Compared to big cities like New York, suburbia may have less to offer young shoppers and residents. But when it comes to Long Island, don’t rule out the suburban shopping mall just yet.
Despite the ongoing surge in e-commerce, which would seem to lessen the need for brick-and-mortar stores, enclosed and open-air malls are showing considerable strength in Nassau and Suffolk counties, brokers, developers and retailers told The Real Deal.
“The retail category is still vibrant,” said Jeffrey Dunne, a vice chairman with CBRE and investment sales specialist. “You just need to be careful.”
The key for shopping centers in general is for them to be sited in densely settled areas, he added, and since most malls on Long Island are in populous Nassau County, they are poised to do well.
It might be easy to conclude that malls are an endangered species. Macy’s and Sears, two retailers that tend to anchor malls, announced dozens of closings this winter. But none of their locations on Long Island seem affected. The shuttered Macy’s that was closest to the city, for instance, was in the Hudson Valley Mall in upstate Kingston, N.Y.
“Instead of giving customers four locations, they will now give them one location,” said Joel Gorjian, a principal with Namdar Realty Group, a Great Neck-based real estate firm that owns and operates strip malls across the country. “But the top 15 to 20 percent of malls will do really well because retailers will consolidate into them.”
High-end malls have “little risk of obsolescence,” Green Street Advisors, a real estate research firm, wrote in its most recent national mall market report. “Mall asset values are not primarily driven by underlying market fundamentals, but by the quality and sales productivity of the center,” the report stated.
To be fair, it can be tough to gauge the health of individual properties. The rent rolls of malls are notoriously tough to analyze, as some anchor tenants are owners of their commercial condo spaces while other smaller retailers have more traditional leases, brokers say. Monthly fees for mall maintenance can also vary drastically and, in some cases, run as high as $20 to $30 a square foot.
Likewise, malls often exclude outside brokers from deals, so market research can be hard to come by.
But some major real estate players are clearly taking interest. In December 2015, Blackstone Group bought 132-178 Fulton Avenue in Hempstead, a 249,000-square-foot outdoor shopping center with a Home Depot, Stop & Shop and Old Navy. The transaction, part of a broader portfolio sale, was for $50 million, according to sources close to the deal.
Also, Simon Property Group, the national powerhouse mall operator and country’s largest real estate investment trust, owns and invests in four properties on Long Island. At Roosevelt Field in Garden City, which is considered one of the most successful malls in the country, Simon is investing $200 million in a massive three-year renovation and expansion.
Tanger Outlets
Besides a new food court, the Indiana-based REIT has constructed a stylish two-level, 100,000-square-foot structure on the site of a former parking lot to house a Neiman Marcus department store, which opened on Feb. 19. The only other current New York location for Dallas-based Neiman Marcus is in suburban White Plains.
Likewise, other high-end retailers have been drawn to Roosevelt Field; Kate Spade opened last fall, and Christian Louboutin, Saint Laurent and Alexander McQueen shops are planned for later this year. Simon achieves an average of $70-a-square-foot rents for new stores, according to its most recent annual report, though the report does not delve into specific properties. Simon officials were not available for comment.
In 2014, Simon purchased a 39-acre former wire mill in Syosset with plans to create a shopping destination there. For more than a decade the site was intended to house the Mall at Oyster Bay, which would have been developed by Taubman Centers — one of Simon’s competitors. The national mall operator picked up the Syosset property, located near the Long Island Expressway, as well as a stake in Arizona Mills, a Taubman mall out west, as part of a $290 million deal.
Plowing ahead at the Syosset site, Simon and its partners have proposed a mixed-use community with 625 homes, a pair of hotels and restaurants, plus 355,000 square feet of shops. The partners in that deal include the Albanese Organization, a local housing developer, and Castagna Realty, which owns Americana Manhasset, a luxury 220,000-square-foot outdoor mall on Northern Boulevard with 60 stores including Tiffany & Co., Christian Dior and Donna Karan.
As luxury offerings continue to endure in a polarized retail market, others remain bullish about smaller mall properties from an investment perspective. In a way, they have no place to go but up, said Gorjian. The Long Island executive is currently marketing a 1960s-era 2,800-square-foot two-store strip mall in West Hempstead, for $800,000, whose small retail berths house a dry cleaner and furniture store.
“Prices have gone crazy in the boroughs, and these syndicates have to put their money elsewhere,” Gorjian said, adding that cap rates are more favorable on the Island. And while people may be okay with buying diapers online, Internet businesses can only go so far. “You are never going to see somebody create an e-commerce nail salon,” he said.
Still, new ground-up developments in the national mall arena remain rare. The last one completed in Long Island was Tanger Outlets, which opened in Suffolk County’s Deer Park community in 2008. That Mediterranean-themed, 800,000-square-foot outdoor shopping facility cost Apollo Real Estate Advisors and Blumenfeld Development Group $300 million to build. (Blumenfeld has since sold its stake in the property.)
“A lot of towns don’t want malls because they bring too much traffic,” Dunne of CBRE said. On top of that, “it can be very hard to put sites together,” he noted.
Nonetheless, many shopping center owners are willing to change with the times.
Green Acres Mall, in South Valley Stream, which was constructed on a portion of the former Curtiss Airfield and appears to be Long Island’s oldest surviving mall, was an open-air property when it cut its ribbon in 1956. A few years later, the mall, which measures 1.8 million square feet, became enclosed.
Green Acres Commons
But even with expansions, it can be hard to squeeze in lucrative big-box retailers, brokers say. That may explain why the Macerich Company, the California-based REIT that owns Green Acres Mall, is now developing Green Acres Commons, a 20-acre outdoor shopping center next door.
The $84 million project, which broke ground last fall, will ultimately include the big-box stores that mall owners look for today — in this case an Ashley Furniture store, a Burlington Coat Factory and a Dick’s Sporting Goods.
But even in populous and affluent Long Island, some malls can still struggle. The Mall at the Source, in Westbury, which counted Simon Property Group as a co-owner until 2012, is littered with empty stores. A controversial plan to put a casino in part of the building was dropped last year.
Newmark Grubb Knight Frank is now managing the property on behalf of its lenders. Eric Bassin, a NGKF property manager, confirmed the mall is for sale but would not disclose the price.
Etan Shalem, an agent with Welco Realty, which manages mall properties on Long Island, said the Mall at the Source, which is down the block from Roosevelt Field, really tested the limits of the market. “It was oversaturated there,” he said.
For his part, he thinks the sweet spot going forward is malls that offer stores with 20,000- to 40,000-square-foot berths, to accommodate off-price retailers such as T.J. Maxx.
Shalem is currently marketing a 33,000-square-foot former Bally Fitness Gym in Lake Grove, located across from the Smith Haven Mall in a complex owned by Prestige Properties and Development, his family’s company.
Ever hopeful, Shalem also discounts the Amazon effect. “Online sales are still not a lion’s share of the market,” he said.