How developers are finding new lives for “zombie” malls

As the industry’s dominant players falter, nontraditional investors circle distressed shopping hubs

(Photo-illustration by Alison Bushor)
(Photo-illustration by Alison Bushor)

It took two weeks for the body to be discovered.

Police in Gwinnett County, Georgia, revealed the grisly finding: A woman’s remains had somehow gone unnoticed near the food court of the Gwinnett Place Mall through what should have been the height of the holiday shopping season in 2017.

Beyond the inherent tragedy, the incident was a macabre reminder of the decline of America’s malls. Once among the busiest shopping centers in Metro Atlanta, Gwinnett Place is now so empty that it was used as a filming location for Netflix’s “Stranger Things” in 2018 — its vacant storefronts temporarily restored to their former glory for the show, which is heavy on 1980s aesthetics.

After years of negotiations, Gwinnett County purchased the mall in April for $23 million. Why would a local government invest in a deserted mall?

“I would say, why not?” said Nicole Hendrickson, chairwoman of the Gwinnett County Board of Commissioners. 

As stores fled, the mall attracted crime, she said. Gwinnett County is surveying the community to determine a better use for the property. 

“There are so many reasons why it’s smart to invest in dying malls,” Hendrickson said. “By not doing so, I think you could contribute to a substantial decline in an area.”

A changed landscape

The U.S. is in the midst of a mall downsizing. 

A report issued last year by Coresight Research estimates that 25 percent of America’s roughly 1,000 malls will close by 2025.

“We’ve just been overstored for way too many years,” said Michael Brown, a partner in the consumer and retail practice of the management consulting firm Kearney.

The pandemic only hastened the downturn. Last November, CBL Properties, the owner of 107 malls, and Pennsylvania Real Estate Investment Trust, the owner of 26, both filed for Chapter 11 bankruptcy. Washington Prime Group — which also owns more than 100 malls — followed suit in June.

Simon Property Group lost its first mall, the Town Center at Cobb, in suburban Atlanta, to foreclosure in February, followed by the Montgomery Mall in North Wales, Pennsylvania, in August.

“You’ve had a history for decades and decades of various families from CBL, Simon, Macerich, PREIT, that have dominated the mall industry,” said Steve Plenge, managing principal at California-based mall owner Pacific Retail Capital Partners. “The landscape of this space has fundamentally changed.”

Atypical buyers

In their wake, new buyers are picking up the pieces.

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In Ohio, Hancock County agreed in June to purchase a portion of the Findlay Village Mall, which will be converted to government offices. In Dewitt, New York, Onondaga County purchased the shuttered Shoppingtown Mall last year for $3.5 million, then flipped it in July for $8 million to a joint venture planning a $300 million redevelopment that includes residential, retail and office space.

“In certain instances, it’s the municipalities that are really the highest and best purchaser,” said Thomas Dobrowski, a vice chairman in Newmark’s Capital Markets group. “There are plans and redevelopment actions that are really more civically minded as opposed to more traditional developer commercial real estate focus.”

Nontraditional investors have also entered the field. In Colorado, multifamily developer R2 Partners agreed to acquire the Glenwood Springs Mall, adjacent to a property where the firm is planning hundreds of apartments.

Alexandria Real Estate Equities — a REIT that specializes in office and lab space — paid $130 million in May for the Watertown Mall in a Boston suburb experiencing a life sciences-driven development boom.

After longtime owner CBL defaulted on its mortgage for the Cary Towne Center near Raleigh, North Carolina, in 2018, Turnbridge Equities and Denali Properties scooped up the complex for $31.5 million. The partners envisioned a mixed-use development with public parks, 1,800 residential units, a hotel and more than 1 million square feet of office space.

Epic Games had another idea. 

Before work began, the software developer behind the Fortnite gaming franchise purchased the still-standing mall from Turnbridge and Denali for $95 million. With a rezoning already granted to allow for office space, Epic Games plans to open its new global headquarters there in 2024.

After emptying Main Street storefronts in the late 20th century, malls now face their own struggle for relevance. But the land they sit on — accessible from highways and public transit and typically in suburban areas poised to benefit from population growth — is often valuable.

“Purchasing a mall today is predicated on the opportunity for what else you can do with it,” said Danielle De Vita, executive vice president of development at Urban Edge Properties, a REIT that owns more than 70 shopping centers, mainly in the New York area.

Urban Edge is in the process of reimagining three of its malls, adding residential space to the Bergen Town Center in New Jersey and to the Yonkers Gateway Center. The firm also plans to “de-mall” the interior of its Hudson Mall in Jersey City to make way for industrial and self-storage space.

Zombie malls

Often, the biggest obstacles to redevelopment are the very tenants that anchored malls for decades.

Developer Lerner Enterprises kicked off a years-long legal battle when it announced plans to redevelop the White Flint Mall in Rockville, Maryland, into office and apartment buildings and a 300-key hotel.

The mall “closed” in 2015, except for a sole tenant, Lord & Taylor, which sued Lerner and co-owner Tower Companies, alleging that they had breached a 1975 agreement that required the mall to be maintained until 2042.

As Lerner and Tower pivoted to showcasing the site to Amazon officials as part of the county’s bid for the tech firm’s second headquarters, Lord & Taylor was awarded a $31 million verdict. The store finally closed at the end of last year in the aftermath of the retailer’s bankruptcy.

Similar actions brought by JCPenney and Macy’s have stalled redevelopments of otherwise abandoned malls in Western Pennsylvania and San Diego, respectively.

“Malls have to be sufficiently ruined in order for you to justify turning them into something else,” said Gar Herring, senior vice president of retail development at JLL. “That leaves a large chunk of what we call zombie malls that are kind of the walking dead. They’re not quite good enough to reinvest into and not quite bad enough to tear down.”

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