By Roland Murphy for Arizona Builder’s Exchange
Malls in America, and in the Valley, were once not only retail powerhouses, they were cultural centers as well. Nationwide, one point of community identity was which mall you lived closest to.
The combined impacts of the Great Recession, urbanization trends, online retail and the reduction of the traditional middle ground in brick and mortar retail into a focus on discount shopping on one end and experiential/destination forays on the other, have left the malls that still survive in a state of flux.
No less a cultural monitor than the New York Times has taken note and speculated on the trend. In an article last week entitled, “Investing in Malls, Despite Store Closings, Norm Alster took a look at real estate investment in retail generally and compared it with REITs focused largely on malls. The results were not encouraging. As just one example, he cited mall investor Simon Property Group’s June closing share price of $162, down from $217 a year ago.
Alster noted a theme that nearly everyone who covers malls has said in recent years, “Recent closures and fears of wider surrender to online rivals like Amazon weigh heavily on R.E.I.T.s. Kingpin retailers like Macy’s, J. C. Penney and Sears have been shuttering stores, as have Foot Locker, Office Depot and Abercrombie & Fitch. Once-omnipresent chains like Payless ShoeSource and RadioShack have filed for bankruptcy.”
He notes, however, there is some reason to remain hopeful, as mall owners hustle to replace lost retail tenants with non-traditional users, including full-scale entertainment outlets and technology companies looking to take advantage of volume-capable infrastructure.
A Closer Look at Transaction Activity
That potential for cautious optimism, however, isn’t giving malls as a CRE segment much of a boost yet. In a July 13 Commercial Property Executive article, Yardi Matrix Associate Director of Research Paul Fiorilla summed up the state of market affairs in his first sentence: “Growing concern about the long-term prospects for in-store retail is creating a slowdown in the sale of shopping centers.”
Like Alster, Fiorilla makes note of the trend for redeploying traditional retail/shopping center space to cut vacancies and infuse new life, but he takes a cautious tone and extends the concern from malls to retail in general saying, “Even if anchor space can be redeployed successfully, the strategy doesn’t always produce the same benefit for in-line shops. The need to rethink shopping centers has also spread beyond the regional malls to other retail types. For example, grocery-anchored centers used to be thought of as relatively bulletproof, but not anymore as giants such as Wal-Mart and Amazon make forays into the segment.”
Area Malls Then and Now Reflect the Times, Conditions
Here in the Valley and across the nation, malls were bellwethers of retail trends long before anyone dreamed of the Great Recession. Just as it takes a lot of ocean to turn an aircraft carrier or freighter, malls and major retail centers are not able to turn on a dime and can’t respond as nimbly to market forces as their smaller counterparts.
In Mesa, Tri-City Mall at Dobson Road and Main Street, which opened in 1968, closed after a 30-year run. The loss of Motorola just up the street and the constant bleeding off of shoppers by Fiesta Mall just a couple miles down the road resulted in the mall’s final demise in 1998. The last remnants were torn down to make way for the light rail in 2006.
Fiesta Mall was also an early contributor to the decline of Los Arcos Mall at Scottsdale and McDowell roads. When it opened in 1969, Los Arcos was considered state of the art for mall spaces. By the time Fiesta opened in 1979, however, Los Arcos had become run of the mill and struggled to compete.
Never run of the mill, Scottsdale Fashion Square underwent major renovations and expansions over the years and ended up one of the largest and most profitable malls in the country. Straddled by two regional retail powerhouses, Los Arcos was demolished in the early 2000s. SkySong – The Arizona State University Scottsdale Innovation Center – occupies the site today and continues to expand.
Other area malls have continued on, but some are now recognizable in name only.
After contributing to the demises of Tri-City and Los Arcos, Fiesta Mall might have been expected to be sitting pretty. That didn’t prove to be the case as the entire area surrounding the mall and other nearby centers went into a gradual but accelerating decline starting in the mid-90s.
Multiple redevelopment attempts for the site failed to take root, leaving only a handful of retail sites operating there today. In the latest attempt to make the doomed property useful again, Dimension Financial and Realty Investments, Inc. bought most of the mall in May of this year for $6.72M. In announcing the deal, Cashen Realty Advisors, which represented DFRI, said the plan is to spend up to $30M renovating the space into a campus focused on health and education, with “medical learning centers and colleges specializing in business, economics, engineering, global communications, law, nursing and liberal arts.”
The project will also feature housing, food and entertainment venues. The “Campus” contains more than 1.2MSF and includes the Mesa Fiesta Corporate Center, which DFRI Principals Jerry Tokoph and Wayne Howard already own. That space, immediately east of the new site, will be bridged into the mall and become part of the main Campus. (AZBEX, May 23, 2017)
Across town in north-central Phoenix, the story of Metrocenter Mall west of I-17 between Peoria and Dunlap avenues shares many of the same notes. Metrocenter started development in 1972 in what was then the northern edge of the city. Its growth and success parallel the city’s expansion in both space and prosperity.
Like Fiesta, Tri-City and Los Arcos, however, the area got left behind as newer spaces continued to develop and prosper. In the 90s and all through the 2000s vacancies increased, and area’s economics and finances shifted. A cosmetic renovation in the middle of the decade that included exterior renovations and extensive landscaping improvements did little to boost interest or tenancy, and by the time the economy cratered a couple years later, it appeared Metrocenter would likely die.
However, hope – once again in the form of adaptive reuse – springs eternal. In 2010, Carlyle Development Company bought the site with the intent to fully renovate, redefine and rejuvenate it. In addition to new major retail in the form of a 148KSF Walmart Supercenter adjacent to the mall property, Carlyle secured approval from the city of Phoenix in June, 2016 for a Planned Unit Development that got rid of the exclusively retail designation and opened up mixed use opportunities that include office, senior housing, multifamily and healthcare.
A light rail expansion to include an on-property station at Metrocenter is expected to contribute to the area’s planned revitalization.
Scottsdale Fashion Square – Ever the Exception
One area mall that never suffered the dramatic downturns of fortune others suffered, aside from universal rises and falls in the overall economy, was Scottsdale Fashion Square.
Capitalizing on the trend that led its contribution to the demise of Los Arcos, Fashion Square throughout its long life has regularly invested in expansion, renovation and ongoing branding efforts to make itself the epitome of the experiential commercial destination in the Valley.
Current owner Macerich has launched a major renovation and expansion project that, when completed will change the entire area around the landmark. Phase I includes upgrades to the mall’s entries and enhancements for its luxury retailers.
Macerich also has plans for a massive mixed use development on seven acres immediately north of the mall property. This will include luxury residential and hospitality spaces, as well as Class A office. Building heights are being sought up to 150 feet, which, if approved, will permanently alter the area skyline.
Scottsdale City Council is expected to meet on the plan in August.
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