Mixed-Use at the Core of Mall Reinvention
When it comes to mall redevelopment, one of the biggest hurdles is changing the business community’s perception that enclosed malls are only for retail use, says Sean Garrett, president of acquisitions and director of community relations for East Peoria, Illinois-based Cullinan Properties Ltd.
“There is no reason an insurance office can’t be right next to a retailer and a neighbor of a dentist,” states Garrett. “Downtowns and Main Streets have been developed this way for generations.”
Cullinan recently followed this approach when it rebranded its Quincy Mall in Quincy, Illinois, to Quincy Town Center. One of the anchor tenants is now Quincy Medical Group, which backfilled a former Bergner’s department store. For Garrett, merging retail and medical uses today is a “natural fit.”
In addition to enclosed space, Quincy Town Center features more than 88,000 square feet of retail and additional uses on 42 acres of land. Cullinan is currently discussing plans for a hotel and the potential for multifamily units.
“The opportunities that lie ahead for this mixed-use property, as opposed to a one-note shopping center, are endless and will help ensure its survival,” says Garrett. “Our experience has shown that a diverse tenant mix and uses that complement one another will benefit a property and its patrons long-term.”
Over the last year, the growth of e-commerce sales coupled with concerns raised about gathering indoors as a result of the COVID-19 pandemic put even more strain on already-struggling traditional malls. “Traffic is slowing down, stores are going dark and consumers are expecting developers to reimagine a new experience to drive footsteps back to the mall,” wrote Cushman & Wakefield in a research article from earlier this year titled, “The Evolution of the Shopping Mall: What Consumers Want.”
According to a study conducted in November 2020 by Cushman & Wakefield and WD Partners, when asked what concepts would increase their visits to the mall, consumers’ top three choices were food; health and wellness; and new concepts and experiences. Mall owners are scrambling to incorporate these concepts, as well as non-retail uses such as multifamily and office, into their mall redevelopments. Each project aims to reflect the surrounding community and its needs.
A unique redevelopment is shaping up at Southern Park Mall in Boardman, a city in eastern Ohio. Owner Washington Prime Group Inc. created an outdoor athletic and entertainment green space and event venue named DeBartolo Commons, which is scheduled to open this October. Priority use for the green space will be given to local schools in Boardman. The project also includes a hiking and biking path that connects DeBartolo Commons to Boardman Park.
Restaurants such as Bogey’s Bar & Grill and Steel Valley Brew Works are slated to open in the weeks prior to the grand opening of DeBartolo Commons. The restaurants will overlook and connect to the outdoor space. Washington Prime Group is currently in discussions with other local and regional food and beverage tenants to occupy the final space, according to Kim Green, vice president of investor relations and corporate communications for the Columbus-based retail REIT.
“We have been focused on the transformation of our retail town centers into community hubs for retail, dining, entertainment and recreational sports in the area,” says Green. “Each project is unique to the local community.”
These types of redevelopment efforts are collaborations with multiple stakeholders and typically include input from local community partners, existing tenants, guests and other partners, says Green.
Planet Fitness is a new addition to the tenant lineup at Southern Park Mall, which opened in April. Additionally, Macy’s has undertaken the renovation of its store with plans for the addition of Macy’s Backstage, a store-within-a-store discount retail concept. The mall’s public restrooms, both in the food court and near Chick-fil-A, are scheduled for a full renovation this summer. Lastly, a full interior refresh of the mall is expected to commence in January 2022.
“While the pandemic created disruptions for many businesses, we are expecting a rebound within our sector, including a return to shops, restaurants and entertainment options,” says Green. “Our unwavering focus on innovation and reinventing the retail experience is key to unlocking post-pandemic growth.”
One example of this innovation is the launch of Washington Prime Group’s Retail-To-Go, a curbside pickup initiative where shoppers can place an order at participating retailers and then arrange for a pickup at designated locations.
Dallas-based Centennial Real Estate is underway on Phase I of the Hawthorn Mall redevelopment in Vernon Hills, Illinois, a northern suburb of Chicago. Project costs for Phase I, which includes the demolition of a Sears store, are estimated between $165 million and $170 million. Centennial is finalizing an agreement with the village to absorb a portion of those expenses. Phase I is expected to begin opening in fall 2022 and be completed in first-quarter 2023.
The redevelopment is an effort to activate the northeastern quadrant of the mall and is the first step of transitioning the asset into a mixed-use development, says Jon Meshel, senior vice president of development for Centennial. In addition to constructing 60,000 square feet of retail space and three new outparcels, Centennial is bringing in a project partner to develop 311 apartment units. Phase II plans call for an additional 240 apartment units.
