate on experiences, not just shopping, and bring more people to the mall by adding residences and offices.”
Brown said he expects malls that now have a 90%-10% retail-to-food ratio to one day offer a mix of 30% residential space, 30% restaurant space and perhaps just 40% of space for retail stores. “Everybody’s wanting more restaurants, more entertainment, and they want to live there in the middle of everything.”
‘Everything Goes in Cycles’
He emphasized that malls occupy prime space in cities and suburbs, and they’re likely to swing back into fashion. “The bright side is that everything goes in cycles, and local businesses and the community could be key to rebuilding interest in malls.”
Brown also expects big mall chains to continue to purchase struggling retailers, a way to prop up anchor tenants and prevent a domino effect of declining rents due to contracts tying the rents for smaller storefronts to continued proximity to big retailers like Dillard’s or J.C. Penney.
Any relief would be welcome for a commercial retail segment that’s staggering.
About 20,000 to 25,000 U.S. store closings are expected in 2020, with 55% or more of those closings occurring in shopping malls, according to a June report by Coresight Research of New York.
The nationwide fallout is also clearly visible in Arkansas.
The Pines Mall is closed and in foreclosure, Louise Sullivan of the Pine Bluff mayor’s office told Arkansas Business last week. “We have had difficulty making contact with the appropriate parties that are handling this process.” The Dillard’s Clearance Center is still operating, and the city hopes to find a potential buyer or developer for the property, she said.
Thuytien Vu, one of the Pines Mall’s former owners, told Arkansas Business last week that she’s no longer involved with it, even though calls to two numbers for management on the mall website were routed to her phone.
Park Plaza, Little Rock’s showcase mall owned by CBL Properties of Chattanooga, Tennessee, sidestepped foreclosure recently, and Park Plaza Mall CMBS LLC has challenged the mall’s $63 million tax valuation by Pulaski County, saying it should be valued at a third of that, about $20.8 million.
Built as an open-air shopping center in 1960, Park Plaza reopened in 1988 as the city’s biggest enclosed mall with 660,000 SF of retail space. A CBL executive, Stacey Keating, took emailed questions about Park Plaza’s situation and plans but hadn’t responded by press time Thursday. The tax case is pending.
McCain Mall’s owner, Simon Property Group of Indianapolis, is partnering with fellow mall giant Brookfield Properties of New York in an $800 million bid to buy the retail and operating assets of J.C. Penney Co. to keep that anchor retailer alive. Debt holders are offering a competing bid, and the matter is now before a U.S. bankruptcy judge in Dallas.
McCain Mall Manager Lisa Meyer said she wasn’t an appropriate spokesman for Simon on the challenges malls face in general or on the J.C. Penney acquisition. “I don’t know who to even refer you to,” she said in a telephone call.
But Brown, the Jonesboro commercial realty expert, said buying big retail tenants may be the big mall chains’ “Hail Mary” pass.
‘The Only Thing They Can Do’
“It doesn’t have to be a brilliant plan; it’s the only thing they can do to survive,” Brown said. “It’s the way mall leases work. If a J.C. Penney goes out of a mall, it’s not just that tenant and income stream. If you’re an eye doctor, your lease may read that you’re paying $100,000 a year in rent. But if Penney’s closes, the rent goes down to $70,000. All malls have those provisions in their leases, so if you’re a Brookfield or one of the companies that own all these malls in America, you have to keep these anchor tenants. Otherwise, you don’t survive.”
Mall occupancy rates are down across the board, and Hot Springs Mall has won three Garland County property tax appeals in five years, reducing the main parcel’s appraisal to $8.1 million. The mall was appraised at $19 million in 2015 when Houston’s RockStep Capital Opportunity Fund purchased it for $5.77 million at a foreclosure sale. RockStep argues that the property now is worth no more than $6 million. In June, 34 of the mall’s 60 storefronts were vacant, and Sears had departed as one of three anchors. Dillard’s and J.C. Penney remain.
Two years ago, Washington County gave tax relief to the Northwest Arkansas Mall in Fayetteville, which before COVID was planning an innovative mixed-use coworking area and event venue in its 55,000-SF former Sears space.
Jebaraj said he wasn’t surprised by the Simon/Brookfield bid for J.C. Penney, considering that mall chains had “previously purchased Forever 21 in an attempt to keep stores” open. “The mall concept is slowly dying but will collapse faster if all the flagship stores were to close. Unless the mall owners have plans to revitalize the business and the mall, it feels like it’s delaying the inevitable.”
Brown struck a more optimistic note.
“I think you’re going to see success bringing in the residential component at malls,” he said. “For decades and decades, retail moved away from the Main Street model, putting homes in one area, factories in another and places that you work and shop in another. But especially with younger people, there’s this yearning to get back to an environment where you can eat, work and play all in the same spot. This has great appeal, particularly with millennials.”