Extensive market research goes into planning the optimal redevelopment strategy for a particular mall, says Meshel. Centennial evaluated multifamily, office and hospitality market studies in addition to consulting the village and local real estate professionals.
“People look at enclosed malls and see a very similar product from municipality to municipality, but the redevelopment strategies are all tailored to what the market needs and what the market wants,” says Meshel. “We spent a number of years evaluating what made the most sense for the Vernon Hills community.”
When tackling a mall redevelopment project, one of the main challenges is ensuring the existing retailers and businesses on the site can remain open with minimal business interruption. Logistically, it requires a lot more coordination than a ground-up project or a redevelopment of a vacant site, says Meshel.
A New Beginning
In Omaha, Lockwood Development and Century Development are redeveloping the shuttered Crossroads Mall into The Crossroads, a mixed-use project spanning nearly 2 million square feet. Approximately one-third of the project will be designated for retail and entertainment space, one-third for office and hospitality space and one-third for multifamily and senior living units.
Demolition, which includes the entire site except for a Target store, was expected to wrap up by the end of May. Grading and infrastructure is planned through the second quarter of 2022, and the first building permits are expected to be issued in mid-2023.
The Crossroads has been a work in progress for over 10 years, points out Lindsay Banks, development project manager with Omaha-based Lockwood. The more than 750,000-square-foot mall has sat vacant since it closed in 2008. Century acquired the asset in 2010.
Banks expects the redevelopment project to have a catalytic effect in spurring other new development in the area. For instance, Target unveiled plans to completely remodel its 100,000-square-foot store at the project site.
“Within the next 10 years, we expect the surrounding 72nd and Dodge streets to be completely transformed due to The Crossroads and other new projects that will be spurred on by this investment in the city,” says Banks.
Project costs are estimated at $553 million. The city anticipates using $12.5 million in redevelopment bonds to pay for infrastructure costs in and around the development. Additionally, the Omaha City Council approved an $80 million tax-increment financing request for the project. The developers also anticipate applying for an enhanced employment area occupation tax to recoup some of the costs. This tax would mean restaurant goers or hotel guests may end up paying a bit more on their bills.
Direct Retail Partners recently received the final zoning approval required to begin construction on Phase I of the redevelopment of the Shops at Worthington Place in Worthington, Ohio, a northern suburb of Columbus. The project, known as High North, will transform the shopping mall into a mixed-use development featuring a 125,000-square-foot Class A office building. Five floors of office space will sit atop four levels of structured parking. The first floor will be surrounded by a Wi-Fi-enabled public courtyard.
The eastern portion of the mall functions effectively with service-based retailers, restaurants and a Kroger store, according to David Watson, managing principal and CEO with Dallas-based Direct Retail Partners. The goal is to activate the western portion of the mall with a work-play component. About 50,000 square feet of the property will be demolished.
As of mid-May, the project was in the architectural review board stage. “That’s where the city and residents get the opportunity to comment on the finished materials, landscaping and what is visible to the eye in terms of the design,” explains Watson. “We anticipate being through that by the end of summer and ready to break ground in the fourth quarter.”
The developer is betting on a flight to best-in-class office space to spur demand for the new product. “Overall, the ability to have Class A office space in and around Worthington has been needed for a while,” says CBRE’s Collin Wheeler, one of the leasing agents for the project. “The ability to recruit talent and foster culture, combined with where this project is geographically makes a lot of sense.”
The vacancy rate for Class A office space in the Columbus market was 21 percent as of the first quarter, according to CBRE.
Despite the disruption to the office sector during the pandemic, Wheeler believes this project is hitting the market at an advantageous time because “everyone’s talking about office real estate and what’s next.”
Direct Retail Partners is riding that momentum and prioritizing outdoor space in the project. This way, office workers will have ample opportunity to eat lunch outside or meet colleagues in open spaces. They’ll also have immediate access to restaurants or service-based retailers, so they can easily fit in a lunch appointment or a manicure.
“Certain aspects of convenience became more critical during the pandemic,” says Watson. “We learned a lot that we would never have learned otherwise. While we hope nothing like this ever happens again, we’ve been pre-conditioned to live a little differently than we did before.”
— Kristin Hiller
This article was originally published in the May 2021 issue of REBusinessOnline’s sister publication, Shopping Center Business.